As filed with the Securities and Exchange Commission on June 23, 2014
Registration No. 333-
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Intersect ENT, Inc.
(Exact name of Registrant as specified in its charter)
Delaware | 3841 | 20-0280837 | ||
(State or other jurisdiction of incorporation or organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification Number) |
1555 Adams Drive
Menlo Park, California 94025
(650) 641-2100
(Address, including zip code, and telephone number, including area code, of Registrants principal executive offices)
Lisa D. Earnhardt
President and Chief Executive Officer
Intersect ENT, Inc.
1555 Adams Drive
Menlo Park, California 94025
(650) 641-2100
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Matthew B. Hemington Brett D. White Seth J. Gottlieb Cooley LLP 3175 Hanover Street Palo Alto, California 94304 Telephone: (650) 843-5000 Facsimile: (650) 849-7400 |
B. Shayne Kennedy Thomas E. Mitchell Latham & Watkins LLP 650 Town Center Drive, 20th Floor Costa Mesa, California 92626 Telephone: (714) 540-1235 Facsimile: (714) 755-8290 |
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ¨
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨ | Accelerated filer ¨ | Non-accelerated filer x | Smaller reporting company ¨ | |||
(Do not check if a smaller reporting company) |
CALCULATION OF REGISTRATION FEE
| ||||
Title of Each Class of Securities to be Registered | Proposed Maximum Aggregate Offering Price(1)(2) |
Amount of Registration Fee(3) | ||
Common Stock, $0.001 par value per share |
$80,000,000 | $10,304 | ||
|
(1) | Includes offering price of any additional shares that the underwriters have the option to purchase to cover overallotments, if any. |
(2) | Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. |
(3) | Calculated pursuant to Rule 457(o) under the Securities Act of 1933, as amended, based on an estimate of the proposed maximum aggregate offering price. |
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
Subject to completion, dated June 23, 2014
Prospectus
Shares
Common Stock
This is the initial public offering of common stock of Intersect ENT, Inc. We are offering shares of our common stock. We anticipate the initial public offering price will be between $ and $ per share.
Prior to this offering, there has been no public market for our common stock. We intend to apply for our common stock to be listed on The Nasdaq Global Market under the symbol XENT.
We are an emerging growth company as that term is defined under the federal securities laws of the United States and, as such, may elect to comply with certain reduced public company reporting requirements for this and future filings.
Per Share | Total | |||||||
Initial public offering price |
$ | $ | ||||||
Underwriting discounts and commissions(1) |
$ | $ | ||||||
Proceeds, before expenses, to Intersect ENT, Inc. |
$ | $ |
(1) | See Underwriting for additional disclosure regarding the compensation payable to the underwriters. |
We have granted to the underwriters an option to purchase up to additional shares of common stock at the initial public offering price, less the underwriting discounts and commissions, for 30 days after the date of this prospectus.
Investing in our common stock involves a high degree of risk. See Risk Factors beginning on page 11 of this prospectus.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The underwriters expect to deliver the shares of common stock to investors on or about , 2014.
J.P. Morgan | Piper Jaffray | |
Leerink Partners | Wedbush PacGrow Life Sciences |
The date of this prospectus is , 2014.
MOMETASONE FUROATE IMPLANT MOMETASONE FUROATE IMPLANT CLINICALLY PROVEN TO IMPROVE SURGERY OUTCOMES FOR CHRONIC SINUSITIS OPENS. The PROPEL implants self-expanding design conforms to and holds open the surgically enlarged sinus. DELIVERS. Designed to gradually release mometasone furoate directly to the sinus lining over a period of 30 days, before being fully absorbed into the body. MAINTAINS. Based on clinical data over six months, clinically proven to improve the outcomes of sinus surgery, reducing the need for oral steroid and surgical intervention. 1. The long-term effects of sinus surgery in conjunction with out steroid-eluting implants beyond six months are not known. Intersect® ENT
Neither we nor the underwriters have authorized anyone to provide you with information that is different from that contained in this prospectus or in any free writing prospectus we may authorize to be delivered or made available to you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We and the underwriters are offering to sell shares of common stock and are seeking offers to buy shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date on the front of this prospectus, regardless of the time of delivery of this prospectus or any sale of our common stock. Our business, financial condition, results of operations and prospects may have changed since that date.
Until , 2014 (25 days after the commencement of this offering), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
TRADEMARKS
Intersect ENT, Inc. and our logo are our trademarks and are used in this prospectus. This prospectus also includes trademarks, tradenames and service marks that are the property of other organizations. Solely for convenience, our trademarks and tradenames referred to in this prospectus appear without the symbol, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights, or the right of the applicable licensor to these trademarks and tradenames.
INVESTORS OUTSIDE THE UNITED STATES
Neither we nor any of the underwriters have taken any action that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons who have come into possession of this prospectus in a jurisdiction outside the United States are required to inform themselves about and to observe any restrictions relating to this offering and the distribution of this prospectus.
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This summary highlights information contained elsewhere in this prospectus. This summary is not complete and may not contain all the information you should consider before investing in our common stock. You should read this entire prospectus carefully, especially the risks of investing in our common stock discussed under the heading Risk Factors, and our financial statements and related notes included elsewhere in this prospectus before making an investment decision. Except as otherwise indicated herein or as the context otherwise requires, references in this prospectus to Intersect ENT, the company, we, us and our refer to Intersect ENT, Inc.
Overview
We are a commercial stage drug-device company committed to improving the quality of life for patients with ear, nose and throat conditions. We have developed a drug-eluting bioabsorbable implant technology that enables targeted and sustained release of therapeutic agents. This targeted drug delivery technology is designed to allow ear, nose and throat, or ENT, physicians to improve patient care. Our initial products, PROPEL and PROPEL mini, are the first and only drug-eluting implants approved by the U.S. Food and Drug Administration, or FDA, for use in patients with chronic sinusitis. Inserted by a physician during ethmoid sinus surgery, the self-expanding implants are designed to conform to and hold open the surgically enlarged sinus, while gradually releasing an anti-inflammatory steroid over a period of 30 days, before being fully absorbed into the body. Use of our PROPEL implants is clinically proven to improve surgical outcomes by maintaining the open pathways created in surgery and reducing the need for oral steroids and additional surgical procedures. In addition, we are using our drug-eluting bioabsorbable implant technology to develop new, less-invasive and more cost-effective treatment options for the management of chronic sinusitis in the physician office setting to provide benefits for patients, physicians and payors. Any new products we develop, or changes that we make in the therapeutic agent used in PROPEL or PROPEL mini, will require FDA approval prior to commercialization in the United States.
Chronic sinusitis is one of the most prevalent chronic diseases in the United States and significantly impacts the quality of life of patients. According to the Centers for Disease Control and Prevention, or CDC, approximately 12% of the U.S. adult population, or 29 million people, are affected by chronic sinusitis, making it more prevalent than heart disease and asthma. Chronic sinusitis is an inflammatory condition in which the sinus lining becomes swollen and inflamed, leading to significant patient morbidity, including difficulty breathing, chronic headaches, recurrent infections, bodily pain, and loss of sense of smell and taste. These persistent symptoms can severely impact a patients day-to-day well-being, resulting in frequent doctor visits and lost work productivity and can lead to chronic fatigue and depression. Chronic sinusitis is managed by a combination of medical management and surgical intervention. The first line of therapy is medical management involving antibiotics, anti-inflammatory steroids and decongestants. Patients whose symptoms persist, despite medical management, are recommended to undergo functional endoscopic sinus surgery, or FESS. FESS is performed in the operating room to open the blocked sinus pathways by removing inflamed tissue and bone using surgical tools. Approximately 540,000 patients underwent sinus surgery for chronic sinusitis in 2013 in the United States. Although sinus surgery can be effective, a majority of patients experience recurrent symptoms which commonly necessitate additional treatment with medications and surgery.
Our two commercial products, PROPEL and PROPEL mini, are designed to improve the outcomes of sinus surgery by reducing postoperative inflammation and scarring from the underlying condition as well as the surgery. PROPEL and PROPEL mini were clinically proven in a meta-analysis of prospective, multicenter, randomized, controlled, double-blind clinical studies to improve surgical outcomes, including a 35% reduction in the need for postoperative oral steroid and surgical intervention.
In August 2011 we received Premarket Approval, or PMA, from the FDA for our first product, PROPEL, indicated for use in patients 18 years or older following ethmoid sinus surgery to maintain patency. Our second product, PROPEL mini, received PMA approval from the FDA in November 2012. PROPEL mini is designed for patients requiring less extensive surgery and those who have smaller anatomy, thus expanding the treatable patient population. In the first half of 2013, we began scaling our U.S. direct commercial presence. As of March 31, 2014, over 1,000 physicians in the United States have been trained and have incorporated our steroid-
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eluting implants into their practice. Based on the number of units shipped as of March 31, 2014, we estimate that physicians have treated over 25,000 patients with PROPEL and PROPEL mini. For the year ended December 31, 2013, we generated revenue of $17.9 million and had a net loss of $18.4 million. For the three months ended March 31, 2014, we generated revenue of $7.5 million and had a net loss of $4.4 million. As of March 31, 2014, we had an accumulated deficit of $82.7 million.
The Market
According to the CDC, approximately 12% of the U.S. adult population, or 29 million people, are affected by chronic sinusitis, making it more prevalent than heart disease and asthma. The CDC estimated that in 2005 the condition resulted in 12.6 million physician office and 1.2 million hospital out-patient department visits per year in the United States. Industry sources estimate that chronic sinusitis resulted in $8.6 billion in direct healthcare costs in 2007 in the United States.
Our target market consists of more than 3.5 million people with chronic sinusitis in the United States who are managed by ENT physicians and who we believe could benefit from products that incorporate our drug-eluting bioabsorbable implant technology. These patients are treated by approximately 7,500 ENT physicians who perform sinus surgery. Approximately 540,000 patients underwent sinus surgery for chronic sinusitis in 2013 in the United States. This includes patients who are under the age of 18 and surgeries on the frontal sinuses, both of which represent potential expanded future indications for PROPEL and PROPEL mini and would require FDA approval. Based on the number of sinus surgeries, we estimate the annual total addressable market for PROPEL and PROPEL mini in the United States to be approximately $830 million. We further estimate the annual total addressable market for our products in clinical development in the United States that are specifically designed to address patients in the physician office setting to be approximately $4.0 billion. This estimate is based on our intention to target with our products in development both chronic sinusitis patients who have undergone FESS procedures and have recurring symptoms and the remaining chronic sinusitis patients who have not undergone FESS procedures. See BusinessOverview of Sinusitis beginning on page 63 for additional information regarding our assumptions in arriving at these estimates.
While our current commercial focus is the U.S. market, we plan to initiate efforts that will allow for future expansion into international geographies. Based on the number of sinus surgeries in Europe and the Asia-Pacific region, we estimate the annual total addressable market for PROPEL and PROPEL mini in these regions to be greater than $1.0 billion. Therefore, we estimate the global annual total addressable market for our products and products in clinical development for chronic sinusitis patients to exceed $6.0 billion.
Current Treatments for Chronic Sinusitis and Their Limitations
The treatment of chronic sinusitis often entails a combination of medical management and surgical intervention to treat the underlying inflammation of the sinus lining, while addressing the secondary symptoms caused by obstruction of the natural drainage pathways.
Medical Management
The first line of therapy for chronic sinusitis is medical management, which typically includes prescribed antibiotics, anti-inflammatory steroids and decongestants. Steroids are prescribed in two forms, oral steroid pills and nasal steroid sprays, both of which have serious limitations. Oral steroid therapy is effective at reaching the sinus lining, but it does so by means of systemic exposure and therefore carries the risk of serious side effects, including glaucoma, bone loss, weight gain, psychosis and difficulty in controlling blood glucose levels in patients with diabetes. Nasal steroid sprays, commonly indicated for rhinitis, or inflammation of the nasal passage, are routinely prescribed for chronic sinusitis patients. While nasal steroid sprays avoid systemic exposure, an estimated 70% of the drug is swallowed and the remainder is directed to the nasal passages, instead of the sinuses, which limits efficacy. In a published study, the fraction of drug deposited in the sinuses from a nasal steroid spray was measured to be less than 2%. Poor patient compliance further limits the effectiveness of nasal steroid sprays. Although medical management can reduce symptoms, an estimated 20% or more of chronic sinusitis patients who receive medical therapy are unresponsive.
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Sinus Surgery
In cases where patients are symptomatic despite medical management, a physician may recommend FESS. In the FESS procedure, the physician enlarges the inflamed and obstructed sinus pathways by removing inflamed tissue and bone in order to facilitate normal sinus drainage and aeration. While FESS is the standard of care for treating chronic sinusitis, it has several limitations:
| Limited effectiveness. Inflammation and scarring in the postoperative period are common and can compromise the surgical result by negatively impacting the ability of the sinuses to heal. This increases the need for continued medical management and additional surgical procedures. Within the first year after surgery, approximately 64% of patients experience recurrent symptoms. |
| Limited ability to address postoperative inflammation. While oral steroids prescribed postoperatively can be effective at addressing inflammation and scarring, the required doses are significant and can result in serious systemic side effects. We believe, as a result, only 20% of physicians prescribe them routinely after surgery. The absence of anti-inflammatory steroid therapy leaves the surgical wound susceptible to postoperative complications. |
| Pain and discomfort during postoperative period. During surgery, an ENT physician typically places sinus packing materials into the ethmoid sinuses to physically separate tissues in an attempt to prevent scarring and adhesions. The sinus packing materials are removed in the physicians office postoperatively by pulling or suctioning them from the newly opened cavity, a painful and time-consuming process, often necessitating pain medication. Moreover, the use of sinus packing materials obstructs the newly opened sinuses, leading to patient symptoms of congestion and discomfort. Despite the use of packing materials, scarring and adhesions are common, necessitating painful removal of additional tissue during postoperative treatments. |
| Potential for revision surgery. Within the first year after FESS, approximately 10% of patients will return to the operating room to undergo a revision procedure, while additional patients will return for a revision procedure after one year. We believe the risk of potential revision surgery is a significant deterrent to some patients that would otherwise undergo FESS for chronic sinusitis. |
We believe that because of the limitations of medical management and lack of disease resolution after FESS, many chronic sinusitis patients remain undertreated. We estimate that only a third of patients recommended for sinus surgery proceed with the potentially beneficial procedure, which we believe is due to its limitations and high risk for additional medical management and surgical revision. While balloon sinuplasty has been introduced to open the frontal, maxillary and sphenoid sinuses, or dependent sinuses, in a less invasive manner, it cannot treat disease in the most commonly involved sinuses, the ethmoids, and does not address the underlying inflammation associated with chronic sinusitis. We believe that an opportunity exists to reach these undertreated patients by providing a more effective option to address their inflammatory disease, while improving the overall outcomes of FESS.
Our Solution
We have designed a drug-eluting implant that consists of bioabsorbable polymers that control drug release and provide structural support to adjacent tissues during the healing process, while the implant is gradually and fully absorbed into the body.
Our PROPEL implants are designed to improve the outcomes of sinus surgery by holding open the sinus passageways, reducing postoperative inflammation and scarring. They are inserted by a physician under endoscopic visualization during sinus surgery in the ethmoids. Once inserted, the self-expanding implants conform to and hold open the surgically enlarged sinus, while gradually releasing an anti-inflammatory steroid, mometasone furoate, directly to the sinus lining over a period of 30 days. Mometasone furoate, which is available generically and has been approved by the FDA for use in PROPEL and PROPEL mini, is the active ingredient in NASONEX, a nasal spray used to treat allergic rhinitis and other indications. The implants fully absorb into the body after a period of four to six weeks or are removed at the discretion of a physician during a routine office visit. Once absorbed or
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removed, the implant no longer provides structural support. We believe the principal benefits of our steroid-eluting implants are:
| Improved surgical outcomes. Our PROPEL implants have been clinically proven to improve FESS results by reducing postoperative inflammation and scarring. In a meta-analysis of prospective, multicenter, randomized, controlled, double-blind clinical studies, our PROPEL implants provided a 46% relative reduction in inflammation and a 70% relative reduction in scarring compared to the control implant. The control implant was identical to the PROPEL implant in composition, size, structure and mode of insertion but lacked the mometasone furoate coating. |
| Targeted steroid therapy to address postoperative inflammation. Our PROPEL implants are the first and only drug-eluting bioabsorbable sinus implants. They deliver postoperatively an anti-inflammatory steroid directly to the sinus lining in a controlled fashion over a period of 30 days, which helps in the wound healing process. In a meta-analysis of prospective, multicenter, randomized, controlled, double-blind clinical studies, our PROPEL implants reduced the need for oral steroids by 40% compared to the control implant. |
| Reduced pain and discomfort during postoperative period. Our PROPEL implants improve postoperative care. Once inserted, the self-expanding implants are designed to conform to and hold open the surgically enlarged ethmoid sinuses until fully absorbed into the body, which improves wound healing without obstructing the sinuses and causing congestion. Our steroid-eluting implants are designed to obviate the need for sinus packing materials, which can be a significant source of postoperative pain and discomfort. Our PROPEL implants significantly reduce scarring and adhesions, which reduces the potential for pain in postoperative treatments. |
| Reduced surgical revisions. In clinical studies, our PROPEL implants demonstrated a significant reduction in need for postoperative surgical intervention. In a meta-analysis of prospective, multicenter, randomized, controlled, double-blind clinical studies, our PROPEL implants provided a 35% relative reduction in the need for postoperative oral steroid and surgical intervention compared to the control implant. We believe that patients who have been deterred by the high revision rates associated with FESS may now consider surgical intervention to treat their chronic sinusitis condition. |
We believe these benefits will help expand the size of the FESS market as referring physicians increase their prescription of surgical intervention for chronic sinusitis and more patients elect to undergo sinus surgery to resolve their condition. However, although we believe PROPEL and PROPEL mini have significant advantages over sinus packing materials and other treatment options, we do not have clinical results directly comparing the effectiveness of our PROPEL implants versus sinus packing materials. Additionally, PROPEL and PROPEL mini are expensive relative to packing materials and may not be reimbursed by third-party payors, which has led some ENT physicians to not use these products, or to use them sparingly. ENT physicians may be slow to adopt our PROPEL implants until further clinical evidence or physician experience exists. Until we are able to obtain widespread coverage of our products by third-party payors, our products may be viewed by some ENT physicians, hospitals or other healthcare providers as too expensive to employ in every FESS procedure.
Our Strategy
Our goal is to be a leading drug-device company committed to advancing clinically proven therapeutic solutions that improve the quality of life for patients with ENT conditions. The key elements of our strategy include:
| Expand our sales and marketing organizations to support growth. We plan to continue to invest in the expansion of our sales and marketing organizations to provide ENT physicians in the United States with access to our steroid-eluting implants. |
| Promote awareness amongst ENT physicians, referring physicians and patients. We believe that many patients with chronic sinusitis are currently undertreated, and we intend to educate ENT physicians, allergists, primary care physicians or other referring medical professionals and patients to raise awareness of the disease and available treatment alternatives, including the advantages of using our steroid-eluting implants. |
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| Advance our platform of innovative products for additional chronic sinusitis patients. We are developing additional products using our drug-eluting bioabsorbable implant technology that are specifically designed to treat and manage chronic sinusitis in the physician office setting during a routine visit. We are also working to expand indications for our PROPEL implants to allow for the treatment of the dependent sinuses. |
| Facilitate access to our products via third-party reimbursement. We believe that establishment of reimbursement codes specific to the use of drug-eluting implants for chronic sinusitis is an important factor in expanding access to our products, especially in the physician office setting. Therefore, our strategy includes efforts to engage physician societies and encourage third-party payors to establish coverage, coding and payment that will facilitate access to our drug-eluting implants as we expand our commercialization efforts in the United States. |
| Introduce our steroid-eluting implants in markets outside the United States. We plan to leverage our FDA PMA approved products and clinical data to access markets outside the United States, starting first with the development of clinical, regulatory and reimbursement strategies for countries in Europe and the Asia-Pacific region. |
Risks Related to Our Business
Our ability to successfully operate our business is subject to numerous risks, including those that are generally associated with operating in the medical device industry. Any of the factors set forth under the heading Risk Factors may limit our ability to successfully execute our business strategy. You should carefully consider all of the information set forth in this prospectus and, in particular, you should evaluate the specific factors set forth under the heading Risk Factors in deciding whether to invest in our common stock. Some of the principal risks relating to our business and our ability to execute our business strategy include:
| We have incurred significant operating losses since inception and may not be able to achieve profitability. |
| All of our revenue is generated from a limited number of products and we are completely dependent on the success of our PROPEL and PROPEL mini steroid-eluting implants, which have a limited commercial history. If these products fail to gain widespread market acceptance, our business will suffer. |
| The establishment of adequate coverage and reimbursement is important for sales of our products. Coverage and reimbursement policies for procedures using our steroid-eluting implants could affect the adoption of our products, particularly our product candidates for the physician office setting, and our future revenue. |
| Pricing pressure from our hospital and ambulatory surgery center customers due to limited coverage and reimbursement for our products may impact our ability to sell our products at prices necessary to support our current business strategies. |
| We may never obtain regulatory approval for future products or products outside the United States. |
| If we are unable to protect our intellectual property, or operate our business without infringing on the intellectual property rights of third parties, our business will be negatively affected. |
Corporate Information
We were incorporated in Delaware in October 2003 as Sinexus, Inc. We changed our name to Intersect ENT, Inc. in November 2009. Our offices are located at 1555 Adams Drive, Menlo Park, California 94025. Our telephone number is (650) 641-2100. Our corporate website is at www.intersectent.com. The information contained on or that can be accessed through our website is not incorporated by reference into this prospectus, and you should not consider information on our website to be part of this prospectus or in deciding to purchase our common stock.
Implications of Being an Emerging Growth Company
We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and are eligible to take advantage of certain exemptions from various reporting requirements that
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are applicable to other public companies that are not emerging growth companies. These include, but are not limited to, (1) reduced obligations with respect to the disclosure of selected financial data in registration statements filed with the Securities and Exchange Commission, or the SEC, including the registration statement on Form S-1 of which this prospectus is a part, (2) reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, (3) an exception from compliance with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, and (4) exemptions from the requirements of holding a non-binding advisory vote on executive compensation and the requirement to obtain shareholder approval of any golden parachute payments not previously approved.
We may take advantage of these exemptions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than $1.0 billion in annual revenue, we have more than $700 million in market value of our stock held by non-affiliates or we issue more than $1.0 billion of non-convertible debt over a three-year period. We may choose to take advantage of some, but not all, of the available exemptions. We have taken advantage of certain reduced reporting burdens in this prospectus. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock.
In addition, Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, or Securities Act, for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We intend to take advantage of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for private companies. Section 107 of the JOBS Act provides that we can elect to opt out of the extended transition period at any time, which election is irrevocable.
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The Offering
Issuer |
Intersect ENT, Inc. |
Common stock offered by us |
shares (or shares if the underwriters exercise in full their option to purchase additional shares) |
Common stock to be outstanding immediately after this offering |
shares (or shares if the underwriters exercise in full their option to purchase additional shares) |
Underwriters option to purchase additional shares |
shares |
Use of proceeds |
We intend to use substantially all of the net proceeds from this offering for sales, marketing, research and development activities, clinical and regulatory initiatives, working capital and general corporate purposes. See Use of Proceeds on page 42 for a more complete description of the intended use of proceeds from this offering. |
Risk factors |
See Risk Factors beginning on page 11 and other information included in this prospectus for a discussion of factors that you should consider carefully before deciding to invest in our common stock. |
Proposed Nasdaq Global Market Symbol |
XENT |
The number of shares of common stock to be outstanding after this offering is based on 70,007,428 shares of common stock outstanding as of March 31, 2014, and excludes the following:
| 7,859,953 shares of common stock issuable upon the exercise of outstanding options as of March 31, 2014, having a weighted average exercise price of $0.33 per share; |
| 190,217 shares of common stock issuable upon the exercise and subsequent conversion of warrants to purchase our Series A convertible preferred stock at an exercise price of $0.92 per share; |
| Up to 81,254 shares of common stock issuable upon the exercise and subsequent conversion of a warrant to purchase our Series D convertible preferred stock at an exercise price of $1.72 per share, which, as of March 31, 2014, was exercisable for 23,215 shares; |
| shares of common stock reserved for future issuance under our 2014 Equity Incentive Plan, as well as any automatic increases in the number of shares of common stock reserved for future issuance under this plan, which will become effective upon the execution of the underwriting agreement related to this offering; and |
| shares of common stock reserved for future issuance under our 2014 Employee Stock Purchase Plan, as well as any automatic increases in the number of shares of common stock reserved for future issuance under this plan, which will become effective upon the execution of the underwriting agreement related to this offering. |
Unless otherwise indicated, all information in this prospectus assumes:
| the automatic conversion of 62,815,648 shares of our convertible preferred stock outstanding as of March 31, 2014, into an aggregate of 62,815,648 shares of our common stock immediately prior to the closing of this offering; |
| the automatic conversion of all convertible preferred stock warrants outstanding as of March 31, 2014, into warrants to purchase up to an aggregate 271,471 shares of our common stock immediately prior to the closing of this offering; |
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| the filing of our amended and restated certificate of incorporation and the effectiveness of our amended and restated bylaws immediately prior to the closing of this offering; and |
| no exercise of the underwriters option to purchase additional shares. |
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Summary Financial Data
The following tables set forth a summary of our historical financial data as of, and for the period ended on, the dates indicated. The statements of operations data for the years ended December 31, 2012 and 2013, are derived from our audited financial statements included elsewhere in this prospectus. The statements of operations data for the three months ended March 31, 2013 and 2014, and the balance sheet data as of March 31, 2014, are derived from our unaudited interim financial statements included elsewhere in this prospectus. We have prepared the unaudited interim financial statements on the same basis as the audited financial statements and have included, in our opinion, all adjustments, consisting only of normal recurring adjustments that we consider necessary for a fair presentation of the financial information set forth in those statements. You should read this data together with our audited financial statements and related notes appearing elsewhere in this prospectus and the information under the captions Selected Financial Data and Managements Discussion and Analysis of Financial Condition and Results of Operations. Our historical results are not necessarily indicative of our future results and are not necessarily indicative of results to be expected for the full year ending December 31, 2014, or any other period.
Year
Ended December 31, |
Three Months Ended March 31, |
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2012 | 2013 | 2013 | 2014 | |||||||||||||
(in thousands, except per share data) |
(unaudited) | |||||||||||||||
Statements of Operations Data: |
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Revenue |
$ | 5,863 | $ | 17,931 | $ | 2,744 | $ | 7,497 | ||||||||
Cost of sales |
3,837 | 8,150 | 1,949 | 2,360 | ||||||||||||
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Gross profit |
2,026 | 9,781 | 795 | 5,137 | ||||||||||||
Operating expenses: |
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Selling, general and administrative |
9,251 | 18,229 | 3,350 | 6,658 | ||||||||||||
Research and development |
9,260 | 9,518 | 2,256 | 2,577 | ||||||||||||
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Total operating expenses |
18,511 | 27,747 | 5,606 | 9,235 | ||||||||||||
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|
|
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Loss from operations |
(16,485 | ) | (17,966 | ) | (4,811 | ) | (4,098 | ) | ||||||||
Other income (expense), net |
120 | (403 | ) | 58 | (311 | ) | ||||||||||
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Net loss |
$ | (16,365 | ) | $ | (18,369 | ) | $ | (4,753 | ) | $ | (4,409 | ) | ||||
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Net loss per share, basic and diluted(1) |
$ | (4.09 | ) | $ | (3.14 | ) | $ | (1.14 | ) | $ | (0.62 | ) | ||||
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Weighted average common shares used to compute net loss per share, basic and diluted(1) |
3,997 | 5,846 | 4,158 | 7,093 | ||||||||||||
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|
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|
|
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Pro forma net loss per share, basic and diluted (unaudited)(1) |
$ | (0.29 | ) | $ | (0.06 | ) | ||||||||||
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|
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|
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Weighted average common shares used to compute pro forma net loss per share, basic and diluted (unaudited)(1) |
62,623 | 69,900 | ||||||||||||||
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|
|
|
9
As of March 31, 2014 | ||||||||||||
(in thousands) |
Actual | Pro Forma(1)(3) | Pro
Forma As Adjusted(2)(3) |
|||||||||
(unaudited) | ||||||||||||
Balance Sheet Data: |
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Cash and cash equivalents |
$ | 7,478 | $ | 7,478 | $ | |||||||
Working capital |
8,643 | 9,137 | ||||||||||
Total assets |
16,767 | 16,767 | ||||||||||
Preferred stock warrant liability |
494 | | | |||||||||
Total debt |
1,280 | 1,280 | 1,280 | |||||||||
Total liabilities |
6,783 | 6,289 | 6,289 | |||||||||
Convertible preferred stock |
90,789 | | | |||||||||
Accumulated deficit |
(82,668 | ) | (82,668 | ) | (82,668 | ) | ||||||
Total stockholders (deficit) equity |
(80,805 | ) | 10,478 |
(1) | Reflects the automatic conversion of all outstanding shares of our convertible preferred stock into an aggregate of 62,815,648 shares of common stock immediately prior to the closing of this offering and the conversion of warrants to purchase up to 271,471 shares of convertible preferred stock into warrants to purchase up to 271,471 shares of common stock immediately prior to the closing of this offering. |
(2) | Reflects the pro forma adjustments described in footnote (1) above and the sale by us of shares of common stock in this offering at an assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. |
(3) | A $1.00 increase (decrease) in the assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) each of pro forma as adjusted cash and cash equivalents, working capital, total assets and total stockholders equity by $ million, assuming the number of shares we are offering, as set forth on the cover page of this prospectus, remains the same, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. An increase (decrease) of 1,000,000 in the number of shares we are offering would increase (decrease) each of pro forma as adjusted cash and cash equivalents, working capital, total assets and total stockholders equity by approximately $ million, assuming the assumed initial public offering price per share remains the same. The pro forma as adjusted information is illustrative only, and we will adjust this information based on the actual initial public offering price, number of shares offered and other terms of this offering determined at pricing. |
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An investment in our common stock involves a high degree of risk. You should carefully consider the following risk factors together with all of the other information contained in this prospectus, including our financial statements and the related notes, before deciding whether to invest in shares of our common stock. Each of these risks could harm our business, operating results, financial condition or growth prospects. As a result, the trading price of our common stock could decline and you may lose all or part of your investment.
Risks Related to Our Business
We have incurred significant operating losses since inception and may not be able to achieve profitability.
We have incurred net losses since our inception in 2003. For the years ended December 31, 2012 and 2013, and for the three months ended March 31, 2014, we had net losses of $16.4 million, $18.4 million and $4.4 million, respectively. As of March 31, 2014, we had an accumulated deficit of $82.7 million. To date, we have financed our operations primarily through private placements of our equity securities, certain debt-related financing arrangements and from sales of our approved products. We have devoted substantially all of our resources to research and development of our products, sales and marketing activities and clinical and regulatory initiatives to obtain approvals for our products. Our ability to generate sufficient revenue from our existing products or from any of our product candidates in development, and to transition to profitability and generate consistent positive cash flows is uncertain. Following this offering, we expect that our operating expenses will continue to increase as we continue to build our commercial infrastructure, develop, enhance and commercialize new products and incur additional operational and reporting costs associated with being a public company. As a result, we expect to continue to incur operating losses for the foreseeable future and may never achieve profitability.
All of our revenue is generated from our PROPEL and PROPEL mini steroid-eluting implants and we are completely dependent on the success of these products, which have a limited commercial history. If these products fail to gain widespread market acceptance, our business will suffer.
We started selling PROPEL in August 2011 and PROPEL mini in November 2012. We expect that sales of these products will account for substantially all of our revenue for the foreseeable future and therefore our ability to become profitable will depend upon the commercial success of these products. Because of their recent commercial introduction, PROPEL and PROPEL mini have limited product and brand recognition. We market these products primarily to ear, nose and throat, or ENT, physicians and believe they may be slow or fail to adopt our products for a variety of reasons, including, among others:
| lack of experience with our products; |
| lack of availability of adequate coverage and reimbursement for hospitals, ambulatory surgery centers and physicians; |
| lack of evidence supporting cost benefits or cost effectiveness of our products over existing alternatives; |
| lack of clinical data supporting patient benefits beyond six months; |
| perception that our products are unproven, investigational or experimental; |
| liability risks generally associated with the use of new products and procedures; and |
| training required to use new products. |
If we are unable to effectively demonstrate to ENT physicians the benefits of our products when used during sinus surgery and our products fail to achieve market acceptance, our future revenue will be adversely impacted. In addition, we believe recommendations and support of our products by influential ENT physicians are essential for market acceptance and adoption. If we do not receive support from these influential ENT physicians, ENT physicians in general may not use our products and our future revenue will be harmed.
Because of the numerous risks and uncertainties associated with our commercialization efforts, we are unable to predict the extent to which we will continue to generate revenue from our products or the timing for
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when or the extent to which we will become profitable. Even if we do achieve profitability, we may not be able to sustain or increase profitability on an ongoing basis.
Pricing pressure from our hospital and ambulatory surgery center customers due to limited coverage and reimbursement for our products may impact our ability to sell our products at prices necessary to support our current business strategies.
Hospital and other healthcare provider customers, including ambulatory surgery center customers, that purchase our products typically bill various third-party payors to cover all or a portion of the costs and fees associated with the sinus surgery procedures in which our products are used and bill patients for any deductibles or co-payments. Because there is often no separate reimbursement for supplies used in surgical procedures, the additional cost associated with the use of our steroid-eluting implants can impact the profit margin of the hospital or surgery center where the sinus surgery is performed. Some of our target customers may be unwilling to adopt our steroid-eluting implants in light of the additional associated cost. Further, any decline in the amount payors are willing to reimburse our customers for sinus surgery procedures could make it difficult for existing customers to continue using, or adopt, our steroid-eluting implants and could create additional pricing pressure for us. If we are forced to lower the price we charge for our products, our gross margins will decrease, which will adversely affect our ability to invest in and grow our business.
We are actively seeking new billing codes for our products and the procedure associated with their use, including codes that are established by the Centers for Medicare & Medicaid Services, or CMS, and the American Medical Association, or AMA. Our ability to obtain new billing codes will depend, in part, on support from the ENT community and physician acceptance of our technology. Although obtaining billing codes may result in payment amounts that better reflect the costs and resources of our products and related procedure, there is a possibility that they may not do so.
We cannot assure you that we will be successful in garnering the necessary support for new codes from the ENT community or from third-party payors, who are responsible for determining which billing codes are to be used for procedures performed on their insured population. Even if we are able to establish reimbursement codes for our products, we will continue to be subject to significant pricing pressure, which could harm our business, results of operations, financial condition and prospects.
Our future growth depends on physician awareness and adoption of our steroid-eluting implants.
We focus our sales, marketing and education efforts primarily on ENT physicians. We train physicians on the patient population that would benefit from our steroid-eluting implants. This patient population is based on those included in our clinical studies and includes, for example, patients with or without polyps as well as patients undergoing either primary or revision surgery. Some physicians may choose to utilize our products on a subset of their patients such as patients with severe polyp disease that they deem at higher risk for postoperative complications. If we are not able to effectively demonstrate to those physicians that our products are beneficial in a broad range of patients on which they operate, their adoption of our products will be limited.
We train our physician customers on the proper techniques in using our devices to achieve the intended outcome. The successful use of our steroid-eluting implants depends in large part on the physicians adherence to the techniques that they are provided in training by our sales representatives. In the event that physicians do not adhere to these techniques or if they perceive that our products are too cumbersome for them to use, we may have difficulty facilitating adoption. Additionally, physicians may develop their own techniques for use of our products during insertion and during the period in which the drug is delivered and is bioabsorbed. For example, we are aware some physicians are removing our steroid-eluting implants before all of the drug has eluted into the surrounding tissue. While physicians were allowed to remove the implant at any time at their discretion in our clinical studies, early removal could lead to suboptimal outcomes. In addition, if physicians utilize our products in a manner that is inconsistent with how they were studied clinically, their outcomes may not be consistent with the outcomes achieved in our clinical studies, which may impact their perception of patient benefit and limit their adoption of our products.
In addition, the initial point of contact for many patients suffering from chronic sinusitis may be primary care physicians or other referring medical professionals who commonly treat patients experiencing sinus-related
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symptoms or complications. We believe that we must educate these primary care physicians and other referring medical professionals about our steroid-eluting implants in order to grow the market beyond the over 3.5 million patients with chronic sinusitis who are currently managed by ENT physicians. If we fail to do so, these primary care physicians and other referring medical professionals may not refer patients to an ENT physician who will perform sinus surgery and use our steroid-eluting implants. As a result, those patients may go untreated, attempt to manage their sinusitis through medical management alone or seek alternative surgical procedures. If we are not successful in educating primary care physicians and other referring medical professionals about our steroid-eluting implants, our ability to increase our revenue may be impaired.
We have limited experience marketing and selling our steroid-eluting implants, and if we are unable to expand, manage and maintain our direct sales and marketing organizations we may not be able to generate anticipated revenue.
We started selling our first approved product, PROPEL, on a limited basis in August 2011. We subsequently started selling PROPEL mini in November 2012, and in the first half of 2013 we began to expand and scale our direct sales and marketing organizations in the United States. As a result, we have limited experience marketing and selling our steroid-eluting implants. As of March 31, 2014, our direct sales organization, including marketing, customer service and reimbursement, consisted of 62 employees, having increased from 21 employees as of December 31, 2012. Our operating results are directly dependent upon the sales and marketing efforts of our employees. If our direct sales representatives fail to adequately promote, market and sell our products, our sales may suffer.
In order to generate our anticipated sales, we will need to expand the size and geographic scope of our direct sales organization. As a result, our future success will depend largely on our ability to continue to hire, train, retain and motivate skilled regional sales managers and direct sales representatives with significant technical knowledge of ENT. Because of the competition for their services, we cannot assure you we will be able to hire and retain additional direct sales representatives on favorable or commercially reasonable terms, if at all. Failure to hire or retain qualified sales representatives would prevent us from expanding our business and generating sales. Additionally, new hires require training and take time before they achieve full productivity. If we fail to train new hires adequately, new hires may not become as productive as may be necessary to maintain or increase our sales.
If we are unable to expand our sales and marketing capabilities, we may not be able to effectively commercialize our products, which would adversely affect our business, results of operations and financial condition.
Our clinical studies were designed to demonstrate the safety and efficacy of our steroid-eluting implants based on FDA requirements and may not be seen as compelling to physicians. Any subsequent clinical studies that are conducted and published may not be positive or consistent with our existing data, which would affect the rate of adoption of our products.
Our success depends on the medical communitys acceptance of our steroid-eluting implants as tools that are useful to ENT physicians treating patients with chronic sinusitis. We have sponsored three multi-center, prospective studies of over 200 patients to track outcomes of treatment with our steroid-eluting implants, which clinical data has resulted in the highest level of evidence generated for any product used in sinus surgery. The principal safety and efficacy information of our steroid-eluting implants is derived from the ADVANCE II study, a prospective, multicenter, randomized controlled, double-blind, pivotal study that was completed in September 2010. We also sponsored the ADVANCE study, a prospective, multicenter, single-cohort, open-label trial completed in December 2009 and the PROPEL Pilot Study, a prospective, multicenter, randomized, controlled, double-blind feasibility study completed in April 2009. While the results of these three studies collectively indicate a favorable safety and efficacy profile, the study designs and results may not be viewed as compelling to our physician customers. If physicians do not find our data compelling, they may choose not to use our products or limit their use. Our PROPEL Pilot study and ADVANCE II study incorporated an intra-patient control design comparing PROPEL to a non-drug-eluting control version of the implant in order to maintain blinding. Primary efficacy endpoints for these two studies were measured at 30 days after placement as we believe that proper healing in the immediate postoperative period is indicative of long-term outcomes. Additionally, it was important to allow for medical intervention after day 30 given one sinus side of each patient had the control device. Clinical
13
efficacy demonstrated at this short-term endpoint does not guarantee long-term clinical benefits. Our ADVANCE study measured patient symptom improvements out to six months. The long-term effects of sinus surgery in conjunction with our steroid-eluting implants beyond six months are not known. Certain ENT physicians, hospitals and surgery centers may prefer to see longer term efficacy data than we have produced. We cannot assure you that any data that we or others generate will be consistent with that observed in these studies nor that results will be maintained beyond the time points studied. We also cannot assure you that any data that may be collected will be compelling to the medical community because the data may not be scientifically meaningful and may not demonstrate that sinus surgery using our steroid-eluting implants is an attractive procedure when compared against data from alternative treatments.
Each ENT physicians individual experience with our steroid-eluting implants will vary, and we believe that physicians will compare actual long-term outcomes in their own practices using our steroid-eluting implants against sinus surgery used in conjunction with traditional sinus packing techniques. A long-term, adequately-controlled clinical study comparing sinus surgery performed in conjunction with our steroid-eluting implants against sinus surgery performed in conjunction with the variety of traditional sinus packing techniques incorporated by physicians would be expensive and time-consuming and we have not conducted, and are not currently planning to conduct, such a study. If the experience of physicians indicates that the use of our steroid-eluting implants in FESS is not as safe or efficacious as other treatment options or does not provide a lasting solution to patients with chronic sinusitis, adoption of our products may suffer and our business would be harmed.
We utilize third-party, single source suppliers for many of the components and materials used in our steroid-eluting implants, and the loss of any of these suppliers could harm our business.
The active pharmaceutical ingredient, or API, and a number of our critical components used in our steroid-eluting implants are supplied to us from single source suppliers. We rely on single source suppliers for some of our polymer materials, some extrusions and molded components, some off-the-shelf components and for finished goods testing. Our ability to supply our products commercially and to develop our product candidates depends, in part, on our ability to obtain these components in accordance with regulatory requirements and in sufficient quantities for commercialization and clinical testing. We have entered into manufacturing, supply or quality agreements with a number of our single source suppliers pursuant to which they supply the components we need. We are not certain that our single source suppliers will be able to meet our demand for their products, either because of the nature of our agreements with those suppliers, our limited experience with those suppliers or our relative importance as a customer to those suppliers. It may be difficult for us to assess their ability to timely meet our demand in the future based on past performance. While our suppliers have generally met our demand for their products on a timely basis in the past, they may subordinate our needs in the future to their other customers.
Establishing additional or replacement suppliers for the API or any of the components or processes used in our products, if required, may not be accomplished quickly. If we are able to find a replacement supplier, the replacement supplier would need to be qualified and may require additional regulatory authority approval, which could result in further delay. For example, the U.S. Food and Drug Administration, or FDA, could require additional supplemental data if we rely upon a new supplier for the API used in PROPEL and PROPEL mini. While we seek to maintain adequate inventory of the single source components and materials used in our products, any interruption or delay in the supply of components or materials, or our inability to obtain components or materials from alternate sources at acceptable prices in a timely manner, could impair our ability to meet the demand of our customers and cause them to cancel orders.
If our third-party suppliers fail to deliver the required commercial quantities of materials, on a timely basis and at commercially reasonable prices, and we are unable to find one or more replacement suppliers capable of production at a substantially equivalent cost in substantially equivalent volumes and quality, and on a timely basis, the continued commercialization of our products and the development of our product candidates would be impeded, delayed, limited or prevented, which could harm our business, results of operations, financial condition and prospects.
It is difficult to forecast future performance, which may cause our financial results to fluctuate unpredictably.
Our limited operating history and commercial experience make it difficult for us to predict future performance. As we gain additional commercial experience, a number of factors over which we have limited
14
control may contribute to fluctuations in our financial results, such as seasonal variations in revenue. In the first quarter, our results can be impacted by adverse weather and by resetting of annual patient healthcare insurance plan deductibles, both of which may cause patients to delay elective procedures such as FESS. In the second quarter, demand may be impacted by the seasonal nature of allergies and the resultant onset of sinus-related symptoms. In the third quarter, the number of FESS procedures nationwide is historically lower than other quarters throughout the year, which we believe is attributable to the summer vacations of ENT physicians and their patients. In the fourth quarter, demand may be impacted by the onset of the cold and flu season and related symptoms, as well as the desire of patients to spend their remaining balances in flexible-spending accounts or because they have met their annual deductibles under their health insurance plans. Other factors that may impact our quarterly results include:
| ENT physician adoption of our steroid-eluting implants; |
| unanticipated pricing pressure; |
| the hiring, retention and continued productivity of our sales representatives; |
| our ability to expand the geographic reach of our sales and marketing efforts; |
| our ability to obtain regulatory clearance or approval for our products in development or for our current products outside the United States; |
| results of clinical research and trials on our existing products and products in development; |
| delays in receipt of anticipated purchase orders; |
| timing of new product offerings, acquisitions, licenses or other significant events by us or our competitors; |
| delays in, or failure of, component and raw material deliveries by our suppliers; and |
| positive or negative coverage in the media or clinical publications of our steroid-eluting implants or products of our competitors or our industry. |
In the event our actual revenue and operating results do not meet our forecasts for a particular period, the market price of our common stock may decline substantially.
Our long-term growth depends on our ability to develop and commercialize additional ENT products.
It is important to our business that we continue to build a more complete product offering within the ENT market. We are using our drug-eluting bioabsorbable technology to develop new products for use in the physician office setting. Developing additional products is expensive and time-consuming and could divert managements attention away from our current sinus surgery products and harm our business. Even if we are successful in developing additional products, including those currently in development for use in the physician office setting, the success of any new product offering or enhancement to an existing product will depend on several factors, including our ability to:
| properly identify and anticipate ENT physician and patient needs; |
| develop and introduce new products or product enhancements in a timely manner; |
| avoid infringing upon the intellectual property rights of third parties; |
| demonstrate, if required, the safety and efficacy of new products with data from preclinical studies and clinical trials; |
| obtain the necessary regulatory clearances or approvals for new products or product enhancements; |
| be fully FDA-compliant with marketing of new devices or modified products; |
| provide adequate training to potential users of our products; |
| receive adequate coverage and reimbursement for procedures performed with our products; and |
| develop an effective and FDA-compliant, dedicated sales and marketing team. |
15
If we are unsuccessful in developing and commercializing additional products in other areas of ENT, our ability to increase our revenue may be impaired.
If clinical studies of our future products do not produce results necessary to support regulatory clearance or approval in the United States or, with respect to our current or future products, elsewhere, we will be unable to commercialize these products.
We will likely need to conduct additional clinical studies in the future to support new product approvals, or for the approval of the use of our products in some foreign countries. Clinical testing takes many years, is expensive and carries uncertain outcomes. The initiation and completion of any of these studies may be prevented, delayed, or halted for numerous reasons, including, but not limited to, the following:
| the FDA, institutional review boards or other regulatory authorities do not approve a clinical study protocol, force us to modify a previously approved protocol, or place a clinical study on hold; |
| patients do not enroll in, or enroll at a lower rate than we expect, or do not complete a clinical study; |
| patients or investigators do not comply with study protocols; |
| patients do not return for post-treatment follow-up at the expected rate; |
| patients experience unexpected adverse event or side effects for a variety of reasons that may or may not be related to our products; |
| sites participating in an ongoing clinical study withdraw, requiring us to engage new sites; |
| difficulties or delays associated with establishing additional clinical sites; |
| third-party clinical investigators decline to participate in our clinical studies, do not perform the clinical studies on the anticipated schedule, or are inconsistent with the investigator agreement, clinical study protocol, good clinical practices or other agency requirements; |
| third-party organizations do not perform data collection and analysis in a timely or accurate manner; |
| regulatory inspections of our clinical studies or manufacturing facilities require us to undertake corrective action or suspend or terminate our clinical studies; |
| changes in federal, state, or foreign governmental statutes, regulations or policies; |
| interim results are inconclusive or unfavorable as to immediate and long-term safety or efficacy; |
| the study design is inadequate to demonstrate safety and efficacy; or |
| the study does not meet the statistical endpoints. |
Clinical failure can occur at any stage of the testing. Our clinical studies may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical and non-clinical testing in addition to those we have planned. Our failure to adequately demonstrate the safety and efficacy of any of our devices would prevent receipt of regulatory clearance or approval and, ultimately, the commercialization of that device or indication for use. Even if our future products are approved in the United States, commercialization of our products in foreign countries would require approval by regulatory authorities in those countries. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from, and greater than, those in the United States, including additional preclinical studies or clinical trials. Any of these occurrences may harm our business, results of operations, financial condition and prospects.
Consolidation in the healthcare industry could lead to demands for price concessions, which may impact our ability to sell our products at prices necessary to support our current business strategies.
Healthcare costs have risen significantly over the past decade, which has driven numerous cost reform initiatives by legislators, regulators and third-party payors. Cost reform has elicited a consolidation trend in the healthcare industry to aggregate purchasing power, which may create more requests for pricing concessions in the future. Additionally, group purchasing organizations, independent delivery networks and large single
16
accounts may continue to use their market power to consolidate purchasing decisions for hospitals and ambulatory surgery centers. We expect that market demand, government regulation, third-party coverage and reimbursement policies and societal pressures will continue to change the healthcare industry worldwide, resulting in further business consolidations and alliances among our customers, which may exert further downward pressure on the prices of our products and may adversely impact our business, results of operations, financial condition and prospects.
We compete or may compete in the future against other companies, some of which have longer operating histories, more established products and greater resources, which may prevent us from achieving significant market penetration or improved operating results.
Our industry is highly competitive, subject to change and significantly affected by new product introductions and other activities of industry participants. Many of the companies developing or marketing ENT products are publicly traded or are divisions of publicly-traded companies, including the Xomed division of Medtronic, the Gyrus ACMI division of Olympus, the Acclarent division of Johnson & Johnson, Stryker and ArthroCare. These companies enjoy several competitive advantages, including:
| greater financial and human capital resources; |
| significantly greater name recognition; |
| established relationships with ENT physicians, referring physicians, customers and third-party payors; |
| additional lines of products, and the ability to offer rebates or bundle products to offer greater discounts or incentives to gain a competitive advantage; and |
| established sales, marketing and worldwide distribution networks. |
Because of the size of the market opportunity for the treatment of chronic sinusitis, we believe potential competitors have historically dedicated and will continue to dedicate significant resources to aggressively promote their products or develop new products. New product developments that could compete more effectively with our products are possible because of the prevalence of chronic sinusitis and the extensive research efforts and technological progress that exist within the market. Large medical device companies with ENT divisions, such as Medtronic, also have capability in drug-eluting stents and smaller companies may develop competing products. Though we are not aware of any such products to date, these or other companies may develop drug-eluting products that could compete with our products.
Our commercially available products are designed to be used during sinus surgery. If another company successfully develops an approach for the treatment of chronic sinusitis that would not benefit from the use of our steroid-eluting implants, if another company develops a device to treat the inflammation and scarring associated with sinus surgery that is more efficacious than our steroid-eluting implants, or if a pharmaceutical company successfully develops a drug that addresses chronic sinusitis without the need for surgical intervention, sales of our products would be significantly and adversely affected.
We may be unable to manage our growth effectively.
Our past growth has provided, and our future growth may create, challenges to our organization. From December 31, 2012, to March 31, 2014, the number of our employees increased from 75 to 146. In the future, we expect to hire and train new personnel as we continue to grow and expand our operations. As a public company, we will need to further expand our scientific, sales and marketing, managerial, operational, financial and other resources to support our planned research, development and commercialization activities. This growth may place significant strain on our management, financial and operational resources. Successful growth is also dependent upon our ability to implement appropriate financial and management controls, systems and procedures and securing a sufficient amount of office space for additional personnel. If we fail to manage these challenges effectively, our business could be harmed.
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We face the risk of product liability claims that could be expensive, divert managements attention and harm our reputation and business. We may not be able to maintain adequate product liability insurance.
Our business exposes us to the risk of product liability claims that are inherent in the testing, manufacturing and marketing of medical devices and drug products. This risk exists even if a device or product is approved for commercial sale by the FDA and manufactured in facilities licensed and regulated by the FDA, such as the case with PROPEL and PROPEL mini, or an applicable foreign regulatory authority. Our products and product candidates are designed to affect important bodily functions and processes. Any side effects, manufacturing defects, misuse or abuse associated with our products or our product candidates could result in patient injury or death. The medical device industry has historically been subject to extensive litigation over product liability claims, and we cannot offer any assurance that we will not face product liability suits. We may be subject to product liability claims if our steroid-eluting implants cause, or merely appear to have caused, patient injury or death. In addition, an injury that is caused by the activities of our suppliers, such as those who provide us with components and raw materials, may be the basis for a claim against us. Product liability claims may be brought against us by consumers, health care providers or others selling or otherwise coming into contact with our products or product candidates, among others. If we cannot successfully defend ourselves against product liability claims, we will incur substantial liabilities and reputational harm. In addition, regardless of merit or eventual outcome, product liability claims may result in:
| costs of litigation; |
| distraction of managements attention from our primary business; |
| the inability to commercialize our products or, if approved, our product candidates; |
| decreased demand for our products or, if approved, product candidates; |
| impairment of our business reputation; |
| product recall or withdrawal from the market; |
| withdrawal of clinical trial participants; |
| substantial monetary awards to patients or other claimants; or |
| loss of revenue. |
While we may attempt to manage our product liability exposure by proactively recalling or withdrawing from the market any defective products, any recall or market withdrawal of our products may delay the supply of those products to our customers and may impact our reputation. We can provide no assurance that we will be successful in initiating appropriate market recall or market withdrawal efforts that may be required in the future or that these efforts will have the intended effect of preventing product malfunctions and the accompanying product liability that may result. Such recalls and withdrawals may also be used by our competitors to harm our reputation for safety or be perceived by patients as a safety risk when considering the use of our products, either of which could have an adverse effect on our business.
In addition, although we have product liability and clinical study liability insurance that we believe is appropriate, this insurance is subject to deductibles and coverage limitations. Our current product liability insurance may not continue to be available to us on acceptable terms, if at all, and, if available, coverage may not be adequate to protect us against any future product liability claims. If we are unable to obtain insurance at an acceptable cost or on acceptable terms with adequate coverage or otherwise protect against potential product liability claims, we will be exposed to significant liabilities, which may harm our business. A product liability claim, recall or other claim with respect to uninsured liabilities or for amounts in excess of insured liabilities could have a material adverse effect on our business, financial condition and results of operations.
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The misuse or off-label use of our products may harm our image in the marketplace, result in injuries that lead to product liability suits or result in costly investigations and sanctions by regulatory bodies if we are deemed to have engaged in the promotion of these uses, any of which could be costly to our business.
The products we currently market have been approved by the FDA for specific treatments. We train our marketing and direct sales force to not promote our products for uses outside of the FDA-approved indications for use, known as off-label uses. We cannot, however, prevent a physician from using our products off-label, when in the physicians independent professional medical judgment he or she deems it appropriate. There may be increased risk of injury to patients if physicians attempt to use our products off-label. Furthermore, the use of our products for indications other than those approved by the FDA or any foreign regulatory body may not effectively treat such conditions, which could harm our reputation in the marketplace among physicians and patients.
Physicians may also misuse our products or use improper techniques if they are not adequately trained, potentially leading to injury and an increased risk of product liability. If our products are misused or used with improper technique, we may become subject to costly litigation by our customers or their patients. Product liability claims could divert managements attention from our core business, be expensive to defend, and result in sizable damage awards against us that may not be covered by insurance. In addition, if the FDA or any foreign regulatory body determines that our promotional materials or training constitute promotion of an off-label use, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions, including the issuance of an untitled letter, a warning letter, injunction, seizure, civil fine or criminal penalties. It is also possible that other federal, state or foreign enforcement authorities might take action if they consider our business activities to constitute promotion of an off-label use, which could result in significant penalties, including, but not limited to, criminal, civil and administrative penalties, damages, fines, disgorgement, exclusion from participation in government healthcare programs, and the curtailment of our operations. Any of these events could significantly harm our business and results of operations and cause our stock price to decline.
Our ability to maintain our competitive position depends on our ability to attract and retain highly qualified personnel.
We believe that our continued success depends to a significant extent upon the efforts and abilities of our key executives. All of our executive officers and other employees are at-will employees, and therefore may terminate employment with us at any time with no advance notice. The replacement of any of our key personnel likely would involve significant time and costs and may significantly delay or prevent the achievement of our business objectives and would harm our business.
Our future success also depends on our ability to continue to attract and retain our executive officers and other key employees. Many of our employees have become or will soon become vested in a substantial amount of stock or number of stock options. Our employees may be more likely to leave us if the shares they own or the shares underlying their vested options have significantly appreciated in value relative to the original purchase prices of the shares or the exercise prices of the options, or if the exercise prices of the options that they hold are significantly below the market price of our common stock. Further, our employees ability to exercise those options and sell their stock in a public market after the closing of this offering may result in a higher than normal turnover rate. We do not carry any key person insurance policies.
If our facilities or the facility of a supplier become inoperable, we will be unable to continue to research, develop, manufacture and commercialize our products and, as a result, our business will be harmed until we are able to secure a new facility.
We do not have redundant facilities. We perform substantially all of our research and development, manufacturing and commercialization activity and maintain all our raw material and finished goods inventory in a single location in Menlo Park, California. Menlo Park is situated on or near earthquake fault lines. Our facility and equipment would be costly to replace and could require substantial lead time to repair or replace. The facility may be harmed or rendered inoperable by natural or man-made disasters, including, but not limited to, earthquakes, flooding, fire and power outages, which may render it difficult or impossible for us to perform our research, development, manufacturing and commercialization activities for some period of time. The inability to perform those activities, combined with our limited inventory of reserve raw materials and finished product, may
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result in the inability to continue manufacturing our products during such periods and the loss of customers or harm to our reputation. Although we possess insurance for damage to our property and the disruption of our business, this insurance may not be sufficient to cover all of our potential losses and this insurance may not continue to be available to us on acceptable terms, or at all.
We expect to incur significant additional costs as a result of being a public company, which may adversely affect our operating results and financial condition.
We expect to incur costs associated with corporate governance requirements, including requirements under the Sarbanes-Oxley Act, as well as rules implemented by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, the Securities and Exchange Commission, or the SEC, and NASDAQ. These rules and regulations are expected to increase our accounting, legal and financial compliance costs and make some activities more time-consuming and costly. In addition, we will incur additional costs associated with our public company reporting requirements and we expect those costs to increase in the future. We also expect these rules and regulations to make it more expensive for us to maintain directors and officers liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees, or as executive officers. Increases in costs incurred as a result of becoming a publicly traded company may adversely affect our operating results and financial condition.
We estimate the additional annual cost that we will incur as a result of our public company reporting obligations is approximately $3.0 million. However, because these rules and regulations are often subject to varying interpretations, it is difficult to accurately estimate or predict the amount or timing of these additional costs. Further, the lack of specificity of many of the rules and regulations may result in an application in practice that may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.
If we experience significant disruptions in our information technology systems, our business may be adversely affected.
We depend on our information technology systems for the efficient functioning of our business, including accounting, data storage, compliance, purchasing and inventory management. Our current systems provide virtual redundancy but are operated from one physical location in Menlo Park. However, we are in the process of upgrading the level of redundancy for our IT systems. We expect these upgrades to take one to two years to complete. While we will attempt to mitigate interruptions, we may experience difficulties in implementing some upgrades which could impact our business operations, or experience difficulties in operating our business during the upgrade, either of which could disrupt our operations, including our ability to timely ship and track product orders, project inventory requirements, manage our supply chain and otherwise adequately service our customers. In the event we experience significant disruptions as a result of the current implementation of our information technology systems, we may not be able to repair our systems in an efficient and timely manner. Accordingly, such events may disrupt or reduce the efficiency of our entire operation and have a material adverse effect on our results of operations and cash flows.
We are increasingly dependent on sophisticated information technology for our infrastructure. Our information systems require an ongoing commitment of significant resources to maintain, protect and enhance existing systems. Failure to maintain or protect our information systems and data integrity effectively could have a materially adverse effect on our business. For example, third parties may attempt to hack into our information systems and may obtain our proprietary information.
Fluctuations in insurance costs and availability could adversely affect our profitability or our risk management profile.
We hold a number of insurance policies, including product liability insurance, directors and officers liability insurance, general liability insurance, property insurance and workers compensation insurance. If the costs of maintaining adequate insurance coverage increase significantly in the future, our operating results could
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be materially adversely affected. Likewise, if any of our current insurance coverage should become unavailable to us or become economically impractical, we would be required to operate our business without indemnity from commercial insurance providers. If we operate our business without insurance, we could be responsible for paying claims or judgments against us that would have otherwise been covered by insurance, which could adversely affect our results of operations or financial condition.
Risks Relating to Regulatory Matters
The existence of adequate coverage and reimbursement is important for sales of our products. Inadequate coverage and reimbursement policies for procedures using our steroid-eluting implants could affect the adoption of our products and our future revenue.
Successful sales of our steroid-eluting implants depend on the availability of adequate coverage and reimbursement from third-party payors for either the products specifically, the procedures associated with the use of the products, or both. Providers that purchase our products generally rely on third-party payors to reimburse all or part of the costs and fees associated with the procedures performed with these medical devices or the devices themselves. Adequate coverage and reimbursement from third-party payors, including governmental payors, such as Medicare and Medicaid, therefore, is important for obtaining product acceptance and widespread adoption in the marketplace.
In the United States, coverage and reimbursement for medical devices vary among payors. In addition, payors continually review new technologies for possible coverage and can, without notice, deny coverage for these new products and procedures. We estimate that, as of March 31, 2014, private payors covering approximately 37% of U.S. covered lives currently have non-coverage policies with respect to PROPEL and PROPEL mini and they consider these products investigational or experimental. Some governmental and private third-party payors do not currently cover or reimburse our products because they have determined insufficient evidence of favorable clinical outcomes is available. Although they consider the steroid-eluting implants investigational or experimental at this time, these payors may in the future determine sufficient evidence has been developed to cover and reimburse our products and related procedures. We are actively working to reverse these non-coverage decisions but cannot provide assurance that we will be successful in these efforts. If we are not successful in reversing existing non-coverage policies, or if other third-party payors issue similar policies, this could have a material adverse effect on our business and operations. Further, third-party payors who currently cover and reimburse customers for procedures using our products may in the future choose to decrease current levels of reimbursement or eliminate reimbursement altogether, either of which will cause our business to suffer.
To contain costs of new technologies, governmental healthcare programs and third-party payors are increasingly scrutinizing new and even existing treatments by requiring extensive evidence of favorable clinical outcomes and cost effectiveness before extending or continuing coverage, respectively. Such evidence generally must be derived from well-designed independent studies and published in peer-reviewed journals. Payors also may be influenced by positive position statements on the value of this technology issued by medical specialty societies. For example, payors may be persuaded to extend coverage by positive clinical data demonstrating the long-term safety and efficacy of FESS performed with our steroid-eluting implants against FESS alone. A long-term clinical study randomizing FESS using our products against FESS alone would require an extremely large patient population to demonstrate these differences, and would be expensive and time-consuming. We have not conducted and are not currently planning to conduct such a study. Further, even positive study results do not guarantee adequate third-party payor coverage and reimbursement. Although the American Rhinologic Society has issued a positive position statement regarding the use of our steroid-eluting implants, if the society changes its position in an unfavorable manner, third-party payors may reverse existing favorable coverage and reimbursement policies or otherwise decline to adopt favorable policies for our products, either of which will cause our business to suffer.
Generally, third-party payors currently reimburse hospitals and ambulatory surgery centers and physicians for the FESS procedures during which our technology is implanted using existing Category I Current Procedure Terminology, or CPT, codes relating to the FESS procedures performed. These CPT codes do not currently distinguish between procedures performed with or without our steroid-eluting implants. The amount of reimbursement received by our customers from third-party payors is dependent generally on fee schedules
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established by these payors for the existing FESS CPT codes. For governmental payors, such as Medicare and Medicaid, the fee schedule amount is determined by statutory and regulatory formulas. For commercial payors, the reimbursement amount generally is dependent upon the specific contract terms between the provider and payor. We cannot provide assurance that government or private third-party payors will continue to reimburse for FESS with our products using the existing codes, nor can we provide assurance that the payment rates will be adequate. If providers and physicians are unable to obtain reimbursement for FESS with the use of our products at cost-effective levels, this could have a material adverse effect on our business and operations. Hospitals and ambulatory surgery centers are unlikely to purchase our products if they do not receive payment sufficient to cover the cost of our products and related procedures. In addition, in the event that the current coding and/or payment methodology for these procedures changes, this could have a material adverse effect on our business and business operations.
To secure separate payment for our products, whether for our currently marketed products or those under development, a unique billing code is required for either the implant, the procedure associated with use of our products, or both. Although a unique billing code currently exists for our marketed products it is not associated with payment by most payors and is not reportable to many payors, including Medicare. New billing codes, including CPT codes, may be developed which are both reportable and payable. In addition, new billing codes may be developed for the specific procedure performed to implant our products. As of now, it is not possible to assess the full impact of product or procedure-specific codes on our business or results of operations or the likelihood of securing such specific codes. If new product or procedure-specific codes are adopted, and the levels of reimbursement declines significantly below current levels, our business and results of operations would be harmed and our stock price would likely decline.
Healthcare cost containment pressures and legislative or administrative reforms resulting in restrictive reimbursement practices of third-party payors could decrease the demand for our products, the prices that customers are willing to pay and the number of procedures performed using our steroid-eluting implants, which could have an adverse effect on our business.
All third-party payors, whether governmental or commercial, whether inside the United States or outside, are developing increasingly sophisticated methods of controlling healthcare costs. These cost-control methods include prospective payment systems, bundled payment models, capitated arrangements, group purchasing, benefit redesign, pre-authorization processes, and requirements for second opinions prior to major surgery. These cost-control methods also potentially limit the amount that healthcare providers may be willing to pay for medical devices. Therefore, coverage or reimbursement for medical devices may decrease in the future.
Further, from time to time, typically on an annual basis, payment amounts are updated and revised by third-party payors. Because the cost of our products generally is recovered by the healthcare provider as part of the payment for performing a procedure and not separately reimbursed, these updates could directly impact the demand for our products. An example of payment updates is the Medicare program updates to physician payments, which is done on an annual basis using a prescribed statutory formula. In the past, when the application of the formula resulted in lower payment, Congress has passed interim legislation to prevent the reductions. Most recently, the Protecting Access to Medicare Act of 2014, signed into law in April 2014, provided for a 0.5% update from 2013 payment rates under the Medicare Physician Fee Schedule through 2014 and a 0% update from January 1 until April 1, 2015. If Congress fails to intervene to prevent the negative update factor in future years, the resulting decrease in payment may adversely affect our revenue and results of operations. In addition, the Medicare physician fee schedule has been adapted by some private payors into their plan-specific physician payment schedule. We cannot predict how pending and future healthcare legislation will impact our business, and any changes in coverage and reimbursement that further restricts coverage of our products or lowers reimbursement for procedures using our products could materially affect our business.
Reimbursement in international markets may require us to undertake country-specific reimbursement activities, including additional clinical studies, which could be time-consuming and expensive and may not yield acceptable reimbursement rates.
In international markets, market acceptance of our products will likely depend in large part on the availability of reimbursement within prevailing healthcare payment systems. Reimbursement and healthcare
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payment systems in international markets vary significantly by country, and by region in some countries, and include both government-sponsored healthcare and private insurance. We may not obtain international reimbursement approvals in a timely manner, if at all. In addition, even if we do obtain international reimbursement approvals, the level of reimbursement may not be enough to commercially justify expansion of our business into the approving jurisdiction. To the extent we or our customers are unable to obtain reimbursement for our steroid-eluting implants in major international markets in which we seek to market and sell our products, our international revenue growth would be harmed, and our business and results of operations would be adversely affected.
Our products are subject to extensive regulation by the FDA, including the requirement to obtain premarket approval and the requirement to report adverse events. If we fail to obtain necessary FDA device or drug approvals for our products, or are subject to regulatory enforcement action as a result of our failure to properly report adverse events or otherwise comply with regulatory requirements, our commercial operations would be harmed.
Our steroid-eluting implants are subject to extensive regulation by the FDA and various other federal, state and foreign governmental authorities. The PMA and New Drug Application, or NDA, approval processes can be expensive and lengthy. Despite the time, effort and cost required to obtain approval, there can be no assurance that any product that we intend to commercialize in the future will be approved by the FDA in a timely fashion, if at all. For example, we do not have any prior experience in obtaining approval of an NDA, and this lack of experience may delay or adversely affect our ability to obtain approval for our steroid-eluting implant for refractory disease treated in the physician office setting, which will require NDA approval prior to commercialization in the United States.
Our marketed products are subject to Medical Device Reporting, or MDR, obligations, which require that we report to the FDA any incident in which our products may have caused or contributed to a death or serious injury, or in which our products malfunctioned and, if the malfunction were to recur, it could likely cause or contribute to a death or serious injury. We take a conservative approach in reporting MDRs and have had eight events occur postoperatively with PROPEL and PROPEL mini that we have reported to FDA as MDRs, six of which were for infections and two of which were for adhesions.
The FDA and state authorities have broad enforcement powers. Our failure to comply with applicable regulatory requirements could result in enforcement action by the FDA or state agencies, which may include any of the following sanctions:
| adverse publicity, warning letters, fines, injunctions, consent decrees and civil penalties; |
| repair, replacement, recall or seizure of our products; |
| operating restrictions or partial suspension or total shutdown of production; |
| delaying or refusing our requests for approval of new products, new intended uses or modifications to our existing products; |
| refusal to grant export approval for our products; |
| withdrawing PMAs that have already been granted; and |
| criminal prosecution. |
If any of these enforcement actions were to be taken by the government, our business could be harmed.
If we materially modify our FDA-approved products, we may need to seek and obtain new approvals, which, if not granted, would prevent us from selling our modified products.
A component of our strategy is to continue to modify and upgrade our steroid-eluting implants. Medical devices can be marketed only for the indications for which they are approved. We have received a number of PMA supplement approvals since the original approvals of PROPEL and PROPEL mini. We may not be able to obtain additional regulatory approvals for new products or for modifications to, or additional indications for, our existing product in a timely fashion, or at all. Delays in obtaining future approvals would adversely affect our
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ability to introduce new or enhanced products in a timely manner, which in turn would harm our revenue and potential future profitability.
We may fail to obtain foreign regulatory approvals to market our products in other countries.
We do not have any sales outside the United States. Sales of our steroid-eluting implants outside the United States are subject to foreign regulatory requirements that vary widely from country to country. In addition, the FDA regulates exports of medical devices from the United States. Complying with international regulatory requirements can be an expensive and time-consuming process and approval is not certain. The time required to obtain approvals, if required by other countries, may be longer than that required for FDA approvals, and requirements for such approvals may significantly differ from FDA requirements. In certain countries we may rely upon a third-party or third party distributors to obtain all required regulatory approvals, and these distributors may be unable to obtain or maintain such approvals. Our distributors in these countries may also incur significant costs in attempting to obtain and in maintaining foreign regulatory approvals or qualifications, which could increase the difficulty of attracting and retaining qualified distributors. If these distributors experience delays in receiving necessary qualifications, clearances or approvals to market our products outside the United States, or if they fail to receive those qualifications, clearances or approvals, we may be unable to market our products or enhancements in certain international markets effectively, or at all.
If we expand our operations outside the United States, we will need to expand our international marketing. International jurisdictions require separate regulatory approvals and compliance with numerous and varying regulatory requirements. The approval procedures vary among countries and may involve requirements for additional testing, and the time required to obtain approval may differ from country to country and from that required to obtain clearance or approval in the United States.
Approval in the United States does not ensure approval or certification by regulatory authorities in other countries or jurisdictions, and approval or certification by one foreign regulatory authority does not ensure approval or certification by regulatory authorities in other foreign countries or by the FDA. The foreign regulatory approval or certification process may include all of the risks associated with obtaining FDA approval. In addition, some countries only approve or certify a product for a certain period of time, and we are required to re-approve or re-certify our products in a timely manner prior to the expiration of our prior approval or certification. We may not obtain foreign regulatory approvals on a timely basis, if at all. We may not be able to file for regulatory approvals or certifications and may not receive necessary approvals to commercialize our products in any market. If we fail to receive necessary approvals or certifications to commercialize our products in foreign jurisdictions on a timely basis, or at all, or if we fail to have our products re-approved or re-certified, our business, results of operations and financial condition could be adversely affected.
These and other factors may have a material adverse effect on our international operations or on our business, results of operations and financial condition generally.
If we or our suppliers fail to comply with ongoing FDA or foreign regulatory authority requirements, or if we experience unanticipated problems with our products, these products could be subject to restrictions or withdrawal from the market.
Any product for which we obtain approval, and the manufacturing processes, reporting requirements, post-approval clinical data and promotional activities for such product, will be subject to continued regulatory review, oversight and periodic inspections by the FDA and other domestic and foreign regulatory bodies. In particular, we and our third-party suppliers are required to comply with the FDAs current good manufacturing practice. These FDA regulations cover the methods and documentation of the design, testing, production, control, quality assurance, labeling, packaging, sterilization, storage and shipping of our products. Compliance with applicable regulatory requirements is subject to continual review and is monitored rigorously through periodic inspections by the FDA. If we, or our manufacturers, fail to adhere to current good manufacturing practice requirements in the United States, this could delay production of our products and lead to fines, difficulties in obtaining regulatory approvals, recalls, enforcement actions, including injunctive relief or consent decrees, or other consequences, which could, in turn, have a material adverse effect on our financial condition or results of operations.
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In addition, the FDA audits compliance with the current good manufacturing practice through periodic announced and unannounced inspections of manufacturing and other facilities. The failure by us or one of our suppliers to comply with applicable statutes and regulations administered by the FDA, or the failure to timely and adequately respond to any adverse inspectional observations or product safety issues, could result in any of the following enforcement actions:
| untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties; |
| unanticipated expenditures to address or defend such actions; |
| customer notifications or repair, replacement, refunds, recall, detention or seizure of our products; |
| operating restrictions, partial suspension or total shutdown of production; |
| refusing or delaying our requests for regulatory approvals of new products or modified products; |
| withdrawing PMA approvals that have already been granted; |
| refusal to grant export approval for our products; or |
| criminal prosecution. |
Any of these sanctions could have a material adverse effect on our reputation, business, results of operations and financial condition. Furthermore, our key component suppliers may not currently be or may not continue to be in compliance with all applicable regulatory requirements, which could result in our failure to produce our products on a timely basis and in the required quantities, if at all.
If we expand our operations outside the United States, our products and operations will be required to comply with standards set by foreign regulatory bodies, and those standards, types of evaluation and scope of review differ among foreign regulatory bodies. We intend to comply with the standards enforced by such foreign regulatory bodies as needed to commercialize our products. If we fail to comply with any of these standards adequately, a foreign regulatory body may take adverse actions similar to those within the power of the FDA. For example, if we seek to obtain CE marks permitting us to commercially distribute our products in Europe, we will be subject to a conformity assessment procedure under which a so-called Notified Body, an organization accredited by a member state of the European Economic Area, or EEA, will audit and examine our quality system for the manufacture, design, and release of our products and confirm adherence with applicable regulatory requirements. If we fail to obtain or maintain a CE mark in accordance with these requirements, we would be precluded from selling our products in the EEA. Any such action or circumstance may harm our reputation and business, and could have an adverse effect on our business, results of operations and financial condition.
Our products may in the future be subject to product recalls. A recall of our products, either voluntarily or at the direction of the FDA or another governmental authority, or the discovery of serious safety issues with our products, could have a significant adverse impact on us.
The FDA and similar foreign governmental authorities have the authority to require the recall of commercialized products in the event of material deficiencies or defects in design or manufacture. In the case of the FDA, the authority to require a recall must be based on an FDA finding that there is reasonable probability that the device would cause serious injury or death. In addition, foreign governmental bodies have the authority to require the recall of our products in their respective jurisdictions in the event of material deficiencies or defects in the design or manufacture of our products. We may, under our own initiative, recall a product if any material deficiency in our steroid-eluting implants is found. The FDA requires that recalls be reported to the FDA within 10 working days after the recall is initiated. A government-mandated or voluntary recall by us or one of our international distributors could occur as a result of an unacceptable risk to health, component failures, malfunctions, manufacturing errors, design or labeling defects or other deficiencies and issues. Recalls of any of our products would divert managerial and financial resources and have an adverse effect on our reputation, results of operations and financial condition, which could impair our ability to produce our products in a cost- effective and timely manner in order to meet our customers demands. We may also be subject to liability claims, be required to bear other costs, or take other actions that may have a negative impact on our future sales and our ability to generate profits. Companies are required to maintain certain records of recalls, even if they are not
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reportable to the FDA. We may initiate voluntary recalls involving our products in the future that we determine do not require notification of the FDA. If the FDA disagrees with our determinations, they could require us to report those actions as recalls. A future recall announcement could harm our reputation with customers and negatively affect our sales. In addition, the FDA could take enforcement action for failing to report the recalls when they were conducted.
If the third parties on which we rely to conduct our clinical trials and to assist us with pre-clinical development do not perform as contractually required or expected, we may not be able to obtain regulatory approval for or commercialize our products.
We often must rely on third parties, such as medical institutions, clinical investigators, contract research organizations and contract laboratories to conduct our clinical trials and provide data or prepare deliverables for our PMA or NDA submissions. If these third parties do not successfully carry out their contractual duties or regulatory obligations or meet expected deadlines, if these third parties need to be replaced, or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our pre-clinical development activities or clinical trials may be extended, delayed, suspended or terminated, and we may not be able to obtain regulatory approval for, or successfully commercialize, our products on a timely basis, if at all, and our business, operating results and prospects may be adversely affected. Furthermore, our third-party clinical trial investigators may be delayed in conducting our clinical trials for reasons outside of their control.
We may be subject to enforcement action if we engage in improper marketing or promotion of our products.
Our promotional materials and training methods must comply with FDA and other applicable laws and regulations, including the prohibition of the promotion of unapproved, or off-label, use. Physicians may use our products off-label, as the FDA does not restrict or regulate a physicians choice of treatment within the practice of medicine. However, if the FDA determines that our promotional materials or training constitutes promotion of an off-label use, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions, including the issuance of an untitled letter, a warning letter, injunction, seizure, civil fine or criminal penalties. It is also possible that other federal, state or foreign enforcement authorities might take action if they consider our promotional or training materials to constitute promotion of an off-label use, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement. In that event, our reputation could be damaged and adoption of the products could be impaired. Although our policy is to refrain from statements that could be considered off-label promotion of our products, the FDA or another regulatory agency could disagree and conclude that we have engaged in off-label promotion. In addition, the off-label use of our products may increase the risk of product liability claims. Product liability claims are expensive to defend and could divert our managements attention, result in substantial damage awards against us, and harm our reputation.
If we fail to comply with U.S. federal and state healthcare regulatory laws, we could be subject to penalties, including, but not limited to, administrative, civil and criminal penalties, damages, fines, disgorgement, exclusion from participation in governmental healthcare programs, and the curtailment of our operations, any of which could adversely impact our reputation and business operations.
There are numerous U.S. federal and state healthcare regulatory laws, including, but not limited to, anti-kickback laws, false claims laws, privacy laws, and transparency laws. Our relationships with healthcare providers and entities, including but not limited to, physicians, hospitals, ambulatory surgery centers, group purchasing organizations and our international distributors are subject to scrutiny under these laws. Violations of these laws can subject us to penalties, including, but not limited to, administrative, civil and criminal penalties, damages, fines, disgorgement, imprisonment, exclusion from participation in federal and state healthcare programs, including the Medicare, Medicaid and Veterans Administration health programs, and the curtailment of our operations. Healthcare fraud and abuse regulations are complex, and even minor irregularities can
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potentially give rise to claims that a statute or prohibition has been violated. The laws that may affect our ability to operate include, but are not limited to:
| the federal Anti-Kickback Statute, which prohibits, among other things, persons and entities from knowingly and willfully soliciting, receiving, offering, or paying remuneration, directly or indirectly, in cash or in kind, in exchange for or to induce either the referral of an individual for, or the purchase, lease, order or recommendation of, any good, facility, item or service for which payment may be made, in whole or in part, under federal healthcare programs such as Medicare and Medicaid; |
| the federal civil False Claims Act, which prohibits, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid or other third-party payors that are false or fraudulent; knowingly making using, or causing to be made our used, a false record or statement to get a false or fraudulent claim paid or approved by the government; or knowingly making, using, or causing to be made or used, a false record or statement to avoid, decrease or conceal an obligation to pay money to the federal government; |
| the federal criminal False Claims Act, which imposes criminal fines or imprisonment against individuals or entities who make or present a claim to the government knowing such claim to be false, fictitious or fraudulent; |
| the civil monetary penalties statute, which imposes penalties against any person or entity who, among other things, is determined to have presented or caused to be presented, a claim to a federal healthcare program that the person knows, or should know, is for an item or service that was not provided as claimed or is false or fraudulent; |
| the federal Health Insurance Portability and Accountability Act of 1996, as amended, which created federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters; |
| HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and their respective implementing regulations, which impose requirements on certain covered healthcare providers, health plans and healthcare clearinghouses as well as their business associates that perform services for them that involve individually identifiable health information, relating to the privacy, security and transmission of individually identifiable health information without appropriate authorization, including mandatory contractual terms as well as directly applicable privacy and security standards and requirements; |
| the Federal Trade Commission Act and similar laws regulating advertisement and consumer protections; |
| the federal Foreign Corrupt Practices Act of 1997, which prohibits corrupt payments, gifts or transfers of value to foreign officials; and |
| foreign or U.S. state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers. |
Further, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or, collectively, the Affordable Care Act, among other things, amends the intent requirements of the federal Anti-Kickback Statute and certain criminal statutes governing healthcare fraud. A person or entity can now be found guilty of violating the statute without actual knowledge of the statute or specific intent to violate it. In addition, the Affordable Care Act provides that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act. Moreover, while we do not submit claims and our customers make the ultimate decision on how to submit claims, from time-to-time, we may provide reimbursement guidance to our customers. If a government authority were to conclude that we provided improper advice to our customers or encouraged the submission of false claims for reimbursement, we could face action against us by government authorities. Any violations of these laws, or any action against us for violation of these laws, even if we successfully defend against it, could result in a material adverse effect on our reputation, business, results of operations and financial condition.
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We have entered into consulting agreements with physicians, including some who influence the ordering of and use our products in procedures they perform. While we believe these transactions were structured to comply with all applicable laws, including state and federal anti-kickback laws, to the extent applicable, regulatory agencies may view these transactions as prohibited arrangements that must be restructured, or discontinued, or for which we could be subject to other significant penalties. We could be adversely affected if regulatory agencies interpret our financial relationships with ENT physicians who influence the ordering of and use our products to be in violation of applicable laws. This could subject us to the penalties described above.
Because of the breadth of these laws and the narrowness of the statutory exceptions and regulatory safe harbors available under such laws, it is possible that some of our business activities, including our relationships with healthcare providers and entities, including, but not limited to, physicians, hospitals, ambulatory surgery centers, group purchasing organizations and our independent distributors and certain sales and marketing practices, including the provision of certain items and services to our customers, could be subject to challenge under one or more of such laws.
To enforce compliance with the healthcare regulatory laws, federal and state enforcement bodies have recently increased their scrutiny of interactions between healthcare companies and healthcare providers, which has led to a number of investigations, prosecutions, convictions and settlements in the healthcare industry. Responding to investigations can be time-and resource-consuming and can divert managements attention from the business. Additionally, as a result of these investigations, healthcare providers and entities may have to agree to additional onerous compliance and reporting requirements as part of a consent decree or corporate integrity agreement. Any such investigation or settlement could increase our costs or otherwise have an adverse effect on our business.
In certain cases, federal and state authorities pursue actions for false claims on the basis that manufacturers and distributors are promoting off-label uses of their products. Pursuant to FDA regulations, we can only market our products for cleared or approved uses. Although physicians are permitted to use medical devices for indications other than those cleared or approved by the FDA in their professional medical judgment, we are prohibited from promoting products for off-label uses. We market our products and provide promotional materials and training programs to physicians regarding the use of our products. If it is determined that our business activities, including our marketing, promotional materials or training programs constitute promotion of unapproved uses, we could be subject to significant fines in addition to regulatory enforcement actions, including the issuance of a warning letter, injunction, seizure and criminal penalty.
In addition, there has been a recent trend of increased federal and state regulation of payments and transfers of value provided to healthcare professionals or entities. On February 8, 2013, the Centers for Medicare & Medicaid Services, or CMS, released its final rule implementing section 6002 of the Affordable Care Act known as the Physician Payment Sunshine Act that imposes new annual reporting requirements on device manufacturers for payments and other transfers of value provided by them, directly or indirectly, to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their family members. A manufacturers failure to submit timely, accurately and completely the required information for all payments, transfers of value or ownership or investment interests may result in civil monetary penalties of up to an aggregate of $150,000 per year, and up to an aggregate of $1.0 million per year for knowing failures. The period between August 1, 2013, and December 31, 2013 was the first reporting period, for which manufacturers were required to report aggregate payment data to CMS by March 31, 2014. Manufacturers also will be required to report to CMS detailed payment and transfers of value data and submit legal attestation to the accuracy of such data during Phase 2 of the program, which is expected to begin in May 2014 and extends for at least 30 days. Thereafter, manufacturers must submit reports by the 90th day of each subsequent calendar year. Due to the difficulty in complying with the Physician Payment Sunshine Act, we cannot assure you that we will successfully report all payments and transfers of value provided by us, and any failure to comply could result in significant fines and penalties. Some states, such as California and Connecticut, also mandate implementation of commercial compliance programs, and other states, such as Massachusetts and Vermont, impose restrictions on device manufacturer marketing practices and tracking and reporting of gifts, compensation and other remuneration to healthcare professionals and entities. The shifting commercial compliance environment and the need to build and maintain robust and expandable systems to comply with different compliance and reporting requirements in multiple jurisdictions increase the possibility that a healthcare company may fail to comply fully with one or more of these requirements.
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Although compliance programs can mitigate the risk of investigation and prosecution for violations of these laws, the risks cannot be entirely eliminated. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our managements attention from the operation of our business.
Most of these laws apply to not only the actions taken by us, but also actions taken by our distributors. We have limited knowledge and control over the business practices of our distributors, and we may face regulatory action against us as a result of their actions which could have a material adverse effect on our reputation, business, results of operations and financial condition.
In addition, the scope and enforcement of these laws is uncertain and subject to rapid change in the current environment of healthcare reform, especially in light of the lack of applicable precedent and regulations. Federal or state regulatory authorities might challenge our current or future activities under these laws. Any such challenge could have a material adverse effect on our reputation, business, results of operations and financial condition. Any state or federal regulatory review of us, regardless of the outcome, would be costly and time-consuming. Additionally, we cannot predict the impact of any changes in these laws, whether or not retroactive.
Legislative or regulatory healthcare reforms may make it more difficult and costly for us to obtain regulatory approval of our products and to produce, market and distribute our products after approval is obtained.
FDA regulations and guidance are often revised or reinterpreted by the FDA in ways that may significantly affect our business and our products. Any new regulations or revisions or reinterpretations of existing regulations may impose additional costs or lengthen review times of our products. Delays in receipt of, or failure to receive, regulatory approvals for our new products would have a material adverse effect on our business, results of operations and financial condition.
Federal and state governments in the United States have recently enacted legislation to overhaul the nations healthcare system. While the goal of healthcare reform is to expand coverage to more individuals, it also involves increased government price controls, additional regulatory mandates and other measures designed to constrain medical costs. The Affordable Care Act significantly impacts the medical device industry. Among other things, the Affordable Care Act:
| imposes an annual excise tax of 2.3% on any entity that manufactures or imports medical devices offered for sale in the United States beginning in 2013; |
| establishes a new Patient-Centered Outcomes Research Institute to oversee and identify priorities in comparative clinical effectiveness research in an effort to coordinate and develop such research; |
| implements payment system reforms including a national pilot program on payment bundling to encourage hospitals, physicians and other providers to improve the coordination, quality and efficiency of certain healthcare services through bundled payment models; and |
| creates an independent payment advisory board that will submit recommendations to reduce Medicare spending if projected Medicare spending exceeds a specified growth rate. |
In addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted. On August 2, 2011, President Obama signed into law the Budget Control Act of 2011, which, among other things, created the Joint Select Committee on Deficit Reduction to recommend to Congress proposals in spending reductions. The Joint Select Committee did not achieve a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, triggering the legislations automatic reduction to several government programs. This includes reductions to Medicare payments to providers of 2% per fiscal year, which went into effect in April 2013 and will stay in effect through 2024, unless additional congressional action is taken. On January 2, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, or the ATRA, which, among other things, further reduced Medicare payments to several providers, including hospitals, imaging centers and cancer treatment centers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our products or additional pricing pressure.
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Our financial performance may be adversely affected by medical device tax provisions in the healthcare reform laws.
The Affordable Care Act imposes, among other things, an excise tax of 2.3% on any entity that manufactures or imports specified medical devices offered for sale in the United States beginning in 2013. Under these provisions, the Congressional Research Service predicts that the total cost to the medical device industry may be up to $29 billion over the next decade. The Internal Revenue Service issued final regulations implementing the tax in December of 2012 which requires, among other things, bi-monthly payments and quarterly reporting. We anticipate that primarily all sales of our products in the United States will be subject to this 2.3% excise tax. During the year ended December 31, 2013, we recognized $0.3 million in tax expense associated with the medical device tax in the United States, which is included in selling, general and administrative expenses.
Our operations involve the use of hazardous and toxic materials, and we must comply with environmental laws and regulations, which can be expensive, and may affect our business and operating results.
We are subject to a variety of federal, state and local regulations relating to the use, handling, storage, disposal and human exposure to hazardous materials. Liability under environmental laws can be joint and several and without regard to comparative fault, and environmental laws could become more stringent over time, imposing greater compliance costs and increasing risks and penalties associated with violations, which could harm our business. Although we believe that our activities conform in all material respects with environmental laws, there can be no assurance that violations of environmental and health and safety laws will not occur in the future as a result of human error, accident, equipment failure or other causes. The failure to comply with past, present or future laws could result in the imposition of fines, third-party property damage and personal injury claims, investigation and remediation costs, the suspension of production, or a cessation of operations. We also expect that our operations will be affected by other new environmental and health and safety laws on an ongoing basis. Although we cannot predict the ultimate impact of any such new laws, they will likely result in additional costs, and may require us to change how we manufacture our products, which could have a material adverse effect on our business.
Failure to comply with the United States Foreign Corrupt Practices Act, or the FCPA, and similar laws associated with any activities outside the United States could subject us to penalties and other adverse consequences.
We are subject to the FCPA and other anti-bribery legislation around the world. The FCPA generally prohibits covered entities and their intermediaries from engaging in bribery or making other prohibited payments, offers or promises to foreign officials for the purpose of obtaining or retaining business or other advantages. In addition, the FCPA imposes recordkeeping and internal controls requirements on publicly traded corporations and their foreign affiliates, which are intended to, among other things, prevent the diversion of corporate funds to the payment of bribes and other improper payments, and to prevent the establishment of off books slush funds from which such improper payments can be made. Although we do not currently have any operations outside the United States, in the future we may face significant risks if we fail to comply with the FCPA and other laws that prohibit improper payments, offers or promises of payment to foreign governments and their officials and political parties by us and other business entities for the purpose of obtaining or retaining business or other advantages. In many foreign countries, particularly in countries with developing economies, some of which represent significant markets for us, it may be a local custom that businesses operating in such countries engage in business practices that are prohibited by the FCPA or other laws and regulations. Although we have implemented a company policy requiring our employees and consultants to comply with the FCPA and similar laws, such policy may not be effective at preventing all potential FCPA or other violations. There can be no assurance that none of our employees and agents, or those companies to which we outsource certain of our business operations will not take actions that violate our policies or applicable laws, for which we may be ultimately held responsible. As a result of our focus on managing our growth, our development of infrastructure designed to identify FCPA matters and monitor compliance is at an early stage. Any violation of the FCPA and related policies could result in severe criminal or civil sanctions, which could have a material and adverse effect on our reputation, business, operating results and financial condition.
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Risks Relating to Intellectual Property Matters
Intellectual property rights may not provide adequate protection, which may permit third parties to compete against us more effectively.
Our success depends significantly on our ability to protect our proprietary rights to the technologies and inventions used in, or embodied by, our products. To protect our proprietary technology, we rely on patent protection, as well as a combination of copyright, trade secret and trademark laws, as well as nondisclosure, confidentiality and other contractual restrictions in our consulting and employment agreements. However, these legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep any competitive advantage.
Patents
The process of applying for patent protection itself is time consuming and expensive and we cannot assure you that all of our patent applications will issue as patents or that, if issued, they will issue in a form that will be advantageous to us. The rights granted to us under our patents, including prospective rights sought in our pending patent applications, may not be meaningful or provide us with any commercial advantage and they could be opposed, contested or circumvented by our competitors or be declared invalid or unenforceable in judicial or administrative proceedings.
We own numerous issued patents and pending patent applications that relate to the sinus delivery of sustained release therapeutics, sinus delivery of implants, implant designs as well as individual components of our steroid-eluting implants. The API contained in our steroid-eluting implants is generic and is not the subject of independent patent protection. If any of our patents are challenged, invalidated or legally circumvented by third parties, and if we do not own other enforceable patents protecting our products, competitors could market products and use processes that are substantially similar to, or superior to, ours, and our business will suffer. In addition, the patents we own may not be of sufficient scope or strength to provide us with any meaningful protection or commercial advantage, and competitors may be able to design around our patents or develop products that provide outcomes comparable to ours without infringing on our intellectual property rights.
Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents. On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes a number of significant changes to U.S. patent law. These include provisions that affect the way patent applications are prosecuted, redefine prior art, may affect patent litigation, and switch the U.S. patent system from a first-to-invent system to a first-to-file system. Under a first-to-file system, assuming the other requirements for patentability are met, the first inventor to file a patent application generally will be entitled to the patent on an invention regardless of whether another inventor had made the invention earlier. The U.S. Patent and Trademark Office, or USPTO, recently developed new regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act, and in particular, the first-to-file provisions, only became effective on March 16, 2013. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business and financial condition. In addition, patent reform legislation may pass in the future that could lead to additional uncertainties and increased costs surrounding the prosecution, enforcement, and defense of our patents and applications.
We may be subject to a third-party preissuance submission of prior art to the USPTO, or become involved in opposition, derivation, reexamination, inter partes review, post-grant review, or other patent office proceedings or litigation, in the United States or elsewhere, challenging our patent rights or the patent rights of others. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our technology or products and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize products without infringing third-party patent rights.
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Moreover, the USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. In addition, periodic maintenance fees on issued patents often must be paid to the USPTO and foreign patent agencies over the lifetime of the patent. While an unintentional lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. If we fail to maintain the patents and patent applications covering our products or procedures, we may not be able to stop a competitor from marketing products that are the same as or similar to our products, which would have a material adverse effect on our business.
Furthermore, we do not have patent rights in certain foreign countries in which a market may exist in the future, and the laws of many foreign countries may not protect our intellectual property rights to the same extent as the laws of the United States. Thus, we may not be able to stop a competitor from marketing and selling in foreign countries products that are the same as or similar to our products.
Trademarks
We rely on our trademarks as one means to distinguish our products from the products of our competitors, and have registered or applied to register many of these trademarks. Our trademark applications may not be approved, however. Third parties may oppose our trademark applications, or otherwise challenge our use of the trademarks. In the event that our trademarks are successfully challenged, we could be forced to rebrand our products, which could result in loss of brand recognition and could require us to devote resources to advertising and marketing new brands. Our competitors may infringe our trademarks and we may not have adequate resources to enforce our trademarks.
Trade Secrets and Know-How
We may not be able to prevent the unauthorized disclosure or use of our technical knowledge or other trade secrets by consultants, vendors, former employees or current employees, despite the existence generally of confidentiality agreements and other contractual restrictions. Monitoring unauthorized uses and disclosures of our intellectual property is difficult, and we do not know whether the steps we have taken to protect our intellectual property will be effective.
Moreover, our competitors may independently develop equivalent knowledge, methods and know-how. Competitors could purchase our steroid-eluting implants and attempt to replicate some or all of the competitive advantages we derive from our development efforts, willfully infringe our intellectual property rights, design around our protected technology or develop their own competitive technologies that fall outside of our intellectual property rights. If our intellectual property is not adequately protected so as to protect our market against competitors products and methods, our competitive position could be adversely affected, as could our business.
We may in the future be a party to patent and other intellectual property litigation and administrative proceedings that could be costly and could interfere with our ability to sell our steroid-eluting implants.
The medical device industry has been characterized by frequent and extensive intellectual property litigation. Additionally, the ENT market is extremely competitive. Our competitors or other patent holders may assert that our steroid-eluting implants and the methods employed in our steroid-eluting implants are covered by their patents. If our steroid-eluting implants or methods are found to infringe, we could be prevented from manufacturing or marketing our steroid-eluting implants. In the event that we become involved in such a dispute, we may incur significant costs and expenses and may need to devote resources to resolving any claims, which would reduce the cash we have available for operations and may be distracting to management. We do not know whether our competitors or potential competitors have applied for, will apply for, or will obtain patents that will prevent, limit or interfere with our ability to make, use, sell, import or export our steroid-eluting implants.
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Competing products may also be sold in other countries in which our patent coverage might not exist or be as strong. If we lose a foreign patent lawsuit, alleging our infringement of a competitors patents, we could be prevented from marketing our steroid-eluting implants in one or more foreign countries. We may also initiate litigation against third parties to protect our own intellectual property. Our intellectual property has not been tested in litigation. If we initiate litigation to protect our rights, we run the risk of having our patents invalidated, which would undermine our competitive position.
Litigation related to infringement and other intellectual property claims, with or without merit, is unpredictable, can be expensive and time-consuming and can divert managements attention from our core business. If we lose this kind of litigation, a court could require us to pay substantial damages, treble damages and attorneys fees, and prohibit us from using technologies essential to our steroid-eluting implants, any of which would have a material adverse effect on our business, results of operations and financial condition. If relevant patents are upheld as valid and enforceable and we are found to infringe, we could be prevented from selling our steroid-eluting implants unless we can obtain licenses to use technology or ideas covered by such patents. We do not know whether any necessary licenses would be available to us on satisfactory terms, if at all. If we cannot obtain these licenses, we could be forced to design around those patents at additional cost or abandon our products altogether. As a result, our ability to grow our business and compete in the market may be harmed.
We may be subject to damages resulting from claims that we or our employees have wrongfully used or disclosed alleged trade secrets of our competitors or are in breach of non-competition or non-solicitation agreements with our competitors.
Many of our employees were previously employed at other medical device companies, including our competitors or potential competitors, in some cases until recently. We could in the future be subject to claims that we or our employees have inadvertently or otherwise used or disclosed alleged trade secrets or other proprietary information of these former employers or competitors. In addition, we have been and may in the future be subject to claims that we caused an employee to breach the terms of his or her non-competition or non-solicitation agreement. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and could be a distraction to management. If our defense to those claims fails, in addition to paying monetary damages, a court could prohibit us from using technologies or features that are essential to our products, if such technologies or features are found to incorporate or be derived from the trade secrets or other proprietary information of the former employers. An inability to incorporate technologies or features that are important or essential to our products would have a material adverse effect on our business, and may prevent us from selling our products. In addition, we may lose valuable intellectual property rights or personnel. Any litigation or the threat thereof may adversely affect our ability to hire employees or contract with independent sales representatives. A loss of key personnel or their work product could hamper or prevent our ability to commercialize our products, which could have an adverse effect on our business, results of operations and financial condition.
Risks Relating to Our Capital Requirements and Finances
We may need substantial additional funding beyond the proceeds of this offering and may be unable to raise capital when needed, which would force us to delay, reduce, eliminate or abandon our commercialization efforts or product development programs.
Our ability to continue as a going concern may require us to obtain additional financing to fund our operations. We may need to raise substantial additional capital to:
| expand the commercialization of our products; |
| fund our operations and clinical studies; |
| continue our research and development activities; |
| defend, in litigation or otherwise, any claims that we infringe third-party patents or other intellectual property rights; |
| enforce our patent and other intellectual property rights; |
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| address legal or enforcement actions by the FDA or other governmental agencies and remediate underlying problems; |
| commercialize our new products in development, if any such products receive regulatory clearance or approval for commercial sale; and |
| acquire companies and in-license products or intellectual property. |
We believe that the net proceeds from this offering, together with our existing cash and cash equivalents, revenue, and available debt financing arrangements will be sufficient to meet our capital requirements and fund our operations until at least through 2016. However, we have based these estimates on assumptions that may prove to be wrong, and we could spend our available financial resources much faster than we currently expect. Any future funding requirements will depend on many factors, including:
| market acceptance of our products; |
| the scope, rate of progress and cost of our clinical studies; |
| the cost of our research and development activities; |
| the cost of filing and prosecuting patent applications and defending and enforcing our patent or other intellectual property rights; |
| the cost of defending, in litigation or otherwise, any claims that we infringe third-party patents or other intellectual property rights; |
| the cost and timing of additional regulatory clearances or approvals; |
| the cost and timing of establishing additional sales, marketing and distribution capabilities; |
| costs associated with any product recall that may occur; |
| the effect of competing technological and market developments; |
| the extent to which we acquire or invest in products, technologies and businesses, although we currently have no commitments or agreements relating to any of these types of transactions; and |
| the costs of operating as a public company. |
If we raise additional funds by issuing equity securities, our stockholders may experience dilution. Any future debt financing into which we enter may impose upon us covenants that restrict our operations, including limitations on our ability to incur liens or additional debt, pay dividends, repurchase our stock, make certain investments and engage in certain merger, consolidation or asset sale transactions. Any debt financing or additional equity that we raise may contain terms that are not favorable to us or our stockholders. If we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish some rights to our technologies or our products, or grant licenses on terms that are not favorable to us. If we are unable to raise adequate funds, we may have to liquidate some or all of our assets, or delay, reduce the scope of or eliminate some or all of our development programs.
We cannot be certain that additional funding will be available on acceptable terms, if at all. If we do not have, or are not able to obtain, sufficient funds, we may have to delay development or commercialization of our products or license to third parties the rights to commercialize products or technologies that we would otherwise seek to commercialize. We also may have to reduce marketing, customer support or other resources devoted to our products or cease operations. Any of these factors could harm our operating results.
Our outstanding debt financing arrangements contain restrictive covenants that may limit our operating flexibility.
The agreements relating to our outstanding debt contain certain covenants limiting our ability to transfer or dispose of assets, merge with or acquire other companies, make investments, pay dividends, incur additional indebtedness and liens and conduct transactions with affiliates. We therefore may not be able to engage in any of the foregoing transactions until our current debt obligations are paid in full or we obtain the consent of the lenders. We cannot assure you that we will be able to generate sufficient cash flows or revenue to meet the
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financial covenants or pay the principal and interest on our debt. Furthermore, we cannot assure you that future working capital, borrowings or equity financing will be available to repay or refinance any such debt.
Our ability to use our net operating losses and research and development credit carryforwards to offset future taxable income may be subject to certain limitations.
In general, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, a corporation that undergoes an ownership change, generally defined as a greater than 50% change by value in its equity ownership over a three-year period, is subject to limitations on its ability to utilize its pre-change net operating losses, or NOLs, and its research and development credit carryforwards to offset future taxable income. Our existing NOLs and research and development credit carryforwards may be subject to limitations arising from previous ownership changes, and if we undergo an ownership change, our ability to utilize NOLs and research and development credit carryforwards could be further limited by Sections 382 and 383 of the Code. Future changes in our stock ownership, some of which might be beyond our control, could result in an ownership change under Section 382 of the Code. For these reasons, in the event we experience a change of control, we may not be able to utilize a material portion of the NOLs and research and development credit carryforwards, even if we attain profitability.
Risks Related to Our Common Stock and This Offering
There has been no prior public market for our common stock and an active trading market may not develop.
Prior to this offering, there has been no public market for our common stock. An active trading market may not develop following completion of this offering or, if developed, may not be sustained. The lack of an active market may impair the value of your shares and your ability to sell your shares at the time you wish to sell them. An inactive market may also impair our ability to both raise capital by selling shares and acquire other complementary products, technologies or businesses by using our shares as consideration.
We expect that the price of our common stock will fluctuate substantially and you may not be able to sell the shares you purchase in this offering at or above the offering price.
The initial public offering price for the shares of our common stock sold in this offering is determined by negotiation between the representatives of the underwriters and us. This price may not reflect the market price of our common stock following this offering. In addition, the market price of our common stock is likely to be highly volatile and may fluctuate substantially due to many factors, including:
| volume and timing of sales of our steroid-eluting implants; |
| the introduction of new products or product enhancements by us or others in our industry; |
| disputes or other developments with respect to our or others intellectual property rights; |
| our ability to develop, obtain regulatory clearance or approval for, and market new and enhanced products on a timely basis; |
| product liability claims or other litigation; |
| quarterly variations in our results of operations or those of others in our industry; |
| sales of large blocks of our common stock, including sales by our executive officers and directors; |
| media exposure of our steroid-eluting implants or products of others in our industry; |
| changes in governmental regulations or in the status of our regulatory approvals or applications; |
| changes in earnings estimates or recommendations by securities analysts; and |
| general market conditions and other factors, including factors unrelated to our operating performance or the operating performance of our competitors. |
In recent years, the stock markets generally have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Broad market
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and industry factors may significantly affect the market price of our common stock, regardless of our actual operating performance. These fluctuations may be even more pronounced in the trading market for our common stock shortly following this offering. If the market price of shares of our common stock after this offering does not ever exceed the initial public offering price, you may not realize any return on your investment in us and may lose some or all of your investment.
In addition, in the past, class action litigation has often been instituted against companies whose securities have experienced periods of volatility in market price. Securities litigation brought against us following volatility in our stock price, regardless of the merit or ultimate results of such litigation, could result in substantial costs, which would hurt our financial condition and operating results and divert managements attention and resources from our business.
These and other factors may make the price of our stock volatile and subject to unexpected fluctuation.
Securities analysts may not publish favorable research or reports about our business or may publish no information at all, which could cause our stock price or trading volume to decline.
If a trading market for our common stock develops, the trading market will be influenced to some extent by the research and reports that industry or financial analysts publish about us and our business. We do not control these analysts. As a newly public company, we may be slow to attract research coverage and the analysts who publish information about our common stock will have had relatively little experience with our company or industry, which could affect their ability to accurately forecast our results and could make it more likely that we fail to meet their estimates. In the event we obtain securities or industry analyst coverage, if any of the analysts who cover us provide inaccurate or unfavorable research or issue an adverse opinion regarding our stock price, our stock price could decline. If one or more of these analysts cease coverage of our company or fail to publish reports covering us regularly, we could lose visibility in the market, which in turn could cause our stock price or trading volume to decline.
We are an emerging growth company and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.
We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and we may take advantage of certain exemptions and relief from various reporting requirements that are applicable to other public companies that are not emerging growth companies. In particular, while we are an emerging growth company (1) we will not be required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, (2) we will be exempt from any rules that may be adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotations or a supplement to the auditors report on financial statements, (3) we will be subject to reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and (4) we will not be required to hold nonbinding advisory votes on executive compensation or stockholder approval of any golden parachute payments not previously approved.
In addition, while we are an emerging growth company we will not be required to comply with any new financial accounting standard until such standard is generally applicable to private companies. As a result, our financial statements may not be comparable to companies that are not emerging growth companies or elect not to avail themselves of this provision.
We may remain an emerging growth company until as late as December 31, 2019, the fiscal year-end following the fifth anniversary of the completion of this initial public offering, though we may cease to be an emerging growth company earlier under certain circumstances, including (1) if the market value of our common stock that is held by nonaffiliates exceeds $700 million as of any June 30, in which case we would cease to be an emerging growth company as of the following December 31, or (2) if our gross revenue exceeds $1.0 billion in any fiscal year.
The exact implications of the JOBS Act are still subject to interpretations and guidance by the SEC and other regulatory agencies, and we cannot assure you that we will be able to take advantage of all of the benefits of the JOBS Act. In addition, investors may find our common stock less attractive if we rely on the exemptions and relief
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granted by the JOBS Act. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may decline or become more volatile.
If you purchase our common stock in this offering, you will incur immediate and substantial dilution in the book value of your shares.
Investors purchasing common stock in this offering will pay a price per share that substantially exceeds the pro forma as adjusted net tangible book value per share. As a result, investors purchasing common stock in this offering will incur immediate dilution of $ per share, based on an assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus, and our pro forma as adjusted net tangible book value per share as of March 31, 2014. For more information on the dilution you may suffer as a result of investing in this offering, see the section entitled Dilution.
This dilution is due to the substantially lower price paid by our investors who purchased shares prior to this offering as compared to the price offered to the public in this offering and the exercise of stock options granted to our employees. The exercise of any of these options would result in additional dilution. As a result of the dilution to investors purchasing shares in this offering, investors may receive significantly less than the purchase price paid in this offering, if anything, in the event of our liquidation.
A significant portion of our total outstanding shares are restricted from immediate resale but may be sold into the market in the near future. This could cause the market price of our common stock to drop significantly, even if our business is doing well.
Sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell their shares, could result in a decrease in the market price of our common stock. Immediately after this offering, we will have outstanding shares of common stock based on the number of shares outstanding as of March 31, 2014. This includes the shares that we are selling in this offering, which may be resold in the public market immediately without restriction, unless purchased by our affiliates. Of the remaining shares, 70,007,428 shares are currently restricted as a result of securities laws or lock-up agreements but will be able to be sold after the offering as described in the section of this prospectus entitled Shares Eligible for Future Sale. Moreover, immediately after this offering, holders of an aggregate of up to 63,087,119 shares of our common stock, including shares of our common stock issuable upon the exercise or, in certain cases, net exercise of outstanding warrants, will have rights, subject to some conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders as described in the section of this prospectus entitled Description of Capital StockRegistration Rights. We also intend to register all shares of common stock that we may issue under our equity compensation plans. Once we register these shares, they can be freely sold in the public market upon issuance, subject to volume limitations applicable to affiliates and the lock-up agreements described in the Underwriting section of this prospectus.
Our directors, officers and principal stockholders have significant voting power and may take actions that may not be in the best interests of our other stockholders.
After this offering, our officers, directors and principal stockholders each holding more than 5% of our common stock, collectively, will control approximately % of our outstanding common stock. As a result, these stockholders, if they act together, will be able to control the management and affairs of our company and most matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This concentration of ownership may have the effect of delaying or preventing a change of control and might adversely affect the market price of our common stock. This concentration of ownership may not be in the best interests of our other stockholders.
We have broad discretion in the use of proceeds of this offering for working capital and general corporate purposes.
The net proceeds of this offering will be allocated to sales, marketing, research and development activities, clinical and regulatory initiatives, working capital and general corporate purposes. We may also use a portion of the net proceeds of this offering to acquire complementary products, technologies or businesses. Within those
37
categories, we have not determined the specific allocation of the net proceeds of this offering. Our management will have broad discretion over the use and investment of the net proceeds of this offering within those categories. Accordingly, investors in this offering have only limited information concerning managements specific intentions and will need to rely upon the judgment of our management with respect to the use of proceeds.
If we experience material weaknesses in the future or otherwise fail to maintain an effective system of internal controls in the future, we may not be able to accurately report our financial condition or results of operations which may adversely affect investor confidence in us and, as a result, the value of our common stock.
As a result of becoming a public company, we will be required, under Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting beginning with our Annual Report on Form 10-K for the year ended December 31, 2015. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. A material weakness is a deficiency or combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a companys annual and interim financial statements will not be detected or prevented on a timely basis.
We are further enhancing internal controls, processes and related documentation necessary to perform the evaluation needed to comply with Section 404. We may not be able to complete our evaluation, testing and any required remediation in a timely fashion. During the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal controls are effective. The effectiveness of our controls and procedures may be limited by a variety of factors, including:
| faulty human judgment and simple errors, omissions or mistakes; |
| fraudulent action of an individual or collusion of two or more people; |
| inappropriate management override of procedures; and |
| the possibility that any enhancements to controls and procedures may still not be adequate to assure timely and accurate financial control. |
When we cease to be an emerging growth company under the federal securities laws, our auditors will be required to express an opinion on the effectiveness of our internal controls. If we are unable to confirm that our internal control over financial reporting is effective, or if our auditors are unable to express an opinion on the effectiveness of our internal controls, we could lose investor confidence in the accuracy and completeness of our financial reports, which could cause the price of our common stock to decline.
Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.
Upon the closing of this offering, we will become subject to the periodic reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act. We designed our disclosure controls and procedures to provide reasonable assurance that information we must disclose in reports we file or submit under the Exchange Act is accumulated and communicated to management, and recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures, no matter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.
These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements due to error or fraud may occur and not be detected.
38
Provisions in our corporate charter documents and under Delaware law could make an acquisition of us more difficult and may prevent attempts by our stockholders to replace or remove our current management.
Provisions in our amended and restated certificate of incorporation and our amended and restated bylaws that will become effective upon the closing of this offering may discourage, delay or prevent a merger, acquisition or other change in control of us that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors. Because our board of directors is responsible for appointing the members of our management team, these provisions could in turn affect any attempt by our stockholders to replace current members of our management team. Among others, these provisions include that:
| our board of directors has the right to expand the size of our board of directors and to elect directors to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors; |
| our stockholders may not act by written consent or call special stockholders meetings; as a result, a holder, or holders, controlling a majority of our capital stock would not be able to take certain actions other than at annual stockholders meetings or special stockholders meetings called by the board of directors, the chairman of the board, the chief executive officer or the president; |
| our certificate of incorporation prohibits cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; |
| the affirmative vote of holders of at least 66-2/3% of the voting power of all of the then outstanding shares of voting stock, voting as a single class, will be required (a) to amend certain provisions of our certificate of incorporation, including provisions relating to the size of the board, removal of directors, special meetings, actions by written consent and cumulative voting and (b) to amend or repeal our bylaws, although our bylaws may be amended by a simple majority vote of our board of directors; |
| stockholders must provide advance notice and additional disclosures in order to nominate individuals for election to the board of directors or to propose matters that can be acted upon at a stockholders meeting, which may discourage or deter a potential acquiror from conducting a solicitation of proxies to elect the acquirors own slate of directors or otherwise attempting to obtain control of our company; and |
| our board of directors may issue, without stockholder approval, shares of undesignated preferred stock; the ability to issue undesignated preferred stock makes it possible for our board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to acquire us. |
Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner.
39
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements concerning our business, operations and financial performance and condition, as well as our plans, objectives and expectations for our business operations and financial performance and condition. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as aim, anticipate, assume, believe, contemplate, continue, could, due, estimate, expect, goal, intend, may, objective, plan, predict, potential, positioned, seek, should, target, will, would, and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. These forward-looking statements include, but are not limited to, statements about:
| estimates of our future revenue, expenses, capital requirements and our needs for additional financing; |
| our ability to obtain additional financing in this or future offerings; |
| the implementation of our business model and strategic plans for our products, technologies and businesses; |
| our future clinical results; |
| competitive companies and technologies and our industry; |
| our ability to manage and grow our business by expanding our sales to existing customers or introducing our products to new customers; |
| our ability to establish and maintain intellectual property protection for our products or avoid claims of infringement; |
| extensive government regulation; |
| the timing or likelihood of regulatory filings and approvals; |
| our ability to hire and retain key personnel; |
| our financial performance; |
| the volatility of our share price; and |
| our expectations regarding use of proceeds from this offering. |
Forward-looking statements are based on managements current expectations, estimates, forecasts, and projections about our business and the industry in which we operate, and managements beliefs and assumptions and are not guarantees of future performance or development and involve known and unknown risks, uncertainties, and other factors that are in some cases beyond our control. As a result, any or all of our forward-looking statements in this prospectus may turn out to be inaccurate. Furthermore, if the forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under Risk Factors and elsewhere in this prospectus. Potential investors are urged to consider these factors carefully in evaluating the forward-looking statements. These forward-looking statements speak only as of the date of this prospectus. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future. You should, however, review the factors and risks we describe in the reports we will file from time to time with the SEC after the date of this prospectus.
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MARKET, INDUSTRY AND OTHER DATA
This prospectus contains estimates, projections and other information concerning our industry, our business, and the markets for our products and product candidates, including data regarding the estimated size of those markets, their projected growth rates, the perceptions and preferences of patients and physicians regarding certain therapies and other prescription, prescriber and patient data, as well as data regarding market research, estimates and forecasts prepared by our management. We obtained the industry, market and other data throughout this prospectus from our own internal estimates and research, as well as from industry publications and research, surveys and studies conducted by third parties.
Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. In some cases, we do not expressly refer to the sources from which this data is derived.
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We estimate that the net proceeds from this initial public offering of shares of common stock will be approximately $ million, or $ million if the underwriters exercise their option to purchase additional shares in full, assuming an initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting the underwriting discounts and commissions and estimated offering expenses.
A $1.00 increase (decrease) in the assumed initial public offering price of $ per share would increase (decrease) the net proceeds from this offering by approximately $ million, assuming that the number of shares we are offering, as set forth on the cover page of this prospectus, remains the same, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. Each increase (decrease) of 1,000,000 shares in the number of shares we are offering would increase (decrease) the net proceeds to us from this offering by approximately $ million, assuming that the assumed initial public offering price remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
We expect to use approximately $7.0 million of the net proceeds from this offering to fund the Phase 3 clinical trial of our Steroid-Eluting Implant for Refactory Disease in Office and pre-clinical development our Steroid-Eluting Implant for Primary Disease Management in Office products in development and approximately $3.3 million for research and development expenses related to these products. We expect to use the remainder of the net proceeds from this offering for sales, marketing, working capital and general corporate purposes.
We may also use a portion of our net proceeds to acquire and invest in complementary products, technologies or businesses; however, we currently have no agreements or commitments to complete any such transaction. The amounts and timing of our expenditures will depend upon numerous factors, including:
| rate of adoption of our products; |
| the expenses we incur in selling and marketing PROPEL and PROPEL mini; |
| the scope of research and development efforts; |
| the timing and success of preclinical studies or clinical trials we may commence in the future; and |
| the timing of regulatory submissions. |
Accordingly, our management will have broad discretion over the use of the net proceeds from this offering. Pending the use of the proceeds from this offering, we intend to invest the net proceeds in short-term, interest-bearing, investment-grade securities, certificates of deposit or government securities.
We have never declared or paid any cash dividends on our capital stock, and we do not currently intend to pay any cash dividends on our capital stock in the foreseeable future. In addition, our credit facility with Silicon Valley Bank restricts our ability to pay dividends on our capital stock. We currently intend to retain all available funds and any future earnings to support operations and to finance the growth and development of our business. Any future determination to pay dividends will be made at the discretion of our board of directors subject to applicable laws, and will depend upon, among other factors, our results of operations, financial condition, contractual restrictions and capital requirements. Our future ability to pay cash dividends on our capital stock may also be limited by the terms of any future debt or preferred securities or future credit facility.
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The following table sets forth our equipment loan, convertible preferred stock warrant liability and capitalization as of March 31, 2014:
| on an actual basis; |
| on a pro forma basis to reflect: (a) the conversion of all outstanding shares of convertible preferred stock into an aggregate of 62,815,648 shares of common stock immediately prior to the closing of this offering; (b) the automatic conversion of warrants to purchase up to 271,471 shares of our convertible preferred stock into warrants to purchase up to 271,471 shares of common stock immediately prior to the closing of this offering; and (c) the effectiveness of our amended and restated certificate of incorporation; and |
| on a pro forma as adjusted basis to give further effect to the issuance and sale of shares of common stock in this offering at an assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting the underwriting discounts and commissions and estimated offering expenses. |
You should read this information together with our financial statements and related notes appearing elsewhere in this prospectus and the information set forth under the headings Selected Financial Data and Managements Discussion and Analysis of Financial Condition and Results of Operations.
As of March 31, 2014 | ||||||||||||
Actual | Pro Forma(1) |
Pro Forma As Adjusted(1) |
||||||||||
(in thousands, except for share and per share amounts) |
(unaudited) | |||||||||||
Equipment loans |
$ | 1,280 | $ | 1,280 | $ | 1,280 | ||||||
Convertible preferred stock warrant liability |
494 | | | |||||||||
Convertible preferred stock, $0.001 par value, 63,629,294 shares authorized, 62,815,648 shares issued and outstanding, actual; no shares issued and outstanding pro forma and pro forma as adjusted |
90,789 | | | |||||||||
Stockholders (deficit) equity: |
||||||||||||
Preferred stock, $0.001 par value, no shares authorized, issued and outstanding, actual; 10,000,000 shares authorized, no shares issued and outstanding, pro forma and pro forma as adjusted |
| | | |||||||||
Common stock, $0.001 par value; |
||||||||||||
90,000,000 shares authorized, 7,191,780 shares issued and outstanding, actual; 250,000,000 shares authorized, shares issued and outstanding, pro forma and shares issued and outstanding, pro forma as adjusted |
7 | 70 | ||||||||||
Additional paid-in capital |
2,060 | 93,280 | ||||||||||
Notes receivable from related party |
(204 | ) | (204 | ) | (204 | ) | ||||||
Accumulated deficit |
(82,668 | ) | (82,668 | ) | (82,668 | ) | ||||||
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Total stockholders (deficit) equity |
(80,805 | ) | 10,478 | |||||||||
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Total capitalization |
$ | 10,478 | $ | 10,478 | ||||||||
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(1) | Each $1.00 increase (decrease) in the assumed initial price to the public of $ per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) each of additional paid-in capital, total stockholders equity and total capitalization by approximately $ , assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. Each increase (decrease) of 1,000,000 shares in the number of shares offered by us would increase (decrease) each of additional paid-in capital, total stockholders equity |
43
and total capitalization by approximately $ , assuming that the assumed initial price to the public remains the same, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. The pro forma as adjusted information discussed above is illustrative only and will adjust based on the actual initial price to the public and other terms of this offering determined at pricing. |
The number of shares of our common stock reflected in the discussion and tables above is based on 70,007,428 shares of our common stock outstanding as of March 31, 2014, including convertible preferred stock on an as-converted basis, and excludes the following:
| 7,859,953 shares of common stock issuable upon the exercise of outstanding options as of March 31, 2014, having a weighted average exercise price of $0.33 per share; |
| 190,217 shares of common stock issuable upon the exercise and subsequent conversion of warrants to purchase our Series A convertible preferred stock at an exercise price of $0.92 per share; |
| Up to 81,254 shares of common stock issuable upon the exercise and subsequent conversion of a warrant to purchase our Series D convertible preferred stock at an exercise price of $1.72 per share, which, as of March 31, 2014, was exercisable for 23,215 shares; |
| shares of common stock reserved for future issuance under our 2014 Equity Incentive Plan, as well as any automatic increases in the number of shares of common stock reserved for future issuance under this plan, which will become effective upon the execution of the underwriting agreement related to this offering; and |
| shares of common stock reserved for future issuance under our 2014 Employee Stock Purchase Plan, as well as any automatic increases in the number of shares of common stock reserved for future issuance under this plan, which will become effective upon the execution of the underwriting agreement related to this offering. |
To the extent that any outstanding options or warrants are exercised, new options are issued under our stock-based compensation plans or we issue additional shares of common stock in the future, there will be further dilution to investors participating in this offering.
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If you invest in our common stock in this offering, your ownership interest will be immediately diluted to the extent of the difference between the assumed initial public offering price per share and the pro forma as adjusted net tangible book value per share of our common stock after this offering.
Historical net tangible book value (deficit) per share represents our total tangible assets less our liabilities and convertible preferred stock that is not included in equity divided by the total number of shares outstanding. As of March 31, 2014, our historical net tangible book value (deficit) was approximately $(80.8) million, or $(11.24) per share. Our pro forma net tangible book value as of March 31, 2014, was approximately $10.5 million, or $0.15 per share after giving effect to the conversion of all of our outstanding convertible preferred stock into 62,815,648 shares of common stock upon the consummation of this offering and the conversion of warrants to purchase up to 271,471 shares of convertible preferred stock into warrants to purchase up to 271,471 shares of common stock upon the closing of this offering.
After giving further effect to receipt of the net proceeds from our sale of shares of common stock at an assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses, our pro forma as adjusted net tangible book value as of March 31, 2014, would have been approximately $ million, or $ per share. This represents an immediate increase in pro forma as adjusted net tangible book value of $ per share to our existing stockholders and an immediate dilution of $ per share to investors purchasing common stock in this offering.
The following table illustrates this dilution to new investors on a per share basis:
Assumed initial public offering price per share |
$ | |||||||
Historical net tangible book value (deficit) per share as of March 31, 2014 |
$ | (11.24 | ) | |||||
Pro forma increase in net tangible book value (deficit) per share attributable to the conversion of our convertible preferred stock and preferred stock warrants |
11.39 | |||||||
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Pro forma net tangible book value per share as of March 31, 2014 |
0.15 | |||||||
Increase in net tangible book value per share attributable to new investors purchasing shares in this offering |
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Pro forma as adjusted net tangible book value per share after this offering |
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Dilution per share to new investors participating in this offering |
$ | |||||||
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If the underwriters option to purchase additional shares in this offering is exercised in full, the pro forma as adjusted net tangible book value would be $ per share, and the dilution to new investors participating in this offering would be $ per share.
Each $1.00 increase (decrease) in the assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted net tangible book value, by $ per share and the dilution per share to new investors by $ per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting underwriting discounts and commissions and estimated offering expenses.
We may also increase or decrease the number of shares we are offering. An increase (decrease) of 1,000,000 shares in the number of shares we are offering would increase (decrease) our pro forma as adjusted net tangible book value by approximately $ million, or $ per share, and the pro forma dilution per share to investors in this offering by $ per share, assuming that the assumed initial public offering price remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses. The pro forma information discussed above is illustrative only and will change based on the actual initial public offering price, number of shares and other terms of this offering determined at pricing.
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The table below summarizes, as of March 31, 2014, on the pro forma as adjusted basis described above, the number of shares of our common stock, the total consideration, and the average price per share (1) paid to us by our existing stockholders and (2) to be paid by new investors participating in this offering at an assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus, before deducting underwriting discounts and commissions and estimated offering expenses payable by us.
(in thousands, except share, per share and percentages) | Shares Purchased | Total Consideration | Average Price Per Share | |||||||||||
Number |
Percent | Amount | Percent | |||||||||||
Existing stockholders |
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New investors |
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Total |
100.0 | % | 100.0 | % | ||||||||||
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In addition, if the underwriters option to purchase additional shares is exercised in full, the number of shares held by existing stockholders will be reduced to % of the total number of shares of common stock to be outstanding upon completion of this offering, and the number of shares of common stock held by new investors participating in this offering will be further increased to % of the total number of shares of common stock to be outstanding upon completion of the offering.
Each $1.00 increase (decrease) in the assumed initial public offering price of $ per share would increase (decrease) total consideration paid by new investors by $ and increase (decrease) the percent of total consideration paid by new investors by %, assuming the number of shares we are offering, as set forth on the cover page of this prospectus, remains the same, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. An increase (decrease) of 1,000,000 in the number of shares offered by us would increase (decrease) total consideration paid by new investors by $ , assuming that the assumed initial price to the public remains the same, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.
The number of shares of our common stock reflected in the discussion and tables above is based on 70,007,428 shares of our common stock outstanding as of March 31, 2014, and excludes:
| 7,859,953 shares of common stock issuable upon the exercise of outstanding options as of March 31, 2014, having a weighted average exercise price of $0.33 per share; |
| 190,217 shares of common stock issuable upon the exercise and subsequent conversion of warrants to purchase our Series A convertible preferred stock at an exercise price of $0.92 per share; |
| Up to 81,254 shares of common stock issuable upon the exercise and subsequent conversion of a warrant to purchase our Series D convertible preferred stock at an exercise price of $1.72 per share, which, as of March 31, 2014, was exercisable for 23,215 shares; |
| shares of common stock reserved for future issuance under our 2014 Equity Incentive Plan, as well as any automatic increases in the number of shares of common stock reserved for future issuance under this plan, which will become effective upon the execution of the underwriting agreement related to this offering; and |
| shares of common stock reserved for future issuance under our 2014 Employee Stock Purchase Plan, as well as any automatic increases in the number of shares of common stock reserved for future issuance under this plan, which will become effective upon the execution of the underwriting agreement related to this offering. |
Effective as of the date of the effectiveness of the registration statement of which this prospectus forms a part, an aggregate of shares of our common stock will be reserved for issuance under the 2014 Equity Incentive Plan and shares of our common stock will be reserved for issuance under the 2014 Employee Stock Purchase Plan. Furthermore, we may choose to raise additional capital through the sale of equity or convertible debt securities due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that any of our options are exercised, new options are issued under our equity incentive plans or we issue additional shares of common stock or other equity or convertible debt securities in the future, there will be further dilution to investors participating in this offering.
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You should read the following selected financial data together with our audited and unaudited financial statements, the related notes appearing at the end of this prospectus and the information under the caption Managements Discussion and Analysis of Financial Condition and Results of Operations. The selected financial data included in this section are not intended to replace the financial statements and the related notes included elsewhere in this prospectus.
We derived the selected statements of operations data for the years ended December 31, 2012 and 2013, and the balance sheet data as of December 31, 2012 and 2013, from our audited financial statements appearing elsewhere in this prospectus. The statements of operations data for the three months ended March 31, 2013 and 2014, and the balance sheet data as of March 31, 2014, are derived from our unaudited interim financial statements included elsewhere in this prospectus. We have prepared the unaudited interim financial statements on the same basis as the audited financial statements and have included, in our opinion, all adjustments, consisting only of normal recurring adjustments that we consider necessary for a fair presentation of the financial information set forth in those statements. You should read this data together with our audited financial statements and related notes appearing elsewhere in this prospectus and the information under the captions Selected Financial Data and Managements Discussion and Analysis of Financial Condition and Results of Operations. Our historical results are not necessarily indicative of our future results and our interim results are not necessarily indicative of results to be expected for the full year ending December 31, 2014, or any other period.
Year Ended December 31, |
Three Months Ended March 31, |
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(in thousands, except per share data) |
2012 | 2013 | 2013 | 2014 | ||||||||||||
(unaudited) | ||||||||||||||||
Statements of Operations Data: |
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Revenue |
$ | 5,863 | $ | 17,931 | $ | 2,744 | $ | 7,497 | ||||||||
Cost of sales |
3,837 | 8,150 | 1,949 | 2,360 | ||||||||||||
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Gross profit |
2,026 | 9,781 | 795 | 5,137 | ||||||||||||
Operating expenses: |
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Selling, general and administrative |
9,251 | 18,229 | 3,350 | 6,658 | ||||||||||||
Research and development |
9,260 | 9,518 | 2,256 | 2,577 | ||||||||||||
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Total operating expenses |
18,511 | 27,747 | 5,606 | 9,235 | ||||||||||||
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Loss from operations |
(16,485 | ) | (17,966 | ) | (4,811 | ) | (4,098 | ) | ||||||||
Other income (expense), net |
120 | (403 | ) | 58 | (311 | ) | ||||||||||
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Net loss |
$ | (16,365 | ) | $ | (18,369 | ) | $ | (4,753 | ) | $ | (4,409 | ) | ||||
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Net loss per share, basic and diluted(1) |
$ | (4.09 | ) | $ | (3.14 | ) | $ | (1.14 | ) | $ | (0.62 | ) | ||||
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Weighted average common shares used to compute net loss per share, basic and diluted(1) |
3,997 | 5,846 | 4,158 | 7,093 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Pro forma net loss per share, basic and diluted (unaudited)(1) |
$ | (0.29 | ) | $ | (0.06 | ) | ||||||||||
|
|
|
|
|||||||||||||
Weighted average common shares used to compute pro forma net loss per share, basic and diluted (unaudited)(1) |
62,623 | 69,900 | ||||||||||||||
|
|
|
|
47
As of December 31, |
As of March 31, 2014 |
|||||||||||
2012 | 2013 | |||||||||||
(in thousands) |
(unaudited) | |||||||||||
Balance Sheet Data: |
||||||||||||
Cash and cash equivalents |
$ | 2,060 | $ | 12,294 | $ | 7,478 | ||||||
Working capital |
1,152 | 13,118 | 8,643 | |||||||||
Total assets |
7,227 | 21,035 | 16,767 | |||||||||
Preferred stock warrant liability |
93 | 237 | 494 | |||||||||
Total debt |
2,000 | 1,452 | 1,280 | |||||||||
Total liabilities |
5,627 | 6,892 | 6,783 | |||||||||
Convertible preferred stock |
60,320 | 90,760 | 90,789 | |||||||||
Accumulated deficit |
(59,890 | ) | (78,259 | ) | (82,668 | ) | ||||||
Total stockholders deficit |
(58,720 | ) | (76,617 | ) | (80,805 | ) |
(1) | Reflects the automatic conversion of all outstanding shares of our convertible preferred stock into an aggregate of 62,815,648 shares of common stock immediately prior to the closing of this offering and the conversion of warrants to purchase up to 271,471 shares of convertible preferred stock into warrants to purchase up to 271,471 shares of common stock immediately prior to the closing of this offering. |
48
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations together with the section entitled Selected Financial Data, should be read in conjunction with our financial statements and the related notes to those statements included elsewhere in this prospectus. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under Risk Factors and elsewhere in this prospectus.
Overview
We are a commercial stage drug-device company committed to improving the quality of life for patients with ear, nose and throat conditions. We have developed a drug-eluting bioabsorbable implant technology that enables targeted and sustained release of therapeutic agents. This targeted drug delivery technology is designed to allow ear, nose and throat, or ENT, physicians to improve patient care. Our initial products, PROPEL and PROPEL mini, are the first and only drug-eluting implants approved by the U.S. Food and Drug Administration, or FDA, for use in patients with chronic sinusitis. Inserted by a physician during ethmoid sinus surgery, the self-expanding implants are designed to conform to and hold open the surgically enlarged sinus, while gradually releasing an anti-inflammatory steroid over a period of 30 days, before being fully absorbed into the body. Use of our PROPEL implants is clinically proven to improve surgical outcomes by maintaining the open pathways created in surgery and reducing the need for oral steroids and additional surgical procedures. In addition, we are using our drug-eluting bioabsorbable implant technology to develop new, less-invasive and more cost-effective treatment options for the management of chronic sinusitis in the physician office setting to provide benefits for patients, physicians and payors. Any new products we develop, or changes that we make in the therapeutic agent used in PROPEL or PROPEL mini, will require FDA approval prior to commercialization in the United States.
Our two commercial products, PROPEL and PROPEL mini, are designed to improve the outcomes of sinus surgery by reducing postoperative inflammation and scarring, both from the underlying condition as well as the surgery. Prior to obtaining FDA approval, we devoted substantially all of our resources to the design and clinical development of our steroid-eluting implants. Following approval, we commenced a limited commercial launch of PROPEL in the United States in September 2011, with four territory managers. In November 2012, we received FDA approval and commenced a limited commercial launch of PROPEL mini. In the first half of 2013 we began scaling our U.S. direct commercial presence. In addition to PROPEL and PROPEL mini, we are developing additional products using our drug-eluting bioabsorbable implant technology that are specifically designed to treat chronic sinusitis in the physician office setting during a routine visit.
Our direct sales force engages in sales efforts and promotional activities focused on ENT physicians. We increased the number of employees in our sales, marketing and reimbursement organizations from 21 as of December 31, 2012, to 62 as of March 31, 2014, and we expect to continue to expand this infrastructure to further penetrate the chronic sinusitis market. As of March 31, 2014, over 1,000 ENT physicians in the United States have been trained and have incorporated our steroid-eluting implants into their practice. Although our sales and marketing efforts are directed at ENT physicians because they are the primary users of our technology, we consider the hospitals and ambulatory surgery centers where the procedure is performed to be our customers, as they typically are responsible for making the decisions to purchase our products. No single customer accounted for more than 6% of our revenue during 2012, 2013, and 2014. We manufacture our steroid-eluting implants at our 32,500 square foot facility in Menlo Park, California with components supplied by external suppliers. On March 31, 2014, our manufacturing organization included 53 people and we expect our existing facility to meet expected demand for the foreseeable future.
During the year ended December 31, 2013, our revenue was $17.9 million, and during the three months ended March 31, 2014, our revenue was $7.5 million. During the year ended December 31, 2013, our net loss was $18.4 million, and during the three months ended March 31, 2014, our net loss was $4.4 million. We have not been profitable since inception and as of March 31, 2014, our accumulated deficit was $82.7 million. Since
49
inception, we have financed our operations primarily through private placements of our convertible preferred securities and, to a lesser extent, certain debt financing arrangements.
Components of Our Results of Operations
Revenue
All of our revenue is currently derived from sales of PROPEL and PROPEL mini in the United States. We expect our revenue to increase as we expand our sales, marketing and reimbursement infrastructure and increase awareness of our products. We also expect our revenue to fluctuate from quarter to quarter due to a variety of factors. In the first quarter, our results can be impacted by adverse weather and by resetting of annual patient healthcare insurance plan deductibles, both of which may cause patients to delay elective procedures such as functional endoscopic sinus surgery, or FESS. In the second quarter, demand may be impacted by the seasonal nature of allergies and the resultant onset of sinus-related symptoms. In the third quarter, the number of FESS procedures nationwide is historically lower than other quarters throughout the year, which we believe is attributable to the summer vacations of ENT physicians and their patients. In the fourth quarter, demand may be impacted by the onset of the cold and flu season and related symptoms, as well as the desire of patients to spend their remaining balances in flexible-spending accounts or because they have met their annual deductibles under their health insurance plans.
Our currently approved products are commonly treated as general supplies utilized in sinus surgery and are paid for as part of the FESS procedure. We believe that establishment of reimbursement codes specific to the use of drug-eluting implants for chronic sinusitis is an important factor in expanding access to our products, especially in the physician office setting.
Cost of Sales and Gross Profit
PROPEL and PROPEL mini are manufactured at our facility in Menlo Park, California. Cost of sales consists primarily of manufacturing overhead costs, material costs and direct labor. A significant portion of our cost of sales currently consists of manufacturing overhead costs. These overhead costs include the cost of quality assurance, material procurement, inventory control, facilities, equipment and operations supervision and management. We expect overhead costs as a percentage of revenue to become less significant as our production volume increases. Cost of sales also includes depreciation expense for production equipment and certain direct costs such as shipping costs. We expect cost of sales to increase in absolute dollars primarily as, and to the extent, our revenue grows.
We calculate gross margin as gross profit divided by revenue. Our gross margin has been and will continue to be affected by a variety of factors, primarily production volumes, manufacturing costs and product yields, and to a lesser extent the implementation of cost-reduction strategies. We expect our gross margin to increase over the long term as our production volume increases and as we spread the fixed portion of our manufacturing overhead costs over a larger number of units produced, thereby significantly reducing our per unit manufacturing costs. However, our gross margin will likely fluctuate from quarter to quarter.
Selling, General and Administrative Expenses
Selling, general and administrative, or SG&A, expenses consist primarily of compensation for personnel, including stock-based compensation, related to selling, marketing, business development, finance, information technology, and human resource functions. Other SG&A expenses include commissions, training, travel expenses, promotional activities, conferences, trade shows, professional services fees, audit fees, insurance costs and general corporate expenses including allocated facilities-related expenses. We expect SG&A expenses to continue to increase in absolute dollars for the foreseeable future as we expand our commercial infrastructure to both drive and support the anticipated growth in revenue and incur additional legal, accounting, insurance and other professional service fees associated with being a public company. However, for the foreseeable future we expect SG&A expenses to continue to decrease as a percentage of revenue.
Research and Development Expenses
Research and development, or R&D, expenses consist primarily of engineering, product development, clinical and regulatory affairs, consulting services, materials, depreciation and other costs associated with
50
products and technologies in development. These expenses include employee and non-employee compensation, including stock-based compensation, supplies, materials, quality assurance expenses allocated to R&D programs, consulting, related travel expenses and facilities expenses. Clinical expenses include clinical trial design, clinical site reimbursement, data management and travel expenses, and the cost of manufacturing products for clinical trials. We expect R&D expenses to increase in absolute dollars for the foreseeable future as we continue to develop, enhance and commercialize new products and technologies. However, we expect R&D expenses as a percentage of revenue to vary over time depending on the level and timing of initiating new product development efforts as well as our clinical development activities.
Results of Operations
Year Ended December 31, | Three Months Ended March 31, |
|||||||||||||||
2012 | 2013 | 2013 | 2014 | |||||||||||||
(in thousands, except percentages) | (unaudited) | |||||||||||||||
Revenue |
$ | 5,863 | $ | 17,931 | $ | 2,744 | $ | 7,497 | ||||||||
Cost of sales |
3,837 | 8,150 | 1,949 | 2,360 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross profit |
2,026 | 9,781 | 795 | 5,137 | ||||||||||||
Gross margin |
35 | % | 55 | % | 29 | % | 69 | % | ||||||||
Operating expenses: |
||||||||||||||||
Selling, general and administrative |
9,251 | 18,229 | 3,350 | 6,658 | ||||||||||||
Research and development |
9,260 | 9,518 | 2,256 | 2,577 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating expenses |
18,511 | 27,747 | 5,606 | 9,235 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Loss from operations |
(16,485 | ) | (17,966 | ) | (4,811 | ) | (4,098 | ) | ||||||||
Other income (expense), net |
120 | (403 | ) | 58 | (311 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net loss |
$ | (16,365 | ) | $ | (18,369 | ) | $ | (4,753 | ) | $ | (4,409 | ) | ||||
|
|
|
|
|
|
|
|
Comparison of Three Months Ended March 31, 2013 and 2014
Revenue
Revenue increased $4.8 million, or 173%, to $7.5 million during the three months ended March 31, 2014, compared to $2.7 million during the three months ended March 31, 2013. The growth in revenue was attributable to an increase in unit sales of PROPEL and PROPEL mini from 3,900 units, to 10,800 units, or 177%. Our average selling price per unit was consistent for both periods. The increase in units was driven by an expansion of our sales, marketing and reimbursement organizations. In addition, PROPEL mini had minimal sales in the three months ended March 31, 2013, as compared to the three months ended March 31, 2014, as we continued its commercial introduction.
Cost of Sales and Gross Margin
Cost of sales increased $0.5 million, or 21%, to $2.4 million during the three months ended March 31, 2014, compared to $1.9 million during the three months ended March 31, 2013. The increase in cost of sales was primarily attributable to the growth in the number of PROPEL and PROPEL mini units sold. In addition, cost of sales incurred during the three months ended March 31, 2013, included $0.7 million for expenses associated with establishing and qualifying our new manufacturing facility in Menlo Park, California. After qualification of the Menlo Park facility in June 2013, we closed our facility in Palo Alto, California.
Gross margin for the three months ended March 31, 2014, increased to 69%, compared to 29% for the three months ended March 31, 2013. The increase in gross margin was primarily due to the growth in unit sales which allowed us to spread the fixed portion of our manufacturing overhead costs over more production units, and the impact of the completion of qualification of our Menlo Park facility in June 2013. The fixed portion of our manufacturing overhead allows our costs of sales to grow at a slower rate than our revenue. As a result, we expect gross margin to continue to increase.
51
Selling, General and Administrative Expenses
SG&A expenses increased $3.3 million, or 99%, to $6.7 million during the three months ended March 31, 2014, compared to $3.4 million during the three months ended March 31, 2013. The increase in SG&A expenses was primarily due to the build out of our infrastructure to support the commercialization of PROPEL and PROPEL mini. The primary driver of this increase was employee-related expenses of our sales, marketing and reimbursement organizations which increased $2.9 million as we increased headcount to 62 as of March 31, 2014, compared to 26 at March 31, 2013. In addition, other SG&A expenses increased $0.4 million primarily due to an increase in headcount.
Research and Development Expenses
R&D expenses increased $0.3 million, or 14%, to $2.6 million during the three months ended March 31, 2014, compared to $2.3 million during the three months ended March 31, 2013. The increase in R&D expenses was primarily due to an increase in clinical trial costs for the evaluation of our steroid-eluting implant for refractory disease for use in the physician office setting.
Other Income (Expense), Net
Other income (expense), net, decreased $0.4 million, or 636%, to an expense of $0.3 million during the three months ended March 31, 2014, compared to an income of $0.1 million during the three months ended March 31, 2013. The decrease in other income (expense), net was attributable to a fair value adjustment of the convertible preferred stock warrants, which are accounted for as liabilities and marked-to-market at each reporting period, and interest expense related to our debt financing arrangements.
Comparison of Years Ended December 31, 2012 and 2013
Revenue
Revenue increased $12.0 million, or 206%, to $17.9 million during the year ended December 31, 2013, compared to $5.9 million during the year ended December 31, 2012. The growth in revenue was attributable to an increase in unit sales of PROPEL and PROPEL mini from 8,400 units to 25,600 units, or 205%. Our average selling price per unit was consistent for both periods. The increase in units was driven by the increased commercialization of PROPEL and the introduction of PROPEL mini in late 2012, supported by an expansion of our sales, marketing and reimbursement organizations.
Cost of Sales and Gross Margin
Cost of sales increased $4.4 million, or 112%, to $8.2 million during the year ended December 31, 2013, compared to $3.8 million during the year ended December 31, 2012. The increase in cost of sales was primarily attributable to the growth in the number of PROPEL and PROPEL mini units sold, partially offset by a decrease of $0.6 million for expenses associated with establishing and qualifying our new manufacturing facility in Menlo Park, California. After qualification of the Menlo Park facility in June 2013, we closed our facility in Palo Alto, California.
Gross margin for the year ended December 31, 2013, increased to 55%, compared to 35% for the year ended December 31, 2012. The increase in gross margin was primarily due to the growth in unit sales which allowed us to spread the fixed portion of our manufacturing overhead costs over more production units, and the impact of the completion of the qualification of our Menlo Park facility in June 2013. The fixed portion of our cost of sales allows our cost of sales to grow at a slower rate than our revenue.
Selling, General and Administrative Expenses
SG&A expenses increased $8.9 million, or 97%, to $18.2 million during the year ended December 31, 2013, compared to $9.3 million during the year ended December 31, 2012. The increase in SG&A expenses was primarily due to the build out of our infrastructure to support the commercialization of PROPEL and PROPEL mini. The primary driver of this increase was employee-related expenses of our sales, marketing and
52
reimbursement organizations, which increased $8.3 million as we increased headcount to 55 as of December 31, 2013, compared to 21 at December 31, 2012. In addition, other SG&A expenses increased $0.7 million primarily due to the newly enacted medical device tax.
Research and Development Expenses
R&D expenses increased $0.2 million, or 3%, to $9.5 million during the year ended December 31, 2013, compared to $9.3 million during the year ended December 31, 2012. The increase in R&D expenses was primarily due to an increase of $1.9 million in clinical trial costs for the evaluation of our steroid-eluting implant for refractory disease for use in the physician office setting. This was partially offset by a decrease of $1.0 million in development costs as that product transitioned into clinical trials and a decrease of $0.6 million in quality assurance costs allocated to R&D programs.
Other Income (Expense), Net
Other income (expense), net, decreased $0.5 million to an expense of $0.4 million during the year ended December 31, 2013, compared to an income of $0.1 million during the year ended December 31, 2012. The decrease in other income (expense), net was primarily attributable to a fair value adjustment of the preferred stock financing option in connection with our Series D convertible preferred stock financing, the fair value adjustment of the preferred stock warrants, which are accounted for as liabilities and marked-to-market at each reporting period, and interest expense related to our debt financing arrangements.
Quarterly Results of Operations Data
The following tables set forth our unaudited quarterly statements of operations and comprehensive loss data for each quarter in the year ended December 31, 2013, and the quarter ended March 31, 2014. We have prepared the quarterly data on a consistent basis as our audited financial statements included in this prospectus. This information should be read in conjunction with the audited financial statements and related notes for the year ended December 31, 2013, included elsewhere in this prospectus. The results of historical periods are not necessarily indicative of the results of our operations for the year ending December 31, 2014, or any future period.
Three Months Ended | ||||||||||||||||||||
March 31, 2013 |
June 30, 2013 |
September 30, 2013 |
December 31, 2013 |
March 31, 2014 |
||||||||||||||||
(in thousands, except percentages) | (unaudited) | |||||||||||||||||||
Revenue |
$ | 2,744 | $ | 3,936 | $ | 4,279 | $ | 6,972 | $ | 7,497 | ||||||||||
Cost of sales(1) |
1,949 | 2,202 | 1,438 | 2,561 | 2,360 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gross profit |
795 | 1,734 | 2,841 | 4,411 | 5,137 | |||||||||||||||
Gross margin(1) |
29 | % | 44 | % | 66 | % | 63 | % | 69 | % | ||||||||||
Operating expenses: |
||||||||||||||||||||
Selling, general and administrative |
3,350 | 4,087 | 4,700 | 6,092 | 6,658 | |||||||||||||||
Research and development |
2,256 | 2,421 | 2,077 | 2,764 | 2,577 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total operating expenses |
5,606 | 6,508 | 6,777 | 8,856 | 9,235 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Loss from operations |
(4,811 | ) | (4,774 | ) | (3,936 | ) | (4,445 | ) | (4,098 | ) | ||||||||||
Other income (expense), net(2) |
58 | (111 | ) | (163 | ) | (187 | ) | (311 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net loss |
$ | (4,753 | ) | $ | (4,885 | ) | $ | (4,099 | ) | $ | (4,632 | ) | $ | (4,409 | ) | |||||
|
|
|
|
|
|
|
|
|
|
(1) | The three months ended March 31, 2013, included $0.7 million for establishing and qualifying our new manufacturing facility. The three months ended June 30, 2013, included a charge of $0.5 million related to a packaging issue and $0.1 million for establishing and qualifying our new manufacturing facility. |
(2) | The three months ended June 30 and September 30, 2013, each included a $0.1 million fair value expense adjustment for the preferred stock financing option. The three months ended December 31, 2013, and March 31, 2014, included a $0.1 million and $0.3 million fair value expense adjustment for the preferred stock warrants classified as liabilities, respectively. |
53
Seasonality
Our business is affected by seasonality. In the first quarter, our results can be impacted by adverse weather and by resetting of annual patient healthcare insurance plan deductibles, both of which may cause patients to delay elective procedures such as FESS. In the second quarter, demand may be impacted by the seasonal nature of allergies and the resultant onset of sinus-related symptoms. In the third quarter, the number of FESS procedures nationwide is historically lower than other quarters throughout the year, which we believe is attributable to the summer vacations of ENT physicians and their patients. In the fourth quarter, demand may be impacted by the onset of the cold and flu season and related symptoms, as well as the desire of patients to spend their remaining balances in flexible-spending accounts or because they have met their annual deductibles under their health insurance plans.
Liquidity and Capital Resources
Overview
As of March 31, 2014, we had cash and cash equivalents of $7.5 million and an accumulated deficit of $82.7 million, compared to cash and cash equivalents of $12.3 million and an accumulated deficit of $78.3 million as of December 31, 2013. We currently believe that our existing cash and cash equivalents, revenue and available debt financing arrangements will be sufficient to meet our capital requirements and fund our operations until at least December 31, 2014. Our primary sources of capital have been from private placements of convertible preferred securities and debt financing agreements. To date, we have raised $91.4 million from private placements of convertible preferred securities from our investors. In August 2013, we entered into a loan and security agreement with Silicon Valley Bank for up to $12.0 million of debt financing consisting of an $8.0 million growth capital facility and a $4.0 million revolving accounts receivable line of credit. As of March 31, 2014, we had no outstanding amounts under the loan and security agreement. We entered into equipment loans totaling $2.1 million, of which $1.3 million is outstanding as of March 31, 2014. There are no remaining amounts available under these loans.
Cash Flows
Year Ended December 31, |
Three Months Ended March 31, |
|||||||||||||||
2012 | 2013 | 2013 | 2014 | |||||||||||||
(in thousands) | (unaudited) | |||||||||||||||
Net cash (used in) provided by: |
||||||||||||||||
Operating activities |
$ | (16,148 | ) | $ | (19,101 | ) | $ | (6,118 | ) | $ | (4,546 | ) | ||||
Investing activities |
5,956 | (467 | ) | (52 | ) | (136 | ) | |||||||||
Financing activities |
2,302 | 29,802 | 20,674 | (134 | ) | |||||||||||
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|
|
|
|
|
|
|
|||||||||
Net (decrease) increase in cash and cash equivalents |
$ | (7,890 | ) | $ | 10,234 | $ | 14,504 | $ | (4,816 | ) | ||||||
|
|
|
|
|
|
|
|
Net cash Used in Operating Activities
During the three months ended March 31, 2014, net cash used in operating activities was $4.5 million, consisting primarily of a net loss of $4.4 million and an increase in net operating assets of $0.8 million, partially offset by non-cash charges of $0.7 million. The cash used in operations was primarily due to the ongoing commercialization of PROPEL and PROPEL mini. To support the commercialization of these products, we continued to expand our sales, marketing and reimbursement organizations and manufacturing supply chain. The increase in net operating assets was primarily due to increases in accounts receivable and inventory to support the growth of our operations and a decrease in accrued compensation as annual bonuses were paid, partially offset by increases in accounts payable and other liabilities as we expanded our operations. The non-cash charges primarily consisted of the change in fair value of convertible preferred stock warrants accounted for as liabilities and stock-based compensation as the underlying value of our company increased with the expansion of our business.
During the three months ended March 31, 2013, net cash used in operating activities was $6.1 million, consisting primarily of a net loss of $4.8 million and an increase in net operating assets of $1.6 million, partially
54
offset by non-cash charges of $0.3 million. The increase in net operating assets was primarily due to increases in accounts receivable and inventory as we expanded our sales, marketing and reimbursement organizations and manufacturing supply chain and a decrease in accrued compensation as annual bonuses were paid. The non-cash charges primarily consisted of depreciation and amortization and the forgiveness of a related party loan.
Net cash used in operating activities for 2013 was $19.1 million, consisting primarily of a net loss of $18.4 million and an increase in net operating assets of $2.1 million, partially offset by non-cash charges of $1.4 million. The cash used in operations was primarily due to the expansion our sales, marketing and reimbursement organizations to support the ongoing commercialization of PROPEL and PROPEL mini resulting in increases in accounts receivable and inventory, offset by an increase in accrued compensation due to the growth in our sales, marketing and reimbursement organizations. Non-cash charges consisted primarily of depreciation from the investment in our Menlo Park manufacturing facility and stock-based compensation. As of December 31, 2013, 87% of accounts receivable was less than 60 days old.
Net cash used in operating activities for 2012 was $16.1 million, consisting primarily of a net loss of $16.4 million and an increase in net operating assets of $0.4 million, partially offset by non-cash charges of $0.6 million. The increase in net operating assets was primarily due to increases in accounts receivable and inventory as we accelerated our commercial launch of PROPEL and introduced PROPEL mini, partially offset by an increase in accrued compensation related to expansion of our sales, marketing and reimbursement organizations. Non-cash charges consisted primarily of depreciation and stock-based compensation.
Net Cash (Used in) Provided by Investing Activities
During each of the three months ended March 31, 2013 and 2014, net cash used in investing activities was $0.1 million, consisting of purchases of property and equipment.
Net cash used in investing activities in 2013 was $0.5 million consisting of purchases of property and equipment. Net cash provided by investing activities in 2012 was $6.0 million in 2012, consisting primarily of net proceeds from short-term investment of $7.3 million, partially offset by purchases of property and equipment of $1.4 million.
Net Cash (Used in) Provided by Financing Activities
During the three months ended March 31, 2014, net cash used in financing activities was $0.1 million, consisting of repayments related to the equipment financing arrangements. During the three months ended March 31, 2013, net cash provided by financing activities was $20.7 million, consisting primarily of net proceeds from the issuance of Series D convertible preferred stock.
Net cash provided by financing activities in 2013 was $29.8 million, consisting primarily of net proceeds from the issuance of our Series D convertible preferred stock of $30.1 million. Net cash provided by financing activities in 2012 was $2.3 million, primarily from proceeds of a $2.0 million equipment loan.
Liquidity
In August 2013, we entered into a loan and security agreement, or the Loan Agreement, with Silicon Valley Bank, or SVB, for a total commitment of $12.0 million. The commitment consists of an $8.0 million growth capital facility and a $4.0 million revolving accounts receivable line of credit.
The $8.0 million growth capital facility consists of two $4.0 million tranches. The first $4.0 million tranche is available until October 31, 2014, and the second $4.0 million tranche will be available until March 31, 2015. Payment on both tranches will be interest only until March 31, 2015, at which time the outstanding balance will convert to a 30-month fully amortizing loan. The interest rate will be fixed at the time of advance and will be the greater of 3.65% or the three-year U.S. Treasury note plus 3.0%. At the end of the amortization period, we will make a final payment in the amount of 3.9% of the advanced amounts. There is a prepayment penalty of 2.0% of the prepaid principal during the first year, 1.0% during the second year and no prepayment penalty during the third year.
The $4.0 million revolving accounts receivable line of credit will expire in August 2016. Advances on this line of credit will be made for up to 80% of eligible accounts receivables. An annual loan fee of 0.75% is owed at the beginning of August in each of the three years. The interest rate is determined monthly and is the greater of 4.25% or SVB Prime Rate plus 0.25%.
55
As of March 31, 2014, we have not received advances under the Loan Agreement.
We currently believe that our existing cash and cash equivalents and available debt financing arrangements will be sufficient to meet our capital requirements and fund our operations until at least December 31, 2014. If these sources are insufficient to satisfy our liquidity requirements, we may seek to sell additional equity or debt securities or obtain an additional credit facility. If we raise additional funds by issuing equity securities, our stockholders would experience dilution. Debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt. Any debt financing or additional equity that we raise may contain terms that are not favorable to us or our stockholders. Additional financing may not be available at all, or in amounts or on terms unacceptable to us. If we are unable to obtain additional financing, we may be required to delay the development, commercialization and marketing of our products.
Off-Balance Sheet Arrangements
As of December 31, 2013, and March 31, 2014, we were not a party to any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.
Contractual Obligations
The following table sets out, as of December 31, 2013, our contractual obligations due by period.
Payments Due by Period | ||||||||||||||||||||
Less Than 1 Year |
1-3 Years |
3-5 Years |
More Than 5 Years |
Total | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
Operating lease obligations |
$ | 928 | $ | 390 | $ | | $ | | $ | 1,318 | ||||||||||
Purchase commitments |
407 | 54 | | | 461 | |||||||||||||||
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$ | 1,335 | $ | 444 | $ | | $ | | $ | 1,779 | |||||||||||
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Our contractual obligations as of March 31, 2014, have not significantly changed from December 31, 2013.
Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
The risk associated with fluctuating interest rates is primarily limited to our cash equivalents which are carried at quoted market prices. We do not currently use or plan to use financial derivatives in our investment portfolio.
In September 2012, we entered into an equipment loan with an aggregate principal amount of $2.0 million, all of which was drawn down in December 2012. Payments will be made in monthly installments over a 36-month period with a fixed interest rate of 5.1%. As of March 31, 2014, the amount outstanding under this equipment loan was $1.2 million.
Credit Risk
As of December 31, 2012 and 2013, and March 31, 2014, our cash and cash equivalents were maintained with one financial institution in the United States, and our current deposits are likely in excess of insured limits. We have reviewed the financial statements of this institution and believe it has sufficient assets and liquidity to conduct its operations in the ordinary course of business with little or no credit risk to us.
Our accounts receivable primarily relate to revenue from the sale of PROPEL and PROPEL mini to hospitals and ambulatory surgery centers in the United States. No single customer represented more than 5% of our accounts receivable as of December 31, 2013, and March 31, 2014.
Foreign Currency Risk
Our business is conducted in U.S. dollars. Any transactions that may be conducted in foreign currencies are not expected to have a material effect on our results of operations, financial position or cash flows.
Related Parties
For a description of our related party transactions, see Certain Relationships and Related Party Transactions.
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Critical Accounting Policies and Estimates
Managements discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions for the reported amounts of assets, liabilities, revenue, expenses and related disclosures. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material.
While our significant accounting policies are more fully described in Note 2 of our financial statements included in this prospectus, we believe the following discussion addresses our most critical accounting policies, which are those that are most important to the portrayal of our financial condition and results of operations and require our most difficult, subjective and complex judgments.
Revenue Recognition
We derive revenue from the sale of PROPEL and PROPEL mini to hospitals and ambulatory surgery centers in the United States. We recognize revenue when the following revenue recognition criteria are met:
| Persuasive evidence of an arrangement exists. We consider this criterion satisfied when we have an agreement or contract with the customer in place. |
| Delivery has occurred or services rendered. We principally determine this criterion to be satisfied when we ship the product to the customer. |
| The fee is fixed or determinable and collectibility is reasonably assured. We determine the satisfaction of these criteria based on our judgment regarding the nature of the fee charged for products, contractual agreements entered into, and the collectibility of those fees under any contract or agreement. |
We must make significant assumptions regarding the future collectibility of amounts receivable from customers to determine whether revenue recognition criteria have been met. If collectibility is not assured at the time of shipment, we defer revenue until such criteria have been met. Our standard terms and conditions of sale do not allow for product returns, and we generally do not allow product returns, except in the case of damaged goods, and we have not experienced any significant returns of our products. We expense shipping and handling costs as incurred and include them in the cost of sales. In those cases where we bill shipping and handling costs to customers, we classify the amounts billed as a component of revenue.
Common Stock Valuation and Stock-based Compensation
We maintain an equity incentive plan to provide long-term incentive for employees, consultants, and members of the board of directors. The plan allows for the issuance of non-statutory and incentive stock options to employees and non-statutory stock options to consultants and non-employee directors.
We are required to determine the fair value of equity incentive awards and recognize compensation expense for all equity incentive awards made to employees and directors, including employee stock options. We recognize this expense over the requisite service period. In addition, we recognize stock-based compensation expense in the statements of operations and comprehensive loss based on awards expected to vest and, therefore, the amount of expense has been reduced for estimated forfeitures. We use the straight-line method for expense attribution, except for awards issued with performance-based conditions which require an accelerated attribution method over the requisite performance and service periods.
Under the applicable accounting guidance for equity incentive awards granted to non-employees, the measurement date at which the fair value of the equity incentive awards is measured is equal to the earlier of (1) the date at which a commitment for performance by the counterparty to earn the equity instrument is reached or (2) the date at which the counterpartys performance is complete. We recognize stock-based compensation expense for the fair value of the vested portion of the equity incentive awards in the statements of operations and comprehensive loss. We remeasure the fair value of options granted to consultants and non-employee directors as the options vest.
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The valuation model we used for calculating the fair value of awards for stock-based compensation expense is the Black-Scholes option-pricing model, or the Black-Scholes model. The Black-Scholes model requires us to make assumptions and judgments about the variables used in the calculation, including the expected term weighted average period of time that the options granted are expected to be outstanding, the volatility of common stock, an assumed risk-free interest rate and an estimated forfeiture rate. We use the simplified method to determine the expected term of the stock option. Volatility is based on an average of the historical volatilities of the common stock of publicly-traded companies with characteristics similar to us. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected term of the option. Potential forfeitures of awards are estimated based on our historical forfeiture experience and an analysis of similar companies. The estimate of forfeitures will be adjusted over the service period to the extent that actual forfeitures differ, or are expected to differ, from prior estimates.
The following table summarizes the assumptions we used to determine the fair value of stock options:
Year Ended December 31, 2013 |
Three Months Ended March 31, 2014 |
|||||||
(unaudited) | ||||||||
Expected life (years) |
6.0 | 6.0 | ||||||
Expected volatility |
67 | % | 60 | % | ||||
Risk-free interest rate |
1.6 | % | 1.8 | % | ||||
Dividend yield |
0.0 | % | 0.0 | % |
Fair Value of Common Stock. As discussed below, the fair value of the shares of our common stock underlying the stock options has historically been determined by our board of directors. Because there has been no public market for our common stock, our board of directors has determined the fair value of our common stock at the time of grant of the option by considering a number of objective and subjective factors, including valuations of comparable companies, sales of our convertible preferred stock, our operating and financial performance and the general and industry-specific economic outlook.
Expected Term. The expected term of stock options represents the weighted average period that the stock options are expected to remain outstanding. We estimated the expected term based on the simplified method, which is the average of the weighted average vesting period and contractual term of the option.
Expected Volatility. Since there has been no public market for our common stock and lack of company specific historical volatility, we have determined the share price volatility for options granted based on an analysis of the volatility of a peer group of publicly traded companies. In evaluating similarity, we consider factors such as industry, stage of life cycle and size.
Risk-free Interest Rate. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of the grant for zero-coupon U.S. Treasury notes with remaining terms similar to the expected term of the options.
Dividend Rate. We assumed the expected dividend to be zero as we have never paid dividends and have no current plans to do so.
Expected Forfeiture Rate. We are required to estimate forfeitures at the time of grant, and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. We use historical data to estimate pre-vesting option forfeitures and record share-based compensation expense only for those awards that are expected to vest. To the extent actual forfeitures differ from the estimates, we record the difference as a cumulative adjustment in the period that the estimates are revised.
Service period. We amortize all stock-based compensation over the requisite service period of the awards, which is generally the same as the vesting period of the awards. We amortize the fair value cost on a straight-line basis over the expected service periods. We estimate when and if performance-based grants will be earned. If we consider the award to be probable, we recognize expense over the estimated service period, which would be the estimated period of performance. If we do not consider the awards probable of achievement, we recognize no amount of stock-based compensation.
If factors change and we employ different assumptions, stock-based compensation expense may differ significantly from what we have recorded in the past. If there are any modifications or cancellations of the
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underlying unvested securities, we may be required to accelerate, increase or cancel any remaining unearned stock-based compensation expense. We currently estimate when and if performance-based grants will be earned. If we do not consider the awards probable of achievement, we recognize no amount of stock-based compensation. If we consider the award to be probable, we record expense over the estimated service period. To the extent that our assumptions are incorrect, the amount of stock-based compensation recorded will change.
Our intent has been to grant all options with an exercise price not less than the fair value of our common stock underlying those options on the date of grant. We have determined the estimated fair value of our common stock at each valuation date in accordance with the guidelines outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. Our board of directors, with the assistance of management, developed these valuations using significant judgment and taking into account numerous factors, including developments at our company, market conditions and contemporaneous independent third-party valuations.
For all option grant dates through March 31, 2014, our board determined the enterprise value based on the Market Approach, Income Approach, Option Pricing Method, or OPM, and Probability Weighted Expected Return Method, or PWERM. Under the Market Approach we estimate the value based upon analysis of similar companies. We then apply these derived multiples or values to our financial metrics to estimate our market value. The Income Approach, or Discounted Cash Flow Method, estimates value based on the expectation of future net cash flows, which are then discounted back to the present using a rate of return derived from companies of similar type and risk profile. The allocation of these enterprise values to each part of our capital structure, including our common stock, was done based on OPM. OPM treats the rights of the holders of preferred and common stock as equivalent to call options on any value of the enterprise above certain break points of value based upon the liquidation preferences of the holders of preferred stock, as well as their rights to participation and conversion. Thus, the estimated value of the common stock can be determined by estimating the value of its portion of each of these call option rights. OPM derives the implied equity value of a company from a recent transaction involving the companys own securities issued on an arms-length basis. Under the PWERM the value is estimated based upon analysis of future values for the enterprise under varying scenarios, probabilities are ascribed to these scenarios based on expected future outcomes. Following the closing of this offering, the fair value of our common stock will be determined based on the closing price of our common stock on The Nasdaq Global Market.
In January 2014, we decided to pursue an initial public offering, or an IPO. As a result, in connection with the preparation of our financial statements included in this prospectus, and in preparing for our proposed IPO, we reexamined the estimated fair value of our common stock associated with our stock option grants since our prior common stock valuation report as of October 31, 2013, for financial reporting purposes.
Our board of directors granted options to purchase common stock on December 3, 2013, primarily to employees who were recently hired since we last issued option grants, with each option having an exercise price of $0.33 per share. In establishing this exercise price, our board of directors considered input from management, including the previously issued common stock valuation report which was performed as of October 31, 2013, as well as various objective and subjective factors including:
| the continued lack of liquidity of our common stock as a private company; |
| the second tranche of our Series D convertible preferred stock in October 2013; |
| the rights, preferences and privileges of our convertible preferred stock as compared to those of our common stock, including the liquidation preferences of our convertible preferred stock; |
| the impact of significant ongoing expenses associated with research and development, ongoing clinical trials and commercialization; and |
| the low likelihood of achieving a liquidity event for holders of our common stock, such as an IPO or sale of our company, given the prevailing market conditions. |
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At the time of the grants, our board of directors determined that, at the grant date, the collective effect of these events and circumstances did not indicate a significant change in the fair value of our common stock. Based on these factors, our board of directors determined that the fair value of our common stock on the grant date listed above was $0.33 per share.
In preparation for filing a registration statement with the SEC in connection with this offering, we evaluated whether or not in retrospect the value of the common stock on December 3, 2013, was appropriate for accounting purposes. We determined that in retrospect, the valuation of the common stock as determined by the valuation report issued as of December 31, 2013, provided a closer approximation of the fair value of the common stock for accounting purposes. For the calculation of stock-based compensation expense solely for financial reporting purposes, we have used a fair value of $1.06 per share for the December 3, 2013, stock option awards.
The following table illustrates our stock option grant information from January 1, 2013, through March 31, 2014, including the estimated fair market value of our common stock on the date of grant:
Grant Date |
Shares Subject to Options Granted |
Exercise Price |
Reassessed Estimated Fair Market Value |
Grant Date Aggregate Intrinsic Value |
||||||||||||
April 23, 2013 |
3,554,000 | $ | 0.30 | $ | 0.30 | | ||||||||||
June 11, 2013 |
219,000 | 0.30 | 0.30 | | ||||||||||||
September 5, 2013 |
360,000 | 0.30 | 0.30 | | ||||||||||||
December 3, 2013 |
377,500 | 0.33 | 1.06 | $ | 275,575 | |||||||||||
March 5, 2014 |
414,250 | 1.55 | 1.55 | |
The intrinsic value of all outstanding vested and unvested options as of March 31, 2014, was million based on the assumed initial public offering price of per share, the midpoint of the price range set forth on the cover page of this prospectus, and based on 7,859,953 shares of common stock issuable upon the exercise of options outstanding as of March 31, 2014, with a weighted average exercise price of $0.33 per share.
Convertible Preferred Stock Warrant Liability
For a warrant classified as a derivative liability, we record the fair value of that warrant on the balance sheet at the inception of such classification and adjust to fair value at each financial reporting date. We record the changes in the fair value of the warrants in the statement of operations as a component of interest and other income or expense as appropriate. We will continue to adjust the carrying value of the convertible preferred stock warrant liability for changes in the fair value of the warrants until the earlier of: the exercise of the warrants, at which time we will reclassify the liability to temporary equity; the conversion of the underlying preferred stock into common stock, at which time we will reclassify the liability to stockholders deficit; or the expiration of the warrant, at which time we would reverse the entire amount and reflect it in the statement of operations. Our assumptions with regard to the warrant valuation are based on estimates of the valuation of the underlying preferred stock, volatility, interest rate and such estimates could vary significantly.
Convertible Preferred Stock Financing Option
For a freestanding option to purchase a future round of financing, we determine the fair value of that option based on the underlying estimated future fair value of the convertible preferred stock, the timing of when such obligation will be satisfied, the discount factor applied based on the timing of the satisfaction of the obligation and the probability that the obligation will be satisfied. We record the initial fair value of the obligation on the balance sheets at the inception of such arrangement and adjust it to fair value at each financial reporting date. We record the change in the fair value of the convertible preferred stock financing option in the statement of operations as a component of interest and other income or expense as appropriate. We adjust the carrying values of the convertible preferred stock financing option liability for changes in the fair value of the option and will continue to do so until the earlier of when all of the options have been exercised or expired. The assumptions used in determining the fair value of the obligation require significant judgment.
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JOBS Act Accounting Election
As an emerging growth company under the Jumpstart Our Business Startups Act of 2012, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. We have elected to take advantage of the extended transition period for adopting new or revised accounting standards that have different effective dates for public and private companies until such time as those standards apply to private companies. There have been no new accounting pronouncements or changes to accounting pronouncements that are of significance or potential significance to us.
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Overview
We are a commercial stage drug-device company committed to improving the quality of life for patients with ear, nose and throat conditions. We have developed a drug-eluting bioabsorbable implant technology that enables targeted and sustained release of therapeutic agents. This targeted drug delivery technology is designed to allow ear, nose and throat, or ENT, physicians to improve patient care. Our initial products, PROPEL and PROPEL mini, are the first and only drug-eluting implants approved by the U.S. Food and Drug Administration, or FDA, for use in patients with chronic sinusitis. Inserted by a physician during ethmoid sinus surgery, the self-expanding implants are designed to conform to and hold open the surgically enlarged sinus while gradually releasing an anti-inflammatory steroid over a period of 30 days, before being fully absorbed into the body. Use of our PROPEL implants is clinically proven to improve surgical outcomes by maintaining the open pathways created in surgery and reducing the need for oral steroids and additional surgical procedures. In addition, we are using our drug-eluting bioabsorbable implant technology to develop new, less-invasive, more cost-effective treatment options for the management of chronic sinusitis in the physician office setting to provide benefits for patients, physicians and payors. Any new products we develop, or changes that we make in the therapeutic agent used in PROPEL or PROPEL mini, will require FDA approval prior to commercialization in the United States.
Chronic sinusitis is one of the most prevalent chronic diseases in the United States and significantly impacts the quality of life of patients. According to the Centers for Disease Control and Prevention, or CDC, approximately 12% of the U.S. adult population, or 29 million people, are affected by chronic sinusitis, making it more prevalent than heart disease and asthma. Chronic sinusitis is an inflammatory condition in which the sinus lining becomes swollen and inflamed, leading to significant patient morbidity, including difficulty breathing, chronic headaches, recurrent infections, bodily pain, and loss of sense of smell and taste. These persistent symptoms can severely impact a patients day-to-day well-being, resulting in frequent doctor visits and lost work productivity and can lead to chronic fatigue and depression. Chronic sinusitis is managed by a combination of medical management and surgical intervention. The first line of therapy is medical management involving antibiotics, anti-inflammatory steroids and decongestants. Despite limited efficacy of the use of antibiotics in this patient population and the consequence of increasing bacterial resistance, there is pervasive overuse of these drugs, which could lead to patient resistance and has resulted in sinusitis being identified as a major target in national efforts to reduce unnecessary medical intervention. Sinusitis is the most common reason for adult outpatient antibiotic use in the United States, comprising 11% of all antibiotic prescriptions. Patients whose symptoms persist despite medical management, are recommended to undergo functional endoscopic sinus surgery, or FESS. FESS is performed in the operating room to open the blocked sinus pathways by removing inflamed tissue and bone using surgical tools. Although sinus surgery can be effective, a majority of patients experience recurrent symptoms which commonly necessitate additional treatment with medications and surgery.
Our two commercial products, PROPEL and PROPEL mini, are designed to improve the outcomes of sinus surgery by reducing postoperative inflammation and scarring from the underlying condition as well as the surgery. PROPEL and PROPEL mini were clinically proven in a meta-analysis of prospective, multicenter, randomized, controlled, double-blind clinical studies to improve surgical outcomes, including a 35% reduction in the need for postoperative oral steroid and surgical intervention.
Our target market consists of more than 3.5 million people with chronic sinusitis in the United States who are managed by ENT physicians and who we believe could benefit from products that incorporate our drug-eluting bioabsorbable implant technology. Approximately 540,000 patients underwent sinus surgery for chronic sinusitis in 2013 in the United States. This includes patients who are under the age of 18 and surgeries on the frontal sinuses, both of which represent potential expanded future indications for PROPEL and PROPEL mini and would require FDA approval. Based on the number of sinus surgeries, we estimate the annual total addressable market for PROPEL and PROPEL mini in the United States to be approximately $830 million. We further estimate the annual total addressable market for our products in clinical development in the United States that are specifically designed to address patients in the physician office setting to be approximately $4.0 billion. This estimate is based on our intention to target with our products in development both chronic sinusitis patients who have undergone FESS procedures and have recurring symptoms and the remaining chronic sinusitis patients who have not undergone FESS procedures. While our current commercial focus is the U.S. market, we plan to
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initiate efforts that will allow for future expansion into international geographies. Based on the number of sinus surgeries in Europe and the Asia-Pacific region, we estimate the annual total addressable market for PROPEL and PROPEL mini in these regions to be greater than $1.0 billion. Therefore, we estimate the global annual total addressable market for our products and products in clinical development for chronic sinusitis patients to exceed $6.0 billion. See Overview of Sinusitis below for additional information regarding our assumptions in arriving at these estimates.
In August 2011 we received Premarket Approval, or PMA, from the FDA for our first product, PROPEL, indicated for use in patients 18 years or older following ethmoid sinus surgery to maintain patency. Our second product, PROPEL mini, received PMA approval from the FDA in November 2012.
PROPEL mini is designed for patients requiring less extensive surgery and those who have smaller anatomy, thus expanding the treatable patient population. In the first half of 2013, we began scaling our U.S. direct commercial presence. As of March 31, 2014, over 1,000 physicians in the United States have been trained and have incorporated our steroid-eluting implants into their practice. Based on the number of units shipped as of March 31, 2014, we estimate that physicians have treated over 25,000 patients with PROPEL and PROPEL mini. For the year ended December 31, 2013, we generated revenue of $17.9 million and had a net loss of $18.4 million. For the three months ended March 31, 2014, we generated revenue of $7.5 million and had a net loss of $4.4 million. As of March 31, 2014, we had an accumulated deficit of $82.7 million.
We expanded our sales, marketing and reimbursement organizations from 21 people as of December 31, 2012, to 62 people as of March 31, 2014, and have plans to increase sales by further expanding these organizations. We believe this expansion will allow us to further penetrate and expand the market by demonstrating the benefits of our steroid-eluting implants to our physician customers. We expect this would, in turn, persuade more patients to undergo sinus surgery to treat their condition as they are convinced of the ability of our products to improve recovery and surgical outcomes, allowing us to further penetrate and expand the market. In addition, we are using our drug-eluting bioabsorbable implant technology to develop new products for use in the physician office setting, expanding the patient population that can benefit.
Overview of Sinusitis
The sinuses are a system of connected air-filled cavities located within the bones around the nose and eyes that allow for natural ventilation and drainage of mucus. There are four sinus cavities: ethmoid, frontal, maxillary and sphenoid. One of each type of sinus lies on either side of the face. The sinuses are lined with soft, pink tissue called mucosa, which serves to constantly cleanse the sinuses of impurities such as dust, dirt, allergens, pollutants and bacteria. To clear these inhaled pathogens, the sinus lining secretes mucus which is then cleared away by small, hair-like structures called cilia, which act in coordination to sweep the mucus through the sinus pathways and out through the back of the throat.
The ethmoid sinuses, which lie between the eyes, are a series of small cells with multiple, often interconnected openings in a honeycomb-like formation. These sinuses serve as the central aeration and drainage
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pathway for all other sinuses. The frontal, maxillary and sphenoid sinuses are known as dependent sinuses, as they each consist of one large cell that drains through an opening, or ostium, into the ethmoid sinus.
Chronic sinusitis is an inflammatory condition in which the sinus lining becomes swollen and inflamed, leading to significant patient morbidity including difficulty breathing, chronic headaches, recurrent infections, bodily pain, and loss of sense of smell and taste. These persistent symptoms can severely impact a patients day-to-day well-being, resulting in frequent doctor visits and can lead to chronic fatigue and depression. The condition significantly reduces work productivity from absenteeism and reduced on-the-job effectiveness, especially meaningful given the average chronic sinusitis patient age of approximately 37 years.
The debilitating patient symptoms and quality of life impairments attributed to chronic sinusitis create a significant healthcare burden to patients, insurers and employers. According to the CDC, approximately 12% of the U.S. adult population, or 29 million people, are affected by the disease, making it more prevalent than heart disease and asthma. The CDC estimated that in 2005 the condition resulted in 12.6 million physician office and 1.2 million hospital out-patient department visits per year in the United States. It is estimated that chronic sinusitis resulted in $8.6 billion in direct healthcare costs in 2007 in the United States. The indirect costs of chronic sinusitis are also significant, with one study attributing a 38% loss in work productivity due to the illness. In addition, a study of over 200,000 managed care patients found that chronic sinusitis patients made 43% more physician office visits and 25% more urgent care visits, ranking chronic sinusitis among the top 10 most costly conditions to U.S. employers.
Our target market consists of more than 3.5 million people with chronic sinusitis in the United States who are managed by ENT physicians and who we believe could benefit from products that incorporate our drug-eluting bioabsorbable implant technology. While approximately 1.6 million chronic sinusitis patients are offered surgery as a treatment option, approximately one third or 540,000 patients will proceed to surgery. This includes patients who are under the age of 18 and surgeries on the frontal sinuses, both of which are indications that require FDA approval before PROPEL and PROPEL mini may be indicated for use in these procedures. Of the 540,000 patients, we estimate that 85% underwent surgeries for the ethmoid sinuses for which PROPEL and PROPEL mini have been approved for use in adults, and 25% underwent surgeries on the frontal sinuses. We believe that less than 5% of all the procedures were performed on patients under 18 years old. Patients suffering from chronic sinusitis are treated by approximately 7,500 ENT physicians who perform sinus surgery. Based on the number of sinus surgeries, and assuming two devices per surgery and using our estimated average selling price of PROPEL and PROPEL mini, we estimate the annual total addressable market for PROPEL and PROPEL mini in the United States, including for future use in frontal sinus surgeries and on patients under 18 years old, to
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be approximately $830 million. Penetration of this addressable market would require adoption of PROPEL and PROPEL mini by the 60% of ENT physicians who place sinus packing material into the ethmoid sinuses during surgery and the remaining ENT physicians who do not place packing materials in the ethmoid sinuses or frontal sinuses during surgery. We further estimate the annual total addressable market for our products in clinical development in the United States that are specifically designed to address patients in the physician office setting to be approximately $4.0 billion. This estimate is based on an estimated 3.5 million sinusitis patients at all stages of the disease who are managed by ENT physicians in the United States, for which we estimate 34% have undergone FESS procedures, our intention to target with our products in development both chronic sinusitis patients who have undergone FESS procedures and have recurring symptoms and the remaining chronic sinusitis patients who have not undergone FESS procedures.
While our current commercial focus is the U.S. market, we plan to initiate efforts that will allow for future expansion into international geographies. Based on the number of sinus surgeries in Europe and the Asia-Pacific region and our estimated average selling price per implant, and assuming two implants per procedure, we estimate the annual total addressable market for PROPEL and PROPEL mini in these regions to be greater than $1.0 billion. Therefore, we estimate the global annual total addressable market for our products and products in clinical development for chronic sinusitis patients to exceed $6.0 billion.
Current Treatments for Chronic Sinusitis and Their Limitations
The treatment of chronic sinusitis often entails a combination of medical management and surgical intervention to treat the underlying inflammation of the sinus lining, while addressing the secondary symptoms caused by obstruction of the natural drainage pathways.
Medical Management
The first line of therapy for chronic sinusitis is medical management, which typically includes prescribed antibiotics, anti-inflammatory steroids and decongestants. Despite limited efficacy of use of antibiotics in this patient population and the consequence of increasing bacterial resistance, there is pervasive overuse of these drugs, which could lead to patient resistance and has resulted in sinusitis being identified as a major target in national efforts to reduce unnecessary medical intervention. Sinusitis is the most common reason for adult outpatient antibiotic use in the United States, comprising 11% of all antibiotic prescriptions. In addition, physicians often prescribe decongestants and other drugs to target mucus accumulation.
Steroids are prescribed in two forms, oral steroid pills and nasal steroid sprays, both of which have serious limitations. Oral steroid therapy is effective at reaching the sinus lining, but it does so by means of systemic exposure and therefore carries the risk of serious side effects, including glaucoma, bone loss, weight gain, psychosis and difficulty in controlling blood glucose levels in patients with diabetes. Nasal steroid sprays, commonly indicated for rhinitis, or inflammation of the nasal passage, are routinely prescribed for chronic sinusitis patients. While nasal steroid sprays avoid systemic exposure and thus lack such serious side effects, an estimated 70% of the drug is swallowed and the remainder is directed to the nasal passages, instead of the sinuses, which limits efficacy. In a published study, the fraction of drug deposited in the sinuses from a nasal steroid spray was measured to be less than 2%. Poor patient compliance further limits the effectiveness of nasal steroid sprays. Although medical management can reduce symptoms, an estimated 20% or more of chronic sinusitis patients who receive medical therapy are unresponsive.
Sinus Surgery
In cases where patients are symptomatic despite medical management, a physician may recommend FESS. In the FESS procedure, the physician enlarges the inflamed and obstructed sinus pathways by removing inflamed tissue and bone in order to facilitate normal sinus drainage and aeration. First introduced in the United States in the 1980s, FESS is considered the standard of care for surgical intervention to treat chronic sinusitis. During the procedure, the honeycomb-like cells of the ethmoid sinuses are removed, resulting in one large open cavity. Given their essential role in sinus function, the ethmoid sinuses are opened in over 85% of FESS procedures. The dependent sinuses each drain into the ethmoid sinuses through ostia, which may be enlarged by either surgically removing tissue or via balloon sinuplasty.
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FESS is typically performed under general anesthesia in an operating room. During the procedure, a physician inserts an endoscope into the nasal cavity to provide visualization of the patients anatomy. Surgical instruments, powered cutting tools and balloon sinuplasty devices are used to remove or dilate obstructive tissue and bone. Following the surgical intervention, physicians often pack the newly opened ethmoid sinuses with gauze or other obstructive sinus packing materials to hold the sinus cavities open. A follow-up office visit is required several days after the procedure to remove the sinus packing materials and an additional one to two follow-up visits typically occur over the first four to six weeks following surgery to monitor for and treat complications.
Since the introduction of FESS, several new technologies, such as image-guided surgical navigation systems, powered surgical tools and balloon sinuplasty devices have expanded the addressable patient population who can benefit from FESS and allowed for treatment of patients in the physician office setting. For instance, balloon sinuplasty devices were developed to be used in combination with traditional surgical instruments during FESS to treat the dependent sinuses. Balloon sinuplasty is now also used during a procedure in the physician office setting to treat mild chronic sinusitis patients who may not be willing to undergo or are not candidates for sinus surgery under general anesthesia in the operating room setting.
While FESS is the standard of care for treating chronic sinusitis, it has several limitations:
| Limited effectiveness. Inflammation and scarring in the postoperative period are common and can compromise the surgical result by negatively impacting the ability of the sinuses to heal. This increases the need for continued medical management and additional surgical procedures. Within the first year after surgery, approximately 64% of patients experience recurrent symptoms. |
| Limited ability to address postoperative inflammation. While oral steroids prescribed postoperatively can be effective at addressing inflammation and scarring, the required doses are significant and can result in serious systemic side effects, including glaucoma, bone loss, weight gain, and psychosis. Further, they have restricted use in diabetic individuals, patients with glaucoma and certain psychological disorders. We believe, as a result, only 20% of physicians prescribe them routinely after surgery. The absence of anti-inflammatory steroid therapy leaves the surgical wound susceptible to postoperative complications. |
| Pain and discomfort during postoperative period. During surgery, an ENT physician typically places sinus packing materials into the ethmoid sinuses to physically separate tissues in an attempt to prevent scarring and adhesions. Following surgery, physicians see patients two to three times in order to monitor for and, if necessary, to treat complications as well as remove these sinus packing materials. The sinus packing materials are removed by pulling or suctioning them from the newly opened cavity, a painful and time-consuming process, often necessitating pain medication. Moreover, the use of sinus packing materials obstructs the newly opened sinuses, leading to patient symptoms of congestion and discomfort. Despite the use of packing materials, scarring and adhesions are common, necessitating painful removal of additional tissue during postoperative treatments. |
| Potential for revision surgery. Within the first year after FESS, approximately 10% of patients will return to the operating room to undergo a revision procedure, while additional patients will return for a revision procedure after one year. We believe the risk of potential revision surgery is a significant deterrent to some patients that would otherwise undergo FESS for chronic sinusitis. |
We believe that because of the limitations of medical management and lack of disease resolution after FESS, many chronic sinusitis patients remain undertreated. We estimate that only a third of patients recommended for sinus surgery proceed with the potentially beneficial procedure, which we believe is due to its limitations and high risk for additional medical management and surgical revision. While balloon sinuplasty has been introduced to open frontal, maxillary and spenoid sinuses, or dependent sinuses, in a less invasive manner, it cannot treat disease in the most commonly involved sinuses, the ethmoids, and does not address the underlying inflammation associated with chronic sinusitis. We believe that an opportunity exists to reach these undertreated patients by providing a more effective option to address their inflammatory disease, while improving the overall outcomes of FESS.
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Our Solution
We have designed a drug-eluting implant that consists of bioabsorbable polymers that control drug release and provide structural support to adjacent tissues during the healing process, while the implant is gradually and fully absorbed into the body. We believe the development, manufacturing, and regulatory approval for products incorporating this technology requires capabilities in polymer science, drug delivery, analytical testing and combination products. These competencies allow our technical team to tailor drug formulation, polymer design, drug release duration, implant radial strength and degradation period to meet different clinical needs. This expertise has been utilized in the development of PROPEL and PROPEL mini and is currently being leveraged in the development of our pipeline products. Any new products we develop, or changes that we make in the therapeutic agent used in our PROPEL or PROPEL mini, will require FDA approval prior to commercialization in the United States.
Our PROPEL implants are designed to improve the outcomes of sinus surgery by holding open the sinus passageways, reducing postoperative inflammation and scarring. They are inserted by a physician under endoscopic visualization during sinus surgery in the ethmoids. Once inserted, the self-expanding implants conform to and hold open the surgically enlarged sinus, while gradually releasing an anti-inflammatory steroid, mometasone furoate, directly to the sinus lining over a period of 30 days. Mometasone furoate, which is available generically and has been approved by the FDA for use in PROPEL and PROPEL mini, is the active ingredient in NASONEX, a nasal spray used to treat allergic rhinitis and other indications. The implants fully absorb into the body over a period of four to six weeks or are removed at the discretion of a physician during a routine office visit. Once absorbed or removed, the implant no longer provides structural support. The graphic below illustrates the operation of PROPEL and PROPEL mini in the sinuses:
We believe the principal benefits of our steroid-eluting implants are:
| Improved surgical outcomes. Our PROPEL implants have been clinically proven to improve FESS results by reducing postoperative inflammation and scarring. In a meta-analysis of prospective, multicenter, randomized, controlled, double-blind clinical studies, our PROPEL implants provided a 46% relative reduction in inflammation and a 70% relative reduction in scarring compared to the control implant. The control implant was identical to the PROPEL implant in composition, size, structure and mode of insertion but lacked the mometasone furoate coating. Our PROPEL implants also demonstrated a significant reduction in postoperative complications, including severe inflammation, such as polyps, and scarring, which are both common reasons for FESS failure. |
| Targeted steroid therapy to address postoperative inflammation. Our PROPEL implants are the first and only drug-eluting bioabsorbable sinus implants. They deliver postoperatively an anti-inflammatory steroid directly to the sinus lining in a controlled fashion over a period of 30 days, which helps in the wound healing process. In a meta-analysis of prospective, multicenter, randomized, controlled, double-blind clinical studies, our PROPEL implants reduced the need for oral steroids by 40% compared to the control implant. |
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| Reduced pain and discomfort during postoperative period. Our PROPEL implants improve postoperative care. Once inserted, the self-expanding implants are designed to conform to and hold open the surgically enlarged ethmoid sinuses until fully absorbed into the body, which improves wound healing without obstructing the sinuses and causing congestion. Our steroid-eluting implants are designed to obviate the need for sinus packing materials, which can be a significant source of postoperative pain and discomfort. Our PROPEL implants significantly reduce scarring and adhesions, which reduces the potential for pain in postoperative treatments. |
| Reduced surgical revisions. In clinical studies, our PROPEL implants demonstrated a significant reduction in need for postoperative surgical intervention. In a meta-analysis of prospective, multicenter, randomized, controlled, double-blind clinical studies, our PROPEL implants provided a 35% relative reduction in the need for postoperative oral steroid and surgical intervention compared to the control implant. We believe that patients who have been deterred by the high revision rates associated with FESS may now consider surgical intervention to treat their chronic sinusitis condition. |
We believe these benefits will help expand the size of the FESS market as referring physicians increase their prescription of surgical intervention for chronic sinusitis and more patients elect to undergo sinus surgery to treat their condition.
Our Strategy
Our goal is to be a leading drug-device company committed to advancing clinically proven therapeutic solutions that improve the quality of life for patients with ENT conditions. The key elements of our strategy include:
| Expand our sales and marketing organizations to support growth. In the territories in which we focus, our sales team has been able to achieve meaningful adoption and utilization since our first product launch in September 2011. After refining our commercial model, we began to scale our sales and marketing organizations in the first half of 2013 and as of March 31, 2014 are selling in 35 territories. We plan to continue to invest in the expansion of this scalable infrastructure to provide ENT physicians in the United States with access to our steroid-eluting implants. We believe that investment in our sales and marketing organizations will drive continued adoption of our products to establish our steroid-eluting implants as the standard of care. |
| Promote awareness amongst ENT physicians, referring physicians and patients. We believe that many patients with chronic sinusitis are currently undertreated, and we intend to educate ENT physicians, allergists, primary care physicians or other referring medical professionals and patients to raise awareness of the disease and available treatment alternatives, including the advantages of using our steroid-eluting implants. We intend to continue promoting this awareness through conducting advertising campaigns, training and educating physicians, publishing additional clinical data demonstrating the benefits of our devices including improved patient outcomes and exhibiting at tradeshows. We have various ongoing marketing initiatives focused on improving referring patterns to our trained physicians. In addition, we plan to launch direct-to-patient marketing programs that we believe will further increase product awareness. |
| Advance our platform of innovative products for additional chronic sinusitis patients. We believe improving treatment options for chronic sinusitis patients across the continuum of care holds tremendous market opportunity, and has significant potential to reduce healthcare costs. We are developing additional products using our drug-eluting bioabsorbable implant technology that are specifically designed to treat and manage chronic sinusitis in the physician office setting during a routine visit. This technology is currently under clinical evaluation in the United States. We are also working to expand indications for our PROPEL implants to allow for the treatment of the dependent sinuses. |
| Facilitate access to our products via third-party reimbursement. Our currently approved products are commonly treated as general supplies utilized in sinus surgery and if covered by third-party payors, are paid for as part of the FESS procedure. We believe that establishment of reimbursement codes specific |
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to the use of drug-eluting implants for chronic sinusitis is an important factor in expanding access to our products, especially in the physician office setting. Therefore, our strategy includes efforts to engage physician societies and encourage third-party payors to establish coverage, coding and payment that will facilitate access to our drug-eluting implants as we expand our commercialization efforts in the United States. |
| Introduce our steroid-eluting implants in markets outside the United States. While our current commercial focus is the U.S. market, we plan to initiate efforts that will allow for future expansion into international geographies. Based on the number of sinus surgeries in Europe and the Asia-Pacific region, we estimate the annual total addressable market for PROPEL and PROPEL mini in these regions to be greater than $1.0 billion. We plan to leverage our FDA PMA approved products and clinical data to access these markets, starting first with the development of clinical, regulatory and reimbursement strategies for countries in Europe and the Asia-Pacific region. |
Our Products
Our Technology Platform
Our drug-eluting bioabsorbable implant technology consists of a polymer-based implant that is coated with a drug and polymer matrix. In fabricating the implant, we use polymers that are bioabsorbable and, over time, gradually and fully absorb into the body. The polymers chosen are materials with established safety profiles and have been used in medical devices for over 30 years. Individual polymer properties can further enhance biocompatibility in the sinus anatomy. For example, the polyethylene glycol used in the drug coating for PROPEL and PROPEL mini has been proven to be an anti-inflammatory, protein-resistant barrier.
Our innovative design process enables us to develop the mechanical and drug delivery features independently, lending to our customization capability. Our highly specialized bioabsorbable polymer engineering capability, allows us to design the implant with various physical characteristics depending on the size, radial strength and other attributes that are appropriate to enable treatment of the underlying disease in its location. Our implants are designed to be self-expanding, which facilitates insertion when compressed, and expand to conform to the surrounding anatomy after insertion. The ability to control radial strength is important in enabling us to address different diseases at different states. For example, in some instances an implant may be used to maintain an already open passageway. In other situations an implant with significantly greater strength may mechanically dilate a diseased passageway.
Our expertise in drug delivery allows us to effectively pair appropriate polymer delivery matrices with desired therapeutic agents. This allows us to select the therapeutic agent based on its clinical effectiveness and tailor the platform accordingly. In the case of PROPEL, we considered the wide range of off-patent corticosteroids, chose the one best suited for treatment of sinus inflammation, then customized the polymer delivery. Once a drug is selected, our specialized capability in drug formulation allow us to control the speed at which the drug elutes, allowing us to design implants from which the drug is released over a matter of weeks to even longer durations. As a result, we have the flexibility to select the type of drug to be used on the implant and then engineer the implant to control the amount, timing and delivery of the drug.
PROPEL Implant and Delivery System
Our steroid-eluting implants are the first and only FDA-approved drug-eluting implants for chronic sinusitis sufferers. They are indicated for use in patients 18 years or older following ethmoid sinus surgery to maintain patency.
The PROPEL implant is formed from a bioabsorbable polymer fiber, poly-(L-lactide-co-glycolide), or PLG, a material that has been used in medical devices for 30 years. The implant is coated with a drug-eluting coating containing 370 micrograms of mometasone furoate, a corticosteroid with anti-inflammatory properties, in a polymer matrix containing PLG and polyethylene glycol, or PEG. Because of its bioabsorbable nature, the implant will be fully and gradually absorbed into the body over a period of four to six weeks, or it may be removed prior to such time at the discretion of the physician. The implant is designed to accommodate the size and variability of the surgically enlarged ethmoid sinus anatomy and features a nominal expanded implant length
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of 23 millimeters. PROPEL is delivered using a one-handed ergonomically designed delivery system that provides access to the ethmoid sinuses using endoscopic visualization. The delivery system is comprised of a sheath with a curved distal tip, inside which the implant is housed for deployment. A funnel tool is included in the product kit and is attached to the distal tip of the delivery system to assist in the loading of the implant into the delivery system.
We designed the steroid drug release of PROPEL for a duration of 30 days to match the postoperative healing cycle characterized in published medical literature. We selected mometasone furoate as the anti-inflammatory agent among numerous evaluated compounds based on three important characteristics: absorbability, binding affinity and low systemic bioavailability. The compound preferentially absorbs into the sinus lining instead of the surrounding mucous fluid. The drug has the highest glucocorticoid receptor binding affinity, making it highly potent in preventing inflammation once within tissue. Glucocorticoid receptors are the molecules in the surface membranes of cells throughout the body to which corticosteroids chemically bind. Additionally, the compound has low systemic bioavailability, meaning that it has negligible systemic safety side effects.
![]() PROPEL and PROPEL mini steroid-eluting implants |
PROPEL and PROPEL mini implant delivery systems |
PROPEL Mini Implant and Delivery System
The PROPEL mini implant, is a smaller version of PROPEL and is manufactured from the same bioabsorbable polymer fiber and with the same drug-eluting coating and other design characteristics. The nominal expanded implant length of the PROPEL mini is 16 millimeters. The profile of the delivery system is smaller, facilitating treatment of smaller anatomy. The distal tip is curved to allow for treatment of additional sinuses as future indications are obtained. A crimper, loading tool and funnel are provided in the product kit to assist in the crimping and loading of the implant into the delivery system.
Product Pipeline and Research and Development
We continue to expand our product pipeline by applying our proprietary drug-eluting bioabsorbable implant technology to additional chronic sinusitis-targeted applications, which we believe will expand the patient population that can benefit from our steroid-eluting technology.
Steroid-Eluting Implant for Refractory Disease in Office
Our steroid-eluting implants are clinically proven to improve surgical results for patients undergoing FESS, reducing the need for postoperative surgical and steroid intervention. However, given the underlying chronic inflammation associated with this condition, recurrent obstruction of the sinus cavity can occur over time following sinus surgery, especially in patients afflicted with polyps, a sign of severe inflammation. Improving care of such chronic patients holds meaningful opportunity to significantly reduce healthcare costs by preventing revision surgery. We have developed an alternative treatment option for patients who are candidates for revision surgery that can be placed in the physician office setting during a routine visit. This implant is based on the same drug-eluting bioabsorbable implant technology as PROPEL, but is designed to have greater radial strength in order to dilate an obstructed, polyp-filled sinus cavity, and deliver drug for an extended period of time. This implant is currently under clinical evaluation in the United States and, unlike PROPEL, which is regulated as a medical device, the implant is subject to regulation as a drug product and will require the submission to the FDA of a New Drug Application, or
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NDA. We intend to pursue the NDA for this implant under Section 505(b)(2) of the FDCA. Section 505(b)(2) would enable us to rely, in part, on the FDAs findings of safety and efficacy for an existing product, or published literature, in support of our NDA, which could expedite the development program of this implant by potentially decreasing the amount of clinical data that we would need to generate in order to obtain FDA approval.
Steroid-Eluting Implant for Primary Disease Management in Office
We are also developing another steroid-eluting implant designed to fit the openings of the dependent sinuses following ostial dilation using balloon sinuplasty. This implant will allow treatment of patients, who have not yet had surgery, in the physician office setting. We believe this product will further expand the addressable patient population to those that are either indicated for sinus surgery and choose not to proceed or those with less severe disease that would otherwise be treated with medical management.
Other Products
Beyond chronic sinusitis, we plan to apply our drug-eluting bioabsorbable implant technology to a variety of other ENT conditions, such as conditions affecting the ear and throat. We believe there are many opportunities to replace medical management and improve current surgical interventions with targeted drug-eluting implants. We are in various stages of development for these potential new products.
In addition to building our product offering through internal product development efforts, we may selectively license or acquire complementary products and technologies, leveraging our experience at bringing new products to market and our commercial channel.
Research and Development
As of March 31, 2014, we had 26 employees in our research and development department, including eight employees responsible for clinical development, six for quality assurance and three for regulatory affairs. The primary focus of this group is to develop new steroid-eluting implants that leverage our drug-eluting bioabsorbable implant technology. Research and development expenses for 2012 and 2013 were $9.3 million and $9.5 million, respectively.
Clinical Results and Studies
PROPEL
The safety and efficacy of PROPEL has been studied in three prospective, multicenter clinical trials conducted in the United States enrolling a total of 205 patients. The principal safety and efficacy information is derived from the ADVANCE II randomized clinical trial and is supported by the ADVANCE clinical trial and an initial pilot study. A meta-analysis that pooled data from the ADVANCE II study and the initial pilot study provides further evidence of efficacy. In all three studies, implants were placed following ethmoid sinus surgery, or ethmoidectomy, which entails removal of the honeycomb-like partitions between the ethmoid sinuses in order to create larger sinus cavities. Based on the number of units shipped between the initial FDA approval in August 2011, and March 31, 2014, we estimate that physicians have treated over 25,000 patients with our steroid-eluting implants.
All three studies were designed to measure PROPELs ability to improve the outcomes of sinus surgery. This included measuring the need for postoperative interventions such as adhesion lysis, which is a procedure to separate scar tissue and adhesions within the sinus cavity, and the need to prescribe oral steroids to treat inflammation. The studies also measured the impact of PROPEL on other postoperative complications, such as occurrence of polyposis and middle turbinate lateralization. Prevention of these complications contributes to the long-term success of sinus surgery. Polyposis represents a higher level inflammatory disease. The middle turbinate is a bony structure in the middle of the sinus, responsible for filtration, heating, and humidification of nasal air flow. Middle turbinate lateralization is an undesired complication where this structure curves towards the outer, or lateral, wall of the nose resulting in blockage of the ethmoid sinus passage.
The ADVANCE II Study
We sponsored the ADVANCE II study, a prospective, multicenter, randomized, controlled, double-blind, pivotal study that enrolled 105 adult patients undergoing FESS with bilateral ethmoidectomy for treatment of
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chronic sinusitis refractory to medical management at 11 study centers in the United States between December 2009 and July 2010. The study utilized an intra-patient control design to minimize variability and allow for blinded assessment of the safety and efficacy of the drug-eluting implant compared to a non-drug-eluting control version of the implant. Patients received a drug-eluting implant on one randomized side and an identical non-drug-eluting control version of the implant on the contralateral side. During the initial 30-day follow-up, no oral or topical steroid sprays were permitted. The primary efficacy endpoint was the reduction in need for postoperative interventions at day 30, determined by grading of video-endoscopies from day 30 by a panel of three independent blinded sinus surgeons. Postoperative interventions were a composite endpoint defined as either surgical intervention required to separate an adhesion and/or oral steroid intervention to resolve recurrent ethmoid sinus inflammation. Additional efficacy endpoints were determined by endoscopic grading done by clinical investigators at the study centers.
Ocular safety was characterized by measurement of intraocular pressure, or IOP, at baseline through day 90 and lens examination for cataract formation or progression performed at baseline and day 90. The primary safety endpoint was defined as the absence of clinically significant IOP elevation through day 90.
Implants were successfully deployed in all 210 sinuses. Compared to the control implant, the drug-eluting implant provided a 29% relative reduction in postoperative interventions, a 52% relative reduction in adhesion lysis, and a 29% relative reduction in oral steroid intervention. The relative reduction in frank polyposis was 45%. The primary ocular safety endpoints were met as there were no clinically significant IOP increases and no clinically significant changes from baseline in lens opacities.
Principal Efficacy Results at Day 30 as graded by independent, blinded panel of physicians |
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Outcome Measure |
Evaluable Patients* |
Treatment Sides (n=105) No. (%) |
Control Sides (n=105) No. (%) |
Relative Reduction (%) |
P Value | |||||||||||||||
Postoperative intervention |
96 | 32 (33.3) | 45 (46.9) | -29 | 0.0280 | |||||||||||||||
Adhesion lysis |
100 | 14 (14.0) | 29 (29.0) | -52 | 0.0053 | |||||||||||||||
Oral steroid intervention |
86 | 20 (23.3) | 28 (32.6) | -29 | 0.0881 | |||||||||||||||
Frank polyposis |
85 | 16 (18.8) | 29 (34.1) | -45 | 0.0023 |
* | Evaluable subjects were those with gradable sinuses on both sides |
Meta-Analysis
Two prospective, multicenter, randomized, controlled, double-blind studies enrolled a total of 143 patients utilizing an intra-patient control design. The results of these two trials, the ADVANCE II study and the initial Pilot study, were then pooled for a meta-analysis, which represents the first and only Level 1a evidence for any devices used in sinus surgery today. Level 1a evidence is the highest level of evidence according to the criteria of the Centre for Evidence-Based Medicine at the University of Oxford. For evidence Level 1a, a meta-analysis of multiple randomized controlled trials is required.
Compared to the control implant, the drug-eluting implant provided a 35% relative reduction in postoperative interventions, a 51% relative reduction in adhesion lysis and a 40% relative reduction in oral steroid intervention. The relative reduction in frank polyposis was 46%. Additional efficacy endpoints of significant, or severe, adhesions and middle turbinate lateralization, determined by clinical investigators at the study centers, were reduced by 70% (p=0.0013) and 75% (p=0.0225), respectively.
Principal Efficacy Results at Day 30 as graded by independent, blinded panel of physicians |
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Outcome Measure |
Evaluable Patients* |
Treatment Sides (n=143) No. (%) |
Control Sides (n=143) No. (%) |
Relative Reduction (%) |
P Value | |||||||||||||||
Postoperative intervention |
128 | 42 (32.8) | 65 (50.8) | -35 | 0.0008 | |||||||||||||||
Adhesion lysis |
134 | 19 (14.2) | 39 (29.1) | -51 | 0.0016 | |||||||||||||||
Oral steroid intervention |
113 | 25 (22.1) | 42 (37.2) | -40 | 0.0023 | |||||||||||||||
Frank polyposis |
111 | 22 (19.8) | 41 (36.9) | -46 | <0.0001 |
* | Evaluable subjects were those with gradable sinuses on both sides |
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The ADVANCE Study
We sponsored the ADVANCE study, a prospective, multicenter, single-cohort, open-label trial that enrolled 50 adult patients undergoing primary or revision FESS with either unilateral or bilateral ethmoidectomy for treatment of chronic sinusitis refractory to medical management at seven study centers in the United States between March 2009 and December 2009. At the end of the FESS procedure, drug-eluting implants were placed in the patients ethmoid sinus cavities. During the initial 30-day follow-up, no oral or topical steroid sprays were permitted. Follow-up assessments included endoscopic examination and scoring through 60 days, with patient symptom scoring done through six months. Patient symptom scoring was assessed using validated disease-specific symptom-scoring instruments, namely the Sinonasal Outcomes Test-22, or SNOT-22, a questionnaire that includes 22 symptoms related to sinusitis, and the Rhinosinusitis Disability Index, or RSDI, which is a validated measure of health-related quality of life in rhinitis or rhinosinusitis that contains 30 items that measure symptoms such as facial pain, congestion and sense of smell.
Local sinus safety was assessed by monitoring for device-related adverse events. Ocular safety was characterized by measurement of IOP at baseline through day 30 and lens examination for cataract formation or progression, performed at baseline and day 30.
Implants were successfully placed in all 90 sinuses. Mean inflammation scores were minimal at all time points. At one month, the prevalence of polypoid edema was nine of 90 sinuses (10.0%), frank polyposis occurred in two sinuses (2.2%), significant adhesion occurred in one sinus (1.1%), and middle turbinate lateralization occurred in four sinuses (4.4%). There were no clinically significant changes from baseline in lens opacities or IOP. The mean changes from baseline to day 60 and six months in total RSDI scores were -36.2 and -29.7, respectively, reflecting statistically significant improvement. The mean changes from baseline to day 60 and six months for the SNOT-22 scores were -1.9 and -1.7, respectively, reflecting statistically significant improvement.
PROPEL Pilot Study
We sponsored an initial pilot study, a prospective, multicenter, randomized, controlled, double-blind feasibility study that enrolled 50 adult patients undergoing FESS with bilateral ethmoidectomy for treatment of chronic sinusitis refractory to medical management at four study centers in the United States between March 2008 and February 2009. A total of 43 patients received the PROPEL and control implants. The other seven patients were the first patients enrolled in the study and received an earlier implant version that was subsequently discontinued. The study utilized an intra-patient control design to minimize variability and allow for blinded assessment of the efficacy of the drug-eluting implant compared to an identical non-drug-eluting control version of the implant. Thirty-eight patients received the drug-eluting implant on one randomized side and an identical non-drug-eluting control implant on the contralateral side. Five patients received bilateral drug-eluting implants to assess systemic safety. During the initial 30-day follow-up, no oral or topical steroid sprays were permitted.
Implants were successfully deployed in all 86 sinuses. Compared to the control implant, the drug-eluting implant provided a statistically significant reduction in ethmoid sinus inflammation from day 21 to 45. The drug-eluting implant reduced the frequency of middle turbinate lateralization, significant adhesion lysis, and frank polyposis through day 30, compared to the control implant. There was no evidence of systemic drug exposure. The steroid was not quantifiable systemically at any time point and there was no evidence of adrenal cortical suppression.
Principal Efficacy Results at Day 30 as graded by independent, blinded panel of physicians |
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Outcome Measure |
Evaluable Patients* |
Treatment Sides (n=38) No. (%) |
Control Sides (n=38) No. (%) |
Relative Reduction (%) |
P Value | |||||||||||||||
Postoperative intervention |
31 | 10 (32.3) | 20 (64.5) | -50 | 0.0063 | |||||||||||||||
Adhesion lysis |
34 | 5 (14.7) | 10 (29.4) | -50 | ns | |||||||||||||||
Oral steroid intervention |
27 | 5 (18.5) | 14 (51.9) | -64 | 0.0039 | |||||||||||||||
Frank polyposis |
26 | 6 (23.1) | 12 (46.2) | -50 | 0.0312 |
* | Evaluable subjects were those with gradable sinuses on both sides. |
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Future Products
Steroid-Eluting Implant for Refractory Disease in Office
We are developing a steroid-eluting implant for refractory disease for the treatment of patients in the physician office setting. This product candidate has a primary mode of action of drug, and for this reason will require NDA approval from the FDA rather than PMA approval. We are sponsoring four studies of this product candidate, a pilot study, a pharmacokinetic study, RESOLVE and RESOLVE II in order to support an NDA application with the FDA.
Pilot Study. We sponsored an initial pilot study which was a prospective, multicenter feasibility study that enrolled 12 adult patients who had prior FESS, but experienced recurrent polyposis refractory to medical management at four study sites in the United States in November 2011. Implants were delivered under topical or anesthesia in a physicians office. Reductions in mean bilateral polyp grade as well as patient reported symptoms were demonstrated over 30 days and were sustained through six months. At six months follow-up, 64% of patients were no longer revision FESS candidates. No serious adverse events occurred.
This study provided initial clinical evidence of the feasibility, safety, and efficacy of in-office drug-eluting implant placement in chronic sinusitis patients with recurrent polyposis after FESS. Based on these study results, we planned the RESOLVE study program.
Pharmacokinetic Study. A single-center pharmacokinetic study was conducted in 2013. The protocol required five patients to undergo serial blood sampling for one month following bilateral implant placement. The study demonstrated that there is negligible systemic exposure from the drug.
The RESOLVE Study Program. RESOLVE and RESOLVE II are randomized, controlled clinical trials. RESOLVE is a 100-patient, prospective, multicenter, randomized, controlled, double-blind, clinical study that follows patients through six months. As we had previously agreed with the FDA, the intent of RESOLVE was to direct the final study design and sample size required for the subsequent, larger RESOLVE II, Phase 3 study. Enrollment for the RESOLVE study was completed in November 2013 and results through three months showing primary safety and efficacy endpoints became available in April 2014. These results show that the study met its primary safety endpoint and no serious adverse events occurred. We observed improvements favoring the treatment group for both co-primary efficacy endpoints, which were nasal obstruction and bilateral polyp grade, although the findings did not achieve statistical significance. Several secondary endpoints yielded statistically significant improvements favoring the treatment group. We expect all analyses for the RESOLVE study will be completed after the 6-month data are available in July 2014. We believe RESOLVE provides important information with regard to sample size and other design elements and we plan to utilize the RESOLVE study results in determining the design of the Phase 3, RESOLVE II study.
Sales and Marketing and Physician Training
Sales and Marketing
We market and sell our steroid-eluting implants through our direct sales and marketing organizations in the United States. As of March 31, 2014, our sales, marketing and reimbursement organizations consisted of 62 employees including 52 employees in sales, nine in marketing and customer service and one in reimbursement.
Of the approximately 10,000 ENT physicians in the United States, our target customer market consists of the approximately 7,500 ENT physicians who perform sinus surgery. We believe this makes for a well-defined physician customer base that is accessible by a direct sales organization. We are focused on developing strong relationships with our customers and educating physicians on the proper use and applications of our products and in identifying the appropriate patient candidates who could benefit from our products. While we sell directly to hospitals, the ENT physician typically drives the purchasing decision. In addition, we sell products to ambulatory surgery centers. We plan to increase the size of our commercial organization to expand the current customer account base and increase utilization of our steroid-eluting implants.
Through education, training and research programs, we are supporting physicians to provide the best care for sinus surgery patients. Our physician education program, clinical studies and medical conferences are key means for generating product awareness, adoption and utilization.
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Physician referrals and peer-to-peer education and training are important components of our strategy. We have marketing programs targeted at appropriately educating medical professionals who in many instances represent the primary point of contact with the patient. We plan to implement marketing initiatives targeted at increasing patient awareness of our products through direct-to-patient marketing programs. These efforts are currently focused on informing patients of local physicians trained in the use of our steroid-eluting implants through a physician locator application on our website.
Physician Training
We devote resources to training and educating ENT physicians and their support teams on the proper use of our steroid-eluting implants. We strongly believe proper physician preparation and training optimize the proper use of our products and improve surgical outcomes. We believe one of the most effective ways to introduce and build market demand for our products is by training ENT physicians.
We have designed our products to be ergonomically intuitive to an ENT physician so that their function and use is based on common sinus surgery techniques. Our training process consists of a presentation by one of our sales representatives at the physicians office to demonstrate the use of our products, without requiring physician attendance at a formal training course. Although we are not required to do so, we may have one of our field personnel present during the initial cases performed by a newly-trained ENT physician. Our efficient in-servicing process makes for a cost-effective method of training new physicians and staff.
As of March 31, 2014, we had trained over 1,000 ENT physicians in the proper use of our products. Physician users of our steroid-eluting implants frequently assist in our training efforts as we believe these physicians are instrumental in demonstrating the benefits of our products through peer-to-peer education. These educational events, conducted across the country, typically consist of instructional presentations, clinical study reviews and filmed case studies.
Competition
Our industry is highly competitive, subject to change and significantly affected by new product introductions and other activities of industry participants. Many of the companies developing or marketing ENT products are publicly traded or are divisions of publicly-traded companies, and these companies enjoy several competitive advantages, including:
| greater financial and human capital resources; |
| significantly greater name recognition; |
| established relationships with ENT physicians, referring physicians, customers and third-party payors; |
| additional lines of products, and the ability to offer rebates or bundle products to offer greater discounts or incentives to gain a competitive advantage; and |
| established sales, marketing and worldwide distribution networks. |
Because of the size of the market opportunity for the treatment of chronic sinusitis, potential competitors have historically dedicated and will continue to dedicate significant resources to aggressively promote their products or develop new products. New product developments that could compete with us more effectively are possible because of the prevalence of chronic sinusitis and the extensive research efforts and technological progress that exist within the market. Large medical device companies with ENT divisions, such as Medtronic, also have capability in drug-eluting stents. Though we are not aware of any such products to date, these or other companies may develop drug-eluting products that could compete with our products.
Our commercially available products are designed to be used following sinus surgery. If another company successfully develops a surgical approach to the treatment of sinusitis that would not benefit from the use of our steroid-eluting implants, if another company develops a device to treat the inflammation and scarring associated with sinus surgery that is more efficacious than our steroid-eluting implants or if a pharmaceutical company
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successfully develops a drug that addresses chronic sinusitis without the need for surgical intervention, sales of our products would be significantly and adversely affected.
The alternative to delivering steroids to the sinuses post-operatively with PROPEL is the prescription of oral steroids. While oral steroids prescribed postoperatively can be effective at addressing inflammation and scarring, the required doses are significant and can result in serious systemic side effects, including glaucoma, bone loss, weight gain, and psychosis. Further, oral steroids have restricted use in diabetic individuals, patients with glaucoma and some psychological disorders. We believe, as a result, only 20% of physicians prescribe them routinely after surgery. Additionally, there are commercially available packing materials on the market that provide a spacing function and are less expensive than PROPEL. During surgery, approximately 60% of ENT physicians place sinus packing materials, either absorbable or non-absorbable, into the ethmoid sinuses to physically separate tissues in an attempt to prevent scarring and adhesions. Sinus packing materials are not placed in the frontal sinuses. Following surgery, the sinus packing materials are removed by pulling or suctioning them from the newly opened cavity, a painful and time-consuming process, often necessitating pain medication. Despite the use of packing materials, scarring and adhesions are common, necessitating painful removal of additional tissue during postoperative treatments. Some physicians choose to soak these packing materials with steroid in liquid form in an effort to deliver steroid to the sinus. This practice is off-label and is not supported by clinical data. However, although we believe PROPEL and PROPEL mini have significant advantages over sinus packing materials and other treatment options, they are expensive relative to packing materials and may not be reimbursed by third-party payors. As a result, ENT physicians may choose to use oral steroid delivery or packing materials or a combination of the two, which are less expensive, in lieu of PROPEL or PROPEL mini.
We believe that our continued ability to compete favorably depends on:
| successfully expanding our commercial operations; |
| continuing to innovate and maintain scientifically-advanced technology; |
| developing technologies for applications in the sinuses and other areas of ENT; |
| attracting and retaining skilled personnel; |
| obtaining patents or other intellectual property protection for our products; and |
| conducting clinical studies and obtaining and maintaining regulatory approvals. |
Intellectual Property
As of March 31, 2014, we owned 41 issued patents globally, of which 24 were issued U.S. patents. As of March 31, 2014, we owned 41 patent applications pending globally, of which 13 were patent applications pending in the United States. Subject to payment of required maintenance fees, annuities and other charges, our issued U.S. patents have expiration dates between 2017 and 2030, with one of our issued U.S. patents expiring before 2020, 13 expiring between 2021 and 2025, and the remaining 10 expiring after 2025.
As of March 31, 2014, our trademark portfolio contained 20 trademark registrations, four of which were U.S. trademark registrations, as well as three pending foreign trademark applications.
We also rely upon trade secrets, know-how, continuing technological innovation, and may rely upon licensing opportunities in the future, to develop and maintain our competitive position. We protect our proprietary rights through a variety of methods, including confidentiality agreements and proprietary information agreements with suppliers, employees, consultants and others who may have access to proprietary information.
Manufacturing and Supply
We manufacture our steroid-eluting implants at our facility in Menlo Park, California with components supplied by external suppliers. We perform inspections of these components before use in our manufacturing operations. Using these components, we assemble, inspect, test and package our implants, and send them to a third-party sterilization vendor. After sterilization, we perform inspections of the finished implants internally and
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via third party laboratories to determine compliance with our specifications, release the lot to inventory and then ship the finished product to customers.
The active pharmaceutical ingredient, or API, and a number of our critical components used in our implants are supplied to us from single source suppliers. We rely on single source suppliers for some of our polymer materials, some extrusions and molded components, some off-the-shelf components and for finished goods testing. Our ability to commercially supply our products and to develop our product candidates depends, in part, on our ability to obtain successfully the API and polymer materials used in these products in accordance with regulatory requirements and in sufficient quantities for commercialization and clinical testing. We have entered into manufacturing, supply or quality agreements with a number of our single source suppliers pursuant to which they supply the API and components we need. We generally acquire our single source components pursuant to purchase orders placed in the ordinary course of business. However, we are not certain that our single source suppliers will be able to meet our demand for their products, whether because of the nature of our agreements with those suppliers, our limited experience with those suppliers or our relative importance as a customer to those suppliers. It may be difficult for us to assess their ability to timely meet our demand in the future based on past performance. To date, we have not experienced any significant supply constraints or delays in procuring components and materials and while our suppliers have generally met our demand for their products on a timely basis in the past, they may subordinate our needs in the future to the needs of their other customers.
We are currently improving our manufacturing capabilities and increasing capacity as we increase the extent of our commercialization efforts. We believe our manufacturing operations are in compliance with regulations mandated by the FDA. We are an FDA-registered medical device manufacturer and we were granted PMA approval for PROPEL in August 2011. Our manufacturing facilities and processes are subject to periodic inspections and audits by various federal, state and foreign regulatory agencies. For example, our facilities were inspected by the FDA in April and May 2011, December 2012 and March 2013. The State of California regulatory authority audited our manufacturing facility in connection with granting a California Device Manufacturing License to us in August 2009. Our facility was last inspected in October 2013 by the European Notified Body in Ireland, National Standards Authority of Ireland, and no major nonconformance reports were issued as a result of that inspection.
We have manufacturing, supply or quality agreements with a number of our single source suppliers:
| In April 2014, we entered into an agreement with Hovione Inter Ltd., or Hovione, pursuant to which we are required to purchase 80% of our API from Hovione, in quantities to be specified in 12-month forecasts provided by us and updated on a quarterly basis. This agreement extends until April 2019. Either we or Hovione may terminate the agreement prior to that date for uncured material breach by or insolvency of the other party. We may also terminate the agreement in the event Hovione loses any required FDA approval rendering it unable to fulfill its contractual obligations, or if Hovione is engaged in felonious or fraudulent activities. Either we or Hovione may terminate the Agreement in the event regulatory agencies require changes to the product specifications that materially affect Hoviones cost of production, and we are unable to reach an agreement with Hovione regarding an equitable pricing adjustment. |
| In January 2014, we entered into an agreement with AIM Plastics, Inc., or AIM, pursuant to which AIM provides us with injection molded components in quantities to be specified in rolling quarterly forecasts provided by us. The agreement extends for an initial period of one year from its effective date, with automatic one-year renewal periods applying thereafter unless we or AIM provide written notice of non-renewal at least 30 days prior to the end of the then-current term. Either we or AIM may terminate the agreement for an uncured material breach by the other party. We may also terminate the agreement upon 12 months written notice in the event of a change in control of AIM. |
| In November 2013, we entered into an agreement with Stephen Gould Corporation, or SGC, pursuant to which SGC supplies us with packaging components in accordance with a rolling quarterly forecast provided by us. The agreement extends for an initial period of two years from the effective date, with automatic one-year renewal periods applying thereafter unless we or SGC provide written notice of intent not to renew at least 30 days prior to the end of the then-current term. Either we or SGC may terminate the agreement for uncured material breach by the other party. We may also terminate the |
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agreement at will upon 90 days prior written notice to SGC, or upon 12 months prior written notice in the event of a change in control of SGC. |
| In December 2013, we entered into an agreement with Exova Group Limited, pursuant to which Exova supplies us with analytical testing services for our finished product. The agreement extends until December 2015. |
| In April 2014, we entered into an agreement with Polymer Solutions Incorporated, or PSI, pursuant to which PSI supplies us with analytical testing services for our API and polymer materials. The agreement has an indefinite term, but may be terminated by us at any time upon 30 days notice to PSI or immediately upon written notice in the event of an uncured material breach by PSI. |
Each of these suppliers manufactures the components they produce for us or tests our components and devices to our specifications. We expect to be able to negotiate new agreements with these vendors in advance of the expiration of the current agreements. We intend to maintain sufficient supplies of the API and components from these single source suppliers in the event that our agreements with one or more of these suppliers were to terminate to enable us to continue to manufacture our implants for a sufficient amount of time necessary to obtain another source of API or components.
Government Regulation
United States Regulation of Medical Devices and Drugs
Our products and product candidates are drug-eluting bioabsorbable implants that are regulated as combination products by the FDA. FDAs Office of Combination Products designates a primary mode of action for such drug-device combination products, with the respective primary Center within FDA leading the regulatory review for the product, in consultation with the secondary designated Center. FDA determined that the primary mode of action for PROPEL and PROPEL mini was that of a medical device, so these products have been approved and are regulated in the United States as medical devices. Our product candidate for the physician office setting, however, was designated as having a drug primary mode of action, and thus our RESOLVE trials are and will be conducted under an Investigational New Drug, or IND, application, and if successful, this product candidate will need to be approved under the NDA pathway.
The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations requires the expenditure of substantial time and financial resources. Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or after approval may subject an applicant or sponsor to a variety of administrative or judicial sanctions, including refusal by FDA to approve pending applications, withdrawal of an approval, imposition of a clinical hold, issuance of warning letters and other types of letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement of profits, or civil or criminal investigations and penalties brought by FDA and the Department of Justice, or DOJ, or other governmental entities.
Medical Devices
Our PROPEL implants are regulated in the United States as Class III medical devices by the FDA under the Federal Food, Drug and Cosmetic Act, or FDCA. The FDA classifies medical devices into one of three classes based upon controls the FDA considers necessary to reasonably ensure their safety and effectiveness. Class I devices are subject to general controls such as labeling, adherence to good manufacturing practices and maintenance of product complaint records, but are usually exempt from premarket notification requirements. Class II devices are subject to the same general controls and also are subject to special controls such as performance standards, and FDA guidelines, and may also require clinical testing prior to approval. Class III devices are subject to the highest level of controls and require rigorous clinical testing prior to their approval and generally require a PMA, or a PMA supplement approval prior to their sale.
Manufacturers must file an Investigational Device Exemption, or IDE, application if human clinical studies of a device are required and if the investigational use of the device represents a potential for significant risk to the
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patient. The IDE application must be supported by data, typically including the results of animal and engineering testing of the device. If the IDE application is approved by the FDA, human clinical studies may begin at a specific number of investigational sites with a maximum number of patients, as approved by the FDA. The clinical studies must be conducted under the review of an independent institutional review board to ensure the protection of the patients rights.
Generally, upon completion of these human clinical studies, a manufacturer seeks approval of a Class III medical device from the FDA by submitting a PMA application. A PMA application must be supported by extensive data, including the results of the clinical studies, as well as testing and literature to establish the safety and effectiveness of the device. PMA approval may be conditioned upon the conduct of certain post-approval studies, such as long term follow-up studies.
FDA regulations require us to register as a medical device manufacturer with the FDA. Additionally, the California Department of Health Services, or CDHS, requires us to register as a medical device manufacturer within the state. Because of this, the FDA and the CDHS inspect us on a routine basis for compliance with the current good manufacturing practice. These regulations require that we manufacture our products and maintain related documentation in a prescribed manner with respect to manufacturing, testing and control activities, and product release for distribution. We have undergone and expect to continue to undergo regular current good manufacturing practice inspections in connection with the manufacture of our products at our facility. Further, the FDA requires us to comply with various FDA regulations regarding labeling. Failure by us or by our suppliers to comply with applicable regulatory requirements can result in enforcement action by the FDA or state authorities, which may include any of the following sanctions:
| warning letters, fines, injunctions, consent decrees and civil penalties; |
| customer notifications, repair, replacement, refunds, recall or seizure of our products; |
| operating restrictions, partial suspension or total shutdown of production; |
| delay in processing marketing applications for new products or modifications to existing products; |
| mandatory product recalls; |
| withdrawing approvals that have already been granted; and |
| criminal prosecution. |
The Medical Device Reporting laws and regulations require us to provide information to the FDA on deaths or serious injuries alleged to have been associated with the use of our devices, as well as product malfunctions that likely would cause or contribute to death or serious injury if the malfunction were to recur. In addition, the FDA prohibits an approved device from being marketed for off-label use. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability, including substantial monetary penalties and criminal prosecution.
Drugs
The clinical testing, manufacturing, labeling, storage, distribution, record keeping, advertising, promotion, import, export and marketing, among other things, of our product candidates that are subject to FDAs drug authority are governed by extensive regulation by governmental authorities in the United States and other countries. The FDA, under the FDCA, regulates pharmaceutical products in the United States. The steps required before a drug may be approved for marketing in the United States generally include:
| preclinical laboratory tests and animal tests conducted under Good Laboratory Practices, or GLP; |
| the submission to the FDA of an IND application for human clinical testing, which must become effective before human clinical trials commence; |
| adequate and well-controlled human clinical trials to establish the safety and efficacy of the product and conducted in accordance with Good Clinical Practices, or GCP; |
| the submission to the FDA of an NDA; |
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| FDA acceptance, review and approval of the NDA; and |
| satisfactory completion of an FDA inspection of the manufacturing facilities at which the product is made to assess compliance with current Good Manufacturing Practices, or cGMPs. |
The testing and approval process requires substantial time, effort and financial resources, and the receipt and timing of any approval is uncertain. The FDA may suspend clinical trials at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk.
Preclinical studies include laboratory evaluations of the product candidate, as well as animal studies to assess the potential safety and efficacy of the product candidate. The results of the preclinical studies, together with manufacturing information and analytical data, are submitted to the FDA as part of the IND, which must become effective before clinical trials may be commenced. The IND will become effective automatically 30 days after receipt by the FDA, unless the FDA raises concerns or questions about the conduct of the trials as outlined in the IND prior to that time. In this case, the IND sponsor and the FDA must resolve any outstanding concerns before clinical trials can proceed.
Each clinical trial must be reviewed and approved by an independent institutional review board, or IRB. The IRB will consider, among other things, ethical factors, the safety of human subjects and the possible liability of the institution.
Clinical trials are typically conducted in three sequential phases prior to approval, but the phases may overlap. These phases generally include the following:
Phase 1. Phase 1 clinical trials represent the initial introduction of a product candidate into human subjects, frequently healthy volunteers. In Phase 1, the product candidate is usually tested for safety, including adverse effects, dosage tolerance, absorption, distribution, metabolism, excretion and pharmacodynamics.
Phase 2. Phase 2 clinical trials usually involve studies in a limited patient population to (1) evaluate the efficacy of the product candidate for specific indications, (2) determine dosage tolerance and optimal dosage and (3) identify possible adverse effects and safety risks.
Phase 3. If a product candidate is found to be potentially effective and to have an acceptable safety profile in Phase 2 studies, the clinical trial program will be expanded to Phase 3 clinical trials to further demonstrate clinical efficacy, optimal dosage and safety within an expanded patient population at geographically dispersed clinical study sites.
Phase 4 clinical trials are conducted after approval to gain additional experience from the treatment of patients in the intended therapeutic indication and to document a clinical benefit in the case of drugs approved under accelerated approval regulations, or when otherwise requested by the FDA in the form of post-market requirements or commitments. Failure to promptly conduct any required Phase 4 clinical trials could result in withdrawal of approval.
The results of preclinical studies and clinical trials, together with detailed information on the manufacture, composition and quality of the product, are submitted to the FDA in the form of an NDA, requesting approval to market the product. The application must be accompanied by a significant user fee payment. The FDA has substantial discretion in the approval process and may refuse to accept any application or decide that the data is insufficient for approval and require additional preclinical, clinical or other studies.
Review of Application. Once the NDA has been accepted for filing, which occurs, if at all, 60 days after submission, the FDA sets a Prescription Drug User Fee Act date that informs the applicant of the specific date by which the FDA intends to complete its review. This is typically 10 months from the date of submission. The review process is often extended by FDA requests for additional information or clarification. The FDA reviews NDAs to determine, among other things, whether the proposed product is safe and effective for its intended use, and whether the product is being manufactured in accordance with cGMP to assure and preserve the products identity, strength, quality and purity. Before approving an NDA, the FDA may inspect the facilities at which the product is manufactured and will not approve the product unless the manufacturing facility complies with
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cGMPs and may also inspect clinical trial sites for integrity of data supporting safety and efficacy. During the approval process, the FDA also will determine whether a risk evaluation and mitigation strategy, or REMS, is necessary to assure the safe use of the product. If the FDA concludes a REMS is needed, the sponsor of the application must submit a proposed REMS; the FDA will not approve the application without an approved REMS, if required. A REMS can substantially increase the costs of obtaining approval. The FDA may also convene an advisory committee of external experts to provide input on certain review issues relating to risk, benefit and interpretation of clinical trial data. The FDA may delay approval of an NDA if applicable regulatory criteria are not satisfied or the FDA requires additional testing or information. The FDA may require post-marketing testing and surveillance to monitor safety or efficacy of a product. FDA will issue either an approval of the NDA or a Complete Response Letter, detailing the deficiencies and information required in order for reconsideration of the application.
Post-Approval Requirements. Drugs manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to recordkeeping, periodic reporting, product distribution, advertising and promotion and reporting of adverse experiences with the product. After approval, most changes to the approved product, such as adding new indications or other labeling claims, some manufacturing and supplier changes are subject to prior FDA review and approval. There also are continuing, annual user fee requirements for the establishments at which such products are manufactured, as well as new application fees for certain supplemental applications.
The FDA may impose a number of post-approval requirements as a condition of approval of an PMA or NDA. For example, the FDA may require post-marketing testing, including phase 4 clinical trials, and surveillance to further assess and monitor the products safety and effectiveness after commercialization.
In addition, entities involved in the manufacture and distribution of approved devices or drugs are required to register their establishments with the FDA and state agencies, and are subject to periodic unannounced inspections by the FDA and these state agencies for compliance with QSR and cGMP requirements. Changes to the manufacturing process are strictly regulated and often require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from QSR or cGMP and impose reporting and documentation requirements upon the sponsor and any third-party manufacturers that the sponsor may decide to use. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain QSR and cGMP compliance.
Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical trials to assess new safety risks; or imposition of distribution or other restrictions under a REMS program. Other potential consequences include, among other things:
| restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls; |
| fines, warning letters or holds on post-approval clinical trials; |
| refusal of the FDA to approve pending applications or supplements to approved applications, or suspension or revocation of product license approvals; |
| product seizure or detention, or refusal to permit the import or export of products; or |
| injunctions or the imposition of civil or criminal penalties. |
The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Drugs may be promoted only for the approved indications and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability.
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The Hatch-Waxman Amendments. We are pursuing development of our steroid-eluting implant for refractory disease treated in office as a 505(b)(2) NDA. As an alternative path to FDA approval for modifications to formulations or uses of products previously approved by the FDA, an applicant may submit an NDA under 505(b)(2) of the FDCA. 505(b)(2) was enacted as part of the Hatch-Waxman Amendments and permits the filing of an NDA where at least some of the information required for approval comes from studies not conducted by, or for, the applicant and for which the applicant has not obtained a right of reference. If the 505(b)(2) applicant can establish that reliance on FDAs previous findings of safety and effectiveness is scientifically appropriate, it may eliminate the need to conduct certain preclinical or clinical studies of the new product. The FDA may also require companies to perform additional studies or measurements, including clinical trials, to support the change from the approved branded reference drug. The FDA may then approve the new product candidate for all, or some, of the label indications for which the branded reference drug has been approved, as well as for any new indication sought by the 505(b)(2) applicant.
Orange Book Listing. In seeking approval for a drug through an NDA, including an Abbreviated New Drug Application, or ANDA, or a 505(b)(2) NDA, applicants are required to list with the FDA certain patents whose claims cover the applicants product. Upon approval of an NDA, each of the patents listed in the application for the drug is then published in the Orange Book. Any applicant who files an ANDA seeking approval of a generic equivalent version of a drug listed in the Orange Book or a 505(b)(2) NDA referencing a drug listed in the Orange Book must certify to the FDA that: (1) no patent information on the drug product that is the subject of the application has been submitted to the FDA, a Paragraph I Certification; (2) such patent has expired, Paragraph II Certification; (3) the date on which such patent expires, a Paragraph III Certification; or (4) such patent is invalid or will not be infringed upon by the manufacture, use or sale of the drug product for which the application is submitted, a Paragraph IV Certification. The applicant may also elect to submit a section viii statement certifying that its proposed label does not contain, or carves out, any language regarding the patented method-of-use rather than certify to a listed method-of-use patent. An applicant submitting a Paragraph IV Certification must provide notice to each owner of the patent that is the subject of the certification and to the holder of the approved NDA to which the ANDA or 505(b)(2) application refers. If the reference NDA holder and patent owners assert a patent challenge directed to one of the Orange Book listed patents within 45 days of the receipt of the Paragraph IV Certification notice, the FDA is prohibited from approving the application until the earlier of 30 months from the receipt of the Paragraph IV Certification, expiration of the patent, settlement of the lawsuit, or a decision in the infringement case that is favorable to the applicant. We are currently evaluating whether we will file a Paragraph II Certification, Paragraph III Certification, Paragraph IV Certification, or section viii statement for our steroid-eluting implant for refractory disease treated in office.
The ANDA or 505(b)(2) application also will not be approved until any applicable non-patent exclusivity listed in the Orange Book for the branded reference drug has expired as described in further detail below.
Non-Patent Exclusivity. In addition to patent exclusivity, the holder of the NDA for the listed drug may be entitled to a period of non-patent exclusivity, during which the FDA cannot approve an ANDA or 505(b)(2) application that relies on the listed drug. For example, a pharmaceutical manufacturer may obtain five years of non-patent exclusivity upon NDA approval of a new chemical entity, or NCE, which is a drug that contains an active moiety that has not been approved by FDA in any other NDA. An active moiety is defined as the molecule or ion responsible for the drug substances physiological or pharmacologic action. During the five year exclusivity period, FDA cannot accept for filing any ANDA seeking approval of a generic version of that drug or any 505(b)(2) NDA for the same active moiety and that relies on the FDAs findings regarding that drug, except that FDA may accept an application for filing after four years if the follow-on applicant makes a paragraph IV certification.
A drug, including one approved under 505(b)(2), may obtain a three-year period of exclusivity for a particular condition of approval, or change to a marketed product, such as a new formulation for a previously approved product, if one or more new clinical studies, other than bioavailability or bioequivalence studies, was essential to the approval of the application and was conducted or sponsored by the applicant. Should this occur, the FDA would be precluded from approving any ANDA or 505(b)(2) application for the protected modification until after that three-year exclusivity period has run. However, unlike NCE exclusivity, the FDA can accept an application and begin the review process during the exclusivity period.
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Foreign Regulation
In order to market any product outside of the United States, we would need to comply with numerous and varying regulatory requirements of other countries and jurisdictions regarding quality, safety and efficacy and governing, among other things, clinical trials, marketing authorization, commercial sales and distribution of our products. Whether or not we obtain FDA approval for a product, we would need to obtain the necessary approvals by the comparable foreign regulatory authorities before we can commence clinical trials or marketing of the product in foreign countries and jurisdictions. Although many of the issues discussed above with respect to the United States apply similarly in the context of the European Union and other geographies, the approval process varies between countries and jurisdictions and can involve additional product testing and additional administrative review periods. The time required to obtain approval in other countries and jurisdictions might differ from and be longer than that required to obtain FDA approval. Regulatory approval in one country or jurisdiction does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country or jurisdiction may negatively impact the regulatory process in others.
Federal and State Fraud and Abuse, Data Privacy and Security and Transparency Laws
In addition to FDA restrictions on marketing and promotion of drugs and devices, other federal and state laws restrict our business practices. These laws include, without limitation, anti-kickback and false claims laws, data privacy and security laws, as well as transparency laws regarding payments or other items of value provided to healthcare providers.
The federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving any remuneration (including any kickback, bribe or rebate), directly or indirectly, overtly or covertly, to induce or in return for purchasing, leasing, ordering or arranging for or recommending the purchase, lease or order of any good, facility, item or service reimbursable, in whole or in part, under Medicare, Medicaid or other federal healthcare programs. The term remuneration has been broadly interpreted to include anything of value. Although there are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution, the exceptions and safe harbors are drawn narrowly. Practices that involve remuneration that may be alleged to be intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exception or safe harbor. Failure to meet all of the requirements of a particular applicable statutory exception or regulatory safe harbor does not make the conduct per se illegal under the Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of all its facts and circumstances. Several courts have interpreted the statutes intent requirement to mean that if any one purpose of an arrangement involving remuneration is to induce referrals of federal healthcare covered business, the Anti-Kickback Statute has been violated.
Additionally, the intent standard under the Anti-Kickback Statute was amended by the Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010, collectively the Affordable Care Act, to a stricter standard such that a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. In addition, the Affordable Care Act codified case law that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act.
The federal civil False Claims Act prohibits, among other things, any person or entity from knowingly presenting, or causing to be presented, a false or fraudulent claim for payment or approval to the federal government or knowingly making, using or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government. A claim includes any request or demand for money or property presented to the U.S. government. The civil False Claims Act also applies to false submissions that cause the government to be paid less than the amount to which it is entitled, such as a rebate. Intent to deceive is not required to establish liability under the civil False Claims Act. Several pharmaceutical, device and other healthcare companies have been prosecuted under these laws for, among other things, allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product. Other
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companies have been prosecuted for causing false claims to be submitted because of the companies marketing of products for unapproved, and thus non-covered, uses.
The government may further prosecute conduct constituting a false claim under the criminal False Claims Act. The criminal False Claims Act prohibits the making or presenting of a claim to the government knowing such claim to be false, fictitious, or fraudulent and, unlike the civil False Claims Act, requires proof of intent to submit a false claim.
The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, created new federal criminal statutes that prohibit among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. Like the Anti-Kickback Statute, the Affordable Care Act amended the intent standard for certain healthcare fraud under HIPAA such that a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.
The civil monetary penalties statute imposes penalties against any person or entity that, among other things, is determined to have presented or caused to be presented a claim to a federal health program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent.
Also, many states have similar fraud and abuse statutes or regulations that may be broader in scope and may apply regardless of payor, in addition to items and services reimbursed under Medicaid and other state programs.
Under HIPAA, the Department of Health and Human Services, or HHS, has issued regulations to protect the privacy and security of protected health information used or disclosed by covered entities including health care providers, such as us. HIPAA also regulates standardization of data content, codes and formats used in health care transactions and standardization of identifiers for health plans and providers. Penalties for violations of HIPAA regulations include civil and criminal penalties. We have developed and implemented processes designed to comply with these regulations, specifically in the training process for our field sales team. The requirements under these regulations may change periodically and could have an effect on our business operations if compliance becomes substantially more costly than under current requirements. Additionally, a breach of unsecured protected health information, such as by employee error or an attack by an outsider, could have an adverse effect on our business in terms of potential penalties and corrective action required. In addition to federal privacy regulations, there are a number of state laws governing confidentiality and security of health information that are applicable to our business. New laws governing privacy may be adopted in the future as well. We have taken steps to comply with health information privacy requirements to which we are aware that we are subject. However, we can provide no assurance that we are or will remain in compliance with diverse privacy requirements in all of the jurisdictions in which we do business. Failure to comply with privacy requirements could result in civil or criminal penalties, which could have a materially adverse effect on our business.
Additionally, there has been a recent trend of increased federal and state regulation of payments and transfers of value provided to healthcare professionals or entities. On February 8, 2013, the Centers for Medicare & Medicaid Services, or CMS, released its final rule implementing section 6002 of the Affordable Care Act known as the Physician Payment Sunshine Act that imposes new annual reporting requirements on device manufacturers for payments and other transfers of value provided by them, directly or indirectly, to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their family members. A manufacturers failure to submit timely, accurately and completely the required information for all payments, transfers of value or ownership or investment interests may result in civil monetary penalties of up to an aggregate of $150,000 per year, and up to an aggregate of $1 million per year for knowing failures. The period between August 1, 2013, and December 31, 2013, was the first reporting period, for which manufacturers were required to report aggregate payment data to CMS by March 31, 2014. Manufacturers also will be required to report to CMS detailed payment and transfers of value data and submit legal attestation to the completeness and accuracy of such data during Phase 2 of the program, which is expected to begin in May 2014 and extends for at least 30 days. Thereafter, manufacturers must submit reports by the 90th day of each subsequent calendar
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year. Any failure to comply could result in significant fines and penalties. Certain states, such as California and Connecticut, also mandate implementation of commercial compliance programs, and other states, such as Massachusetts and Vermont, impose restrictions on device manufacturer marketing practices and require tracking and reporting of gifts, compensation and other remuneration to healthcare professionals and entities. The shifting commercial compliance environment and the need to build and maintain robust and expandable systems to comply with different compliance or reporting requirements in multiple jurisdictions increase the possibility that a healthcare company may fail to comply fully with one or more of these requirements.
Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available under such laws, it is possible that some of our business activities, including certain sales and marketing practices and the provision of certain items and services to our customers, could be subject to challenge under one or more of such laws. If our operations are found to be in violation of any of the health regulatory laws described above or any other laws that apply to us, we may be subject to penalties, including potentially significant criminal and civil and administrative penalties, damages, fines, disgorgement, imprisonment, exclusion from participation in government healthcare programs, contractual damages, reputational harm, administrative burdens, diminished profits and future earnings, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations. To the extent that any of our products are sold in a foreign country, we may be subject to similar foreign laws, which may include, for instance, applicable post-marketing requirements, including safety surveillance, anti-fraud and abuse laws and implementation of corporate compliance programs and reporting of payments or transfers of value to healthcare professionals.
Coverage and Reimbursement
Our currently approved products are commonly treated as general supplies utilized in sinus surgery and if covered by third-party payors, are paid for as part of the FESS procedure. We believe that establishment of reimbursement codes specific to the use of drug-eluting implants for chronic sinusitis is an important factor in expanding access to our products, especially in the physician office setting. Therefore, our strategy includes efforts to engage physician societies and encourage third-party payors to establish coverage, coding and payment that will facilitate access to our drug-eluting implants as we expand our commercialization efforts in the United States. Our success in these efforts depends in part on the extent to which governmental authorities, private health insurers and other third-party payors provide coverage for and establish adequate reimbursement levels for the procedures during which our products are used. Failure by physicians, hospitals, ambulatory surgery centers and other users of our products to obtain sufficient coverage and reimbursement from healthcare payors for procedures in which our products are used, or adverse changes in government and private third-party payors policies would have a material adverse effect on our business, financial condition, results of operations and future growth prospects.
In the United States, third-party payors continue to implement initiatives that restrict the use of certain technologies to those that meet certain clinical evidentiary requirements. We are aware of a number of third-party payors in the United States, including Aetna and some Blue Cross Blue Shield plans, that consider our products to be experimental or investigational. These payors have developed policies that deny coverage and separate payment for our products, but based on our experience to date, these payors generally reimburse for the surgical procedures in which our products are used, as long as the patient meets the established medical necessity criteria for surgery. In addition, some payors are moving toward a managed care system and control their health care costs by limiting authorizations for surgical procedures, including elective procedures using our devices. Failure to obtain favorable payor policies could have a material adverse effect on our business and operations.
In addition to uncertainties surrounding coverage policies, there are periodic changes to reimbursement. Third-party payors regularly update reimbursement amounts and also from time to time revise the methodologies used to determine reimbursement amounts. This includes annual updates to payments to physicians, hospitals and ambulatory surgery centers for procedures during which our products are used. Because the cost of our products generally is recovered by the healthcare provider as part of the payment for performing a procedure and not separately reimbursed, these updates could directly impact the demand for our products. An example of payment updates is the Medicare programs updates to hospital and physician payments, which are done on an annual basis using a prescribed statutory formula. In the past, when the application of the formula resulted in lower
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payment, Congress has passed interim legislation to prevent the reductions. Most recently, the Protecting Access to Medicare Act of 2014, signed into law in April 2014, provided for a 0.5% update from 2013 payment rates under the Medicare Physician Fee Schedule through 2014 and a 0% update from January 1 until April 1, 2015. If Congress fails to intervene to prevent the negative update factor in future years, the resulting decrease in payment may adversely affect our revenues and results of operations.
Any changes in coverage and reimbursement that further restricts coverage of our products or lowers reimbursement for procedures using our devices could materially affect our business.
Healthcare Reform
Current and future legislative proposals to further reform healthcare or reduce healthcare costs may result in lower reimbursement for our products, or for the procedures associated with the use of our products, or limit coverage of our products. The cost containment measures that payors and providers are instituting and the effect of any healthcare reform initiative implemented in the future could significantly reduce our revenues from the sale of our products. Alternatively, the shift away from fee-for-service agreements to capitated payment models supports the value of our products, as they have been proven to reduce longitudinal resource utilization, which can be cost saving-for both payors and providers.
The recent implementation of the Affordable Care Act is an example that has the potential to substantially change healthcare financing and delivery by both governmental and private insurers, and significantly impact the pharmaceutical and medical device industries.
The Affordable Care Act imposed, among other things, a new federal excise tax on the sale of certain medical devices, established an annual, nondeductible fee on any entity that manufactures or imports certain specified branded prescription drugs and biologic agents, revised the methodology by which rebates owed by manufacturers to the state and federal government for covered outpatient drugs under the Medicaid Drug Rebate Program are calculated, increased the minimum Medicaid rebates owed by most manufacturers under the Medicaid Drug Rebate Program, extended the Medicaid Drug Rebate program to utilization of prescriptions of individuals enrolled in Medicaid managed care organizations, and provided incentives to programs that increase the federal governments comparative effectiveness research. In addition, the Affordable Care Act implemented payment system reforms including a national pilot program on payment bundling to encourage hospitals, physicians and other providers to improve the coordination, quality and efficiency of certain healthcare services through bundled payment models.
In addition, other legislative changes have been proposed and adopted since the PPACA was enacted. On August 2, 2011, President Obama signed into law the Budget Control Act of 2011, which, among other things, created the Joint Select Committee on Deficit Reduction to recommend to Congress proposals in spending reductions. The Joint Select Committee did not achieve a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, triggering the legislations automatic reduction to several government programs. This includes reductions to Medicare payments to providers of 2% per fiscal year, which went into effect on April 1, 2013, and will stay in effect through 2024 unless congressional action is taken. On January 2, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, reduced Medicare payments to several providers, including hospitals, imaging centers and cancer treatment centers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our products or product candidates or additional pricing pressure.
The Foreign Corrupt Practices Act
The Foreign Corrupt Practices Act, or the FCPA, prohibits any U.S. individual or business from paying, offering, or authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the United States to comply with accounting provisions requiring the company to maintain
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books and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international operations. Activities that violate the FCPA, even if they occur wholly outside the United States, can result in criminal and civil fines, imprisonment, disgorgement, oversight, and debarment from government contracts.
Research and Development
Our research and development expenses totaled $9.3 million and $9.5 million in the years ended December 31, 2012 and 2013, respectively, and $2.3 million and $2.6 million in the three months ended March 31, 2013 and 2014, respectively. For more information, see Managements Discussion and Analysis of Financial Condition and Results of Operations.
Employees
As of March 31, 2014, we had 146 employees, of whom 47 are in manufacturing, 26 are in research and development and 62 are in sales, marketing and reimbursement.
Properties
We occupy approximately 32,500 square feet of leased office and laboratory space located in Menlo Park, California. The term of our lease expires in June 2015. We believe that our facilities are sufficient to meet our current needs and that suitable additional space will be available as and when needed on acceptable terms.
Legal Proceedings
We are not currently a party to any material legal proceedings. We may at times be involved in litigation and other legal claims in the ordinary course of business. When appropriate in our estimation, we may record reserves in our financial statements for pending litigation and other claims.
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Executive Officers, Key Employees and Directors
The following table sets forth information regarding our executive officers, key employees and directors, as of June 4, 2014:
Name |
Age | Position(s) | ||||
Executive Officers and Key Employees |
||||||
Lisa D. Earnhardt |
44 | President, Chief Executive Officer and Director | ||||
Jeryl L. Hilleman |
56 | Chief Financial Officer | ||||
Richard E. Kaufman |
52 | Senior Vice President and Chief Operating Officer | ||||
Robert H. Binney, Jr. |
44 | Vice President, Sales | ||||
James Stambaugh |
44 | Vice President, Clinical and Reimbursement | ||||
Susan P. Stimson |
41 | Vice President, Marketing | ||||
Amy Wolbeck |
42 | Vice President, Regulatory Affairs and Quality | ||||
Non-Employee Directors |
||||||
Rick D. Anderson |
53 | Director | ||||
Casper L. de Clercq |
50 | Director | ||||
Mark Fletcher |
57 | Director | ||||
Dana G. Mead, Jr. |
55 | Director | ||||
Frederic H. Moll, MD |
62 | Director | ||||
Casey M. Tansey |
56 | Director |
(1) | Member of the audit committee. |
(2) | Member of the compensation committee. |
(3) | Member of the nominating and corporate governance committee. |
Executive Officers and Key Employees
Lisa D. Earnhardt has served as our President and Chief Executive Officer and as a member of our board of directors since March 2008. Prior to joining us, Ms. Earnhardt served as President of Boston Scientifics Cardiac Surgery division (formerly known as Guidant Corporation, or Guidant) from June 2006 to January 2008 until its sale to Getinge Group. From August 1996 to April 2006, Ms. Earnhardt worked at Guidant in a variety of sales and marketing leadership positions. Ms. Earnhardt served on the board of directors of Kensey Nash, a publicly traded company from 2011 until it was acquired by Royal DSM NA in 2012, where she served on the boards nominating and governance and audit committees. Ms. Earnhardt serves as the Chair of the Kellogg Alumni Council. Ms. Earnhardt holds an M.B.A. from Northwesterns Kellogg School of Management and a B.S. in Industrial Engineering from Stanford University. We believe Ms. Earnhardts experience in the industry, her role as our President and Chief Executive Officer and her knowledge of our company enables her to make valuable contributions to our board of directors.
Jeryl L. Hilleman has served as our Chief Financial Officer since June 2014. From September 2013 to May 2014, Ms. Hilleman served as Chief Financial Officer and Secretary of Ocera Therapeutics, Inc. a biopharmaceutical company, where she was responsible for managing Oceras financial and accounting operations. From 2012 to 2013, Ms. Hilleman provided independent financial and strategic consulting for biotech and cleantech companies. From 2008 to 2012, she served as Chief Financial Officer of Amyris, Inc., a multi-national, renewable products company based in California and Brazil, where she was responsible for managing Amyriss financial and accounting operations. Prior to Amyris, Ms. Hilleman served as Chief Financial Officer of Symyx Technologies, a public company selling instruments, software and research services to pharmaceutical and chemical companies, and led the finance function at two public biotechnology companies, Geron Corporation and Cytel Corporation. Ms. Hilleman is also a member of the board of directors and chair of the audit committee of XenoPort, Inc. Ms. Hilleman holds an A.B. from Brown University and an M.B.A. from the Wharton Graduate School of Business, University of Pennsylvania.
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Richard E. Kaufman has served as our Senior Vice President of R&D and Operations and Chief Operating Officer since January 2007. Prior to joining us, Mr. Kaufman was the Vice President and General Manager of Abbott Bioabsorbable Vascular Solutions. Mr. Kaufman held several R&D and Operations leadership positions at Guidant from 1998 through 2006. Previously Mr. Kaufman worked at McGhan Medical from 1993 to 1998 developing products for the plastic surgery field and at IMPRA from 1990 to 1993 developing products for orthopedics and vascular grafts. Mr. Kaufman holds a B.S. in Biomedical Engineering from Arizona State University.
Robert H. Binney, Jr. has served as our Vice President of Sales since July 2011. From June 2007 to July 2011, Mr. Binney served as Director of Sales for AccessClosure, Inc., a privately-held medical device company, where he was responsible for eastern United States sales. From June 2004 to June 2007, Mr. Binney served as Peripheral Sales Representative at Boston Scientifics Peripheral Division. Mr. Binney holds a B.A. in Communications from the University of North Carolina at Chapel Hill.
James Stambaugh has served as our Vice President of Clinical and Reimbursement since October 2006. Prior to joining us, Mr. Stambaugh served as Director of Clinical Operations at Guidants Vascular Intervention division, from March 2005 to October 2006. Prior to serving as Director of Clinical Operations Mr. Stambaugh held various positions at Guidant within the pre-clinical, clinical and regulatory environment. Mr. Stambaugh holds a B.S. in Chemistry from the University of California at Davis.
Susan P. Stimson has served as our Vice President of Marketing since March 2010 and served as our Director of Marketing Development from April 2007 to March 2010. Prior to joining us, Ms. Stimson served as Director of Marketing and Clinical Research at Mitralign, Inc., from October 2003 to December 2006. From February 1997 to September 2003, Ms. Stimson worked within multiple areas and divisions of Guidant. Ms. Stimson holds a B.S. in Biomedical Engineering from Marquette University, Milwaukee, Wisconsin.
Amy Wolbeck has served as our Vice President, Regulatory Affairs and Quality since January 2011 and served as our Director of Regulatory Affairs from January 2009 to January 2011. Prior to joining us, Ms. Wolbeck was the Director of Regulatory Affairs and Quality Assurance at Sonoma Orthopedic Products. Ms. Wolbeck served in various roles at Medtronic from 1998-2007, including Director of Regulatory Affairs within Medtronics Cardiovascular Division and Director of Quality for Medtronic Vascular. Ms. Wolbeck holds a B.S. in Mechanical Engineering from the University of Massachusetts at Amherst.
Non-Employee Directors
Rick D. Anderson has served as a member of our Board of Directors since April 2012. Mr. Anderson has served as a Managing Director of PTV Healthcare Capital, a venture capital firm since January 2008. From September 2008 to August 2011, Mr. Anderson served as a member of the board of directors of InSite Vision, a publicly traded company, where he was the chair of the boards nominating and governance committee and a member of the audit committee. From April 2008 to June 2012, Mr. Anderson served as a member of the board of directors of Cameron Health until its acquisition by Boston Scientific. From July 2009 to August 2013, Mr. Anderson served as Chairman of the board of directors for IDEV Technologies, until its acquisition by Abbott. Currently, Mr. Anderson also serves as a member of the board of directors for several private companies. Mr. Anderson holds a B.B.A. in Marketing from Mississippi State University. He served five years in the U.S. Army where he obtained the rank of captain. Mr. Anderson is a member of the Economic Advisory Board of Mississippi State University and a consultant member of the Society for Cardiovascular Angiography and Interventions. He participates in the AdvaMed Venture Capital Advisory Council and the Dartmouth Device Development Symposium Executive Committee, and he is a Director for the Heart Rhythm Society Consulting Services and a member of the Accelerated Innovation Program Working Group for the National Heart Lung and Blood Institute. We believe Mr. Andersons experience with companies in our industry qualifies him to serve on our board of directors. We believe Mr. Andersons experience in the industry and his knowledge of our company enables him to make valuable contributions to our board of directors.
Casper de Clercq has served as a member of our Board of Directors since February 2013. Mr. de Clercq has been a partner at Norwest Venture Partners, a venture capital firm, since January 2011. Prior to joining Norwest Venture Partners, Mr. de Clercq was a Partner at U.S. Venture Partners, a venture capital firm, from August 2004
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to January 2011. He currently serves on the boards of directors of several privately held companies and was previously on the board of directors of Basis Science, Inc. prior to its acquisition by Intel, and Ilypsa, Inc. prior to its acquisition by Amgen. Mr. de Clercq holds a B.A. in biochemistry from Dartmouth College, an M.S. in biological science from Stanford University, and a M.B.A. from Stanford University Graduate School of Business. We believe Mr. de Clercqs experience in the industry and his knowledge of our company enables him to make valuable contributions to our board of directors.
Mark Fletcher has served as a member of our Board of Directors since November 2010. Mr. Fletcher has served as the Senior Vice-President of Medtronic, Inc. and the President of its Surgical Technologies Division, consisting of four business segments including ENT, Neurosurgery, Advanced Energy and Global Services since May 2011. Prior to this position, Mr. Fletcher served as the President of Medtronics ENT Division from 1999 to 2011. Mr. Fletcher also serves on the board of Inspire Medical, an early-stage ENT technology company. Mr. Fletcher holds a B.S. in Finance from St. Marys University. We believe Mr. Fletchers experience in the industry and his knowledge of our company enables him to make valuable contributions to our board of directors.
Dana G. Mead, Jr. has served as a member of our Board of Directors since June 2007. Mr. Mead has been a Partner at Kleiner Perkins Caufield & Byers since May 2005. Mr. Mead currently serves on the boards of several privately held Kleiner Perkins Caufield & Byers portfolio companies. From 1992 to 2005, Mr. Mead worked for Guidant where he held numerous positions including, most recently, President of Guidant Vascular Intervention. Mr. Mead received his B.A. from Lafayette College and holds an M.B.A. from the University of Southern California. We believe Mr. Meads experience with medical device companies and role in the venture capital industry enables him to make valuable contributions to our board of directors.
Frederic H. Moll, M.D. has served as a member of our Board of Directors since March 2006. From September 2002 until May 2012, Dr. Moll served as a member of the Board of Directors of Hansen Medical, Inc., including its Executive Chairman of the Board from June 2010 until December 2011. Dr. Moll also served as the Chief Executive Officer of Hansen Medical, Inc. from September 2002 until June 2010 and its President from March 2009 until June 2010. In November 1995, Dr. Moll co-founded Intuitive Surgical, Inc., a medical device company, and served as its first Chief Executive Officer and later, its Vice President and Medical Director until September 2003. In 1989, Dr. Moll co-founded Origin Medsystems, Inc., a medical device company, which later became an operating company within Guidant Corporation following its acquisition by Eli Lilly in 1992. Dr. Moll served as Medical Director of Guidants surgical device division until November 1995. Dr. Moll also serves on the board of directors of MAKO Surgical Corp. and Restoration Robotics. Dr. Moll holds a B.A. from the University of California, Berkeley, an M.S. from Stanford University and an M.D. from the University of Washington School of Medicine. We believe Dr. Molls experience as a physician, chief executive officer of medical technology companies, familiarity with serving on the boards of public companies and his knowledge of our company enables him to make valuable contributions to our board of directors.
Casey M. Tansey has served as a member of our Board of Directors since March 2006. Mr. Tansey has served as a General Partner of U.S. Venture Partners since April 2005. From September 2001 to December 2004, Mr. Tansey served as President and Chief Executive Officer of Epicor Medical, Inc., until its acquisition by St. Jude Medical. From June 1999 to May 2001, Mr. Tansey served as President, CEO and Director of Heartport Inc., a publicly traded company that was acquired by Johnson & Johnson. Mr. Tansey joined Heartport as Vice President of Sales and Marketing in December 1995. Mr. Tansey currently serves on the Board of Directors for several privately held U.S. Venture Partners portfolio companies. Mr. Tansey holds a B.S. and M.B.A. from the College of Notre Dame. We believe Mr. Tanseys experience in the industry and his knowledge of our company enables him to make valuable contributions to our board of directors.
Family Relationships
There are no family relationships among any of our directors or executive officers.
Board Composition
The primary responsibilities of our board of directors are to provide oversight, strategic guidance, counseling and direction to our management. Our board of directors meets on a regular basis and additionally as
required. Our board of directors currently consists of seven directors. The members of our board of directors
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were elected in compliance with the provisions of our amended and restated certificate of incorporation and a voting agreement among certain of our stockholders. The voting agreement will terminate upon the closing of this offering and none of our stockholders will have any special rights regarding the election or designation of members of our board of directors. Our amended and restated certificate of incorporation to become effective upon the completion of this offering, or the amended and restated certificate of incorporation, will permit our board of directors to establish by resolution the authorized number of directors. Each director serves until the expiration of the term for which such director was elected or appointed, or until such directors earlier death, resignation or removal. At each annual meeting of stockholders, directors whose terms then expire will be elected to serve from the time of election and qualification until the next annual meeting following election. Our amended and restated certificate of incorporation provides that the authorized number of directors may be changed only by resolution of the board of directors.
Director Independence
Upon the completion of this offering, we anticipate that our common stock will be listed on The Nasdaq Global Market. Under the listing requirements and rules of The Nasdaq Global Market, independent directors must compose a majority of a listed companys board of directors within 12 months after its initial public offering. In addition, the rules of The Nasdaq Global Market require that, subject to specified exceptions and phase in periods following its initial public offering, each member of a listed companys audit and compensation, nominating and governance committee be independent. Audit committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Securities Exchange Act of 1934, as amended, or the Exchange Act. Under the rules of The Nasdaq Global Market, a director will only qualify as an independent director if, in the opinion of that companys board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
To be considered to be independent for purposes of Rule 10A-3, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of our audit committee, our board of directors, or any other board committee: (1) accept, directly or indirectly, any consulting, advisory, or other compensatory fee from the listed company or any of its subsidiaries; or (2) be an affiliated person of the listed company or any of its subsidiaries.
Our board of directors has undertaken a review of its composition, the composition of its committees, and the independence of each director. Based upon information requested from and provided by each director concerning his or her background, employment, and affiliations, including family relationships, our board of directors has determined that all of our board of directors except Ms. Earnhardt do not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is independent as that term is defined under the applicable rules and regulations of the SEC, and the listing requirements and rules of The Nasdaq Global Market. In making this determination, our board of directors considered the current and prior relationships that each non-employee director has with our company and all other facts and circumstances our board of directors deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director. Our board of directors also determined that Messrs. , and , who compose our audit committee, upon the completion of this offering, satisfy the independence standards for the audit committee established by applicable Securities and Exchange Commission, or SEC, rules and the listing standards of The Nasdaq Global Market and Rule 10A-3 of the Exchange Act. Our board of directors has determined that , and who compose our compensation committee, upon the completion of this offering, are non-employee directors as defined in Rule 16b-3 promulgated under the Exchange Act and are outside directors as that term is defined in Section 162(m) of the Internal Revenue Code of 1986, as amended, or Section 162(m). Each member of the nominating and corporate governance committee is independent within the meaning of the applicable NASDAQ listing standards, is a non-employee director and is free from any relationship that would interfere with the exercise of his or her independent judgment.
Board Committees
Our board of directors has established an audit committee, a compensation committee and a nominating and corporate governance committee. Our board of directors may establish other committees to facilitate the
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management of our business. The composition and functions of each committee are described below. Members serve on these committees until their resignation or until otherwise determined by our board of directors.
Audit Committee
Our audit committee consists of , and . The chair of our audit committee is , who our board of directors has determined is an audit committee financial expert as that term is defined under the SEC rules implementing Section 407 of the Sarbanes-Oxley Act of 2002, and possesses financial sophistication, as defined under the listing standards of The Nasdaq Global Market. Our board of directors has also determined that each member of our audit committee can read and understand fundamental financial statements in accordance with applicable requirements. In arriving at these determinations, the board of directors has examined each audit committee members scope of experience and the nature of their experience in the corporate finance sector.
The primary purpose of the audit committee is to discharge the responsibilities of our board of directors with respect to our accounting, financial and other reporting and internal control practices and to oversee our independent registered public accounting firm. Specific responsibilities of our audit committee include:
| selecting a qualified firm to serve as the independent registered public accounting firm to audit our financial statements; |
| helping to ensure the independence and performance of the independent registered public accounting firm; |
| discussing the scope and results of the audit with the independent registered public accounting firm and reviewing, with management and the independent accountants, our interim and year-end operating results; |
| developing procedures for employees to submit concerns anonymously about questionable accounting or audit matters; |
| reviewing our financial statements and critical accounting policies and estimates; |
| reviewing the adequacy and effectiveness of our internal controls; |
| reviewing our policies on risk assessment and risk management; |
| reviewing related-party transactions; |
| obtaining and reviewing a report by the independent registered public accounting firm, at least annually, that describes our internal quality-control procedures, any material issues with such procedures and any steps taken to deal with such issues when required by applicable law; and |
| approving (or, as permitted, pre-approving) all audit and all permissible non-audit services, other than de minimis non-audit services, to be performed by the independent registered public accounting firm. |
Compensation Committee
Our compensation committee consists of , and . The chair of our compensation committee is .
The primary purpose of our compensation committee is to discharge the responsibilities of our board of directors to oversee our compensation policies, plans and programs and to review and determine the compensation to be paid to our executive officers, directors and other senior management, as appropriate. Specific responsibilities of our compensation committee include:
| reviewing and approving, or recommending that our board of directors approve, the compensation of our executive officers; |
| reviewing and recommending to our board of directors the compensation of our directors; |
| reviewing and approving, or recommending that our board of directors approve, the terms of compensatory arrangements with our executive officers; |
| administering our stock and equity incentive plans; |
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| selecting independent compensation consultants and assessing whether there are any conflicts of interest with any of the committees compensation advisers; |
| reviewing and approving, or recommending that our board of directors approve, incentive compensation and equity plans, severance agreements, change-of-control protections and any other compensatory arrangements for our executive officers and other senior management, as appropriate; and |
| reviewing and establishing general policies relating to compensation and benefits of our employees and reviewing our overall compensation philosophy. |
Nominating and Corporate Governance Committee
Our nominating and corporate governance committee consists of and . The chair of our nominating and corporate governance committee is . Specific responsibilities of our nominating and corporate governance committee include:
| identifying, evaluating and selecting, or recommending that our board of directors approve, nominees for election to our board of directors; |
| evaluating the performance of our board of directors and of individual directors; |
| considering and making recommendations to our board of directors regarding the composition of the committees of the board of directors; |
| reviewing developments in corporate governance practices; |
| evaluating the adequacy of our corporate governance practices and reporting; |
| reviewing management succession plans; |
| developing and making recommendations to our board of directors regarding corporate governance guidelines and matters; and |
| overseeing an annual evaluation of the board of directors performance. |
Role of the Board in Risk Oversight
The audit committee of the board of directors is primarily responsible for overseeing our risk management processes on behalf of the board of directors. Going forward, we expect that the audit committee will receive reports from management on at least a quarterly basis regarding our assessment of risks. In addition, the audit committee reports regularly to the board of directors, which also considers our risk profile. The audit committee and the board of directors focus on the most significant risks we face and our general risk management strategies. While the board of directors oversees our risk management, management is responsible for day-to-day risk management processes. Our board of directors expects management to consider risk and risk management in each business decision, to proactively develop and monitor risk management strategies and processes for day-to-day activities and to effectively implement risk management strategies adopted by the audit committee and the board of directors. We believe this division of responsibilities is the most effective approach for addressing the risks we face and that our board of directors leadership structure, which also emphasizes the independence of the board of directors in its oversight of its business and affairs, supports this approach.
Code of Business Conduct and Ethics
Effective upon the closing of this offering, we have adopted a code of business conduct and ethics that applies to all of our employees, officers and directors, including those officers responsible for financial reporting. Following the closing of this offering, the code of business conduct and ethics will be available on our website at www.intersectent.com. We intend to disclose any amendments to the code, or any waivers of its requirements, on our website to the extent required by the applicable rules and exchange requirements. The inclusion of our website address in this prospectus does not incorporate by reference the information on or accessible through our website into this prospectus.
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Compensation Committee Interlocks and Insider Participation
None of the members of our compensation committee has ever been an officer or employee of the company. None of our executive officers serve, or have served during the last fiscal year, as a member of the board of directors, compensation committee or other board committee performing equivalent functions of any entity that has one or more executive officers serving as one of our directors or on our compensation committee.
Director Compensation
We have a policy of reimbursing our directors for their reasonable out-of-pocket expenses in connection with attending board of directors and committee meetings. From time to time, we have granted stock options to certain of our non-employee directors as compensation for their services. None of our non-employee directors were granted a stock option during the year ended December 31, 2013. Dr. Moll is our only non-employee director who holds options to purchase our common stock. As of December 31, 2013, Dr. Moll held options to purchase 100,000 shares of our common stock.
Compensation Policy for Non-Employee Directors
Our board of directors has adopted a compensation policy for our non-employee directors, to be effective upon the closing of this offering. Under this policy, each of our non-employee directors will be paid $ as an annual cash retainer, and our lead independent director will receive an additional annual cash payment of $ . Annual fees will also be paid to our directors who chair our board committees and to committee members, as follows:
Committee |
Annual Chair Fee | Annual Member Fee | ||||
Audit Committee |
$ | |||||
Compensation Committee |
$ | |||||
Nominating and Corporate Governance Committee |
$ |
Our non-employee directors will also receive an initial equity award upon commencement of service as a board member; thereafter, each non-employee director will receive an annual equity retainer. Currently, the form of award in each case will be a non-qualified stock option. The initial award will be an option to purchase shares of our common stock that will vest annually over three years of service. Each subsequent annual award will be an option to purchase shares of our common stock that will vest after one year of service. Additionally, upon the closing of a change of control, the vesting of all outstanding equity awards held by our non-employee directors will accelerate in full.
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Compensation
Summary Compensation Table
The following summary compensation table shows information regarding the compensation awarded to, earned by or paid to our named executive officers during the year ended December 31, 2013.
Name and Principal Position |
Year | Salary | Stock Options(1) |
Non-Equity Incentive Plan Compensation |
All Other Compensation |
Total | ||||||||||||||||||
Lisa D. Earnhardt |
2013 | $ | 334,750 | $ | 210,688 | $ | 109,195 | (2) | $ | 343 | (4) | $ | 654,976 | |||||||||||
President and Chief Executive Officer |
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Richard E. Kaufman |
2013 | 293,150 | 20,795 | 68,304 | (2) | 100,000 | (5) | 482,249 | ||||||||||||||||
Senior Vice President and Chief Operating Officer |
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Robert H. Binney, Jr. |
2013 | 154,500 | 51,076 | 154,583 | (3) | 14,400 | (6) | 374,559 | ||||||||||||||||
Vice President, Sales |
(1) | The amounts included in the Stock Options column represent the grant date fair value of stock options granted, calculated in accordance with ASC Topic 718. For a discussion of the assumptions made in the valuations reflected in this column, see Note 10 of the Financial Statements included elsewhere in this prospectus. |
(2) | Represents payments pursuant to our corporate bonus plan. At the beginning of each year, the compensation committee approves specific company performance milestones. Bonuses are determined at year-end by the compensation committee based upon the level of achievement of the milestones. Approve bonuses are paid in March of the following year. |
(3) | Consists of (a) $33,333 paid pursuant to our management business objectives bonus plan and (b) $121,250 pursuant to our sales commission plan. |
(4) | Represents life insurance premiums paid by us. |
(5) | Represents the portion of a loan to Mr. Kaufman forgiven by us. |
(6) | Represents a car allowance paid by us. |
Outstanding Equity Awards as of December 31, 2013
The following table shows stock options outstanding for each of our named executive officers as of December 31, 2013.
Name |
Vesting Commencement Date |
Number of Securities Underlying Unexercised Options(1) |
Option Exercise Price |
Option Expiration Date |
||||||||||||||||
Exercisable | Unexercisable | |||||||||||||||||||
Lisa D. Earnhardt |
04/23/13 | 357,500 | (2) | | $ | 0.30 | 04/22/23 | |||||||||||||
11/30/13 | 577,500 | (3) | | $ | 0.30 | 04/22/23 | ||||||||||||||
Richard E. Kaufman |
04/23/13 | 57,000 | (4) | | $ | 0.30 | 04/22/23 | |||||||||||||
11/30/13 | 57,000 | (3) | | $ | 0.30 | 04/22/23 | ||||||||||||||
Robert H. Binney, Jr. |
07/18/11 | 350,000 | (5) | | $ | 0.27 | 09/21/21 | |||||||||||||
04/23/13 | 140,000 | (4) | | $ | 0.30 | 04/22/23 | ||||||||||||||
11/30/13 | 140,000 | (3) | | $ | 0.30 | 04/22/23 |
(1) | The outstanding stock options are exercisable prior to vesting. |
(2) | None of the shares subject to this option were vested as of December 31, 2013, and the remainder vest in equal increments on monthly basis from November 23, 2014, through April 23, 2017. |
(3) | Approximately 2.0% of the shares subject to this option were vested as of December 31, 2013, and the remainder vest in equal increments on a monthly basis thereafter through November 30, 2017. |
(4) | Approximately 16.6% of the shares subject to this option were vested as of December 31, 2013, and the remainder vest in equal increments on a monthly basis thereafter through April 23, 2017. |
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(5) | Approximately 60.4% of the shares subject to this option were vested as of December 31, 2013, and the remainder vest in equal increments on a monthly basis thereafter through July 18, 2015. |
Each of the options reflected in the table above were granted with an exercise price equal to the fair value of our common stock on the date of grant, and may be exercised prior to vesting. Stock issued upon exercise of unvested options will be subject to repurchase by the company until vested.
Employee Benefits
We provide standard employee benefits to our full- and part-time employees, including our named executive officers, in the United States (in the case of part-time, those that work 30 or more hours per week), including health, disability and life insurance and a 401(k) plan as a means of attracting and retaining our executives and employees.
Tax Considerations
Our Board has considered the potential future effects of Section 162(m) of the Internal Revenue Code on the compensation paid to our named executive officers. Section 162(m) disallows a tax deduction for any publicly held corporation for individual compensation exceeding $1.0 million in any taxable year for our chief executive officer and each of the other named executive officers (other than our chief financial officer), unless compensation is performance-based. As we only recently became publicly-traded, our Board has not previously taken the deductibility limit imposed by Section 162(m) into consideration in setting compensation.
Pension Benefits
We do not maintain any defined benefit pension plans.
Non-qualified Deferred Compensation
We do not maintain any non-qualified deferred compensation plans.
Limitation on Liability and Indemnification
Upon the closing of this offering, our amended and restated certificate of incorporation will contain provisions that limit the liability of our current and former directors for monetary damages to the fullest extent permitted by Delaware law. Delaware law provides that directors of a corporation will not be personally liable for monetary damages for any breach of fiduciary duties as directors, except liability for:
| any breach of the directors duty of loyalty to the corporation or its stockholders; |
| any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law; |
| unlawful payments of dividends or unlawful stock repurchases or redemptions; or |
| any transaction from which the director derived an improper personal benefit. |
Such limitation of liability does not apply to liabilities arising under federal securities laws and does not affect the availability of equitable remedies, such as injunctive relief or rescission. Our amended and restated certificate of incorporation and our amended and restated bylaws will provide that we are required to indemnify our directors to the fullest extent permitted by Delaware law. Our amended and restated bylaws will also provide that, upon satisfaction of certain conditions, we shall advance expenses incurred by a director in advance of the final disposition of any action or proceeding, and permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in that capacity regardless of whether we would otherwise be permitted to indemnify him or her under the provisions of Delaware law. Our amended and restated certificate of incorporation and amended and restated bylaws will also provide our board of directors with discretion to indemnify our officers and employees when determined appropriate by the board. We have entered and expect to continue to enter into agreements to indemnify our directors and executive officers. With certain exceptions, these agreements provide for indemnification for related expenses including, among other things, attorneys fees, judgments, fines and settlement amounts incurred by any of these individuals in any
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action or proceeding. We believe that these bylaw provisions and indemnification agreements are necessary to attract and retain qualified persons as directors and officers. We also maintain customary directors and officers liability insurance.
The limitation of liability and indemnification provisions in our amended and restated certificate of incorporation and amended and restated bylaws may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty. These provisions may also reduce the likelihood of derivative litigation against our directors and officers, even though an action, if successful, might benefit us and other stockholders. Further, a stockholders investment may be adversely affected to the extent that we pay the costs of settlement and damage awards against directors and officers as required by these indemnification provisions. At present, there is no pending litigation or proceeding involving any of our directors, officers or employees for which indemnification is sought and we are not aware of any threatened litigation that may result in claims for indemnification.
Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, or the Securities Act, may be permitted for directors, executive officers or persons controlling us, we have been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
Offer Letters and Bonus Plan
We extended offer letters to each of our named executive officers in connection with their employment. The letters generally provide for at-will employment and set forth the named executive officers initial base salary, initial equity grant amount and eligibility for employee benefits. In addition, each of our named executive officers has executed a form of our standard confidential information and invention assignment agreement. The key terms of the offer letters extended to our named executive officers that continue to be in effect are described below.
Lisa D. Earnhardt
In January 2008, we extended an offer letter to Ms. Earnhardt to be our President and Chief Executive Officer. The letter was subsequently amended in July 2013. Pursuant to her offer letter, as amended, if, within 12 months following a change of control, Ms. Earnhardts employment is terminated without cause or she resigns for good reason, all unvested shares subject to her outstanding options shall accelerate in full. In addition, in the event of Ms. Earnhardts death, permanent disability, resignation for good reason or termination without cause, (1) all unvested shares subject to her outstanding options shall accelerate in full, (2) she shall receive a lump sum payment equal to her annual target bonus and (3) she shall receive 12 months of her base salary, to be paid monthly.
Pursuant to our corporate bonus plan, Ms. Earnhardt is eligible to receive a bonus of up to 35% of her annual base salary upon our achievement of milestones established by the compensation committee for the particular year.
Robert H. Binney, Jr.
In June 2011, we extended an offer letter to Mr. Binney to be our Vice President of Sales. The letter was subsequently amended in November 2013. Pursuant to his offer letter, as amended, upon the occurrence of a change of control, all outstanding stock options held by Mr. Binney shall be accelerated such that 50% of the unvested shares shall be fully vested. In addition, if, within 12 months following a change of control, Mr. Binneys employment is terminated without cause or he resigns for good reason, and provided such termination is in connection with the change of control and constitutes a separation from service, (1) all unvested shares subject to his outstanding options shall accelerate in full, (2) he shall receive a prorated, lump sum payment equal to his annual target bonus and (3) he shall receive six months of his base salary, to be paid monthly.
As a member of our sales team, Mr. Binney is a participant in (1) our sales commission plan, which provides for quarterly commissions based on the sales teams achievement of its quotas and (2) our management business objectives bonus plan, which provides for a quarterly bonus upon the achievement of management targets established by the compensation committee for the particular year.
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Richard E. Kaufman
In December 2006, we extended an offer letter to Mr. Kaufman to be our Vice President and Chief Operating Officer. The letter was subsequently amended in November 2013. Pursuant to his offer letter, as amended, upon the occurrence of a change of control, all outstanding stock options held by Mr. Kaufman shall be accelerated such that 50% of the unvested shares shall be fully vested. In addition, if, within 12 months following a change of control, Mr. Kaufmans employment is terminated without cause or he resigns for good reason, and provided such termination is in connection with such change of control and constitutes a separation from service, (1) all unvested shares subject to his outstanding options shall accelerate in full, (2) he shall receive a prorated, lump sum payment equal to his annual target bonus and (3) he shall receive six months of his base salary, to be paid monthly.
Pursuant to our corporate bonus plan, Mr. Kaufman is eligible to receive a bonus of up to 25% of his annual base salary, upon the achievement of certain milestones established by the compensation committee for the particular year.
As set forth in these offer letters: (1) cause includes commissions of crimes or other material acts of dishonesty, engagement in any activity the executive officer knows could materially harm our business or reputation, material failure to adhere to our corporate codes, policies or procedures, material violation of any statutory, contractual, or common law duty or obligation to us or material breach of the executive officers confidentiality agreement with us, or the failure to substantially perform assigned duties or responsibilities after notice and opportunity to cure; and (2) good reason includes a relocation of the office where the executive officer is assigned to a location of more than 35 miles away (50 miles in the case of Ms. Earnhardt), a material decrease in base salary (except for salary decreases generally applicable to our other executive employees), or a material reduction in the scope of duties or responsibilities, in each case without the executive officers written consent; provided, however, that, in the case of Mr. Binney and Mr. Kaufmann, to resign for Good Reason the executive officer must provide notice to us and give us 30 days to cure the event giving rise to Good Reason, and if not cured then must resign within 90 days of the expiration of the cure period.
Stock Plans
The principal features of our equity incentive plans and our 401(k) plan are summarized below. These summaries are qualified in their entirety by reference to the actual text of the plans, which, other than the 401(k) plan, are filed as exhibits to the registration statement of which this prospectus is a part.
2014 Equity Incentive Plan
Our board of directors adopted our 2014 Equity Incentive Plan, or the 2014 Plan, on , 2014, and our stockholders subsequently approved the 2014 Plan on , 2014. The 2014 Plan will become effective on the date the registration statement of which this prospectus forms a part is declared effective by the SEC. Once the 2014 Plan becomes effective, no further grants will be made under our 2013 Equity Incentive Plan, which is described below.
Our 2014 Plan provides for the grant of incentive stock options, or ISOs, within the meaning of Section 422 of the Code, to our employees and our parent and subsidiary corporations employees, and for the grant of nonstatutory stock options, or NSOs, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance-based stock awards, and other forms of equity compensation to our employees, directors and consultants. Addition, our 2014 Plan provides for the grant of performance cash awards to our employees, directors and consultants.
Authorized Shares. The maximum number of shares of our common stock that may be issued under our 2014 Plan is . The number of shares of our common stock reserved for issuance under our 2014 Plan will automatically increase on January 1 of each year, beginning on January 1, 2015, and continuing through and including January 1, 2024, by % of the total number of shares of our capital stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares determined by our board of directors. The maximum number of shares that may be issued upon the exercise of ISOs under our 2014 Plan is .
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Shares issued under our 2014 Plan will be authorized but unissued or reacquired shares of our common stock. Shares subject to stock awards granted under our 2014 Plan that expire or terminate without being exercised in full, or that are paid out in cash rather than in shares, will not reduce the number of shares available for issuance under our 2014 Plan. Additionally, shares issued pursuant to stock awards under our 2014 Plan that we repurchase or that are forfeited, as well as shares used to pay the exercise price of a stock award or to satisfy the tax withholding obligations related to a stock award, will become available for future grant under our 2014 Plan.
Plan Administration. Our board of directors, or a duly authorized committee of our board of directors, will administer our 2014 Plan. Our board of directors may also delegate to one or more of our officers the authority to (1) designate employees (other than officers) to receive specified stock awards, and (2) determine the number of shares subject to such stock awards. Subject to the terms of our 2014 Plan, the board of directors has the authority to determine the terms of awards, including recipients, the exercise, purchase or strike price of stock awards, if any, the number of shares subject to each stock award, the fair market value of a share of our common stock, the vesting schedule applicable to the awards, together with any vesting acceleration, and the form of consideration, if any, payable upon exercise or settlement of the award and the terms of the award agreements for use under our 2014 Plan.
Our board of directors has the power to modify outstanding awards under our 2014 Plan. Our board of directors has the authority to reprice any outstanding option or stock appreciation right, cancel any outstanding stock award in exchange for new stock awards, cash or other consideration, or take any other action that is treated as a repricing under generally accepted accounting principles, with the consent of any adversely affected participant.
Section 162(m) Limits. At such time as necessary for compliance with Section 162(m) of the Code, no participant may be granted stock awards covering more than shares of our common stock under our 2014 Plan during any calendar year pursuant to stock options, stock appreciation rights and other stock awards whose value is determined by reference to an increase over an exercise price or strike price of at least 100% of the fair market value of our common stock on the date of grant. Additionally, no participant may be granted in a calendar year a performance stock award covering more than shares of our common stock or a performance cash award having a maximum value in excess of $ under our 2014 Plan. These limitations are designed to allow us to grant compensation that will not be subject to the $1,000,000 annual limitation on the income tax deductibility of compensation paid per covered executive officer imposed by Section 162(m) of the Code.
Performance Awards. Our 2014 Plan permits the grant of performance-based stock and cash awards that may qualify as performance-based compensation that is not subject to the $1,000,000 limitation on the income tax deductibility of compensation paid per covered executive officer imposed by Section 162(m) of the Code. Our compensation committee can structure such awards so that the stock or cash will be issued or paid pursuant to such award only following the achievement of certain pre-established performance goals during a designated performance period.
Our compensation committee may establish performance goals by selecting from one or more of the following performance criteria: (1) earnings (including earnings per share and net earnings); (2) earnings before interest, taxes and depreciation; (3) earnings before interest, taxes, depreciation and amortization; (4) earnings before interest, taxes, depreciation, amortization and legal settlements; (5) earnings before interest, taxes, depreciation, amortization, legal settlements and other income (expense); (6) earnings before interest, taxes, depreciation, amortization, legal settlements, other income (expense) and stock-based compensation; (7) earnings before interest, taxes, depreciation, amortization, legal settlements, other income (expense), stock-based compensation and changes in deferred revenue; (8) total stockholder return; (9) return on equity or average stockholders equity; (10) return on assets, investment, or capital employed; (11) stock price; (12) margin (including gross margin); (13) income (before or after taxes); (14) operating income; (15) operating income after taxes; (16) pre-tax profit; (17) operating cash flow; (18) sales or revenue targets; (19) increases in revenue or product revenue; (20) expenses and cost reduction goals; (21) improvement in or attainment of working capital levels; (22) economic value added (or an equivalent metric); (23) market share; (24) cash flow; (25) cash flow per share; (26) share price performance; (27) debt reduction; (28) implementation or completion of projects or processes; (29) user satisfaction; (30) stockholders equity; (31) capital expenditures; (32) debt levels; (33) operating profit or net operating profit; (34) workforce diversity; (35) growth of net income or operating
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income; (36) billings; (37) bookings; (38) the number of users, including but not limited to unique users; (39) employee retention; and (40) to the extent that an Award is not intended to comply with Section 162(m) of the Code, other measures of performance selected by the Board.
Our compensation committee may establish performance goals on a company-wide basis, with respect to one or more business units, divisions, affiliates, or business segments, and in either absolute terms or relative to the performance of one or more comparable companies or the performance of one or more relevant indices. Unless specified otherwise (1) in the award agreement at the time the award is granted or (2) in such other document setting forth the performance goals at the time the goals are established, our compensation committee will appropriately make adjustments in the method of calculating the attainment of the performance goals as follows: (a) to exclude restructuring or other nonrecurring charges; (b) to exclude exchange rate effects; (c) to exclude the effects of changes to generally accepted accounting principles; (d) to exclude the effects of any statutory adjustments to corporate tax rates; and (e) to exclude the effects of any extraordinary items as determined under generally accepted accounting principles; (f) to exclude the dilutive effects of acquisitions or joint ventures; (g) to assume that any business divested achieved performance objectives at targeted levels during the balance of a Performance Period following such divestiture; (h) to exclude the effect of any change in the outstanding shares of our common stock by reason of any stock dividend or split, stock repurchase, reorganization, recapitalization, merger, consolidation, spin-off, combination or exchange of shares or other similar corporate change, or any distributions to common stockholders other than regular cash dividends; (i) to exclude the effects of stock based compensation and the award of bonuses under our bonus plans; (j) to exclude costs incurred in connection with potential acquisitions or divestitures that are required to be expensed under generally accepted accounting principles; (k) to exclude the goodwill and intangible asset impairment charges that are required to be recorded under generally accepted accounting principles; and (l) to exclude the effect of any other unusual, non-recurring gain or loss or other extraordinary item.
Corporate Transactions. Our 2014 Plan provides that in the event of certain specified significant corporate transactions, as defined under our 2014 Plan, each outstanding award will be treated as the administrator determines. The administrator may (1) arrange for the assumption, continuation or substitution of a stock award by a successor corporation; (2) arrange for the assignment of any reacquisition or repurchase rights held by us to a successor corporation; (3) accelerate the vesting, in whole or in part, of the stock award and provide for its termination prior to the transaction; (4) arrange for the lapse, in whole or in part, of any reacquisition or repurchase rights held by us; or (5) cancel or arrange for the cancellation of the stock award prior to the transaction in exchange for a cash payment, if any, determined by the board. The plan administrator is not obligated to treat all stock awards or portions of stock awards, even those that are of the same type, in the same manner.
Transferability. A participant may not transfer stock awards under our 2014 Plan other than by will, the laws of descent and distribution or as otherwise provided under our 2014 Plan.
Plan Amendment or Termination. Our board of directors has the authority to amend, suspend, or terminate our 2014 Plan, provided that such action does not materially impair the existing rights of any participant without such participants written consent. No ISOs may be granted after the tenth anniversary of the date our board of directors adopted our 2014 Plan.
2014 Employee Stock Purchase Plan
Our board of directors adopted our 2014 Employee Stock Purchase Plan, or the ESPP, on , 2014, and our stockholders subsequently approved the ESPP on , 2014. The ESPP will become effective immediately upon the execution and delivery of the underwriting agreement related to this offering. The purpose of the ESPP is to secure the services of new employees, to retain the services of existing employees and to provide incentives for such individuals to exert maximum efforts toward our success and that of our affiliates. The ESPP is intended to qualify as an employee stock purchase plan within the meaning of Section 423 of the Code. The maximum aggregate number of shares of our common stock that may be issued under our ESPP is shares.
Authorized Shares. The maximum aggregate number of shares of our common stock that may be issued under our ESPP is shares. Additionally, the number of shares of our common stock reserved for issuance under our ESPP will increase automatically each year, beginning on January 1, 2015, and continuing through and including
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January 1, 2024, by the lesser of (1) 1% of the total number of shares of our common stock outstanding on December 31 of the preceding calendar year; (2) shares of common stock; or (3) such lesser number as determined by our board of directors. Shares subject to purchase rights granted under our ESPP that terminate without having been exercised in full will not reduce the number of shares available for issuance under our ESPP.
Administration. Our board of directors, or a duly authorized committee thereof, will administer our ESPP. Our board of directors has delegated concurrent authority to administer our ESPP to our compensation committee under the terms of the compensation committees charter. The ESPP is implemented through a series of offerings under which eligible employees are granted purchase rights to purchase shares of our common stock on specified dates during such offerings. Under the ESPP, we may specify offerings with durations of not more than 27 months, and may specify shorter purchase periods within each offering. Each offering will have one or more purchase dates on which shares of our common stock will be purchased for employees participating in the offering. An offering under the ESPP may be terminated under certain circumstances.
Payroll Deductions. Generally, all regular employees, including executive officers, employed by us or by any of our designated affiliates, may participate in the ESPP and may contribute, normally through payroll deductions, up to 15% of their earnings (as defined in the ESPP) for the purchase of our common stock under the ESPP. Unless otherwise determined by our board of directors, common stock will be purchased for the accounts of employees participating in the ESPP at a price per share equal to the lower of (a) 85% of the fair market value of a share of our common stock on the first date of an offering or (b) 85% of the fair market value of a share of our common stock on the date of purchase. For the initial offering, which we expect will commence upon the execution and delivery of the underwriting agreement relating to this offering, the fair market value on the first day of the initial offering will be the price at which shares are first sold to the public.
Limitations. Our employees, including executive officers, or any of our designated affiliates may have to satisfy one or more of the following service requirements before participating in our ESPP, as determined by the administrator: (1) customary employment with us or one of our affiliates for more than 20 hours per week and more than five months per calendar year, or (2) continuous employment with us or one of our affiliates for a minimum period of time, not to exceed two years, prior to the first date of an offering. An employee may not be granted rights to purchase stock under our ESPP if such employee (1) immediately after the grant would own stock possessing 5% or more of the total combined voting power or value of our common stock, or (2) holds rights to purchase stock under our ESPP that would accrue at a rate that exceeds $25,000 worth of our stock for each calendar year that the rights remain outstanding.
Changes to Capital Structure. In the event that there occurs a change in our capital structure through such actions as a stock split, merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, large nonrecurring cash dividend, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or similar transaction, the board of directors will make appropriate adjustments to (1) the number of shares reserved under the ESPP, (2) the maximum number of shares by which the share reserve may increase automatically each year, (3) the number of shares and purchase price of all outstanding purchase rights and (4) the number of shares that are subject to purchase limits under ongoing offerings.
Corporate Transactions. In the event of certain significant corporate transactions, as defined in the ESPP, any then-outstanding rights to purchase our stock under the ESPP may be assumed, continued or substituted for by any surviving or acquiring entity (or its parent company). If the surviving or acquiring entity (or its parent company) elects not to assume, continue or substitute for such purchase rights, then the participants accumulated payroll contributions will be used to purchase shares of our common stock within 10 business days prior to such corporate transaction, and such purchase rights will terminate immediately.
ESPP Amendments, Termination. Our board of directors has the authority to amend or terminate our ESPP, provided that except in certain circumstances such amendment or termination may not materially impair any outstanding purchase rights without the holders consent. We will obtain stockholder approval of any amendment to our ESPP as required by applicable law or listing requirements.
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2013 Equity Incentive Plan
Our board of directors adopted and our stockholders approved our 2013 Equity Incentive Plan, or the 2013 Plan, in September 2013. The 2013 Plan provides for the discretionary grant of ISOs, nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, and other stock awards to our employees, directors and consultants or our affiliates. ISOs may be granted only to our employees or employees of our affiliates.
The 2013 Plan will be terminated on the date the 2014 Plan becomes effective. However, any outstanding options granted under the 2014 Plan will remain outstanding, subject to the terms of our 2013 Plan and stock option agreements, until such outstanding options are exercised or until they terminate or expire by their terms.
Authorized Shares. The maximum number of shares of our common stock that may be issued under our 2013 Plan is 1,702,916, plus any shares subject to stock options or other stock awards granted under the 2003 Equity Incentive Plan, described below, that would have otherwise returned to our 2003 Plan (such as upon the expiration or termination of a stock award prior to vesting). The maximum number of shares that may be issued upon the exercise of ISOs under our 2013 Plan is two (2) times the 2013 Plan share reserve.
Plan Administration. Our board of directors or a duly authorized committee of our board of directors administers our 2013 Plan and the stock awards granted under it. Our board of directors may also delegate to one or more of our officers the authority to (1) designate officers and employees to receive specified stock awards and (2) determine the number of shares subject to such stock awards. Subject to the terms of our 2013 Plan, the board of directors has the authority to determine and amend the terms of awards, including recipients, the exercise, purchase or strike price of stock awards, if any, the number of shares subject to each stock award, the fair market value of a share of our common stock, the vesting schedule applicable to the awards, together with any vesting acceleration, and the form of consideration, if any, payable upon exercise or settlement of the award and the terms of the award agreements for use under our 2013 Plan.
Our board of directors has the power to modify outstanding awards under our 2013 Plan. Our board of directors has the authority to reprice any outstanding option or stock appreciation right, cancel any outstanding stock award in exchange for new stock awards, cash or other consideration, or take any other action that is treated as a repricing under generally accepted accounting principles, with the consent of any adversely affected participant.
Corporate Transactions. Our 2013 Plan provides that in the event of certain specified significant corporate transactions, as defined under our 2013 Plan, each outstanding award will be treated as the administrator determines. The administrator may (1) arrange for the assumption, continuation or substitution of a stock award by a successor corporation, or the acquiring corporations parent company; (2) arrange for the assignment of any reacquisition or repurchase rights held by us to a successor corporation, or the acquiring corporations parent company; (3) accelerate the vesting, in whole or in part, of the stock award and provide for its termination prior to the transaction; (4) arrange for the lapse, in whole or in part, of any reacquisition or repurchase rights held by us; (5) cancel or arrange for the cancellation of the stock award prior to the transaction in exchange for a cash payment, if any, determined by the board; or (6) make a payment in such form as determined by the board of directors equal to the excess of the value of the property that would have been received and the exercise price. The plan administrator is not obligated to treat all stock awards or portions of stock awards, even those that are of the same type, in the same manner.
Transferability. A participant may not transfer stock awards under our 2013 Plan other than by will, the laws of descent and distribution, or as otherwise provided under our 2013 Plan.
Plan Amendment or Termination. Our board of directors has the authority to amend, suspend or terminate our 2013 Plan, provided that such action is approved by our stockholders to the extent stockholder approval is necessary and that such action does not impair the existing rights of any participant without such participants written consent. As described above, our 2013 Plan will be terminated upon the effective date of this offering and no future stock awards will be granted thereunder.
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2003 Equity Incentive Plan
Our board of directors adopted and our stockholders approved our 2003 Equity Incentive, or the 2003 Plan, in October 2003. The 2003 Plan was last amended in February 2013. The 2003 Plan provides for the discretionary grant of ISOs, nonstatutory stock options, stock bonuses, and rights to acquire restricted stock to our employees, directors and consultants or our affiliates. ISOs may be granted only to our employees or employees of our affiliates.
The 2003 Plan was terminated on the date the 2013 Plan became effective. However, any outstanding options granted under the 2003 Plan remain outstanding, subject to the terms of our 2003 Plan and stock option agreements, until such outstanding options are exercised or until they terminate or expire by their terms.
Authorized Shares. The maximum number of shares of our common stock that may be issued under our 2003 Plan is 15,096,022.
Plan Administration. Our board of directors or a duly authorized committee of our board of directors administers our 2003 Plan and the stock awards granted under it. Our board of directors has the power to modify outstanding awards under our 2003 Plan, with the consent of any adversely affected participant.
Corporate Transactions. Our 2003 Plan provides that in the event of certain specified significant corporate transactions, as defined under our 2003 Plan, the surviving or acquiring corporation may assume, continue or substitute similar stock awards for outstanding stock awards under the 2003 Plan and any reacquisition or repurchase rights held by us may be assigned to the surviving or acquiring corporation. In the event that outstanding stock awards are not so assumed, continued or substituted, the vesting and, if applicable, exercisability of any such stock awards held by participants whose continuous service has not terminated prior to the effective time of the corporate transaction will be accelerated in full to a date prior to the effective time of such corporate transaction, and such stock awards will terminate if not exercised (if applicable) at or prior to the effective time of such corporation transaction, and any reacquisition or repurchase rights held by us will lapse, contingent upon the effectiveness of such corporate transaction. With respect to any other outstanding stock awards that are not so assumed, continued or substituted, the vesting and, if applicable, exercisability of any such stock awards will not be accelerated, unless otherwise provided in a written agreement between us and the participant, and all such stock awards will terminate if not exercised (if applicable) prior to the effective time of the corporate transaction.
Transferability. A participant may not transfer stock awards under our 2003 Plan other than by will, the laws of descent and distribution, or as otherwise provided under our 2003 Plan.
Plan Amendment or Termination. Our board of directors has the authority to amend, suspend or terminate our 2003 Plan, provided that such action does not impair the existing rights of any participant without such participants written consent. As described above, our 2003 Plan terminated upon the effective date of the 2013 Plan.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The following is a description of transactions since January 1, 2011, to which we have been a party, in which the amount involved exceeds $120,000, and in which any of our directors, executive officers or beneficial holders of more than 5% of our common stock, or an affiliate or immediate family member thereof, had or will have a direct or indirect material interest.
Each agreement described below is filed as an exhibit to the registration statement of which this prospectus forms a part, and the following descriptions are qualified by reference to such agreements.
Compensation arrangements for our directors and named executive officers are described in this prospectus under the section entitled Executive Compensation.
Sale of Series C Convertible Preferred Stock
In August 2011, we completed the closing of the sale of an aggregate of 10,622,800 shares of our Series C convertible preferred stock at a purchase price of $1.46 per share for an aggregate purchase price of $15,509,288. Our Series C convertible preferred stock will convert on a one-for-one basis into common stock immediately prior to the closing of this offering. The following table summarizes purchases of shares of our Series C convertible preferred stock by our executive officers, directors and holders of more than 5% of our capital stock.
Name |
Series C Convertible Preferred Stock |
Aggregate Purchase Price |
||||||
U.S. Venture Partners IX, L.P.(1) |
2,584,433 | $ | 3,773,272 | |||||
KPCB Holdings, Inc., as nominee(2) |
2,584,433 | 3,773,272 | ||||||
PTV Sciences II, L.P.(3) |
2,397,260 | 3,500,000 | ||||||
Medtronic, Inc.(4) |
2,020,548 | 2,950,000 | ||||||
Entities affiliated with DAG Ventures(5) |
541,449 | 790,516 | ||||||
Frederic H. Moll(6) |
171,232 | 249,999 |
(1) | Mr. Tansey, a member of our board of directors, is affiliated with U.S. Venture Partners IX, L.P. |
(2) | Mr. Mead, a member of our board of directors, is affiliated with KPCB Holdings, Inc., as nominee. |
(3) | Mr. Anderson, a member of our board of directors, is affiliated with PTV Sciences II, L.P. |
(4) | Mr. Fletcher, a member of our board of directors, is affiliated with Medtronic, Inc. |
(5) | Includes (a) 494,452 shares held by DAG Ventures III-QP, (b) 46,510 shares held by DAG Ventures III, L.P. and (c) 487 shares held by DAG Ventures GP Fund III, LLC |
(6) | Dr. Moll is a member of our board of directors. |
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Sale of Series D Convertible Preferred Stock
In February and March 2013, we completed the initial closings of the sale of an aggregate of 12,107,112 shares of our Series D convertible preferred stock at a purchase price of $1.72 per share for an aggregate purchase price of $20,860,554, or the initial closings. In October 2013, we completed the second closing of the sale of an aggregate of 5,476,038 shares of our Series D convertible preferred stock at a purchase price of $1.72 per share for an aggregate purchase price of $9,435,213, or the second closing. Our Series D convertible preferred stock will convert on a one-for-one basis into common stock immediately prior to the closing of this offering. The following table summarizes purchases of shares of our Series D convertible preferred stock by our executive officers, directors and holders of more than 5% of our capital stock in each of the initial closings and the second closing.
Name |
Initial Closings Shares of Series D Convertible Preferred Stock |
Initial Closings Aggregate Purchase Price |
Second Closing Shares of Series D Convertible Preferred Stock |
Second Closing Aggregate Purchase Price |
||||||||||||
Norwest Venture Partners XI, LP(1) |
6,152,060 | $ | 10,599,999 | 2,843,877 | $ | 4,900,000 | ||||||||||
U.S. Venture Partners IX, L.P.(2) |
2,037,500 | 3,510,613 | 946,718 | 1,631,195 | ||||||||||||
PTV Sciences II, L.P.(3) |
1,104,189 | 1,902,518 | 513,058 | 883,999 | ||||||||||||
KPCB Holdings, Inc., as nominee(4) |
871,775 | 1,502,068 | 405,067 | 697,930 | ||||||||||||
Medtronic, Inc.(5) |
513,442 | 884,661 | 238,569 | 411,054 | ||||||||||||
Entities affiliated with DAG Ventures(6) |
343,845 | 592,445 | 159,768 | 275,280 | ||||||||||||
Frederic H. Moll(7) |
70,233 | 121,012 | 32,634 | 56,228 | ||||||||||||
Monika A. De Martini(8) |
65,199 | 112,338 | | | ||||||||||||
Robert H. Binney, Jr.(9) |
17,411 | 29,999 | | | ||||||||||||
Richard E. Kaufman(10) |
65,199 | 112,338 | | | ||||||||||||
Amy Wolbeck(11) |
11,607 | 19,999 | | |
(1) | Mr. de Clercq, a member of our board of directors, is affiliated with Norwest Venture Partners XI, LP. |
(2) | Mr. Tansey, a member of our board of directors, is affiliated with U.S. Venture Partners IX, L.P. |
(3) | Mr. Anderson, a member of our board of directors, is affiliated with PTV Sciences II, L.P. |
(4) | Mr. Mead, a member of our board of directors, is affiliated with KPCB Holdings, Inc., as nominee. |
(5) | Mr. Fletcher, a member of our board of directors, is affiliated with Medtronic, Inc. |
(6) | Includes (a) 459,900 shares held by DAG Ventures III-QP, (b) 43,260 shares held by DAG Ventures III, L.P. and (c) 453 shares held by DAG Ventures GP Fund III, LLC. |
(7) | Dr. Moll is a member of our board of directors. |
(8) | Shares held in the David P. and Monika A. De Martini Living Trust dated 11/16/2004. Ms. De Martini is our former Chief Financial Officer. |
(9) | Mr. Binney is our Vice President, Sales. |
(10) | Mr. Kaufman is our Senior Vice President and Chief Operating Officer. |
(11) | Ms. Wolbeck is our Vice President, Regulatory Affairs and Quality. |
Employee Loans
In May 2013, we loaned Lisa Earnhardt, our President and Chief Executive Officer, $499,854 in connection with her exercise of options to purchase 2,346,309 shares of our common stock, or the Exercise Shares. The loan is evidenced by full recourse promissory notes, accrues interest on the outstanding principal amount at the rate of
1% per annum and is secured by a pledge of the Exercise Shares. The promissory notes provide that the loan will be forgiven at a rate of one-fourth of the original principal amount and all accrued and unpaid interest on each anniversary of the loan. The entire principal amount and all accrued and unpaid interest of the loan was forgiven in full in June 2014.
In February 2007, we loaned Richard E. Kaufman, our Senior Vice President and Chief Operating Officer, $286,050. In February 2011, our board of directors approved the forgiveness of Mr. Kaufmans loan over a period of three years, provided that he remained employed with us and in good standing. The loan to Mr. Kaufman was forgiven in full in January 2014.
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Indemnification Agreements
Our amended and restated certificate of incorporation, which will be effective upon the closing of this offering, will contain provisions limiting the liability of directors, and our amended and restated bylaws will provide that we will indemnify each of our directors to the fullest extent permitted under Delaware law. Our amended and restated certificate of incorporation and amended and restated bylaws will also provide our board of directors with discretion to indemnify our officers and employees when determined appropriate by the board. In addition, we have entered and expect to continue to enter into agreements to indemnify our directors and executive officers. For more information regarding these agreements, see the section of this prospectus entitled Executive CompensationLimitation on Liability and Indemnification.
Investor Rights Agreement
We are party to an investor rights agreement that provides holders of our convertible preferred stock, including certain holders of 5% of our capital stock and entities affiliated with certain of our directors, with certain registration rights, including the right to demand that we file a registration statement or request that their shares be covered by a registration statement that we are otherwise filing. The investor rights agreement also provides for a right of first refusal in favor of certain holders of our stock with regard to certain issuances of our capital stock. The rights of first refusal will not apply to, and will terminate upon, closing of this offering. For a more detailed description of these registration rights, see the section of this prospectus entitled Description of Capital StockRegistration Rights.
Voting Agreement
We are party to a voting agreement under which certain holders of our capital stock, including certain holders of 5% of our capital stock and entities affiliated with certain of our directors, have agreed to vote in a certain way on certain matters, including with respect to the election of directors. Pursuant to the voting agreement, each of U.S. Venture Partners IX, L.P., Kleiner Perkins Caufield & Byers, PTV Sciences II, L.P., Medtronic, Inc. and Norwest Venture Partners XI, LP had the right to designate one member of our board of directors. Casey M. Tansey, Dana G. Mead, Jr., Rick D. Anderson, Mark Fletcher and Casper L. de Clercq were designated by U.S. Venture Partners IX, L.P., Kleiner Perkins Caufield & Byers, PTV Sciences II, L.P., Medtronic, Inc. and Norwest Venture Partners XI, LP, respectively, under the voting agreement. The voting agreement and rights regarding the election or designation of members of our board of directors will terminate upon the closing of this offering and none of our stockholders will have any special rights regarding the election or designation of members of our board of directors.
Right of First Refusal and Co-Sale Agreement
We are party to a right of first refusal and co-sale agreement with holders of our convertible preferred stock and our founders, including certain holders of 5% of our capital stock and entities affiliated with certain of our directors, pursuant to which the holders of convertible preferred stock have a right of first refusal and co-sale in respect of certain sales of securities by our founders. The right of first refusal and co-sale agreement will terminate upon the closing of this offering.
Employment Arrangements
We have extended offer letters to our executive officers in connection with their employment as described in greater detail in the section of this prospectus titled Executive CompensationOffer Letters and Bonus Plan.
Policies and Procedures for Related Party Transactions
Our board of directors has adopted a written related-person transaction policy setting forth the policies and procedures for the review and approval or ratification of related person transactions. This policy covers, with certain exceptions set forth in Item 404 of Regulation S-K under the Securities Act, any transaction, arrangement or relationship, or any series of similar or related transactions, arrangements or relationships in which we were or are to be a participant, where the amount involved exceeds $120,000 and a related person had or will have a
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direct or indirect material interest, including, without limitation, purchases of goods or services by or from the related person or entities in which the related person has a material interest, indebtedness, guarantees of indebtedness and employment by us of a related person.
In addition, under our code of conduct, our employees and directors have an affirmative responsibility to disclose any transaction or relationship that reasonably could be expected to give rise to a conflict of interest to our legal department, or, if the employee is an executive officer, to our board of directors.
In considering related-person transactions, our audit committee (or other independent body of our board of directors) will take into account the relevant available facts and circumstances including, but not limited to, the risks, costs and benefits to us, the terms of the transaction, the availability of other sources for comparable services or products and, if applicable the impact on a directors independence in the event that the related person is a director, immediate family member of a director or an entity with which a director is affiliated.
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The following table presents information as to the beneficial ownership of our common stock as of March 31, 2014, for:
| each person, or group of affiliated persons, known by us to beneficially own more than 5% of our common stock; |
| each named executive officer; |
| each of our directors; and |
| all executive officers and directors as a group. |
Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Unless otherwise indicated below, to our knowledge, the persons and entities named in the table have sole voting and sole investment power with respect to all shares beneficially owned, subject to community property laws where applicable. Common stock subject to options that are currently exercisable or exercisable within 60 days of March 31, 2014, are deemed to be outstanding and to be beneficially owned by the person holding the options for the purpose of computing the percentage ownership of that person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.
Percentage ownership of our common stock prior to this offering in the table is based on 70,007,428 shares of common stock issued and outstanding as of March 31, 2014, adjusted for the automatic conversion of all outstanding shares of convertible preferred stock into shares of common stock upon the completion of this offering. Percentage ownership of our common stock after this offering in the table is based on shares of common stock issued and outstanding on March 31, 2014, which gives effect to the issuance of shares of common stock in this offering and assumes no exercise of the underwriters option to purchase additional shares. Unless otherwise indicated, the address of each of the individuals and entities named below is c/o Intersect ENT, Inc., 1555 Adams Drive, California 94025.
Percentage of Shares Beneficially Owned |
||||||||||||||||||||
Name and Address of Shares Beneficially Owned |
Shares Beneficially Owned(1) |
Shares Exercisable Within 60 days |
Total
Shares Beneficially Owned |
Before the Offering |
After the Offering |
|||||||||||||||
5% Stockholders: |
||||||||||||||||||||
U.S. Venture Partners IX, L.P.(2) 2735 Sand Hill Road Menlo Park, CA 94025 |
15,901,740 | | 15,901,740 | 22.7 | % | % | ||||||||||||||
KPCB Holdings, Inc., as nominee(3) 2750 Sand Hill Road Menlo Park, CA 94025 |
14,194,364 | | 14,194,364 | 20.3 | % | % | ||||||||||||||
PTV Sciences II, L.P.(4) 3600 N. Capital of Texas Highway Building B, Suite 180 Austin, TX 78746 |
10,307,871 | | 10,307,871 | 14.7 | % | % | ||||||||||||||
Norwest Venture Partners XI, LP(5) 525 University Ave, Suite 800 Palo Alto, CA 94301 |
8,995,937 | | 8,995,937 | 12.8 | % | % | ||||||||||||||
Medtronic, Inc.(6) 710 Medtronic Parkway Mail Stop: L100 Minneapolis, MN 55432 |
4,793,107 | | 4,793,107 | 6.8 | % | % |
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Percentage of Shares Beneficially Owned |
||||||||||||||||||||
Name and Address of Shares Beneficially Owned |
Shares Beneficially Owned(1) |
Shares Exercisable Within 60 days |
Total
Shares Beneficially Owned |
Before the Offering |
After the Offering |
|||||||||||||||
Directors and Named Executive Officers: |
||||||||||||||||||||
Rick D. Anderson(4) |
10,307,871 | | 10,307,871 | 14.7 | % | % | ||||||||||||||
Casper L. de Clercq(5) |
8,995,937 | | 8,995,937 | 12.8 | % | % | ||||||||||||||
Mark Fletcher(6) |
4,793,107 | | 4,793,107 | 6.8 | % | % | ||||||||||||||
Dana G. Mead, Jr.(3) |
14,194,364 | | 14,194,364 | 20.3 | % | % | ||||||||||||||
Frederic H. Moll, MD |
1,104,721 | 148,333 | 1,253,054 | 1.8 | % | % | ||||||||||||||
Casey M. Tansey(2) |
15,901,740 | | 15,901,740 | 22.7 | % | % | ||||||||||||||
Lisa D. Earnhardt(7) |
3,004,203 | 935,000 | 3,939,203 | 5.6 | % | % | ||||||||||||||
Richard E. Kaufman(8) |
896,760 | 114,000 | 1,010,760 | 1.4 | % | % | ||||||||||||||
Robert H. Binney, Jr. |
17,411 | 630,000 | 647,411 | * | % | |||||||||||||||
All directors and named executive officers as a group (12 persons)(9) |
59,338,977 | 3,767,217 | 63,106,194 | 85.5 | % | % |
* | Represents beneficial ownership of less than one percent of the outstanding common stock, adjusted for the automatic conversion of all outstanding shares of convertible preferred stock into 62,815,648 shares of common stock upon the completion of this offering. |
(1) | Represents shares of common stock held by such individuals. Includes shares held in the beneficial owners name or jointly with others, or in the name of a bank, nominee or trustee for the beneficial owners account. |
(2) | Presidio Management Group IX, L.L.C., or PMG IX, is the general partner of U.S. Venture Partners IX, L.P., or USVP IX, and may be deemed to have sole voting and dispositive power over the shares held by USVP IX. Casey M. Tansey, one of our directors, and each of Irwin Federman, Steven M. Krausz, David E. Liddle, Paul A. Matteucci, Jonathan D. Root, and Philip M. Young are managing members of PMG IX, and may be deemed to share voting and dispositive power over the shares held by USVP IX. Such persons and entities disclaim beneficial ownership of shares held by USVP IX, except to the extent of any proportionate pecuniary interest therein. |
(3) | Shares beneficially owned consist of (a) 12,448,937 shares held by Kleiner Perkins Caufield & Byers XI-A, L.P., or KPCB XI-A, (b) 289,085 shares held by Kleiner Perkins Caufield & Byers XI-B, L.P., or KPCB XI-B, and (c) 1,456,342 shares held by individuals and entities associated with Kleiner Perkins Caufield & Byers. All shares are held for convenience in the name of KPCB Holdings, Inc. as nominee, for the accounts of such individuals and entities who each exercise their own voting and dispositive power over such shares. The general partner of KPCB XI-A and KPCB XI-B is KPCB XI Associates, LLC. Brook H. Byers, L. John Doerr, Raymond J. Lane and Theodore E. Schlein, the managers of KPCB XI Associates, exercise shared voting and dispositive power over the shares directly held by KPCB XI-A and KPCB XI-B. |
(4) | Pinto Technology Ventures GP II, L.P., or PTV GP II, is the general partner of PTV Sciences II, L.P., or PTVS II. Pinto TV GP Company LLC, or TV GP, is the general partner of PTV GP II. Each of Matthew Crawford and Rick Anderson, one of our directors, is a manager of TV GP and may be deemed to have beneficial ownership of the shares held by PTVS II. Such persons and entities disclaim beneficial ownership of shares held by PTVS II, except to the extent of any proportionate pecuniary interest therein. |
(5) | Shares beneficially owned consist of shares held by Norwest Venture Partners XI, L.P., or NVP XI. Genesis VC Partners XI, LLC, or Genesis XI, is the general partner of NVP XI and may be deemed to have sole voting and dispositive power over the shares held by NVP XI. NVP Associates, LLC, and each of Promod Haque, Jeffrey Crowe and Matthew Howard, the managing members of Genesis XI may be deemed to share voting and dispositive power over the shares held by NVP XI. Such persons and entities disclaim beneficial ownership of shares held by NVP XI, except to the extent of any proportionate pecuniary interest therein. |
(6) | Shares beneficially owned consist of shares held by Medtronic, Inc. Mr. Fletcher, President of Surgical Technologies of Medtronic, Inc. may be deemed to share voting and investment power with respect to the shares held by Medtronic. Mr. Fletcher disclaims beneficial ownership of these shares except to the extent of his pecuniary interest therein. |
(7) | Shares beneficially owned consist of (a) 2,917,537 shares of common stock held directly by Ms. Earnhardt of which 594,899 shares may be repurchased by us at the original exercise price within 60 days of March 31, 2014, and (b) 86,666 shares of common stock held by Ms. Earnhardt as custodian for her son. |
(8) | Shares beneficially owned consist of (a) 831,561 shares of common stock of which 98,230 shares may be repurchased by us at the original exercise price within 60 days of March 31, 2014, and (b) 65,199 shares of convertible preferred stock. |
(9) | Consists of (a) 5,145,958 shares held by the current directors and executive officers, of which 693,129 shares may be repurchased by us at the original exercise price within 60 days of March 31, 2014, and (b) 54,193,019 shares held by entities affiliated with certain of our directors. |
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Capital Structure
The following description of our capital stock and certain provisions of our amended and restated certificate of incorporation and amended and restated bylaws are summaries and are qualified by reference to the amended and restated certificate of incorporation and the amended and restated bylaws that will be in effect upon the closing of this offering. Copies of these documents will be filed with the SEC as exhibits to our registration statement, of which this prospectus forms a part. The descriptions of our common stock and convertible preferred stock reflect changes to our capital structure that will occur upon the closing of this offering.
General
Upon the closing of this offering, our authorized capital stock will consist of 260,000,000 shares, all with a par value of $0.001 per share, of which:
| 250,000,000 shares are designated as common stock; and |
| 10,000,000 shares are designated as preferred stock. |
Common stock
As of March 31, 2014, after giving effect to the conversion of all outstanding shares of convertible preferred stock into 62,815,648 shares of common stock immediately prior to the closing of this offering, we had outstanding 70,007,428 shares of common stock held of record by 90 stockholders.
Voting Rights. Each holder of our common stock is entitled to one vote for each share of common stock held on all matters submitted to a vote of stockholders, except as otherwise expressly provided in our amended and restated certificate of incorporation or required by applicable law. Cumulative voting for the election of directors is not provided for in our amended and restated certificate of incorporation, which means that the holders of a majority of our shares of common stock can elect all of the directors then standing for election.
Dividends and Distributions. Subject to preferences that may apply to any shares of convertible preferred stock outstanding at the time, the holders of outstanding shares of our common stock are entitled to receive dividends out of funds legally available at the times and in the amounts that our board of directors may determine.
Liquidation Rights. Upon our liquidation, dissolution or winding-up, the assets legally available for distribution to our stockholders would be distributable ratably among the holders of our common stock and any participating convertible preferred stock outstanding at that time after payment of liquidation preferences, if any, on any outstanding shares of convertible preferred stock and payment of other claims of creditors.
The rights, preferences, and privileges of holders of our common stock are subject to, and may be adversely affected by, the rights of holders of shares of any series of convertible preferred stock that we may designate and issue in the future.
Preemptive or Similar Rights. Our common stock is not entitled to preemptive rights and is not subject to conversion, redemption or sinking fund provisions.
Convertible Preferred Stock
As of March 31, 2014, there were 62,815,648 shares of our convertible preferred stock outstanding. Immediately prior to the closing of this offering, all outstanding shares of our convertible preferred stock will convert into 62,815,648 shares of our common stock.
Upon the closing of this offering, our board of directors may, without further action by our stockholders, fix the rights, preferences, privileges and restrictions of up to an aggregate of 10,000,000 shares of preferred stock in one or more series and authorize their issuance. These rights, preferences and privileges could include dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences, sinking fund terms and the number of shares constituting any series or the designation of such series, any or all of which may be greater than
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the rights of our common stock. The issuance of our preferred stock could adversely affect the voting power of holders of our common stock and the likelihood that these holders will receive dividend payments and payments upon liquidation. In addition, the issuance of preferred stock could have the effect of delaying, deferring or preventing a change of control or other corporate action. Upon the closing of this offering, no shares of preferred stock will be outstanding, and we have no present plan to issue any shares of preferred stock.
Warrants
As of March 31, 2014, we had warrants to purchase an aggregate of 190,217 shares of our Series A convertible preferred stock outstanding with an exercise price of $0.92 per share. Unless earlier exercised, these warrants will expire in November 2017. Upon the closing of this offering, these warrants will become exercisable for 190,217 shares of our common stock with an exercise price of $0.92 per share.
As of March 31, 2014, we had a warrant to purchase an aggregate of up to 81,254 shares of our Series D convertible preferred stock outstanding with an exercise price of $1.72 per share. As of March 31, 2014, the warrant was exercisable for 23,215 shares of our Series D convertible preferred stock and may become exercisable for additional shares if we make draw downs under our credit facility. Unless earlier exercised, these warrants will expire in August 2023. Upon the closing of this offering, these warrants will become exercisable for up to 81,254 shares of our common stock with an exercise price of $1.72 per share.
Registration Rights
We are party to an investor rights agreement that provides that holders of our convertible preferred stock and certain holders of common stock that received the common stock upon conversion of convertible preferred stock have certain registration rights. This investor rights agreement was entered into in March 2006 and has been amended or amended and restated from time to time in connection with our convertible preferred stock financings. The registration of shares of our common stock pursuant to the exercise of registration rights described below would enable the holders who have these rights to sell these shares without restriction under the Securities Act when the applicable registration statement is declared effective. We will pay the registration expenses, other than underwriting discounts and commissions, of the shares registered pursuant to the demand, piggyback and Form S-3 registrations described below.
Generally, in an underwritten offering, the managing underwriter, if any, has the right, subject to specified conditions and limitations, to limit the number of shares the registration rights holders participating in any offering may include in any particular registration. The demand, piggyback and Form S-3 registration rights described below will expire on the earlier of (1) the date that is five years after the closing of this offering or (2) with respect to each stockholder following the closing of this offering, at such time as such stockholder can sell all of its shares pursuant to Rule 144 of the Securities Act during any three month period.
Demand registration rights. The holders of an aggregate of 63,087,119 shares of our common stock (including shares previously issued upon conversion of convertible preferred stock, shares issuable upon conversion of outstanding convertible preferred stock and shares issuable upon conversion of shares of convertible preferred stock issuable upon the exercise or, in certain cases, net exercise of outstanding warrants) are entitled to certain demand registration rights. At any time beginning six months after the closing of this offering, the holders of not less than 30% of these shares may, on not more than two occasions, request that we file a registration statement having an aggregate offering price to the public of not less than $10,000,000 to register at least 20% of their shares.
Piggyback registration rights. In connection with this offering, the holders of an aggregate of 63,087,119 shares of our common stock previously issued upon conversion of convertible preferred stock and common stock issuable upon conversion of outstanding convertible preferred stock and shares of convertible preferred stock issuable upon the exercise or, in certain cases, net exercise of outstanding warrants, were entitled to, and the necessary percentage of holders waived, rights to include their shares of registrable securities in this offering. In the event that we propose to register any of our securities under the Securities Act, either for our own account or for the account of other security holders, the holders of these shares will be entitled to certain piggyback registration rights allowing them to include their shares in such registration, subject to certain marketing and
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other limitations. As a result, whenever we propose to file a registration statement under the Securities Act other than with respect to a demand registration or a registration statement on Form S-3, S-4 or S-8, the holders of these shares are entitled to notice of the registration and have the right, subject to limitations that the underwriters may impose on the number of shares included in the registration, to include their shares in the registration.
Form S-3 registration rights. The holders of an aggregate of 63,087,119 shares of our common stock previously issued upon conversion of convertible preferred stock and common stock issuable upon conversion of outstanding convertible preferred stock and shares of convertible preferred stock issuable upon the exercise or, in certain cases, net exercise of outstanding warrants will be entitled to certain Form S-3 registration rights. Such holders may make a request that we register their shares on Form S-3 if we are qualified to file a registration statement on Form S-3.
Anti-Takeover Provisions
Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws
Because our stockholders do not have cumulative voting rights, our stockholders holding a majority of the voting power of our shares of common stock outstanding will be able to elect all of our directors. Our amended and restated certificate of incorporation and amended and restated bylaws to be effective upon the closing of this offering will provide that all stockholder actions must be effected at a duly called meeting of stockholders and not by consent in writing. A special meeting of stockholders may be called only by a majority of our whole board of directors, the chair of our board of directors, or our chief executive officer.
Our amended and restated certificate of incorporation will further provide that, immediately after this offering, the affirmative vote of holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then outstanding shares of voting stock, voting as a single class, will be required to amend certain provisions of our certificate of incorporation, including provisions relating to the size of the board, removal of directors, special meetings, actions by written consent and cumulative voting. The affirmative vote of holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then outstanding shares of voting stock, voting as a single class, will be required to amend or repeal our bylaws, although our bylaws may be amended by a simple majority vote of our board of directors.
The foregoing provisions will make it more difficult for our existing stockholders to replace our board of directors as well as for another party to obtain control of our company by replacing our board of directors. Since our board of directors has the power to retain and discharge our officers, these provisions could also make it more difficult for existing stockholders or another party to effect a change in management. In addition, the authorization of undesignated preferred stock makes it possible for our board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to change the control of our company.
These provisions are intended to enhance the likelihood of continued stability in the composition of our board of directors and its policies and to discourage certain types of transactions that may involve an actual or threatened acquisition of our company. These provisions are also designed to reduce our vulnerability to an unsolicited acquisition proposal and to discourage certain tactics that may be used in proxy rights. However, these provisions could have the effect of discouraging others from making tender offers for our shares and may have the effect of deterring hostile takeovers or delaying changes in control of our company or our management. As a consequence, these provisions also may inhibit fluctuations in the market price of our stock that could result from actual or rumored takeover attempts.
Section 203 of the Delaware General Corporation Law
We are subject to Section 203 of the Delaware General Corporation Law, which prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years after the date that such stockholder became an interested stockholder, with the following exceptions:
| before such date, the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; |
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| upon closing of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction began, excluding for purposes of determining the voting stock outstanding (but not the outstanding voting stock owned by the interested stockholder) those shares owned by (1) persons who are directors and also officers and (2) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or |
| on or after such date, the business combination is approved by the board of directors and authorized at an annual or special meeting of the stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock that is not owned by the interested stockholder. |
In general, Section 203 defines business combination to include the following:
| any merger or consolidation involving the corporation and the interested stockholder; |
| any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving the interested stockholder; |
| subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder; |
| any transaction involving the corporation that has the effect of increasing the proportionate share of the stock or any class or series of the corporation beneficially owned by the interested stockholder; or |
| the receipt by the interested stockholder of the benefit of any loss, advances, guarantees, pledges or other financial benefits by or through the corporation. |
In general, Section 203 defines an interested stockholder as an entity or person who, together with the persons affiliates and associates, beneficially owns, or within three years prior to the time of determination of interested stockholder status did own, 15% or more of the outstanding voting stock of the corporation.
Limitations on Liability and Indemnification
See the section of this prospectus titled Executive CompensationLimitation on Liability and Indemnification.
Listing
We have applied to have our common stock listed on The Nasdaq Global Market under the trading symbol XENT.
Transfer Agent and Registrar
Upon the closing of this offering, the transfer agent and registrar for our common stock will be Computershare Trust Company, N.A.
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SHARES ELIGIBLE FOR FUTURE SALE
Future sales of our common stock in the public market, or the availability of such shares for sale in the public market, could adversely affect market prices prevailing from time to time. As described below, only a limited number of shares will be available for sale shortly after this offering due to contractual and legal restrictions on resale. Nevertheless, sales of our common stock in the public market after such restrictions lapse, or the perception that those sales may occur, could adversely affect the prevailing market price at such time and our ability to raise equity capital in the future.
Based on the number of shares outstanding as of March 31, 2014, and after giving effect to the conversion of our outstanding convertible preferred stock into an aggregate of 62,815,648 shares of common stock upon the completion of this offering, shares of common stock will be outstanding, or shares of common stock if the underwriters exercise their option to purchase additional shares in full. All of the shares sold in this offering will be freely tradable unless purchased by our affiliates, as that term is defined in Rule 144 under the Securities Act. The remaining outstanding shares of our common stock will be restricted securities as that term is defined under Rule 144 of the Securities Act.
As a result of the lock-up agreements and the provisions of Rules 144 and 701 under the Securities Act, the shares of common stock that will be deemed restricted securities after this offering will be available for sale in the public market as follows:
| no shares will be available for sale until 180 days after the date of this prospectus, subject to certain limited exceptions provided for in the lock-up agreements; and |
| shares will be eligible for sale beginning more than 180 days after the date of this prospectus, subject, in the case of shares held by our affiliates, to the volume limitations under Rule 144. |
Rule 144
In general, under Rule 144, beginning 90 days after the date of this prospectus, a person who has beneficially owned restricted shares for at least six months would be entitled to sell those securities provided that (1) such person is not deemed to have been one of our affiliates at the time of, or at any time during the 90 days preceding, a sale and (2) we have been subject to the Exchange Act periodic reporting requirements for at least 90 days before the sale and are current in filing our periodic reports. Persons who have beneficially owned restricted shares of common stock for at least six months but who are our affiliates at the time of, or any time during the 90 days preceding, a sale, would be subject to additional restrictions, by which such person would be entitled to sell within any three-month period only a number of securities that does not exceed 1% of the number of our common stock then outstanding, which will equal approximately shares immediately after this offering, based on the number of shares of common stock outstanding as of March 31, 2014. Such sales by affiliates must also comply with the manner of sale and notice provisions of Rule 144 and to the availability of current public information about us.
Rule 701
Rule 701 under the Securities Act, as in effect on the date of this prospectus, permits resales of shares in reliance upon Rule 144 but without compliance with certain restrictions of Rule 144, including the holding period requirement. Most of our employees, executive officers or directors who purchased shares under a written compensatory plan or contract may be entitled to rely on the resale provisions of Rule 701, but all holders of Rule 701 shares are required to wait until 90 days after the date of this prospectus before selling their shares. However, substantially all Rule 701 shares are subject to lock-up agreements as described below and will become eligible for sale upon the expiration of the restrictions set forth in those agreements.
Lock-Up Agreements
We, our executive officers and directors and all of our stockholders have agreed, with certain limited exceptions, that for a period of 180 days from the date of this prospectus, we and they will not, without the prior
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written consent of J.P. Morgan Securities LLC and Piper Jaffray & Co., dispose of or hedge any shares or any securities convertible into or exchangeable for our common stock. J.P. Morgan Securities LLC and Piper Jaffray & Co. in their sole discretion may release any of the securities subject to these lock-up agreements at any time. These agreements are described in the section of this prospectus captioned Underwriting.
J.P. Morgan Securities LLC and Piper Jaffray & Co. have advised us that they have no present intent or arrangement to release any common stock subject to a lock-up, and will consider the release of any lock-up on a case-by-case basis. Upon a request to release any shares of common stock subject to a lock-up, J.P. Morgan Securities LLC and Piper Jaffray & Co. would consider the particular circumstances surrounding the request, including, but not limited to, the length of time before the lock-up expires, the number of shares of common stock requested to be released, the reasons for the request, the possible impact on the market for our common stock and whether the holder of our common stock requesting the release is an officer, director or other affiliate of ours.
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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
TO NON-U.S. HOLDERS
The following is a discussion of the material U.S. federal income tax considerations applicable to non-U.S. holders (as defined below) with respect to their ownership and disposition of shares of our common stock issued pursuant to this offering, but does not purport to be a complete analysis of all potential tax effects. All prospective non-U.S. holders of our common stock should consult their own tax advisors with respect to the U.S. federal income tax consequences of the purchase, ownership and disposition of our common stock, as well as any consequences arising under the laws of any other taxing jurisdiction, including any state, local and non-U.S. tax consequences and any U.S. federal non-income tax consequences. In general, a non-U.S. holder means a beneficial owner of our common stock (other than a partnership or an entity or arrangement treated as a partnership for U.S. federal income tax purposes) that is not, for U.S. federal income tax purposes:
| an individual who is a citizen or resident of the United States; |
| a corporation, or an entity treated as a corporation for U.S. federal income tax purposes, created or organized in the United States or under the laws of the United States or of any state thereof or the District of Columbia; |
| an estate, the income of which is subject to U.S. federal income tax regardless of its source; or |
| a trust if (1) a U.S. court can exercise primary supervision over the trusts administration and one or more U.S. persons have the authority to control all of the trusts substantial decisions or (2) the trust has a valid election in effect under applicable U.S. Treasury Regulations to be treated as a U.S. person. |
This discussion is based on current provisions of the U.S. Internal Revenue Code of 1986, as amended, which we refer to as the Code, existing U.S. Treasury Regulations promulgated thereunder, published administrative rulings and judicial decisions, all as in effect as of the date of this prospectus. These laws are subject to change and to differing interpretation, possibly with retroactive effect. Any change or differing interpretation could alter the tax consequences to non-U.S. holders described in this prospectus.
This discussion is limited to non-U.S. holders that hold shares of our common stock as a capital asset within the meaning of Section 1221 of the Code (generally, for investment). This discussion does not address all aspects of U.S. federal income taxation that may be relevant to a particular non-U.S. holder in light of that non-U.S. holders individual circumstances, nor does it address any aspects of U.S. estate or gift tax, or any state, local or non-U.S. taxes. This discussion also does not consider any specific facts or circumstances that may apply to a non-U.S. holder and does not address the special tax rules applicable to particular non-U.S. holders, such as holders that own, or are deemed to own, more than 5% of our capital stock (except to the extent specifically set forth below), corporations that accumulate earnings to avoid U.S. federal income tax, tax-exempt organizations, banks, financial institutions, insurance companies, brokers, dealers or traders in securities, commodities or currencies, tax-qualified retirement plans, holders subject to the alternative minimum tax or Medicare contribution tax, holders who hold or receive our common stock pursuant to the exercise of employee stock options or otherwise as compensation, holders holding our common stock as part of a hedge, straddle or other risk reduction strategy, conversion transaction or other integrated investment, holders deemed to sell our common stock under the constructive sale provisions of the Code, controlled foreign corporations, passive foreign investment companies, corporations that accumulate earnings to avoid U.S. federal income tax, and U.S. expatriates and certain former citizens or long-term residents of the United States.
In addition, this discussion does not address the tax treatment of partnerships (or entities or arrangements that are treated as partnerships for U.S. federal income tax purposes) or persons that hold their common stock through such partnerships or such entities or arrangements. If a partnership, including any entity or arrangement treated as a partnership for U.S. federal income tax purposes, holds shares of our common stock, the U.S. federal income tax treatment of a partner in such partnership will generally depend upon the status of the partner, the activities of the partnership and certain determinations made at the partner level. Such partners and partnerships should consult their own tax advisors regarding the tax consequences of the purchase, ownership and disposition of our common stock.
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There can be no assurance that the Internal Revenue Service, which we refer to as the IRS, will not challenge one or more of the tax consequences described herein, and we have not obtained, nor do we intend to obtain, a ruling with respect to the U.S. federal income tax consequences with respect to the matters discussed below.
Distributions on Our Common Stock
Distributions, if any, on our common stock generally will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. If a distribution exceeds our current and accumulated earnings and profits, the excess will be treated as a tax-free return of the non-U.S. holders investment, up to such holders adjusted tax basis in the common stock. Any remaining excess will be treated as capital gain from the sale or exchange of such common stock, subject to the tax treatment described below in Gain on Sale, Exchange or Other Disposition of Our Common Stock.
Subject to the discussion below regarding backup withholding and foreign accounts, dividends paid to a non-U.S. holder will generally be subject to withholding of U.S. federal income tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. A non-U.S. holder that is eligible for a reduced rate of U.S. withholding tax under an income tax treaty may obtain a refund or credit of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS. A non-U.S. holder of our common stock who claims the benefit of an applicable income tax treaty generally will be required to provide a properly executed IRS Form W-8BEN (or successor form) and satisfy relevant certification and other requirements. Non-U.S. holders are urged to consult their tax advisors regarding their entitlement to benefits under a relevant income tax treaty.
Dividends that are treated as effectively connected with a trade or business conducted by a non-U.S. holder within the United States and, if an applicable income tax treaty so provides, that are attributable to a permanent establishment or a fixed base maintained by the non-U.S. holder within the United States, are generally exempt from the 30% withholding tax if the non-U.S. holder satisfies applicable certification and disclosure requirements. To claim the exemption, the non-U.S. holder must furnish to us or our paying agent a valid IRS Form W-8ECI (or applicable successor form), certifying that the dividends are effectively connected with the non-U.S. holders conduct of a trade or business within the United States. However, such U.S. effectively connected income, net of specified deductions and credits, is taxed at the same graduated U.S. federal income tax rates applicable to U.S. persons (as defined in the Code), unless a specific treaty exemption applies. Any U.S. effectively connected income received by a non-U.S. holder that is a corporation may also, under certain circumstances, be subject to an additional branch profits tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty.
Gain on Sale, Exchange or Other Disposition of Our Common Stock
Subject to the discussion below regarding backup withholding and foreign accounts, in general, a non-U.S. holder will not be subject to any U.S. federal income tax on any gain realized upon such holders sale, exchange or other disposition of shares of our common stock unless:
| the gain is effectively connected with a U.S. trade or business of the non-U.S. holder and, if an applicable income tax treaty so provides, is attributable to a permanent establishment or a fixed base maintained in the United States by such non-U.S. holder, in which case the non-U.S. holder generally will be taxed at the graduated U.S. federal income tax rates applicable to U.S. persons (as defined in the Code) and, if the non-U.S. holder is a foreign corporation, the branch profits tax described above in Distributions on Our Common Stock may also apply; |
| the non-U.S. holder is a nonresident alien individual who is present in the United States for 183 days or more in the taxable year of the disposition and certain other conditions are met, in which case the non-U.S. holder will be subject to a 30% tax (or such lower rate as may be specified by an applicable income tax treaty) on the net gain derived from the disposition, which may be offset by U.S. source capital losses of the non-U.S. holder, if any (even though the individual is not considered a resident of |
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the United States) provided the non-U.S. holder has timely filed U.S. federal income tax returns with respect to such losses; or |
| our common stock constitutes a U.S. real property interest because we are, or have been, at any time during the five-year period preceding such disposition (or the non-U.S. holders holding period, if shorter) a U.S. real property holding corporation. Even if we are or become a U.S. real property holding corporation, provided that our common stock is regularly traded on an established securities market, our common stock will be treated as a U.S. real property interest only with respect to a non-U.S. holder that holds more than 5% of our outstanding common stock, directly or indirectly, actually or constructively, during the shorter of the 5-year period ending on the date of the disposition or the period that the non-U.S. holder held our common stock. In such case, such non-U.S. holder generally will be taxed on its net gain derived from the disposition at the graduated U.S. federal income tax rates applicable to U.S. persons (as defined in the Code). Generally, a corporation is a U.S. real property holding corporation only if the fair market value of its U.S. real property interests equals or exceeds 50% of the sum of the fair market value of its worldwide real property interests plus its other assets used or held for use in a trade or business. Although there can be no assurance, we do not believe that we are, or have been, a U.S. real property holding corporation, or that we are likely to become one in the future. No assurance can be provided that our common stock will be regularly traded on an established securities market for purposes of the rules described above. |
Backup Withholding and Information Reporting
We must report annually to the IRS and to each non-U.S. holder the gross amount of the dividends on our common stock paid to such holder and the tax withheld, if any, with respect to such dividends. Non-U.S. holders will have to comply with specific certification procedures to establish that the holder is not a U.S. person (as defined in the Code) in order to avoid backup withholding at the applicable rate with respect to dividends on our common stock. U.S. backup withholding generally will not apply to a Non-U.S. holder who provides a properly executed IRS Form W-8BEN or otherwise establishes an exemption.
Information reporting and backup withholding will generally apply to the proceeds of a disposition of our common stock by a non-U.S. holder effected by or through the U.S. office of any broker, U.S. or foreign, unless the holder certifies its status as a non-U.S. holder and satisfies certain other requirements, or otherwise establishes an exemption. Generally, information reporting and backup withholding will not apply to a payment of disposition proceeds to a non-U.S. holder where the transaction is effected outside the United States through a non-U.S. office of a broker. However, for information reporting purposes, dispositions effected through a non-U.S. office of a broker with substantial U.S. ownership or operations generally will be treated in a manner similar to dispositions effected through a U.S. office of a broker. Non-U.S. holders should consult their own tax advisors regarding the application of the information reporting and backup withholding rules to them.
Copies of information returns may be made available to the tax authorities of the country in which the non-U.S. holder resides or is incorporated under the provisions of a specific treaty or agreement.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules from a payment to a non-U.S. holder may be allowed as a credit against the non-U.S. holders U.S. federal income tax liability, if any, and may entitle such holder to a refund, provided that the required information is timely furnished to the IRS.
Foreign Accounts
The Code generally imposes a U.S. federal withholding tax of 30% on dividends and the gross proceeds of a disposition of our common stock paid to a foreign financial institution or a non-financial foreign entity (as specifically defined for this purpose), unless (1) the foreign financial institution undertakes certain diligence and reporting obligations, (2) the non-financial foreign entity either certifies it does not have any substantial United States owners (as defined in the Code) or furnishes identifying information regarding each substantial United States owner, or (3) the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from these rules. If the foreign financial institution is subject to the diligence and reporting
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requirements, such institution must enter into an agreement with the U.S. government to, among other things, withhold on certain payments and to collect and provide to the U.S. tax authorities substantial information regarding U.S. account holders of such institution (which may include certain equity and debt holders of such institution, as well as certain account holders that are foreign entities with U.S. owners). Foreign financial institutions located in jurisdictions that have an intergovernmental agreement with the United States governing these withholding and reporting requirements may be subject to different rules. This U.S. federal withholding tax of 30% also applies to dividends and the gross proceeds of a disposition of our common stock paid to a non-financial foreign entity, unless such entity provides the withholding agent with either a certification that it does not have any substantial direct or indirect U.S. owners or provides information regarding substantial direct and indirect U.S. owners of the entity. The withholding tax described above will not apply if the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from the rules. The withholding provisions described above will generally apply to dividends on our common stock paid on or after July 1, 2014, and with respect to gross proceeds of a sale or other disposition of our common stock on or after January 1, 2017. Under certain circumstances, a non-U.S. holder might be eligible for refunds or credits of such taxes. Non-U.S. holders are encouraged to consult with their own tax advisors regarding the possible implications of the legislation on their investment in our common stock.
EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE TAX CONSEQUENCES OF PURCHASING, HOLDING AND DISPOSING OF OUR COMMON STOCK, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLE LAW, AS WELL AS TAX CONSEQUENCES ARISING UNDER ANY STATE, LOCAL, NON-U.S. OR U.S. FEDERAL NON-INCOME TAX LAWS.
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We are offering the shares of common stock described in this prospectus through a number of underwriters. J.P. Morgan Securities LLC and Piper Jaffray & Co. are acting as joint bookrunning managers of the offering and as representatives of the underwriters. We have entered into an underwriting agreement with the underwriters. Subject to the terms and conditions of the underwriting agreement, we have agreed to sell to the underwriters, and each underwriter has severally agreed to purchase, at the public offering price less the underwriting discounts and commissions set forth on the cover page of this prospectus, the number of shares of common stock listed next to its name in the following table:
Name |
Number of Shares | |
J.P. Morgan Securities LLC |
||
Piper Jaffray & Co. |
||
Leerink Partners LLC |
||
Wedbush Securities Inc. |
||
| ||
Total |
||
|
The underwriters are committed to purchase all the common stock offered by us if they purchase any shares. The underwriting agreement also provides that if an underwriter defaults, the purchase commitments of non-defaulting underwriters may also be increased or the offering may be terminated.
The underwriters propose to offer the common stock directly to the public at the initial public offering price set forth on the cover page of this prospectus and to certain dealers at that price less a concession not in excess of $ per share. Any such dealers may resell shares to certain other brokers or dealers at a discount of up to $ per share from the initial public offering price. After the initial public offering of the shares, the offering price and other selling terms may be changed by the underwriters. Sales of shares made outside of the United States may be made by affiliates of the underwriters.
The underwriters have an option to purchase up to additional shares of common stock from us to cover sales of shares by the underwriters which exceed the number of shares specified in the table above. The underwriters have 30 days from the date of this prospectus to exercise this option to purchase additional shares. If any shares are purchased with this option to purchase additional shares, the underwriters will purchase shares in approximately the same proportion as shown in the table above. If any additional shares of common stock are purchased, the underwriters will offer the additional shares on the same terms as those on which the shares are being offered.
The underwriting fee is equal to the public offering price per share of common stock less the amount paid by the underwriters to us per share of common stock. The underwriting fee is $ per share. The following table shows the per share and total underwriting discounts and commissions to be paid to the underwriters assuming both no exercise and full exercise of the underwriters option to purchase additional shares.
Without exercise of option to purchase additional shares exercise |
With
full exercise of option to purchase additional shares exercise |
|||||||
Per Share |
$ | $ | ||||||
Total |
$ | $ |
We estimate that the total expenses of this offering, including registration, filing and listing fees, printing fees and legal and accounting expenses, but excluding the underwriting discounts and commissions, will be approximately $ .
A prospectus in electronic format may be made available on the websites maintained by one or more underwriters, or selling group members, if any, participating in the offering. The underwriters may agree to
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allocate a number of shares to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the representatives to underwriters and selling group members that may make Internet distributions on the same basis as other allocations.
We have agreed that we will not (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, or file with the Securities and Exchange Commission a registration statement under the Securities Act of 1933, or the Securities Act, relating to, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, or publicly disclose the intention to make any offer, sale, pledge, disposition or filing, or (2) enter into any swap or other agreement that transfers all or a portion of the economic consequences associated with the ownership of any shares of common stock or any such other securities (regardless of whether any of these transactions are to be settled by the delivery of shares of common stock or such other securities, in cash or otherwise), in each case without the prior written consent of J.P. Morgan Securities LLC and Piper Jaffray & Co. for a period of 180 days after the date of this prospectus.
Our directors and executive officers and all holders of our common stock and securities exercisable for or convertible into our common stock outstanding immediately prior to this offering have entered into lock-up agreements with the underwriters prior to the commencement of this offering pursuant to which each of these persons or entities, with limited exceptions, for a period of 180 days after the date of this prospectus, may not, without the prior written consent of J.P. Morgan Securities LLC and Piper Jaffray & Co., (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of our common stock or any securities convertible into or exercisable or exchangeable for our common stock (including, without limitation, common stock or such other securities which may be deemed to be beneficially owned by such directors, executive officers, managers and members in accordance with the rules and regulations of the SEC and securities which may be issued upon exercise of a stock option or warrant) or publicly disclose the intention to make any offer, sale, pledge or disposition, or (2) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of our common stock or such other securities, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of common stock or such other securities, in cash or otherwise, or (3) make any demand for or exercise any right with respect to the registration of any shares of our common stock or any security convertible into or exercisable or exchangeable for our common stock.
In the case of our directors, executive officers and holders of our common stock, subject to certain qualifications, the foregoing restrictions shall not apply to:
| transfers of shares of our common stock or any securities convertible into or exercisable or exchangeable for common stock (1) to any relationship by blood, marriage, domestic partnership or adoption, no more remote than a first cousin, or a trust formed for the exclusive benefit of the security holder or an immediate family member in a transaction not involving a distribution for value, (2) by bona fide gift, will or intestacy, (3) that occurs by operation of law, such as rules of descent and distribution, or pursuant to a qualified domestic order or in connection with a divorce settlement, (4) if the security holder is a corporation, partnership or other business entity, to an Affiliate (as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, or the Exchange Act), in a transaction not involving a distribution for value, or (5) if the security holder is a trust, to a trustor or beneficiary of the trust or (6) to the security holders estate; |
| distributions of shares of our common stock or any securities convertible into or exercisable or exchangeable for our common stock to members, partners or stockholders of the security holder; |
| shares of our common stock or securities convertible into or exercisable or exchangeable for our common stock acquired in open market transactions after the completion of this offering; |
| entering into a written plan pursuant to Rule 10b5-1 under the Exchange Act; or |
| the cash exercise of options to purchase shares of our common stock and the net or cashless exercise of options to purchase shares of our common stock and the transfer of our common stock to us upon the exercise of any options to cover tax withholding obligations in connection with such exercise. |
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We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act.
We will apply to have our common stock approved for listing on The Nasdaq Global Market under the symbol XENT.
In connection with this offering, the underwriters may engage in stabilizing transactions, which involves making bids for, purchasing and selling shares of common stock in the open market for the purpose of preventing or retarding a decline in the market price of the common stock while this offering is in progress. These stabilizing transactions may include making short sales of the common stock, which involves the sale by the underwriters of a greater number of shares of common stock than they are required to purchase in this offering, and purchasing shares of common stock on the open market to cover positions created by short sales. Short sales may be covered shorts, which are short positions in an amount not greater than the underwriters option to purchase additional shares referred to above, or may be naked shorts, which are short positions in excess of that amount. The underwriters may close out any covered short position either by exercising their option to purchase additional shares, in whole or in part, or by purchasing shares in the open market. In making this determination, the underwriters will consider, among other things, the price of shares available for purchase in the open market compared to the price at which the underwriters may purchase shares through the option to purchase additional shares. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market that could adversely affect investors who purchase in this offering. To the extent that the underwriters create a naked short position, they will purchase shares in the open market to cover the position.
The underwriters have advised us that, pursuant to Regulation M of the Securities Act, they may also engage in other activities that stabilize, maintain or otherwise affect the price of the common stock, including the imposition of penalty bids. This means that if the representatives of the underwriters purchase common stock in the open market in stabilizing transactions or to cover short sales, the representatives can require the underwriters that sold those shares as part of this offering to repay the underwriting discount received by them.
These activities may have the effect of raising or maintaining the market price of the common stock or preventing or retarding a decline in the market price of the common stock, and, as a result, the price of the common stock may be higher than the price that otherwise might exist in the open market. If the underwriters commence these activities, they may discontinue them at any time. The underwriters may carry out these transactions on The Nasdaq Global Market, in the over-the-counter market or otherwise.
Prior to this offering, there has been no public market for our common stock. The initial public offering price will be determined by negotiations between us and the representatives of the underwriters. In determining the initial public offering price, we and the representatives of the underwriters expect to consider a number of factors including:
| the information set forth in this prospectus and otherwise available to the representatives; |
| our prospects and the history and prospects for the industry in which we compete; |
| an assessment of our management; |
| our prospects for future earnings; |
| the general condition of the securities markets at the time of this offering; |
| the recent market prices of, and demand for, publicly traded common stock of generally comparable companies; and |
| other factors deemed relevant by the underwriters and us. |
Neither we nor the underwriters can assure investors that an active trading market will develop for our common stock, or that the shares will trade in the public market at or above the initial public offering price.
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Relationships with Underwriters
The underwriters and their respective affiliates are full-service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities. The underwriters and their affiliates have not, during the 180-day period preceding the date of the initial filing of the Registration Statement on Form S-1 of which this prospectus forms a part, but may, in the future, provide from time to time certain commercial banking, financial advisory, investment banking and other services for us and such affiliates in the ordinary course of their business, for which they may receive customary fees and commissions. Except as disclosed in this prospectus, we have no present arrangements with any of the underwriters for any further services. In addition, from time to time, certain of the underwriters and their affiliates may effect transactions for their own account or the account of customers, and hold on behalf of themselves or their customers, long or short positions in our debt or equity securities or loans, and may do so in the future.
Selling Restrictions Outside the United States
Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the securities offered by this prospectus in any jurisdiction where action for that purpose is required. The securities offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.
This document is only being distributed to and is only directed at (1) persons who are outside the United Kingdom or (2) to investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the Order) or (3) high net worth entities, and other persons to whom it may lawfully be communicated, falling with Article 49(2)(a) to (d) of the Order (all such persons together being referred to as relevant persons). The securities are only available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such securities will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents.
Notice to Prospective Investors in the European Economic Area
In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a Relevant Member State), from and including the date on which the European Union Prospectus Directive (the EU Prospectus Directive) was implemented in that Relevant Member State (the Relevant Implementation Date) an offer of securities described in this prospectus may not be made to the public in that Relevant Member State prior to the publication of a prospectus in relation to the shares which has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the EU Prospectus Directive, except that, with effect from and including the Relevant Implementation Date, an offer of securities described in this prospectus may be made to the public in that Relevant Member State at any time:
| to any legal entity which is a qualified investor as defined under the EU Prospectus Directive; |
| to fewer than 100 or, if the Relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive, 150 natural or legal persons (other than qualified investors as defined in the EU Prospectus Directive); or |
| in any other circumstances falling within Article 3(2) of the EU Prospectus Directive, provided that no such offer of securities described in this prospectus shall result in a requirement for the publication by us of a prospectus pursuant to Article 3 of the EU Prospectus Directive. |
123
For the purposes of this provision, the expression an offer of securities to the public in relation to any securities in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the securities to be offered so as to enable an investor to decide to purchase or subscribe for the securities, as the same may be varied in that Member State by any measure implementing the EU Prospectus Directive in that Member State. The expression EU Prospectus Directive means Directive 2003/71/EC (and any amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State) and includes any relevant implementing measure in each Relevant Member State, and the expression 2010 PD Amending Directive means Directive 2010/73/EU.
Notice to Prospective Investors in the United Kingdom
Each underwriter has represented and agreed that:
| it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA) received by it in connection with the issue or sale of the shares in circumstances in which Section 21(1) of the FSMA does not apply to the Issuer; and |
| it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the shares in, from or otherwise involving the United Kingdom. |
Notice to Prospective Investors in Australia
No prospectus or other disclosure document (as defined in the Corporations Act 2001 (Cth) of Australia, or Corporations Act) in relation to the common stock has been or will be lodged with the Australian Securities & Investments Commission, or ASIC. This document has not been lodged with ASIC and is only directed to certain categories of exempt persons. Accordingly, if you receive this document in Australia:
| you confirm and warrant that you are either: |
a. | a sophisticated investor under section 708(8)(a) or (b) of the Corporations Act; |
b. | a sophisticated investor under section 708(8)(c) or (d) of the Corporations Act and that you have provided an accountants certificate to us which complies with the requirements of section 708(8)(c)(i) or (ii) of the Corporations Act and related regulations before the offer has been made; |
c. | a person associated with the company under section 708(12) of the Corporations Act; or |
d. | a professional investor within the meaning of section 708(11)(a) or (b) of the Corporations Act, and to the extent that you are unable to confirm or warrant that you are an exempt sophisticated investor, associated person or professional investor under the Corporations Act any offer made to you under this document is void and incapable of acceptance; and |
| you warrant and agree that you will not offer any of the common stock for resale in Australia within 12 months of that common stock being issued unless any such resale offer is exempt from the requirement to issue a disclosure document under section 708 of the Corporations Act. |
Notice to Prospective Investors in France
We and the underwriters have not offered or sold and will not offer or sell, directly or indirectly, shares to the public in France, and have not distributed or caused to be distributed and will not distribute or cause to be distributed to the public in France, this prospectus or any other offering material relating to the shares. Offers, sales and distributions that have been and will be made in France have been and will be made only to (a) providers of the investment service of portfolio management for the account of third parties, and (b) qualified investors (investisseurs qualifi´es), other than individuals, all as defined in, and in accordance with, Articles L. 411-1, L. 411-2, and D. 411-1 of the French Code mon´etaire et financier.
Shares may be resold directly or indirectly only in compliance with Article L. 411-1, L. 411-2, L. 412-1 and L. 621-8 to L. 621-8-3 of the French Code mon´etaire et financier.
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Neither this prospectus prepared in connection with the shares nor any other offering material relating to the shares has been submitted to the clearance procedures of the Autorit´e des march´es financiers or notified to the Autorit´e des march´es financiers by the competent authority of another member state of the European Economic Area.
Notice to Prospective Investors in Germany
The shares offered by this prospectus have not been and will not be offered to the public within the meaning of the German Securities Prospectus Act (Wertpapierprospektgesetz). No securities prospectus pursuant to the German Securities Prospectus Act has been or will be published or circulated in Germany or filed with the German Federal Financial Supervisory Authority (Bundesanstalt f¨ur Finanzdienstleistungsaufsicht). This prospectus does not constitute an offer to the public in Germany, and it does not serve for public distribution of the shares in Germany. Neither this prospectus, nor any other document issued in connection with this offering, may be issued or distributed to any person in Germany except under circumstances that do not constitute an offer to the public under the German Securities Prospectus Act. Prospective Investors should consult with their legal or tax advisor before investing into the shares.
Notice to Prospective Investors in Ireland
This prospectus and any other material in relation to the shares described herein is only being distributed in Ireland:
| in circumstances which do not require the publication of a prospectus pursuant to Article 3(2) of Directive 2003/71/EC as amended by Directive 2010/73/EC; |
| in compliance with the provisions of the Irish Companies Acts 1963-2009; and |
| in compliance with the provisions of the European Communities (Markets in Financial Instruments) Regulations 2007 (S.I. No. 60 of 2007) (as amended), and in accordance with any codes or rules of conduct and any conditions or requirements, or any other enactment, imposed or approved by the Central Bank of Ireland with respect to anything done by them in relation to the shares. |
Notice to Prospective Investors in Italy
The offering of the shares has not been registered pursuant to Italian securities legislation and, accordingly, no shares may be offered, sold or delivered, nor may copies of the prospectus or of any other document relating to the shares be distributed in the Republic of Italy, except:
1. | to qualified investors (investitori qualificati), as defined pursuant to Article 100 of Legislative Decree No. 58 of 24 February 1998, as amended (the Financial Services Act) and Article 34-ter, first paragraph, letter b) of CONSOB Regulation No. 11971 of 14 May 1999, as amended from time to time (Regulation No. 11971); or |
2. | in other circumstances which are exempted from the rules on public offerings pursuant to Article 100 of the Financial Services Act and Article 34-ter of Regulation No. 11971. |
Any offer, sale or delivery of the shares or distribution of copies of the prospectus or any other document relating to the shares in the Republic of Italy under (1) or (2) above must be:
a. | made by an investment firm, bank or financial intermediary permitted to conduct such activities in the Republic of Italy in accordance with the Financial Services Act, CONSOB Regulation No. 16190 of 29 October 2007 (as amended from time to time) and Legislative Decree No. 385 of 1 September 1993, as amended (the Banking Act); and |
b. | in compliance with Article 129 of the Banking Act, as amended, and the implementing guidelines of the Bank of Italy, as amended from time to time, pursuant to which the Bank of Italy may request information on the issue or the offer of shares in the Republic of Italy; and |
125
c. | in compliance with any other applicable laws and regulations or requirement imposed by CONSOB or other Italian authority. Please note that in accordance with Article 100-bis of the Financial Services Act, where no exemption from the rules on public offerings applies under (1) and (2) above, the subsequent distribution of the shares on the secondary market in Italy must be made in compliance with the public offer and the prospectus requirement rules provided under the Financial Services Act and Regulation No. 11971. Failure to comply with such rules may result in the sale of such shares being declared null and void and in the liability of the intermediary transferring the shares for any damages suffered by the investors. |
Notice to Prospective Investors in the Netherlands
The shares will not be offered or sold, directly or indirectly, in the Netherlands, other than:
| with a minimum denomination of 50,000 or the equivalent in another currency per investor; |
| for a minimum consideration of 50,000 or the equivalent in another currency per investor; |
| to fewer than 100 individuals or legal entities other than Qualified Investors (see below); or |
| solely to Qualified Investors, all within the meaning of Article 4 of the Financial Supervision Act Exemption Regulation (Vrijstellingsregeling Wet op het financieel toezicht) and Article 1:12 and Article 5:3 of the Financial Supervision Act (Wet op het financieel toezicht, FSA). |
Notice to Prospective Investors in Switzerland
The shares may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange, or the SIX, or on any other stock exchange or regulated trading facility in Switzerland. This document has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this prospectus nor any other offering or marketing material relating to the shares or the offering may be publicly distributed or otherwise made publicly available in Switzerland. Neither this prospectus nor any other offering or marketing material relating to the offering, the Company, the shares have been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of shares will not be supervised by, the Swiss Financial Market Supervisory Authority FINMA, and the offer of shares has not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes, or the CISA. The investor protection afforded to acquirers of interests in collective investment schemes under the CISA does not extend to acquirers of shares.
Notice to Prospective Investors in Hong Kong
The shares may not be offered or sold by means of any document other than (1) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), or (2) to professional investors within the meaning of the Securities and Futures Ordinance (Cap.571, Laws of Hong Kong) and any rules made thereunder, or (3) in other circumstances which do not result in the document being a prospectus within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), and no advertisement, invitation or document relating to the shares may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to professional investors within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.
Notice to Prospective Investors in Singapore
This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or
126
invitation for subscription or purchase, of the shares may not be circulated or distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (1) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore, or the SFA, (2) to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA or (3) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.
Where the shares are subscribed or purchased under Section 275 by a relevant person which is: (a) a corporation (which is not an accredited investor) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or (b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary is an accredited investor, shares, debentures and units of shares and debentures of that corporation or the beneficiaries rights and interest in that trust shall not be transferable for 6 months after that corporation or that trust has acquired the shares under Section 275 except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA; (2) where no consideration is given for the transfer; or (3) by operation of law.
Notice to Prospective Investors in Japan
The securities have not been and will not be registered under the Financial Instruments and Exchange Law of Japan (the Financial Instruments and Exchange Law) and each underwriter has agreed that it will not offer or sell any securities, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to a resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Financial Instruments and Exchange Law and any other applicable laws, regulations and ministerial guidelines of Japan.
127
The validity of the issuance of our common stock offered in this prospectus will be passed upon for us by Cooley LLP, Palo Alto, California. Latham & Watkins LLP, Costa Mesa, California, is acting as counsel for the underwriters in connection with this offering.
The financial statements of Intersect ENT, Inc. at December 31, 2012 and 2013, and for each of the two years in the period ended December 31, 2013, appearing in this prospectus and registration statement have been audited by Ernst & Young LLP, an independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the common stock offered hereby. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement or the exhibits and schedules filed therewith. For further information with respect to Intersect ENT, Inc. and the shares of common stock offered hereby, reference is made to the registration statement and the exhibits and schedules filed therewith. Statements contained in this prospectus regarding the contents of any contract or any other document that is filed as an exhibit to the registration statement are not necessarily complete, and each such statement is qualified in all respects by reference to the full text of such contract or other document filed as an exhibit to the registration statement. A copy of the registration statement and the exhibits and schedules filed therewith may be inspected without charge at the public reference room maintained by the SEC, located at 100 F Street N.E., Room 1580, Washington, D.C. 20549, and copies of all or any part of the registration statement may be obtained from such offices upon the payment of the fees prescribed by the SEC. Please call the SEC at 1-800-SEC-0330 for further information about the public reference room. The SEC also maintains a website that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address is www.sec.gov.
We maintain a website at www.intersectent.com. The reference to our website address does not constitute incorporation by reference of the information contained on our website, and you should not consider the contents of our website in making an investment decision with respect to our common stock.
You may also request a copy of these filings, at no cost to you, by writing or telephoning us at the following address:
Intersect ENT, Inc.
1555 Adams Drive
Menlo Park, CA 94025
Attention: Chief Financial Officer
(650) 641-2100
128
INTERSECT ENT, INC.
Years ended December 31, 2012 and 2013 (audited) and
Three month periods ended March 31, 2013 and 2014 (unaudited)
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Financial Statements: |
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F-4 | ||||
Statements of Convertible Preferred Stock and Stockholders (Deficit) Equity |
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F-7 |
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of
Intersect ENT, Inc.
We have audited the accompanying balance sheets of Intersect ENT, Inc. as of December 31, 2012, and 2013, and the related statements of operations and comprehensive loss, convertible preferred stock and stockholders deficit and cash flows for each of the two years in the period ended December 31, 2013. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Companys internal control over financial reporting. Our 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 also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our 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 Intersect ENT, Inc. at December 31, 2012 and 2013, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2013, in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Redwood City, California
May 1, 2014
F-2
INTERSECT ENT, INC.
(in thousands, except per share data)
December 31, | March
31, 2014 |
March
31, 2014 Pro Forma Stockholders Equity |
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2012 | 2013 | |||||||||||||||
(unaudited) | ||||||||||||||||
Assets | ||||||||||||||||
Current assets |
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Cash and cash equivalents |
$ | 2,060 | $ | 12,294 | $ | 7,478 | ||||||||||
Accounts receivable, net |
1,299 | 4,200 | 4,382 | |||||||||||||
Inventory |
1,375 | 2,197 | 2,463 | |||||||||||||
Restricted cash |
62 | 62 | | |||||||||||||
Prepaid expenses and other current assets |
452 | 449 | 507 | |||||||||||||
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Total current assets |
5,248 | 19,202 | 14,830 | |||||||||||||
Property and equipment, net |
1,755 | 1,707 | 1,716 | |||||||||||||
Note receivable from related party |
100 | | | |||||||||||||
Other non-current assets |
124 | 126 | 221 | |||||||||||||
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Total assets |
$ | 7,227 | $ | 21,035 | $ | 16,767 | ||||||||||
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Liabilities, Convertible Preferred Stock and Stockholders (Deficit) Equity | ||||||||||||||||
Current liabilities |
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Accounts payable |
$ | 1,074 | $ | 1,451 | $ | 1,647 | ||||||||||
Accrued compensation |
1,904 | 2,955 | 2,409 | |||||||||||||
Equipment loans current portion |
636 | 696 | 705 | |||||||||||||
Preferred stock warrant liability |
93 | 237 | 494 | $ | | |||||||||||
Other current liabilities |
389 | 745 | 932 | |||||||||||||
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Total current liabilities |
4,096 | 6,084 | 6,187 | |||||||||||||
Equipment loans non-current portion |
1,364 | 756 | 575 | |||||||||||||
Other non-current liabilities |
167 | 52 | 21 | |||||||||||||
Commitments and contingencies (see note 11) |
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Convertible preferred stock issuable in series, $0.001 par value; |
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63,629 shares authorized at December 31, 2013 and March 31, 2014, actual, none pro forma; 45,133, 62,806 and 62,816 issued and outstanding at December 31, 2012 and 2013 and March 31, 2014, respectively, actual, none pro forma; aggregate liquidation preference: $91,433 and $91,441 at December 31, 2013 and March 31, 2014, respectively, actual, none pro forma |
60,320 | 90,760 | 90,789 | | ||||||||||||
Stockholders (deficit) equity |
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Preferred stock, $0.001 par value; no shares authorized, issued and outstanding, actual; 10,000 shares authorized; no shares issued or outstanding pro forma |
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Common stock, $0.001 par value; |
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90,000 authorized at December 31, 2013 and March 31, 2014, actual; 4,085, 7,045 and 7,191 issued and outstanding at December 31, 2012 and 2013 and March 31, 2014, respectively, actual; 250,000 shares authorized, 70,007 issued and outstanding pro forma |
4 | 7 | 7 | 70 | ||||||||||||
Additional paid-in capital |
1,166 | 1,854 | 2,060 | 93,280 | ||||||||||||
Notes receivable from related party |
| (219 | ) | (204 | ) | |||||||||||
Accumulated deficit |
(59,890 | ) | (78,259 | ) | (82,668 | ) | ||||||||||
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Total stockholders (deficit) equity |
(58,720 | ) | (76,617 | ) | (80,805 | ) | 10,478 | |||||||||
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Total liabilities, convertible preferred stock and stockholders (deficit) equity |
$ | 7,227 | $ | 21,035 | $ | 16,767 | $ | 16,767 | ||||||||
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See accompanying notes to financial statements.
F-3
INTERSECT ENT, INC.
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands, except per share data)
Year Ended December 31, | Three Months Ended March 31, | |||||||||||||||
2012 | 2013 | 2013 | 2014 | |||||||||||||
(unaudited) | ||||||||||||||||
Revenue |
$ | 5,863 | $ | 17,931 | $ | 2,744 | $ | 7,497 | ||||||||
Cost of sales |
3,837 | 8,150 | 1,949 | 2,360 | ||||||||||||
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Gross profit |
2,026 | 9,781 | 795 | 5,137 | ||||||||||||
Operating expenses: |
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Selling, general and administrative |
9,251 | 18,229 | 3,350 | 6,658 | ||||||||||||
Research and development |
9,260 | 9,518 | 2,256 | 2,577 | ||||||||||||
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Total operating expenses |
18,511 | 27,747 | 5,606 | 9,235 | ||||||||||||
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Loss from operations |
(16,485 | ) | (17,966 | ) | (4,811 | ) | (4,098 | ) | ||||||||
Other income (expense), net: |
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Interest and other income |
156 | 86 | 82 | 1 | ||||||||||||
Interest and other expense |
(36 | ) | (489 | ) | (24 | ) | (312 | ) | ||||||||
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Total other income (expense), net |
120 | (403 | ) | 58 | (311 | ) | ||||||||||
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Net loss |
$ | (16,365 | ) | $ | (18,369 | ) | $ | (4,753 | ) | $ | (4,409 | ) | ||||
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Other comprehensive income: |
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Unrealized gain on short-term investments |
7 | | | | ||||||||||||
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Comprehensive loss |
$ | (16,358 | ) | $ | (18,369 | ) | $ | (4,753 | ) | $ | (4,409 | ) | ||||
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Net loss per share, basic and diluted |
$ | (4.09 | ) | $ | (3.14 | ) | $ | (1.14 | ) | $ | (0.62 | ) | ||||
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Weighted average common shares used to compute net loss per share, basic and diluted |
3,997 | 5,846 | 4,158 | 7,093 | ||||||||||||
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Pro forma net loss per share, basic and diluted (unaudited) |
$ | (0.29 | ) | $ | (0.06 | ) | ||||||||||
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Weighted average common shares used to compute pro forma net loss per share, basic and diluted (unaudited) |
62,623 | 69,900 | ||||||||||||||
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See accompanying notes to financial statements.
F-4
INTERSECT ENT, INC.
STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS (DEFICIT) EQUITY
(in thousands)
Convertible Preferred Stock |
Common Stock | Additional Paid-in Capital |
Note Receivable From Related Party |
Accumulated Other Comprehensive Loss |
Accumulated Deficit |
Total Stockholders (Deficit) Equity |
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Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||
Balance at December 31, 2011 |
44,902 | $ | 60,107 | 3,622 | $ | 4 | $ | 925 | $ | | $ | (7 | ) | $ | (43,525 | ) | $ | (42,603 | ) | |||||||||||||||||||
Issuance of Series A convertible preferred stock upon exercise of warrants |
231 | 213 | | | | | | | | |||||||||||||||||||||||||||||
Issuance common stock upon exercise of stock options |
| | 463 | | 89 | | | | 89 | |||||||||||||||||||||||||||||
Stock-based compensation expense |
| | | | 152 | | | | 152 | |||||||||||||||||||||||||||||
Unrealized gain on short-term investments |
| | | | | | 7 | | 7 | |||||||||||||||||||||||||||||
Net loss |
| | | | | | | (16,365 | ) | (16,365 | ) | |||||||||||||||||||||||||||
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Balance at December 31, 2012 |
45,133 | 60,320 | 4,085 | 4 | 1,166 | | | (59,890 | ) | (58,720 | ) | |||||||||||||||||||||||||||
Issuance of Series A convertible preferred stock upon exercise of warrants |
90 | 82 | | | | | | | | |||||||||||||||||||||||||||||
Issuance of Series D convertible preferred stock, net of issuance cost and preferred stock financing option |
17,583 | 30,358 | | | | | | | | |||||||||||||||||||||||||||||
Issuance common stock upon exercise of stock options |
| | 2,960 | 3 | 362 | | | | 365 | |||||||||||||||||||||||||||||
Notes receivable from related party |
| | | | | (275 | ) | | | (275 | ) | |||||||||||||||||||||||||||
Stock-based compensation expense |
| | | | 326 | 56 | | | 382 | |||||||||||||||||||||||||||||
Net loss |
| | | | | | | (18,369 | ) | (18,369 | ) | |||||||||||||||||||||||||||
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Balance at December 31, 2013 |
62,806 | 90,760 | 7,045 | 7 | 1,854 | (219 | ) | | (78,259 | ) | (76,617 | ) | ||||||||||||||||||||||||||
Issuance of Series A convertible preferred stock upon exercise of warrants (unaudited) |
10 | 29 | | | | | | | | |||||||||||||||||||||||||||||
Issuance common stock upon exercise of stock options (unaudited) |
| | 146 | | 39 | | | | 39 | |||||||||||||||||||||||||||||
Stock-based compensation expense (unaudited) |
| | | | 167 | 15 | | | 182 | |||||||||||||||||||||||||||||
Net loss (unaudited) |
| | | | | | | (4,409 | ) | (4,409 | ) | |||||||||||||||||||||||||||
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Balance at March 31, 2014 (unaudited) |
62,816 | $ | 90,789 | 7,191 | $ | 7 | $ | 2,060 | $ | (204 | ) | $ | | $ | (82,668 | ) | $ | (80,805 | ) | |||||||||||||||||||
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Pro forma: |
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Conversion of convertible preferred stock to common stock (unaudited) |
(62,816 | ) | (90,789 | ) | 62,816 | 63 | 90,726 | | | | 90,789 | |||||||||||||||||||||||||||
Conversion of convertible preferred stock warrants to common stock warrants (unaudited) |
| | | | 494 | | | | 494 | |||||||||||||||||||||||||||||
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Balance at March 31, 2014 (unaudited) |
| $ | | 70,007 | $ | 70 | $ | 93,280 | $ | (204 | ) | $ | | $ | (82,668 | ) | $ | 10,478 | ||||||||||||||||||||
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See accompanying notes to financial statements.
F-5
INTERSECT ENT, INC.
(in thousands)
Year Ended December 31, | Three Months Ended March 31, | |||||||||||||||
2012 | 2013 | 2013 | 2014 | |||||||||||||
(unaudited) | ||||||||||||||||
Cash flows from operating activities: |
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Net loss |
$ | (16,365 | ) | $ | (18,369 | ) | $ | (4,753 | ) | $ | (4,409 | ) | ||||
Adjustments to reconcile net loss to cash used in operating activities: |
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Depreciation and amortization |
351 | 505 | 124 | 135 | ||||||||||||
Amortization of net investment premium paid |
83 | | | | ||||||||||||
Stock-based compensation expense |
152 | 382 | 38 | 182 | ||||||||||||
Change in fair value of convertible preferred stock warrants |
(128 | ) | 134 | | 286 | |||||||||||
Change in fair value of convertible preferred stock financing option |
| 212 | | | ||||||||||||
Forgiveness of notes receivable from related party |
116 | 100 | 100 | 100 | ||||||||||||
Loss on disposal of fixed assets |
33 | 26 | | | ||||||||||||
Changes in operating assets and liabilities: |
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Accounts receivable, net |
(1,011 | ) | (2,901 | ) | (398 | ) | (182 | ) | ||||||||
Inventory |
(1,004 | ) | (822 | ) | (341 | ) | (266 | ) | ||||||||
Prepaid expenses and other current assets |
(241 | ) | 3 | 15 | (96 | ) | ||||||||||
Other non-current assets |
(90 | ) | (2 | ) | | (95 | ) | |||||||||
Accounts payable |
331 | 360 | (234 | ) | 189 | |||||||||||
Accrued compensation |
1,271 | 1,051 | (741 | ) | (546 | ) | ||||||||||
Other liabilities |
354 | 220 | 72 | 156 | ||||||||||||
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Net cash used in operating activities |
(16,148 | ) | (19,101 | ) | (6,118 | ) | (4,546 | ) | ||||||||
Cash flows from investing activities: |
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Purchases of short-term investments |
(1,324 | ) | | | | |||||||||||
Sales of short-term investments |
8,622 | | | | ||||||||||||
Purchases of property and equipment |
(1,413 | ) | (467 | ) | (52 | ) | (136 | ) | ||||||||
Proceeds from disposal of fixed assets |
4 | | | | ||||||||||||
Change in restricted cash and deposits |
67 | | | | ||||||||||||
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Net cash provided by (used in) investing activities |
5,956 | (467 | ) | (52 | ) | (136 | ) | |||||||||
Cash flows from financing activities: |
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Proceeds from issuance of common stock |
89 | 122 | 36 | 36 | ||||||||||||
Proceeds from equipment loan |
2,000 | | | | ||||||||||||
Proceeds from capital lease financing |
| 106 | | | ||||||||||||
Repayments related to equipment loans |
| (636 | ) | (160 | ) | (163 | ) | |||||||||
Repayments related to capital lease financing |
| (18 | ) | | (7 | ) | ||||||||||
Proceeds from the exercise of Series A convertible preferred warrants |
213 | 82 | 82 | | ||||||||||||
Proceeds from issuance of Series D convertible preferred stock net of issuance costs |
| 30,146 | 20,716 | | ||||||||||||
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Net cash provided by (used in) financing activities |
2,302 | 29,802 | 20,674 | (134 | ) | |||||||||||
Net (decrease) increase in cash and cash equivalents |
(7,890 | ) | 10,234 | 14,504 | (4,816 | ) | ||||||||||
Cash and cash equivalents |
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Beginning of the period |
9,950 | 2,060 | 2,060 | 12,294 | ||||||||||||
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End of the period |
$ | 2,060 | $ | 12,294 | $ | 16,564 | $ | 7,478 | ||||||||
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Supplemental cash flow information |
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Interest paid |
$ | | $ | 93 | $ | 20 | $ | 20 | ||||||||
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Noncash investing and financing activities |
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Warrants issued for growth capital facility |
$ | | $ | 10 | $ | | $ | | ||||||||
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Property and equipment included in accounts payable |
$ | | $ | 17 | $ | | $ | 7 | ||||||||
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Notes issued to related party for the exercise of stock options |
$ | | $ | 500 | $ | | $ | | ||||||||
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See accompanying notes to financial statements.
F-6
INTERSECT ENT, INC.
1. | Organization |
Description of Business
Intersect ENT, Inc. (the Company) was incorporated as Sinexus, Inc. in the state of Delaware in October 2003 (inception) and its facilities are located in Menlo Park, California. By written consent of the stockholders, the Company changed its name from Sinexus, Inc. to Intersect ENT, Inc., effective November 2009. The Company is a commercial stage drug-device company committed to improving the quality of life for patients with ear, nose and throat conditions. The Companys sole commercial products are the PROPEL and PROPEL mini drug-eluting implants for patients undergoing sinus surgery to treat chronic sinusitis. The Company received approval from the U.S. Food and Drug Administration (FDA) for PROPEL, in August 2011 and for PROPEL mini, in November 2012. In the first half of 2013, the Company began scaling its U.S. direct commercial presence and currently markets its products only in the United States.
Liquidity and Business Risks
As of March 31, 2014, the Company had cash and cash equivalents of $7.5 million, and an accumulated deficit of $82.7 million. The Company has financed its operations with a combination of debt and equity financing arrangements. As of March 31, 2014, the Company expects its cash and cash equivalents, revenue and available debt financing arrangements will be sufficient to fund its operations through at least December 31, 2014. However, the Company expects to continue to incur additional substantial losses in 2014 as a result of its commercialization and research and development activities. If these sources are insufficient to satisfy our liquidity requirements, the Company may seek to sell additional equity or debt securities or obtain an additional credit facility. Debt financing, if available, may involve covenants restricting the Companys operations or its ability to incur additional debt. Any debt financing or additional equity that the Company raises may contain terms that are not favorable to it or its stockholders. Additional financing may not be available at all, or in amounts or on terms unacceptable to the Company. If the Company is unable to obtain additional financing, it may be required to delay the development, commercialization and marketing of its products.
2. | Summary of Significant Accounting Policies |
Basis of Preparation
The financial statements have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) and pursuant to the rules and regulations of the United States Securities and Exchange Commission (SEC).
Certain amounts in the financial statements have been reclassified to conform to the current year presentation.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts and disclosures reported in the financial statements. Management uses significant judgment when making estimates related to its common stock valuation and related stock-based compensation, the valuations of the convertible preferred stock warrant liability, convertible preferred stock financing option, clinical trial accruals, as well as certain accrued liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.
Unaudited Interim Financial Statements
The accompanying balance sheet as of March 31, 2014, the statements of operations and comprehensive loss and cash flows for the three months ended March 31, 2013 and 2014, and the statements of convertible preferred
F-7
INTERSECT ENT, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
2. | Summary of Significant Accounting Policies (Continued) |
stock and stockholders deficit as of March 31, 2014, are unaudited. The financial data and other information disclosed in these notes to the financial statements related to March 31, 2014, and the three months ended March 31, 2013 and 2014, are also unaudited. The unaudited interim financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to state fairly the Companys financial position as of March 31, 2014, and the results of its operations and cash flows for the three months ended March 31, 2013 and 2014. The results for the three months ended March 31, 2014, are not necessarily indicative of results to be expected for the year ending December 31, 2014, or for any other interim period or for any future year.
Unaudited Pro Forma Stockholders Equity
Pro forma basic and diluted net loss per share has been computed to give effect to: (1) the assumed conversion of the 62,805,923 and 62,815,648 shares of convertible preferred stock outstanding as of December 31, 2013 and March 31, 2014, respectively, into the same number of common stock in connection with the Companys proposed initial public offering, or IPO; (2) the conversion of all warrants exercisable for convertible preferred stock outstanding as of December 31, 2013 into warrants exercisable for shares of common stock, resulting in the reclassification of the related convertible preferred stock warrant liabilities to additional paid-in capital, which when added to the existing 7,044,667 and 7,191,780 shares of common stock outstanding as of December 31, 2013 and March 31, 2014, respectively, results in a total of 69,850,590 and 70,007,428 shares of common stock outstanding, respectively; and (3) the effectiveness of the Companys amended and restated certificate of incorporation. The pro forma net loss per share does not include the shares expected to be sold and related proceeds to be received from the IPO. For purposes of pro forma basic and diluted net loss per share, all shares of convertible preferred stock have been treated as though they had been converted to common stock in all periods in which such shares were outstanding.
Cash and Cash Equivalents
The Company considers all highly liquid securities, readily convertible to cash, that mature within three months or less from the original date of purchase to be cash equivalents.
Cash equivalents are considered available-for-sale marketable securities and are recorded at fair value, based on quoted market prices. Unrealized gains and losses are recorded in other comprehensive income (loss) and included as a separate component of stockholders deficit. As of December 31, 2012 and 2013, and March 31, 2014, the Companys cash and cash equivalents were entirely composed of bank deposits, cash, and investments in money market funds.
Fair Value of Financial Instruments
Available-for-sale marketable securities are recorded at fair value in the Companys balance sheets and are categorized based upon the level of judgment associated with the inputs used to measure their fair value. ASC Subtopic 820-10 defines a three-level valuation hierarchy for disclosure of fair value measurements.
F-8
INTERSECT ENT, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
2. | Summary of Significant Accounting Policies (Continued) |
The Company measures certain financial assets and liabilities at fair value on a recurring basis, including cash equivalents, the convertible preferred stock warrant liability and the convertible preferred stock financing option. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. A three-tier fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value:
Level 1 | Observable inputs such as quoted prices (unadjusted) for identical assets or liabilities in active markets. | |
Level 2 | Include other inputs that are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant inputs are observable in the market or can be derived from observable market data. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs including interest rate curves, foreign exchange rates, and credit ratings. | |
Level 3 | Unobservable inputs that are supported by little or no market activities, which would require the Company to develop its own assumptions. |
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
As of December 31, 2012 and 2013, and March 31, 2014, cash equivalents were all categorized as Level 1 and primarily consisted of money market funds, and convertible preferred stock warrant liabilities and convertible preferred stock financing option were categorized as Level 3.
There were no transfers in and out of Level 1 and Level 2 fair value measurements during the years ended December 31, 2012 and 2013, and the three months ended March 31, 2014.
Convertible Preferred Stock Warrants
The following table sets forth a summary of the changes in the estimated fair value of the Companys convertible preferred stock warrants, which represents financial instruments with valuations classified as Level 3. When a determination is made to classify a financial instrument within Level 3, the determination is based upon the significance of the unobservable inputs to the overall fair value measurement. However, Level 3 financial instruments typically include, in addition to the unobservable inputs, observable inputs (that is, components that are actively quoted and can be validated to external sources). Accordingly, the expense in the table below includes changes in fair value due in part to observable factors that are part of the Level 3 methodology (in thousands):
Year Ended December 31, | Three Months Ended March 31, |
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2012 | 2013 | 2013 | 2014 | |||||||||||||
(unaudited) | ||||||||||||||||
Beginning of the period |
$ | 221 | $ | 93 | $ | 93 | $ | 237 | ||||||||
Issued |
| 10 | | | ||||||||||||
Exercised |
| | | (29 | ) | |||||||||||
Expired |
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Change in fair value |
(128 | ) | 134 | | 286 | |||||||||||
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End of the period |
$ | 93 | $ | 237 | $ | 93 | $ | 494 | ||||||||
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F-9
INTERSECT ENT, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
2. | Summary of Significant Accounting Policies (Continued) |
The fair value of the convertible preferred stock warrants was determined using the option pricing method or the probability weighted expected return method using the following assumptions:
Year Ended December 31, | Three Months Ended March 31, | |||||||||||||||
2012 | 2013 | 2013 | 2014 | |||||||||||||
(unaudited) | ||||||||||||||||
Expected life (years) |
3.0 | 2.0 | 3.0 | 2.0 | ||||||||||||
Expected volatility |
58 | % | 45 | % | 58 | % | 46 | % | ||||||||
Risk-free interest rate |
0.4 | % | 0.4 | % | 0.4 | % | 0.5 | % | ||||||||
Dividend yield |
0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % |
Series D Convertible Preferred Stock Financing Option
The Series D convertible preferred stock contained a provision that obligated the investors to purchase additional shares (convertible preferred stock financing option) at the same price as the initial closing upon notification by the Company that it had achieved an annualized revenue rate of at least $16.0 million over a trailing three month period. This convertible preferred stock financing option to purchase Series D convertible preferred stock in the future tranche was considered to be a freestanding financial instrument for accounting purposes. Therefore, in February 2013, the Company recorded a financing liability of $0.9 million representing the fair value of this convertible preferred stock financing option at the time of issuance. In October 2013, shortly after achieving the annualized revenue rate, the Company issued the additional 5,476,038 shares of Series D convertible preferred stock to the investors for net proceeds of $9.4 million. Since the convertible preferred stock financing option expired in October 2013 as a result of the issuance of Series D convertible preferred stock, the carrying and fair value of the convertible preferred stock financing option of $1.1 million was reclassified from liability to Series D convertible preferred stock. The Company recorded a charge related to the change in fair value in 2013 of $0.2 million related to this financing option liability.
The following table sets forth a summary of the changes in the estimated fair value of the Companys convertible preferred stock financing option, which represents financial instruments with valuations classified as Level 3 (in thousands):
Year Ended December 31, | Three Months Ended March 31, |
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2012 | 2013 | 2013 | 2014 | |||||||||||||
(unaudited) | ||||||||||||||||
Beginning of the period |
$ | | $ | | $ | | $ | | ||||||||
Issued |
| 885 | 885 | | ||||||||||||
Exercised |
| (1,097 | ) | | | |||||||||||
Expired |
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Change in fair value |
| 212 | | | ||||||||||||
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End of the period |
$ | | $ | | $ | 885 | $ | | ||||||||
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The fair value of the convertible preferred stock financing liability was determined using the present value methodology with the following assumptions which are categorized as Level 3:
February 2013 |
October 2013 |
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Total consideration per share |
$ | 1.72 | $ | 1.72 | ||||
Additional investment per share |
1.72 | 1.72 | ||||||
Discount rate |
20.0 | % | 20.0 | % | ||||
Probability of achievement |
95.0 | % | 95.0 | % | ||||
Years until milestone achieved |
0.5 | 0.7 |
F-10
INTERSECT ENT, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
2. | Summary of Significant Accounting Policies (Continued) |
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash equivalents and accounts receivable. The Company believes that the credit risk in its accounts receivable is mitigated by its credit evaluation process, relatively short collection terms and dispersion of its customer base. The Company generally does not require collateral and losses on accounts receivable have historically been within managements expectations.
The Companys investment policy limits investments to certain types of debt securities issued by the U.S. government, its agencies, and institutions with investment-grade credit ratings, as well as corporate debt or commercial paper issued by the highest quality financial and non-financial companies, and places restrictions on maturities and concentration by type and issuer. The Company is exposed to credit risk in the event of a default by the financial institutions holding its cash and cash equivalents and issuers of investments to the extent recorded on the balance sheets. However, as of December 31, 2012 and 2013, and March 31, 2014, the Company has limited its credit risk associated with cash and cash equivalents by placing its investments with banks it believes are highly creditworthy and with highly rated money market funds.
Allowance for Doubtful Accounts
The Company will provide for uncollectible accounts receivable by recording an allowance for doubtful accounts for accounts receivable deemed uncollectible. The Company evaluates the collectibility of its accounts receivable based on known collection risks and historical experience. In circumstances where the Company is aware of a specific customers inability to meet its financial obligations to the Company (e.g., bankruptcy filings, substantial downgrading of credit ratings), the Company records a specific allowance for bad debts against amounts due to reduce the carrying amount of accounts receivable to the amount it reasonably believes will be collected.
If circumstances change, such as higher-than-expected defaults or an unexpected material adverse change in a major customers ability to meet its financial obligations, the Companys estimates of the recoverability of the amounts due could be reduced by a significant amount. Based on the high creditworthiness of the customers that the Company sells to, the Company has experienced no significant collection issues. Therefore, the Company does not have an allowance for doubtful accounts established as of December 31, 2012 and 2013, and March 31, 2014.
Inventory
Inventory is valued at the lower of cost or market, computed on a first-in, first out basis, or net realizable value. The Company estimates the recoverability of its inventory by reference to internal estimates of future demands and product life cycles, including expiration of inventory prior to sale.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is determined using the straight-line method over the estimated useful lives of the respective assets, generally three to five years. Leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or the term of the lease. Amortization of assets under capital leases is included in depreciation and amortization expense. Maintenance and repairs are charged to operations as incurred.
Impairment of Long-lived Assets
Long-lived assets consists primarily of property and equipment and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require that a long-lived asset be tested for possible impairment, the Company compares the undiscounted cash flows expected to be generated by the asset to the carrying amount of the asset. If the carrying amount of the long-lived asset is not recoverable on an undiscounted cash flow basis, an impairment is
F-11
INTERSECT ENT, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
2. | Summary of Significant Accounting Policies (Continued) |
recognized to the extent that the carrying amount exceeds its fair value. The Company determines fair value using the income approach based on the present value of expected future cash flows or other appropriate measures of estimated fair value. The Companys cash flow assumptions consider historical and forecasted revenue and operating costs and other relevant factors. Since inception, the Company has not recorded impairment charges on long-lived assets.
Convertible Preferred Stock Warrant Liability
For a warrant classified as a derivative liability, the fair value of that warrant is recorded on the balance sheet at the inception of such classification and adjusted to fair value at each financial reporting date. The changes in the fair value of the warrants are recorded in the statement of operations as a component of interest and other income or expense as appropriate. The Company will continue to adjust the carrying value of the convertible preferred stock warrant liability for changes in the fair value of the warrants until the earlier of: the exercise of the warrants, at which time the liability will be reclassified to temporary equity; the conversion of the underlying convertible preferred stock into common stock, at which time the liability will be reclassified to stockholders deficit; or the expiration of the warrant, at which time the entire amount would be reversed and reflected in the statement of operations.
Convertible Preferred Stock Financing Option
For a freestanding option to purchase in a future round of financing, the fair value of that option is recorded on the balance sheet at the inception of such classification and adjusted to fair value at each financial reporting date. The change in the fair value of the convertible preferred stock financing option is recorded in the statement of operations as a component of interest and other income or expense as appropriate. The Company adjusts the carrying value of the convertible preferred stock financing option liability for changes in the fair value of the option and continues to do so until the earlier of when the convertible preferred stock financing option has been exercised or expired.
Revenue Recognition
Revenue is derived from the sale of PROPEL and PROPEL mini to hospitals and ambulatory surgery centers in the United States. Revenue is recognized when the following revenue recognition criteria are met:
| Persuasive evidence of an arrangement exists. The Company considers this criterion satisfied when it has an agreement or contract with the customer in place. |
| Delivery has occurred or services rendered. The Company principally determines this criterion to be satisfied when it ships the product to the customer. |
| The fee is fixed or determinable and collectibility is reasonably assured. Determination of the satisfaction of these criteria is based on the Companys judgment regarding the nature of the fee charged for products, contractual agreements entered into, and the collectibility of those fees under any contract or agreement. |
The Company must make significant assumptions regarding the future collectibility of amounts receivable from customers to determine whether revenue recognition criteria have been met. If collectibility is not assured at the time of shipment, the Company will defer revenue until such criteria have been met. The Companys standard terms and conditions of sale do not allow for product returns and it generally does not allow product returns, except in the case of damaged goods, and it has not experienced any significant returns of its products. The Company expenses shipping and handling costs as incurred and includes them in the cost of sales. In those cases where the Company bills shipping and handling costs to customers, it will classify the amounts billed as a component of revenue.
F-12
INTERSECT ENT, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
2. | Summary of Significant Accounting Policies (Continued) |
Cost of Sales
Cost of sales consists primarily of manufacturing overhead costs, material costs and direct labor. A significant portion of the Companys cost of sales currently consists of manufacturing overhead costs. These overhead costs include the cost of quality assurance, material procurement, inventory control, facilities, equipment and operations supervision and management. Cost of sales also includes depreciation expense for production equipment and certain direct costs such as shipping costs.
Research and Development
Research and development expenses consist primarily of engineering, product development, clinical and regulatory affairs, consulting services, materials, depreciation and other costs associated with products and technologies in development. These expenses include employee and non-employee compensation, including stock-based compensation, supplies, materials, consulting, related travel expenses and facility costs. Clinical expenses include clinical trial design, clinical site reimbursement, data management and travel expenses, and the cost of manufacturing products for clinical trials.
Common Stock Valuation and Stock-based Compensation
The Company maintains a payment equity incentive plan to provide long-term incentives for employees, consultants and members of the board of directors. The plan allows for the issuance of non-statutory and incentive stock options to employees and non-statutory stock options to consultants and non-employee directors.
The Company is required to determine the fair value of equity incentive awards and recognize compensation expense for all equity incentive awards made to employees and directors, including employee stock options. Such expense is recognized over the requisite service period. In addition, stock-based compensation expense recognized in the statements of operations and comprehensive loss is based on awards expected to vest and therefore the amount of expense has been reduced for estimated forfeitures. The Company uses the straight-line method for expense attribution, except for awards issued with performance-based conditions which require an accelerated attribution method over the requisite performance and service periods.
Under the applicable accounting guidance for equity incentive awards issued to non-employees, the date at which the fair value of such awards is measured is equal to the earlier of: 1) the date at which a commitment for performance by the counterparty to earn the equity instrument is reached; or 2) the date at which the counterpartys performance is complete. The Company recognizes stock-based compensation expense for the fair value of the vested portion of the non-employee awards in the statements of operations and comprehensive loss. The fair value of options granted to non-employees is remeasured as the options vest.
The valuation model used for calculating the fair value of awards for stock-based compensation expense is the Black-Scholes option-pricing model (the Black-Scholes model). The Black-Scholes model requires the Company to make assumptions and judgments about the variables used in the calculation, including the expected term (weighted average period of time that the options granted are expected to be outstanding), the volatility of common stock, an assumed risk-free interest rate and an estimated forfeiture rate. The Company uses the simplified method to determine the expected term of the stock option. Volatility is based on an average of the historical volatilities of the common stock of publicly-traded companies with characteristics similar to those of the Company. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected term of the option. Potential forfeitures of awards are estimated based on the Companys historical forfeiture experience and an analysis of similar companies. The estimate of forfeitures will be adjusted over the service period to the extent that actual forfeitures differ, or are expected to differ, from prior estimates.
F-13
INTERSECT ENT, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
2. | Summary of Significant Accounting Policies (Continued) |
Deferred Rent
Rent expense is recognized on a straight-line basis over the non-cancelable term of the Companys operating lease and, accordingly, the Company records the difference between cash rent payments and the recognition of rent expense as a deferred rent liability. The Company also records lessor-funded lease incentives, such as reimbursable leasehold improvements, as a deferred rent liability, which is amortized as a reduction of rent expense over the non-cancelable term of its operating lease.
Advertising Expenses
The Company expenses the costs of advertising, including promotional expenses, as incurred. Advertising expenses were $23,000 and $46,000 during the years ended December 31, 2012 and 2013, respectively and $11,000 and $19,000 during the three months ended March 31, 2013 and 2014, respectively.
Income Taxes
The Company accounts for income taxes under the liability method. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates that will be in effect when the differences are expected to reverse. Valuation allowances against deferred tax assets are established when necessary to reduce deferred tax assets to the amounts expected to be realized. Currently, the Company has recorded a full valuation allowance against its deferred tax assets and there is no provision for income taxes, as the Company has incurred operating losses to date. The Companys policy is to record interest and penalties expense related to uncertain tax positions as other expense in the statement of operations.
Net Loss and Unaudited Pro Forma Net Loss per Share
Basic net loss per share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing the net loss by the weighted average number of shares of common stock and dilutive potential shares of common stock outstanding during the period. Because the Company has reported a net loss for all periods presented, diluted net loss per share is the same as basic net loss per share for those periods as all potentially dilutive shares consisting of convertible preferred stock, stock options and warrants were antidilutive in those periods.
The Company allocates no loss to participating securities because they have no contractual obligation to share in the losses of the Company. The shares of the Companys convertible preferred stock participate in any dividends declared by the Company and are therefore considered to be participating securities.
Net loss per share was determined as follows (in thousands, except per share amounts):
Year Ended December 31, | Three Months Ended March 31, |
|||||||||||||||
2012 | 2013 | 2013 | 2014 | |||||||||||||
(unaudited) | ||||||||||||||||
Net loss |
$ | (16,365 | ) | $ | (18,369 | ) | $ | (4,753 | ) | $ | (4,409 | ) | ||||
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|||||||||
Weighted average common stock outstanding |
3,997 | 5,846 | 4,158 | 7,093 | ||||||||||||
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|
|||||||||
Net loss per share, basic and diluted |
$ | (4.09 | ) | $ | (3.14 | ) | $ | (1.14 | ) | $ | (0.62 | ) | ||||
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F-14
INTERSECT ENT, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
2. | Summary of Significant Accounting Policies (Continued) |
The following potentially dilutive securities outstanding have been excluded from the computations of diluted weighted average shares outstanding because such securities have an antidilutive impact due to losses reported, in common stock equivalent shares (in thousands):
December 31, | March 31, | |||||||||||||||
2012 | 2013 | 2013 | 2014 | |||||||||||||
(unaudited) | ||||||||||||||||
Convertible preferred stock outstanding |
45,133 | 62,806 | 57,330 | 62,816 | ||||||||||||
Convertible preferred stock warrants |
296 | 230 | 207 | 213 | ||||||||||||
Common stock options |
6,377 | 7,714 | 6,152 | 7,860 | ||||||||||||
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|||||||||
51,806 | 70,750 | 63,689 | 70,889 | |||||||||||||
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The unaudited pro forma basic and diluted net loss per share for the year ended December 31, 2013, and the three months ended March 31, 2014, have been computed using the weighted average number of shares of common stock outstanding after giving pro forma effect to the assumed conversion of all shares of convertible preferred stock upon an IPO by treating all shares of convertible preferred stock as if they had been converted to common stock in all periods in which such shares were actually outstanding.
The following table sets forth the computation of the Companys unaudited pro forma basic and diluted net loss per share during the year ended December 31, 2013, and three months ended March 31, 2014 (in thousands, except for per share amounts):
Year Ended December 31, 2013 |
Three Months Ended March 31, 2014 |
|||||||
(unaudited) | (unaudited) | |||||||
Net loss |
$ | (18,369 | ) | $ | (4,409 | ) | ||
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Pro forma net loss |
$ | (18,369 | ) | $ | (4,409 | ) | ||
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Weighted average common stock outstanding |
5,846 | 7,093 | ||||||
Pro forma weighted average convertible preferred stock outstanding |
56,777 | 62,807 | ||||||
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Pro forma weighted average common shares used to compute net loss per share, basic and diluted |
62,623 | 69,900 | ||||||
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Pro forma net loss per share, basic and diluted |
$ | (0.29 | ) | $ | (0.06 | ) | ||
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Comprehensive Loss
Comprehensive loss consists of net loss and changes in unrealized gains and losses on available-for-sale marketable securities. Accumulated other comprehensive income (loss) is presented in the accompanying balance sheets, when applicable.
Segment, Geographical and Customer Concentration
The Company operates in one segment. All of the Companys assets and revenue are based in the U.S. and no single customer accounted for more than 6% of its revenue during the years ended December 31, 2012 and 2013 and the three months ended March 31, 2013 and 2014.
JOBS Act Accounting Election
As an emerging growth company under the Jumpstart Our Business Startups Act (JOBS Act), unlike many other public companies, the Company is eligible to take advantage of certain exemptions from various
F-15
INTERSECT ENT, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
2. | Summary of Significant Accounting Policies (Continued) |
reporting requirements that are applicable to other public companies that are not emerging growth companies. The Company has elected to take advantage of the extended transition period for adopting new or revised accounting standards that have different effective dates for public and private companies until such time as those standards apply to private companies. There have been no new accounting pronouncements or changes to accounting pronouncements that are of significance or potential significance to the Company.
3. | Composition of Certain Financial Statement Items |
Inventory (in thousands):
December 31, | March
31, 2014 |
|||||||||||
2012 | 2013 | |||||||||||
(unaudited) | ||||||||||||
Raw materials |
$ | 334 | $ | 472 | $ | 667 | ||||||
Work-in-process |
111 | 241 | 187 | |||||||||
Finished goods |
930 | 1,484 | 1,609 | |||||||||
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$ | 1,375 | $ | 2,197 | $ | 2,463 | |||||||
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Property and Equipment (in thousands):
December 31, | March
31, 2014 |
|||||||||||
2012 | 2013 | |||||||||||
(unaudited) | ||||||||||||
Computer equipment and software |
$ | 337 | $ | 398 | $ | 446 | ||||||
Furniture and office equipment |
135 | 252 | 255 | |||||||||
Laboratory equipment |
2,176 | 2,262 | 2,350 | |||||||||
Leasehold improvements |
228 | 124 | 128 | |||||||||
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2,876 | 3,036 | 3,179 | ||||||||||
Less: accumulated depreciation and amortization |
(1,121 | ) | (1,329 | ) | (1,463 | ) | ||||||
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$ | 1,755 | $ | 1,707 | $ | 1,716 | |||||||
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Depreciation and leasehold improvements and capital lease amortization expenses were $0.4 million and $0.5 million during the years ended December 31, 2012 and 2013, respectively, and $0.1 million during each of the three months ended March 31, 2013 and 2014. Amortization for the office equipment purchased on a capital lease entered into in April 2013 was $11,000 and $5,000 during the year ended December 31, 2013 and the three months ended March 31, 2014, respectively.
Prepaid Expenses and Other Current and Non-current Assets (in thousands):
December 31, | March
31, 2014 |
|||||||||||
2012 | 2013 | |||||||||||
(unaudited) | ||||||||||||
Prepaid expenses |
$ | 204 | $ | 349 | $ | 507 | ||||||
Note receivable from related party |
100 | 100 | | |||||||||
Other |
148 | | | |||||||||
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Prepaid expenses and other current assets |
$ | 452 | $ | 449 | $ | 507 | ||||||
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F-16
INTERSECT ENT, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
3. | Composition of Certain Financial Statement Items (Continued) |
As of December 31, 2012 and 2013, and March 31, 2014, other non-current assets consist of two-thirds of the security deposit on the Companys operating lease for its headquarters in Menlo Park, California of $0.1 million.
Other Current and Non-Current Liabilities (in thousands):
December 31, | March
31, 2014 |
|||||||||||
2012 | 2013 | |||||||||||
(unaudited) | ||||||||||||
Manufacturing expenses |
$ | 206 | $ | 267 | $ | 451 | ||||||
Deferred rent |
50 | 115 | 121 | |||||||||
Sales and use tax |
32 | 104 | 165 | |||||||||
Facilities expenses |
25 | 104 | 113 | |||||||||
Other |
76 | 155 | 82 | |||||||||
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Other current liabilities |
$ | 389 | $ | 745 | $ | 932 | ||||||
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Other non-current liabilities consist of deferred rent as of December 31, 2012 and 2013, and March 31, 2014.
Interest and Other Income (in thousands):
Year Ended December 31, | Three Months Ended March 31, |
|||||||||||||||
2012 | 2013 | 2013 | 2014 | |||||||||||||
(unaudited) | ||||||||||||||||
Interest income |
$ | 27 | $ | 7 | $ | 3 | $ | 1 | ||||||||
Decrease in fair value of convertible preferred stock warrant |
128 | | | | ||||||||||||
Other |
1 | 79 | 79 | | ||||||||||||
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$ | 156 | $ | 86 | $ | 82 | $ | 1 | |||||||||
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Interest and Other Expense (in thousands):
Year Ended December 31, | Three Months Ended March 31, |
|||||||||||||||
2012 | 2013 | 2013 | 2014 | |||||||||||||
(unaudited) | ||||||||||||||||
Interest expense |
$ | 4 | $ | 117 | $ | 24 | $ | 26 | ||||||||
Loss on disposal of assets |
32 | 26 | | | ||||||||||||
Increase in fair value of convertible preferred stock warrant |
| 134 | | 286 | ||||||||||||
Increase in fair value of convertible preferred stock financing option |
| 212 | | | ||||||||||||
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$ | 36 | $ | 489 | $ | 24 | $ | 312 | |||||||||
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4. | Notes Receivable from Related Parties |
In April 2013, options held by the President and Chief Executive Officer, Ms. Earnhardt, a related party, were modified to permit exercise with promissory notes of up to $0.5 million. The promissory notes were issued in May 2013 for $0.5 million. Under the terms of the notes, one quarter of the principal and interest will be forgiven on each anniversary date of the note as long as Ms. Earnhardt remains the Companys Chief Executive Officer. In addition, the entire principal and interest of the notes will be forgiven on the earlier of an initial public offering or the closing of a liquidation event (as defined in the articles of incorporation) in each case where total
F-17
INTERSECT ENT, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
4. | Notes Receivable from Related Parties (Continued) |
proceeds payable to the Company or its stockholders is greater than $200.0 million. The Company has the option to accelerate the maturity date if, at the Companys reasonable discretion, such acceleration may be necessary due to any applicable law, rule or regulation, including, without limitation, the Sarbanes-Oxley Act of 2002. The full recourse promissory notes are secured by a pledge of the exercised shares.
In January 2007, the Company loaned amounts to its Chief Operation Officer, Mr. Kaufman, a related party, and another employee in connection with the commencement of their employment with the Company. The loans were evidenced by promissory notes for $0.3 million from Mr. Kaufman and $0.1 million from the other employee. These notes bore interest at the applicable federal rate and interest was determined in accordance with Section 7872 of the Internal Revenue Code and has been reflected as income to the employee.
Pursuant to the terms of the promissory notes, provided the individuals remained continuous, full-time employees of the Company, repayment of the notes was to begin after the third year of employment when 50% of the employees annual bonus would have been applied to the loan balance until the loan was paid in full. The notes mature and become immediately due and payable within 30 days following the date on which the employee ceases, voluntarily or involuntarily, to be employed by the Company. In August 2009, management agreed to forgive the $0.1 million loan, provided the individual remained employed by the Company, at the rate of one-third annually in February 2010, 2011 and 2012. This note was fully forgiven as of December 31, 2012. For Mr. Kaufmans loan, no payment was received in the year ended December 31, 2011, since the Company did not pay an annual bonus in that year. In February 2011, the Company agreed to forgive Mr. Kaufmans loan over three years, provided Mr. Kaufman remained employed by the Company, with $0.1 million forgiven in January 2012, $0.1 million in January 2013 and $0.1 million in January 2014. The notes are secured by any stock and options the employees hold in the Company. The note receivable balance outstanding at December 31, 2012 and 2013 was $0.2 million and $0.1 million, respectively. Mr. Kaufmans note was fully forgiven as of March 31, 2014.
5. | Loan and Security Agreement |
In August 2013, the Company entered into a loan and security agreement (Loan Agreement) with Silicon Valley Bank (SVB) for a total commitment of $12.0 million. The commitment consists of an $8.0 million growth capital facility and a $4.0 million revolving accounts receivable line of credit.
The $8.0 million growth capital facility consists of two $4.0 million tranches. The first $4.0 million tranche was available immediately upon execution of the Loan Agreement and will continue to be available until October 31, 2014. The second $4.0 million tranche was contingent upon the Company achieving a trailing three-month revenue of at least $7.0 million. The Company achieved that condition as of January 31, 2014, and therefore the second tranche will be available until March 31, 2015. Payment under both tranches will be interest-only until March 31, 2015, at which time the outstanding balance will convert to a 30-month fully amortizing loan. The interest rate will be fixed at the time of advance and will be the greater of 3.65% or the three-year U.S. Treasury note plus 3%. At the end of the amortization period, the Company will make a final payment of 3.9% of the advanced amounts. There is a prepayment penalty of 2% of the prepaid principal during the first year, 1% during the second year and no prepayment penalty during the third year.
In addition, the Company issued a warrant to SVB to purchase up to 81,254 shares of the Companys Series D convertible preferred stock for an aggregate exercise price of 0.5% of the total growth capital facility commitment, or $40,000. As of March 31, 2014, this warrant was exercisable for 23,215 shares of the Companys Series D convertible preferred stock at an exercise price of $1.72 per share as of December 31, 2013, and March 31, 2014. Following any draw-downs under the growth capital facility, the warrant will become exercisable for additional shares of Series D convertible preferred stock equal to 1.25% of the advanced amounts under tranche one and two divided by $1.72. The initial value of the warrants issued was $10,000 and has been recognized as convertible preferred stock warrant liability and interest expense.
F-18
INTERSECT ENT, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
5. | Loan and Security Agreement (Continued) |
The $4.0 million revolving accounts receivable line of credit will expire in three years. Advances will be made for up to 80% of eligible accounts receivable. An annual loan fee of 0.75% will be paid at the beginning of each of the three years. The interest will be the greater of 4.25% or SVB Prime Rate plus 0.25%.
As of March 31, 2014, the Company had not received any advances under the Loan Agreement.
6. | Equipment Loans |
In September 2012, the Company entered into an equipment loan with an aggregate principal amount of $2.0 million, all of which was drawn down in December 2012. Payments will be made in monthly installments over a 36-month period with an annual interest rate of 5.1%. A total of $4,000 and $0.1 million was recorded as interest expense during the years ended December 31, 2012 and 2013, respectively, and $24,000 and $16,000 during the three months ended March 31, 2013 and 2014, respectively. The amounts outstanding under this loan at December 31, 2012 and 2013, and March 31, 2014, were $2.0 million, $1.4 million and $1.2 million, respectively.
In April 2013, the Company entered into an equipment loan for a principal amount of $0.1 million. Payments will be made in monthly installments over a 38-month period with an interest rate of 14.88%. A total of $11,000 was recorded as interest expense during the year ended December 31, 2013, and $3,000 during the three months ended March 31, 2014. The amounts outstanding under this loan at December 31, 2013, and March 31, 2014, were $87,000 and $80,000, respectively.
At December 31, 2013 and March 31, 2014, future minimum payments under these equipment loans are as follows (in thousands):
Year Ending December 31, |
December 31, 2013 |
March 31, 2014 |
||||||
(unaudited) | ||||||||
2014 (remaining) |
$ | 761 | $ | 570 | ||||
2015 |
761 | 761 | ||||||
2016 |
21 | 21 | ||||||
Thereafter |
| | ||||||
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Total minimum payments |
1,543 | 1,352 | ||||||
Less: amount representing interest |
(91 | ) | (72 | ) | ||||
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|||||
Present value of future payments |
1,452 | 1,280 | ||||||
Less: current portion |
(696 | ) | (705 | ) | ||||
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Non-current portion |
$ | 756 | $ | 575 | ||||
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7. | Convertible Preferred Stock Warrant Liability |
As of December 31, 2012 and 2013, and March 31, 2014, the following warrants to purchase shares of convertible preferred stock were outstanding and exercisable (in thousands, except per share data):
In Connection With |
Series | Exercise Price |
Shares Outstanding at | Initial Value |
Fair Value at | |||||||||||||||||||||||||||||||||||
Dates |
December 31, | March
31, 2014 |
December 31, | March
31, 2014 |
||||||||||||||||||||||||||||||||||||
Issuance |
Expiration | 2012 | 2013 | 2012 | 2013 | |||||||||||||||||||||||||||||||||||
(unaudited) | (unaudited) | |||||||||||||||||||||||||||||||||||||||
Jan to Mar 2006 |
Jan to Mar 2013 | Convertible notes | A | $ | 0.92 | 89,671 | | | $ | 2 | $ | | $ | | $ | | ||||||||||||||||||||||||
Mar 2007 |
Mar 2014 | Equipment loan | A | 0.92 | 16,304 | 16,304 | | 4 | 7 | 17 | | |||||||||||||||||||||||||||||
Nov 2007 |
Nov 2017 | Venture loan | A | 0.92 | 190,217 | 190,217 | 190,217 | 63 | 86 | 200 | 447 | |||||||||||||||||||||||||||||
Aug 2013 |
Aug 2023 | Loan Agreement | D | 1.72 | | 23,215 | 23,215 | 10 | | 20 | 47 | |||||||||||||||||||||||||||||
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296,192 | 229,736 | 213,432 | $ | 93 | $ | 237 | $ | 494 | ||||||||||||||||||||||||||||||||
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F-19
INTERSECT ENT, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
7. | Convertible Preferred Stock Warrant Liability (Continued) |
During the years ended December 31, 2012 and 2013, warrants to purchase 230,974 and 89,671 shares, respectively, of Series A convertible preferred stock were exercised at a price of $0.92 per share. During the year ended December 31, 2012, warrants to purchase 54,347 shares of Series A convertible preferred stock expired unexercised. During the three months ended March 31, 2013, warrants to purchase 89,671 shares of Series A convertible preferred stock were exercised at a price of $0.92 per share. During the three months ended March 31, 2014, warrants to purchase 16,304 shares of Series A convertible preferred stock were exercised though a cashless exercise provision. Net shares of 9,725 were issued and the remaining 6,579 shares were withheld for the exercise price.
In connection with the execution of the Loan Agreement, warrants were issued to purchase the Companys Series D convertible preferred stock. The warrants may currently be exercised for 23,215 shares of Series D convertible preferred stock at an exercise price of $1.72 per share. Alternatively, the bank has the option to exercise the warrants to purchase shares of the class of equity sold to investors in a future round of equity financing with proceeds of at least $5.0 million. The exercise price would be the price paid by the lead investor in the new financing and the number of shares exercisable would be based on an aggregate exercise price of $40,000, representing 0.5% of the total growth capital facility. This represents a warrant for 23,215 shares at an exercise price of $1.72 per share as of December 31, 2013, and March 31, 2014. The warrants expire in August 2023 or upon the occurrence of an acquisition of the Company in exchange for cash or marketable securities. Following any draw-downs under the growth capital facility, the warrant will become exercisable for additional shares of Series D convertible preferred stock equal to 1.25% of the advanced amounts under tranche one and two divided by $1.72.
8. | Convertible Preferred Stock |
A summary of the Companys convertible preferred stock is as follows:
December 31, 2012 | December 31, 2013 | March 31, 2014 | ||||||||||||||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||||||||||||||
Series |
Shares Authorized |
Shares Issued and Outstanding |
Carrying Value (in thousands) |
Shares Authorized |
Shares Issued and Outstanding |
Carrying Value (in thousands) |
Shares Authorized |
Shares Issued and Outstanding |
Carrying Value (in thousands) |
|||||||||||||||||||||||||||
A |
11,239,385 | 10,888,846 | $ | 9,905 | 11,185,038 | 10,978,517 | $ | 9,987 | 11,185,038 | 10,988,242 | $ | 10,016 | ||||||||||||||||||||||||
B |
12,998,650 | 12,998,650 | 19,894 | 12,998,650 | 12,998,650 | 19,894 | 12,998,650 | 12,998,650 | 19,894 | |||||||||||||||||||||||||||
C |
22,750,000 | 21,245,606 | 30,521 | 21,245,606 | 21,245,606 | 30,521 | 21,245,606 | 21,245,606 | 30,521 | |||||||||||||||||||||||||||
D |
| | | 18,200,000 | 17,583,150 | 30,358 | 18,200,000 | 17,583,150 | 30,358 | |||||||||||||||||||||||||||
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46,988,035 | 45,133,102 | $ | 60,320 | 63,629,294 | 62,805,923 | $ | 90,760 | 63,629,294 | 62,815,648 | $ | 90,789 | |||||||||||||||||||||||||
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|
A summary of the Companys convertible preferred stock terms is as follows:
Series |
Liquidation Preference Per Share |
8% Dividend Per Share |
||||||
A |
$ | 0.92 | $ | 0.0736 | ||||
B |
1.54 | 0.1232 | ||||||
C |
1.46 | 0.1168 | ||||||
D |
1.72 | 0.1378 |
The Company recorded its convertible preferred stock at fair value on the dates of issuance, net of issuance costs. A redemption event will only occur upon the liquidation or winding up of the Company, a greater than 50% change in control, or sale of substantially all of the assets of the Company. As the redemption event is outside the control of the Company, all shares of convertible preferred stock have been presented outside of permanent equity. Further, the Company has also elected not to adjust the carrying values of the convertible preferred stock to the redemption value of such shares, since it is uncertain whether or when a redemption event
F-20
INTERSECT ENT, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
8. | Convertible Preferred Stock (Continued) |
will occur. Subsequent adjustments to increase the carrying value to the redemption values will be made when it becomes probable that such redemption will occur. As of December 31, 2012 and 2013, and March 31, 2013, it was not probable that such redemption would occur.
Series D Convertible Preferred Stock
In February 2013, the Company completed the initial closing of the Series D convertible preferred stock financings. The total net cash proceeds from this initial closing totaled $18.2 million and 10,626,550 shares of Series D convertible preferred stock were issued. In March 2013, the Company completed an additional closing of the Series D convertible preferred stock financings. The total net cash proceeds from this additional closing totaled $2.5 million and 1,480,562 shares of Series D convertible preferred stock were issued. The March 2013 closing included 290,191 shares purchased by certain employees of the Company for $0.5 million.
The Series D convertible preferred stock financing contained a provision that obligated the investors to purchase additional shares (convertible preferred stock financing option) at the same price as the initial closing upon notification by the Company that it had achieved an annualized revenue rate of at least $16.0 million over a trailing three-month period. This convertible preferred stock financing option to purchase Series D convertible preferred stock in the future tranche was considered to be a freestanding financial instrument for accounting purposes. Therefore, in February 2013, the Company recorded a financing liability of $0.9 million representing the fair value of this convertible preferred stock financing option at the time of issuance. In October 2013, shortly after achieving the annualized revenue rate, the Company issued the additional 5,476,038 shares of Series D convertible preferred stock to the investors for net proceeds of $9.4 million. Since the convertible preferred stock financing option expired in October 2013 as a result of the issuance of Series D convertible preferred stock, the carrying and fair value of the convertible preferred stock financing option of $1.1 million was reclassified from liability to Series D convertible preferred stock. The Company recorded a charge related to the change in fair value in October 2013 of $0.2 million related to this financing option liability.
Dividends
The holders of Series A, B, C and D convertible preferred stock are entitled to receive dividends (as determined on a per annum basis and on an as-converted basis), from any assets legally available, prior and in preference to any declaration or payment of any dividend to the common stockholders. No dividends other than those payable solely in common stock shall be paid on any common stock, Series A or Series B convertible preferred stock until they are paid on each outstanding share of Series C and D convertible preferred stock. Such dividends are payable when and if declared by the Board of Directors and are not cumulative. No dividends have been declared through December 31, 2013.
Liquidation
In the event of any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary (Liquidation Event), the holders of Series C and D convertible preferred stock are entitled to receive their liquidation preferences, prior to and in preference of any distribution of any assets of the Company to the holders of common stock, Series A or Series B convertible preferred stock, as adjusted for any stock splits, combinations, reorganizations, or similar transactions, plus any declared and unpaid dividends. If, upon the occurrence of such an event, the proceeds thus distributed among the holders of Series C and D convertible preferred stock shall be insufficient to permit the payment to such holders of the full preferential amounts, then the entire amount legally available for distribution shall be distributed among the holders of Series C and D convertible preferred stock in proportion to the full preferential amount that each such holder is otherwise entitled to receive had such proceeds been available.
After payment in full of the Series C and D convertible preferred stock liquidation preference, Series A and B convertible preferred stock liquidation preferences will be paid, as adjusted for any stock splits, combinations,
F-21
INTERSECT ENT, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
8. | Convertible Preferred Stock (Continued) |
reorganizations, or similar transactions. If, upon the occurrence of such an event, the proceeds thus distributed among the holders of Series A and B convertible preferred stock shall be insufficient to permit the payment to such holders of the full preferential amounts, then the entire amount legally available for distribution (after payment in full of the Series C and D convertible preferred stock liquidation preference) shall be distributed among the holders of Series A and B convertible preferred stock in proportion to the full preferential amount that each such holder is otherwise entitled to receive had such proceeds been available.
After liquidation preference payments have been made to the holders of the convertible preferred stock as described above, any remaining assets and funds of the Company are to be distributed ratably among the holders of common stock and Series A, B, C and D convertible preferred stock, assuming conversion of all shares of convertible preferred stock.
Prior to the Liquidation Event, the holders of all series of preferred stock may convert their preferred stock to common stock at the then-applicable conversion rate. Distribution of the Companys assets to the new and existing common stockholders would then be made pro rata according to the number of shares held by each investor.
If convertible preferred stock is not converted to common stock prior to the Liquidation Event, the holders of Series C and D convertible preferred stock are entitled to receive their liquidation preferences, prior to and in preference of distribution of any assets of the Company to the holders of common stock, Series A and Series B convertible preferred stock, by reason of their ownership (as adjusted for any stock splits, combinations, reorganizations, or similar transactions), plus any declared but unpaid dividends on such shares. The holders of Series A and B convertible preferred stock are entitled to receive their liquidation preferences, prior to and in preference of distribution of any assets of the Company to the holders of common stock, by reason of their ownership (as adjusted for any stock splits, combinations, reorganizations, or similar transactions), plus any declared but unpaid dividends on such shares.
Voting
Except as otherwise required by law, the holders of common and convertible preferred stock vote together as a single class. The holders of the convertible preferred stock are entitled to the number of votes equal to the number of shares of common stock into which the convertible preferred stock could be converted on the record date for the vote, or upon the written consent of the stockholders.
Redemption
The convertible preferred shares are not redeemable.
Conversion
Each share of Series A, B, C and D convertible preferred stock, at the option of the holder and at any time after the date of issuance, is convertible into shares of common stock, subject to certain anti-dilution adjustments, in accordance with the conversion formula provided in the Companys Articles of Incorporation (currently 1-for-1). In the event of a stock split, the conversion price in effect immediately prior to such split will be proportionately decreased. Conversion is automatic at the conversion rate: (1) immediately upon the closing of a firm commitment, underwritten initial public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, in which the public offering price reflects a pre-money valuation of at least $200.0 million and with net proceeds raised of at least $40.0 million or (2) at the election of the holders of at least 70% of the then outstanding shares of such series of preferred stock, the election of the holders of at least 65% of the Series C convertible preferred stock and the election of the holders of at least 52% of the Series D convertible preferred stock, voting as a separate class. The convertible preferred stock warrants become exercisable for common stock.
F-22
INTERSECT ENT, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
9. | Stockholders Equity |
Founders Restricted Stock Agreements
The Company and the founders entered into restricted stock agreements in October 2003 for 570,000 shares of common stock, in June 2005 for 200,000 shares of common stock and in October 2005 for 230,000 shares of common stock.
The 2003 restricted stock was issued for cash consideration of $0.001 per share. The 2005 restricted stock was issued for cash consideration of $0.005 per share. The restricted stock issued was subject to a Company repurchase option at the original exercise price in the event of termination of a founders services with the Company. All 1.0 million shares related to founders stock agreements are issued and outstanding and are included within common stock at December 31, 2012 and 2013, and March 31, 2014. None of these shares are subject to repurchase as of December 31, 2012 and 2013, and March 31, 2014.
2013 Equity Incentive Plan
Under the 2013 Equity Incentive Plan (the 2013 Plan) approved by the Companys Board of Directors in September 2013, 8,865,585 shares of common stock have been reserved for the issuance of incentive stock options (ISOs), non-statutory stock options (NSOs), stock bonuses and rights to acquire restricted stock to employees, officers, directors and consultants of the Company as of December 31, 2012. ISOs and NSOs may be granted with exercise prices at no less than 100% and 85%, respectively, of the fair value of the common stock on the date of grant. Options granted to a 10% stockholder shall be at no less than 110% of the fair value and ISO stock option grants to such 10% stockholders expire five years from the date of grant. ISOs granted under the 2013 Plan generally vest 25% after the completion of 12 months of service and the balance vests in equal monthly installments over the next 36 months of service and expire 10 years from the grant date, unless subject to provisions regarding 10% stockholders. NSOs vest per the specific agreement and expire 10 years from the date of grant. There were no options issued with 100% of the shares vested as of the date of grant during the years ended December 31, 2012 and 2013, and the three months ended March 31, 2013 and 2014. New shares are issued upon exercise of options under the stock plan.
The 2013 Plan is the successor to the 2003 Equity Incentive Plan (2003 Plan) which expired in September 2013. Options available for grant under the 2003 Plan of 1,702,916 were incorporated into the 2013 Plan. Options outstanding under the 2003 Plan will be returned to the 2013 Plan upon forfeiture.
A summary of the Companys stock option activity and related information is as follows (options in thousands):
Year Ended December 31, | Three Months Ended March 31, | |||||||||||||||||||||||
2012 | 2013 | 2014 | ||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
Options | Price | Options | Price | Options | Price | |||||||||||||||||||
Outstanding, beginning of period |
5,705 | $ | 0.20 | 6,377 | $ | 0.22 | 7,714 | $ | 0.27 | |||||||||||||||
Grantedat fair market value |
1,185 | 0.29 | 4,133 | 0.30 | 414 | 1.55 | ||||||||||||||||||
Grantedbelow fair market value |
| | 378 | 0.33 | | | ||||||||||||||||||
Exercised |
(463 | ) | 0.19 | (2,960 | ) | 0.21 | (146 | ) | 0.24 | |||||||||||||||
Forfeited |
(50 | ) | 0.22 | (214 | ) | 0.27 | (122 | ) | 0.27 | |||||||||||||||
Expired |
| | | | | | ||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||
Outstanding, end of period |
6,377 | 0.22 | 7,714 | 0.27 | 7,860 | 0.33 | ||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||
Vested and expected to vest |
5,845 | 0.21 | 7,010 | 0.27 | 7,166 | 0.33 | ||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||
Exercisable |
4,824 | 0.20 | 5,257 | 0.25 | 5,354 | 0.27 | ||||||||||||||||||
|
|
|
|
|
|
F-23
INTERSECT ENT, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
9. | Stockholders Equity (Continued) |
The following is a further breakdown of the options outstanding at December 31, 2013 and March 31, 2014 (options in thousands):
December 31, 2013 |
||||||||||||||||||||
Range of Prices |
Options Outstanding |
Weighted Average Remaining Contractual Life (years) |
Weighted Average Exercise Price |
Options Exercisable |
Weighted Average Exercise Price |
|||||||||||||||
$0.01-$0.12 |
517 | 3.1 | $ | 0.12 | 517 | $ | 0.12 | |||||||||||||
0.18-0.19 |
1,047 | 7.0 | 0.18 | 928 | 0.18 | |||||||||||||||
0.25-0.27 |
1,309 | 7.2 | 0.26 | 1,015 | 0.26 | |||||||||||||||
0.30-0.33 |
4,841 | 9.3 | 0.30 | 2,797 | 0.30 | |||||||||||||||
|
|
|
|
|
||||||||||||||||
$0.01-$0.33 |
7,714 | 8.2 | 0.27 | 5,257 | 0.25 | |||||||||||||||
|
|
|
|
March 31, 2014 |
||||||||||||||||||||
(unaudited) | ||||||||||||||||||||
Range of Prices |
Options Outstanding |
Weighted Average Remaining Contractual Life (years) |
Weighted Average Exercise Price |
Options Exercisable |
Weighted Average Exercise Price |
|||||||||||||||
$0.01-$0.12 |
501 | 2.9 | $ | 0.12 | 501 | $ | 0.12 | |||||||||||||
0.18-0.19 |
976 | 6.7 | 0.18 | 900 | 0.18 | |||||||||||||||
0.25-0.27 |
1,295 | 7.0 | 0.26 | 1,055 | 0.26 | |||||||||||||||
0.30-0.33 |
4,674 | 9.1 | 0.30 | 2,853 | 0.30 | |||||||||||||||
1.55-1.55 |
414 | 9.9 | 1.55 | 45 | 1.55 | |||||||||||||||
|
|
|
|
|||||||||||||||||
$0.01-$1.55 |
7,860 | 8.1 | 0.33 | 5,354 | 0.27 | |||||||||||||||
|
|
|
|
As of December 31, 2013 and March 31, 2014, the aggregate pre-tax intrinsic value of options outstanding and exercisable was $4.2 million and $13.5 million, respectively, and options outstanding were $6.1 million and $19.2 million, respectively. The aggregate pre-tax intrinsic value of options exercised was $37,000 and $0.3 million during the years ended December 31, 2012 and 2013, respectively, and $23,000 and $0.2 million during the three months ended March 31, 2013 and 2014, respectively. The aggregate pre-tax intrinsic value was calculated as the difference between the exercise prices of the underlying options and the estimated fair value of the common stock on the date of exercise. The total cash received upon the exercise of options was $0.1 million and $0.6 million during the years ended December 31, 2012 and 2013, respectively, and $36,000 during each of the three months ended March 31, 2013 and 2014.
Early Exercise of Stock Options
Stock options granted under the Plan may provide option holders the right to elect to exercise unvested options in exchange for restricted common stock. During the year ended December 31, 2013, employees exercised options with 276,148 unvested shares. As of December 31, 2013 and March 31, 2014, 215,185 and 189,883 shares, respectively, remained subject to a repurchase right held by the Company at the original issuance price in the event the optionees service is voluntarily or involuntarily terminated. As of December 31, 2013 and March 31, 2014, the related liability was $31,000 and $28,000, respectively. There were no shares subject to repurchase at December 31, 2012.
F-24
INTERSECT ENT, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
9. | Stockholders Equity (Continued) |
Reserved Shares
The Company is required to reserve and keep available out of its authorized but unissued shares of common stock a number of shares sufficient to effect the conversion of all outstanding shares of convertible preferred stock (and preferred stock warrants), plus options granted and available for grant under the incentive stock plan.
The number of such shares of common stock reserved for the conversion, exercise and issuance of the following options and shares outstanding as of December 31, 2013 and March 31, 2014, are as follows (in thousands):
December 31, 2013 |
March 31, 2014 |
|||||||
(unaudited) | ||||||||
Convertible preferred stock: |
||||||||
Series A: |
||||||||
Outstanding |
10,978 | 10,988 | ||||||
Warrants issued in connection with: |
||||||||
Equipment loans |
16 | | ||||||
Venture loan financing |
190 | 190 | ||||||
Series B outstanding |
12,999 | 12,999 | ||||||
Series C outstanding |
21,246 | 21,246 | ||||||
Series D: |
||||||||
Outstanding |
17,583 | 17,583 | ||||||
Warrants issued in connection with the Loan Agreement |
23 | 23 | ||||||
2003 Equity Incentive Plan, options outstanding |
6,989 | 6,731 | ||||||
2013 Equity Incentive Plan: |
||||||||
Options outstanding |
725 | 1,129 | ||||||
Options available for future grant |
1,041 | 748 | ||||||
|
|
|
|
|||||
71,790 | 71,637 | |||||||
|
|
|
|
10. | Stock-Based Compensation Expense |
Total stock-based compensation recognized, before taxes, during the years ended December 31, 2012 and 2013 and the three months ended March 31, 2013 and 2014, are as follows (in thousands):
Year Ended December 31, | Three Months Ended March 31, | |||||||||||||||
2012 | 2013 | 2013 | 2014 | |||||||||||||
(unaudited) | ||||||||||||||||
Cost of sales |
$ | 10 | $ | 21 | $ | 3 | $ | 9 | ||||||||
Sales and marketing |
36 | 94 | 11 | 45 | ||||||||||||
General and administrative |
67 | 179 | 14 | 99 | ||||||||||||
Research and development |
39 | 88 | 10 | 29 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total stock-based compensation |
$ | 152 | $ | 382 | $ | 38 | $ | 182 | ||||||||
|
|
|
|
|
|
|
|
The amount of unearned stock-based compensation currently estimated to be expensed from now through the year 2017 related to unvested employee stock-based payment awards as of December 31, 2013 and March 31, 2014 is $1.5 million and $1.4 million, respectively. The weighted average period over which the unearned stock-based compensation is expected to be recognized as of December 31, 2013 and March 31, 2014, is 3.2 years and 3.1 years, respectively. If there are any modifications or cancellations of the underlying unvested securities, the Company may be required to accelerate, increase or cancel any remaining unearned stock-based compensation expense. Future stock-based compensation expense and unearned stock-based compensation will increase to the extent that the Company grants additional share-based payments.
F-25
INTERSECT ENT, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
10. | Stock-Based Compensation Expense (Continued) |
The Company estimates the fair value of stock-based compensation on the date of grant using the Black-Scholes option-pricing model. The Black-Scholes model determines the fair value of stock-based payment awards based on the fair market value of the Companys common stock on the date of grant and is affected by assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the fair market value of the Companys common stock, volatility over the expected term of the awards and actual and projected employee stock option exercise behaviors. The Company has opted to use the simplified method for estimating the expected term of options, whereby the expected term equals the arithmetic average of the vesting term and the original contractual term of the option. Due to the Companys limited operating history and a lack of company specific historical and implied volatility data, the Company has based its estimate of expected volatility on the historical volatility of a group of similar companies that are publicly traded. When selecting these public companies on which it has based its expected stock price volatility, the Company generally selected companies with comparable characteristics to it, including enterprise value, stages of clinical development, risk profiles, position within the industry and with historical share price information sufficient to meet the expected life of the stock-based awards. The historical volatility data was computed using the daily closing prices for the selected companies shares during the equivalent period of the calculated expected term of the share-based payments. The Company will continue to analyze the historical stock price volatility and expected term assumptions as more historical data for the Companys common stock becomes available. The risk-free rate assumption is based on the U.S. Treasury instruments with maturities similar to the expected term of the Companys stock options. The expected dividend assumption is based on the Companys history of not paying dividends and its expectation that it will not declare dividends for the foreseeable future.
As stock-based compensation expense recognized in the financial statements is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from estimates. Forfeitures are estimated based on estimated future employee turnover and historical experience.
The fair value of the options granted to employees or directors during the years ended December 31, 2012 and 2013, and the three months ended March 31, 2013 and 2014, was estimated as of the grant date using the Black-Scholes model assuming the weighted average assumptions listed in the following table:
Year Ended December 31, | Three Months Ended March 31, | |||||||||||||||
2012 | 2013 | 2013(1) | 2014 | |||||||||||||
(unaudited) | ||||||||||||||||
Expected life (years) |
6.0 | 6.0 | | 6.0 | ||||||||||||
Expected volatility |
66 | % | 67 | % | | 60 | % | |||||||||
Risk-free interest rate |
0.9 | % | 1.6 | % | | 1.8 | % | |||||||||
Dividend yield |
0.0 | % | 0.0 | % | | 0.0 | % | |||||||||
Expected forfeitures |
7 | % | 5 | % | | 5 | % | |||||||||
Weighted average fair value |
$ | 0.17 | $ | 0.24 | | $ | 0.86 |
(1) | No options were granted during the period |
Option Modification
In April 2013, options held by the President and Chief Executive Officer, Ms. Earnhardt, a related party, were modified to permit exercise with promissory notes of up to $0.5 million. Under the terms of the notes, one quarter of the principal and interest will be forgiven on each anniversary date of the note as long as Ms. Earnhardt remains the Companys Chief Executive Officer. In addition, the entire principal and interest of the notes will be forgiven on the earlier of an initial public offering or the closing of a liquidation event (as defined in the articles of incorporation), in each case where total proceeds payable to the Company or its stockholders is greater than $200.0 million. The Company has the option to accelerate the maturity date if, at the
F-26
INTERSECT ENT, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
10. | Stock-Based Compensation Expense (Continued) |
Companys reasonable discretion, such acceleration may be necessary due to any applicable law, rule or regulation, including, without limitation, the Sarbanes-Oxley Act of 2002. The economic effect of the modification was equivalent to converting options to purchase 2.3 million shares to a grant of restricted stock with four-year vesting and a contingent vesting acceleration provision. The incremental cost of the modification was $0.3 million, of which $50,000 and $13,000 was recognized in the year ended December 31, 2013, and three months ended March 31, 2014, respectively.
Performance-Based Options
Options issued during the year ended December 31, 2011, included grants to certain employees totaling 1,157,015 shares that contained vesting conditions contingent on the achievement of certain milestones. Assuming continued service by the employee, the vesting would begin on the date both milestones were achieved and vest monthly thereafter over the following four years. At December 31, 2011, the Company determined that it was probable that both milestones would be achieved and therefore began recording stock-based compensation expense related to these options in the year ended December 31, 2011. The milestones were achieved by the year ended December 31, 2013, and therefore began vesting accordingly. Stock-based compensation expense totaling $29,000 and $30,000 was recorded during the years ended December 31, 2012 and 2013, respectively, and $8,000 and $5,000 during the three months ended March 31, 2013 and 2014, respectively.
Options issued during the year ended December 31, 2013, included grants to certain employees totaling 1,452,000 shares that contained vesting conditions contingent on the achievement of certain milestones. Assuming continued service by the employee, the vesting would begin on the date both milestones were achieved and vest monthly over the following four years. As of December 31, 2013, the Company determined it was probable that both milestones would be achieved and therefore began recording stock-based compensation expense related to these options in the year ended December 31, 2013. The milestones were achieved by the year ended December 31, 2013, and therefore began vesting accordingly. Stock-based compensation expense totaling $0.1 million and $27,000 were recorded during the year ended December 31, 2013, and the three months ended March 31, 2014, respectively.
Options Issued to Consultants
During the years ended December 31, 2012 and 2013, non-statutory options were issued to non-employees to purchase 60,000 and 20,000 shares of common stock, respectively, for current and future services at weighted-average exercise prices of $0.27 and $0.30 per share, respectively. There were no options were issued to non-employees during the three months ended March 31, 2013 and 2014. The options were valued using the Black-Scholes model based on the following weighted average assumptions:
Year Ended December 31, | Three Months Ended March 31, | |||||||||||||||
2012 | 2013 | 2013 | 2014 | |||||||||||||
(unaudited) | ||||||||||||||||
Expected life (years) |
10.0 | 9.0 | 9.0 | 8.0 | ||||||||||||
Expected volatility |
66 | % | 66 | % | 66 | % | 65 | % | ||||||||
Risk-free interest rate |
1.8 | % | 2.4 | % | 2.0 | % | 2.8 | % | ||||||||
Dividend yield |
0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % |
The fair value of these options is expensed over the vesting period, which ranges from five months to three years. Stock-based compensation expense was $7,000 and $15,000 during the years ended December 31, 2012 and 2013, respectively, and $2,000 and $17,000 during the three months ended March 31, 2013 and 2014, respectively, related to consultants was charged to expense in the statements of operations and comprehensive loss.
F-27
INTERSECT ENT, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
11. | Commitments and Contingencies |
Building Lease
As of December 31, 2013 and March 31, 2014, the Company has one leased facility under an operating lease agreement. Rental payments on operating leases are charged to expense on a straight-line basis over the period of the lease. The Company entered into this 36-month lease in March 2012, effective June 1, 2012, for a facility with larger production and office space. The lease agreement requires the Company to pay executory costs such as real estate taxes, insurance and repairs, and includes a renewal provision allowing the Company to extend this lease for an additional three years at 95% of the then-current fair market rental rate.
Future minimum annual operating lease payments are as follows (in thousands):
Year Ending December 31, |
December 31, 2013 |
March 31, 2014 |
||||||
(unaudited) | ||||||||
2014 (remaining) |
$ | 928 | $ | 699 | ||||
2015 |
390 | 390 | ||||||
Thereafter |
| | ||||||
|
|
|
|
|||||
1,318 | 1,089 | |||||||
|
|
|
|
As of December 31, 2012 and 2013, and March 31, 2014, two-thirds of the Companys security deposit is recorded in other non-current assets and the remaining one-third is restricted cash.
Rent expense was $0.6 million and $1.4 million during the years ended December 31, 2012 and 2013, respectively, and $0.3 million during each of the three months ended March 31, 2013 and 2014, respectively.
Purchase Commitments
The Company had commitments to suppliers for purchases totaling $0.5 million and $0.7 million as of December 31, 2013 and March 31, 2014, respectively.
12. | Employee Retirement Plan |
In January 2007, the Company established a qualified retirement plan under section 401(k) of the Internal Revenue Code (IRC) under which participants may contribute up to 100% of their eligible compensation, subject to maximum deferral limits specified by the IRC. The Company may make a discretionary profit sharing contribution to each eligible employee, subject to limits specified by the IRC, on an annual basis, provided the employee is employed with the Company on the last day of the plan year which is December 31. In addition, the Company may also make a matching contribution of up to 3% of an employees eligible compensation on a quarterly basis. The Companys contributions will vest 25% per year over four years. As of December 31, 2013 and March 31, 2014, the Company has not made any profit sharing or matching contributions.
13. | Income Taxes |
The Company has a history of losses and therefore has made no provision for income taxes. All losses result from domestic operations.
F-28
INTERSECT ENT, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
13. | Income Taxes (Continued) |
The amount computed by applying the federal statutory rate to income before taxes reconciles to the provision for income taxes is as follows (in thousands):
Year Ended December 31, | ||||||||
2012 | 2013 | |||||||
Tax at federal statutory rate |
$ | (5,564 | ) | $ | (6,245 | ) | ||
State, net of federal benefit |
(1,131 | ) | (826 | ) | ||||
Permanent items |
59 | 368 | ||||||
R&D tax credit |
| (584 | ) | |||||
Other |
(3 | ) | (2 | ) | ||||
Change in valuation allowance |
6,639 | 7,289 | ||||||
|
|
|
|
|||||
$ | | $ | | |||||
|
|
|
|
Significant components of net deferred tax assets are as follows (in thousands):
December 31, | ||||||||
2012 | 2013 | |||||||
Deferred tax assets: |
||||||||
Net operating losses |
$ | 21,719 | $ | 28,236 | ||||
R&D tax credit |
1,642 | 2,394 | ||||||
Accruals and other |
1,259 | 1,279 | ||||||
|
|
|
|
|||||
24,620 | 31,909 | |||||||
Valuation allowance |
(24,620 | ) | (31,909 | ) | ||||
|
|
|
|
|||||
$ | | $ | | |||||
|
|
|
|
The Company had deferred tax assets of $24.6 million and $31.9 million as of December 31, 2012 and 2013, respectively. Deferred income taxes reflect the tax effects of net operating loss and tax credit carryforwards and the net temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
Realization of the deferred tax assets is dependent upon the generation of future taxable income, if any, the amount and timing of which are uncertain. Based on available objective evidence, management believes it is more likely than not that the deferred tax assets are not recognizable and will not be recognizable until the Company has sufficient taxable income. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance. The valuation allowance increased by $6.6 million and $7.3 million during the years ended December 31, 2012 and 2013, respectively.
As of December 31, 2013, the Companys federal net operating loss carryforwards of $71.6 million will expire at various dates beginning in 2026, if not utilized. Federal research and development tax credits of $1.9 million will begin to expire in 2026. In addition, net operating loss carryforwards for state income tax purposes of $49.2 million will begin to expire in 2016 and state research and development tax credits of $1.7 million do not expire.
Utilization of the net operating loss carryforwards may be subject to an annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of the net operating loss before utilization.
The Company had unrecognized tax benefit of $0.5 million and $0.7 million as of and December 31, 2012 and 2013, respectively, all of which is offset by a full valuation allowance. These unrecognized tax benefits, if recognized, would not affect the effective tax rate. There was no interest or penalties accrued at the adoption date and at December 31, 2013.
F-29
INTERSECT ENT, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
13. | Income Taxes (Continued) |
A reconciliation of the change in the unrecognized tax benefit during the year is as follows (in thousands):
December 31, | ||||||||
2012 | 2013 | |||||||
Beginning of year |
$ | 442 | $ | 505 | ||||
Additions for tax positions related to: |
||||||||
Current year |
63 | 210 | ||||||
Prior years |
| | ||||||
|
|
|
|
|||||
End of year |
$ | 505 | $ | 715 | ||||
|
|
|
|
The Company does not expect a significant change to its unrecognized tax benefits over the next twelve months. The unrecognized tax benefits may increase or change during the next twelve months for items that arise in the ordinary course of business.
The Company files income tax returns in the U.S. federal and various state jurisdictions. Tax years beginning in 2003 through 2013, remain open to examination by the major taxing authorities to which the Company is subject to. The Companys policy is to record interest related to uncertain tax positions as interest and any penalties as other expense in its statement of operations. As of the date of adoption of ASC Topic No. 740 and through December 31, 2013, the Company did not have any interest or penalties associated with unrecognized tax benefits.
14. | Related Parties |
In April 2013, options held by the President and Chief Executive Officer, Ms. Earnhardt, a related party, were modified to permit exercise with promissory notes of up to $0.5 million. The promissory notes were issued in May 2013 for $0.5 million. Under the terms of the notes, one quarter of the principal and interest will be forgiven on each anniversary date of the note as long as Ms. Earnhardt remains the Companys Chief Executive Officer. In addition, the entire principal and interest of the notes will be forgiven on the earlier of an initial public offering or the closing of a liquidation event (as defined in the articles of incorporation), where the proceeds to the Company or its stockholders is greater than $200.0 million. The Company has the option to accelerate the maturity date if, at the Companys reasonable discretion, such acceleration may be necessary due to any applicable law, rule or regulation, including, without limitation, the Sarbanes-Oxley Act of 2002. The promissory notes are secured by the shares received upon exercise with the promissory notes.
In January 2007, the Company loaned amounts to its Chief Operation Officer, Mr. Kaufman, a related party, in connection with the commencement of his employment with the Company. The loans were evidenced by promissory notes for $0.3 million. This note bore interest at the applicable federal rate and interest was determined in accordance with Section 7872 of the Internal Revenue Code and has been reflected as income to Mr. Kaufman.
Pursuant to the terms of the promissory note, provided Mr. Kaufman remained a continuous, full-time employee of the Company, repayment of the notes was to begin after the third year of employment when 50% of his annual bonus would have been applied to the loan balance until the loan was paid in full. The note matures and becomes immediately due and payable within 30 days following the date on which Mr. Kaufman ceases, voluntarily or involuntarily, to be employed by the Company. No payment was received in the year ended December 31, 2011, since the Company did not pay an annual bonus in that year. In February 2011, the Company agreed to forgive Mr. Kaufmans loan over three years, provided Mr. Kaufman remained employed by the Company, with $0.1 million forgiven in January 2012, $0.1 million in January 2013 and $0.1 million in January 2014. The note is secured by any stock and options Mr. Kaufman holds in the Company. The note receivable balance outstanding at December 31, 2012 and 2013 was $0.2 million and $0.1 million, respectively. Mr. Kaufmans note was fully forgiven as of March 31, 2014.
F-30
INTERSECT ENT, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
14. | Related Parties (Continued) |
In March 2009, the Company purchased three sinus irrigation tool patents from Medilyfe Inc., a Canadian corporation. A member of the Companys Medical Advisory Board holds an executive-level position with Medilyfe Inc. The agreement calls for a $40,000 milestone payment upon execution of the agreement and an additional $35,000 upon the first anniversary of the agreements effective date in addition to the issuance of a warrant to purchase 175,000 shares of the Companys common stock at $0.25 per share.
The warrant vested fully upon grant and will expire April 7, 2019. The value of the warrant was $30,000 determined using the Black-Scholes model. The cost of the patents is included in research and development expense, since substantial research and development efforts will be required prior to commercialization and there is no alternative future use of the technology rights. A $35,000 cash payment was made in 2012, since one additional patent claim was allowed by the U.S. Patent Office. The Company recorded $35,000 in research and development expense related to this agreement for the year ended December 31, 2012. An additional $80,000 cash payment will be due upon the first achievement of net sales of products incorporating this technology exceeding $1.0 million in a given calendar year. Such additional payment was not owed as of December 31, 2013, since this technology is unrelated to the Companys current activities.
15. | Subsequent Events |
For the audited financial statements, management has reviewed and evaluated material subsequent events from the balance sheet date of December 31, 2013, through the financial statements issue date of May 1, 2014. No subsequent events have been identified for disclosure.
16. | Subsequent Events (unaudited) |
For the interim condensed consolidated financial statements as of March 31, 2014, and for the three months then ended, the Company has evaluated events through June 23, 2014, which is the date the financial statements were available to be issued. No subsequent events have been identified for disclosure other than as noted below. The promissory notes of $0.5 million issued to the Companys Chief Executive Officer in May 2013 for the exercise of stock options were fully forgiven by the Company in June 2014. In connection with the forgiveness of the note in June 2014, the unamortized modification cost relating to the vested options of $0.2 million was immediately recognized. The remaining unamortized modification cost of $0.1 million will be amortized over the remaining vesting period.
F-31
intersect®
ENT
ADVANCING CLINICALLY PROVEN
THERAPEUTIC SOLUTIONS
FOR PATIENTS WITH CHRONIC SINUSITIS
Shares
Common Stock
PROSPECTUS
J.P. Morgan | Piper Jaffray | |||
Leerink Partners | Wedbush PacGrow Life Sciences |
, 2014
PART II
Information Not Required in Prospectus
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the costs and expenses, other than the underwriting discounts and commissions, payable by the registrant in connection with the sale of common stock being registered. All amounts are estimates except for the Securities and Exchange Commission, or SEC, registration fee, the FINRA filing fee and The Nasdaq Global Market listing fee.
Item |
Amount to be paid |
|||
SEC registration fee |
||||
FINRA filing fee |
||||
The Nasdaq Global Market Listing fee |
||||
Printing and engraving expenses |
||||
Legal fees and expenses |
||||
Accounting fees and expenses |
||||
Blue Sky, qualification fees and expenses |
||||
Transfer Agent fees and expenses |
||||
Miscellaneous expenses |
||||
|
|
|||
Total |
$ | |||
|
|
Item 14. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law authorizes a court to award, or a corporations board of directors to grant, indemnity to directors and officers in terms sufficiently broad to permit such indemnification under certain circumstances for liabilities, including reimbursement for expenses incurred, arising under the Securities Act of 1933, as amended, or the Securities Act. Our amended and restated certificate of incorporation to be in effect upon the completion of this offering provides for indemnification of our directors, officers, employees and other agents to the maximum extent permitted the Delaware General Corporation Law, and our amended and restated bylaws to be in effect upon the completion of this offering provide for indemnification of our directors, officers, employees and other agents to the maximum extent permitted by the Delaware General Corporation Law. In addition, we have entered into indemnification agreements with our directors, officers and some employees containing provisions that may be in some respects broader than the specific indemnification provisions contained in the Delaware General Corporation Law. The indemnification agreements may require us, among other things, to indemnify our directors against certain liabilities that may arise by reason of their status or service as directors, officers and employees and to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified.
We maintain a directors and officers insurance policy.
The underwriting agreement to be entered into in connection with this offering will provide that the underwriters will indemnify us, our directors and certain of our officers against liabilities resulting from information furnished by or on behalf of the underwriters specifically for use in the Registration Statement.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. Please read Item 17. Undertakings for more information on the SECs position regarding such indemnification provisions.
II-1
Item 15. Recent Sales of Unregistered Securities.
Since January 1, 2011, we have made sales of the following unregistered securities:
| We granted stock options under our 2003 Equity Incentive Plan and 2013 Equity Incentive Plan to purchase an aggregate of 9,799,948 shares of our common stock at a weighted average exercise price of $0.42 to a total of 171 employees, directors and consultants. Of these, stock options to purchase an aggregate of 546,295 shares have been cancelled without being exercised, 2,298,256 have been exercised and 6,955,397 remain outstanding. |
| We issued and sold an aggregate of 3,990,600 shares of our common stock to employees, directors and consultants at a weighted average exercise price of $0.21 upon the exercise of stock options granted under our 2003 Equity Incentive Plan and 2013 Equity Incentive Plan. Of these, none have been repurchased and all shares remain outstanding. |
| In August 2011, we issued an aggregate of 10,622,800 shares of our Series C convertible preferred stock to 17 accredited investors at a per share price of $1.46, for aggregate consideration of approximately $15,509,288. |
| In February 2013, we issued an aggregate of 10,626,550 shares of our Series D convertible preferred stock to 8 accredited investors at a per share price of $1.72, for aggregate consideration of approximately $18,309,546. |
| In March 2013, we issued an aggregate of 1,480,562 shares of our Series D convertible preferred stock to 27 accredited investors at a per share price of $1.72, for aggregate consideration of approximately $2,551,008. |
| In October 2013, we issued an aggregate of 5,476,038 shares of our Series D convertible preferred stock to 18 accredited investors at a per share price of $1.72, for aggregate consideration of approximately $9,435,214. |
| In March 2014, we issued an aggregate of 9,725 shares of our Series A convertible preferred stock to 1 accredited investor at a per share price of $0.92 upon the net exercise of preferred stock warrants, for aggregate consideration of approximately $8,947. |
Unless otherwise stated, the sales of the above securities were deemed to be exempt from registration under the Securities Act in reliance upon Section 4(a)(2) of the Securities Act or Regulation D promulgated thereunder, or Rule 701 promulgated under Section 3(b) of the Securities Act as transactions by an issuer not involving any public offering or pursuant to benefit plans and contracts relating to compensation as provided under Rule 701. The recipients of the securities in each of these transactions represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were placed upon the stock certificates issued in these transactions.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits. See the Exhibit Index attached to this registration statement, which is incorporated by reference herein.
(b) Financial Statement Schedules. Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the Financial Statements or notes thereto.
Item 17. Undertakings.
The undersigned Registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification by the Registrant for liabilities arising under the Securities Act may be permitted to directors, officers, and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise,
II-2
the Registration has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant in the successful defense of any action, suit, or proceeding) is
asserted by such director, officer, or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The Registrant hereby undertakes that:
(1) | For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. |
(2) | For purposes of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Registration Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in Menlo Park, California, on June 23, 2014.
Intersect ENT, Inc. | ||||
Date: June 23, 2014 | By: | /S/ LISA D. EARNHARDT | ||
Lisa D. Earnhardt President and Chief Executive Officer | ||||
Date: June 23, 2014 | By: | /S/ JERYL L. HILLEMAN | ||
Jeryl L. Hilleman Chief Financial Officer |
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose individual signature appears below hereby authorizes and appoints Lisa D. Earnhardt and Jeryl L. Hilleman , and each of them, with full power of substitution and resubstitution and full power to act without the other, as his or her true and lawful attorney-in-fact and agent to act in his or her name, place and stead and to execute in the name and on behalf of each person, individually and in each capacity stated below, and to file any and all amendments to this Registration Statement on Form S-1, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing, ratifying and confirming all that said attorneys-in-fact and agents or any of them or their or his substitute or substitutes may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Name |
Title |
Date | ||
/S/ LISA D. EARNHARDT Lisa D. Earnhardt |
President and Chief Executive Officer (Principal Executive Officer) and Director |
June 23, 2014 | ||
/S/ JERYL L. HILLEMAN Jeryl L. Hilleman |
Chief Financial Officer (Principal Financial and Accounting Officer) |
June 23, 2014 | ||
/S/ RICK D. ANDERSON Rick D. Anderson |
Director | June 23, 2014 | ||
/S/ CASPER L. DE CLERCQ Casper L. de Clercq |
Director | June 23, 2014 | ||
/S/ MARK FLETCHER Mark Fletcher |
Director | June 23, 2014 | ||
/S/ DANA G. MEAD, JR. Dana G. Mead, Jr. |
Director | June 23, 2014 | ||
/S/ FREDERIC H. MOLL Frederic H. Moll |
Director | June 23, 2014 | ||
/S/ CASEY M. TANSEY Casey M. Tansey |
Director | June 23, 2014 |
II-4
EXHIBIT INDEX
Exhibit |
Description | |
1.1* | Form of Underwriting Agreement. | |
3.1 | Amended and Restated Certificate of Incorporation as currently in effect. | |
3.2* | Form of Amended and Restated Certificate of Incorporation to become effective upon closing of this offering. | |
3.3 | Bylaws, as currently in effect and Certificate of Amendment of Bylaws, dated September 5, 2013. | |
3.4* | Form of Amended and Restated Bylaws to become effective upon closing of this offering. | |
4.1* | Form of Common Stock Certificate of the Registrant. | |
5.1* | Opinion of Cooley LLP. | |
10.1* | Form of Indemnity Agreement between the Registrant and its directors and officers. | |
10.2 | 2003 Equity Incentive Plan, as amended, and Form of Stock Option Grant Notice, Option Agreement and Form of Notice of Exercise. | |
10.3 | 2013 Equity Incentive Plan and Form of Stock Option Grant Notice, Option Agreement and Form of Notice of Exercise. | |
10.4* | 2014 Equity Incentive Plan and Form of Stock Option Grant Notice, Option Agreement and Form of Notice of Exercise. | |
10.5* | 2014 Employee Stock Purchase Plan. | |
10.6 | Third Amended and Restated Investor Rights Agreement, dated as of February 15, 2013, by and among the registrant and certain of its stockholders. | |
10.7 | Lease by and between the registrant and Menlo Business Park, LLC, dated as of March 2, 2012. | |
10.8 | Offer Letter by and between the registrant and Lisa Earnhardt, dated as of January 28, 2008, as amended. | |
10.9 | Offer Letter by and between the registrant and Robert Binney, dated as of June 23, 2011, as amended. | |
10.10 | Offer Letter by and between the registrant and Jeryl L. Hilleman, dated as of May 15, 2014. | |
10.11 | Offer Letter by and between the registrant and Richard Kaufman, dated as of December 6, 2006, as amended. | |
10.12 | Offer Letter by and between the registrant and James Stambaugh, dated as of September 15, 2006, as amended. | |
10.13 | Offer Letter by and between the registrant and Susan Stimson, dated as of January 30, 2007, as amended. | |
10.14 | Offer Letter by and between the registrant and Amy Conuel Wolbeck, dated as of November 24, 2008, as amended. | |
10.15 | Loan and Security Agreement by and between the registrant and Silicon Valley Bank, dated as of August 30, 2013. | |
10.16# | Supply Agreement by and between the registrant and HOVIONE Inter Ltd, dated as of April 14, 2014. | |
10.17# | Supply Agreement by and between the registrant and AIM Plastics Inc., dated as of Supply January 28, 2014. |
Exhibit |
Description | |
10.18# | Supply Agreement by and between the registrant and Stephen Gould Corporation, dated as of November 14, 2013. | |
10.19# | Analytical Testing Partnership Program 2014-2015 by and between the registrant and Exova, dated as of December 6, 2013. | |
10.20# | Master Services Agreement by and between the registrant and Polymer Solutions Corporation, dated as of April 9, 2014. | |
23.1 | Consent of Independent Registered Public Accounting Firm. | |
23.2* | Consent of Cooley LLP. Reference is made to Exhibit 5.1. | |
24.1 | Power of Attorney (see signature page hereto). |
* | To be filed by amendment. |
| Previously filed. |
# | Confidential Treatment Requested. |
Exhibit 3.1
INTERSECT ENT, INC.
RESTATED CERTIFICATE OF INCORPORATION
Intersect ENT, Inc., a corporation organized and existing under and by virtue of the Delaware General Corporation Law, hereby certifies as follows:
The name of this corporation is Intersect ENT, Inc., and the original Certificate of Incorporation of the corporation was filed with the Secretary of State of the State of Delaware on October 6, 2003. The original name of this corporation was Sinexus, Inc.
The Restated Certificate of Incorporation in the form of Exhibit A attached hereto has been duly adopted in accordance with the provisions of Sections 242, 245 and 228 of the General Corporation Law of the State of Delaware (Delaware Corporate Law).
The text of the Certificate of Incorporation is hereby restated and further amended to read in its entirety as set forth in Exhibit A attached hereto.
IN WITNESS WHEREOF, this Restated Certificate of Incorporation has been signed this 14th day of February, 2013.
Intersect ENT, Inc. | ||
By: | /s/ Lisa D. Earnhardt | |
Lisa D. Earnhardt | ||
President and Chief Executive Officer |
- 1 -
EXHIBIT A
RESTATED CERTIFICATE OF INCORPORATION
OF
INTERSECT ENT, INC.
FIRST
The name of this corporation is Intersect ENT, Inc. (the Company).
SECOND
The address of the Companys registered office in the State of Delaware is 160 Greentree Drive, Suite 101, City of Dover, County of Kent. The name of its registered agent at such address is National Registered Agents, Inc.
THIRD
The purpose of this corporation is to engage in the lawful act or activity for which a corporation may be organized under Delaware Corporate Law.
FOURTH
A. The aggregate number of shares that the Company shall have authority to issue is 153,629,294, divided into 90,000,000 shares of Common Stock, par value of $0.001 per share (the Common Stock), and 63,629,294 shares of Preferred Stock, par value of $0.001 per share (the Preferred Stock). The Preferred Stock may be issued in one or more series. The first series shall consist of 11,185,038 shares and is designated the Series A Preferred. The second series shall consist of 12,998,650 shares and is designated the Series B Preferred. The third series shall consist of 21,245,606 shares and is designated Series C Preferred. The fourth series shall consist of 18,200,000 shares and is designated Series D Preferred. The Series A Preferred, the Series B Preferred, the Series C Preferred and the Series D Preferred together shall be the Series Preferred.
B. The terms and provisions of the Series Preferred are as follows:
1. Dividends.
(a) Treatment of Series Preferred. The Series Preferred shall be entitled to receive dividends of $0.0736 per share of Series A Preferred (as adjusted for stock splits, combinations, reorganizations and the like) per annum, $0.1232 per share of Series B Preferred (as adjusted for stock splits, combinations, reorganizations and the like) per annum, $0.1168 per share of Series C Preferred (as adjusted for stock splits, combinations, reorganizations and the like) per annum, and $0.1378 per share of Series D Preferred (as adjusted for stock splits, combinations, reorganizations and the like) per annum out of any assets at the time legally available therefore, when, as and if declared by the Companys Board of Directors (the Board of Directors), prior and in preference to the Common Stock. No dividends other than those payable solely in Common Stock shall be paid on any Common Stock, Series A Preferred or Series B Preferred unless and until the
- 2 -
aforementioned dividends are paid on each outstanding share of Series C Preferred and Series D Preferred (together, the Senior Preferred). After payment in full of the aforementioned dividend on each outstanding share of Senior Preferred, no dividends other than those payable solely in Common Stock shall be paid on any Common Stock unless and until (i) the aforementioned dividends are paid on each outstanding share of Series A Preferred and Series B Preferred, and (ii) a dividend is paid with respect to all outstanding shares of Series Preferred in an amount equal to or greater than the aggregate amount of dividends which would be payable to a holder of Series Preferred if, immediately prior to such dividend payment on Common Stock, such share of Series Preferred had been converted into Common Stock. The Board of Directors is under no obligation to declare dividends, no rights shall accrue to the holders of Series Preferred if dividends are not declared, and any dividends declared shall be noncumulative. The Company shall make no Distribution (as defined below) to the holders of shares of Common Stock except in accordance with this Section 1(a).
(b) Distribution. Distribution means the transfer of cash or property without consideration or for consideration that is less than fair market value, whether by way of dividend or otherwise, or the purchase of shares of the Company (other than in connection with the repurchase of shares of Common Stock issued to or held by employees, consultants, officers or directors at a price not greater than the amount paid by such persons for such shares upon termination of their employment or services pursuant to agreements providing for the right of said repurchase) for cash or property.
(c) Consent to Certain Repurchases. A Distribution to the Companys stockholders solely in connection with the repurchase of shares of Common Stock issued to or held by employees, consultants, officers or directors at a price not greater than the amount paid by such persons for such shares upon termination of their employment or services pursuant to agreements providing for the right of said repurchase may be made without regard to the preferential dividend arrears amount or any preferential rights amount (each as determined under applicable law).
2. Liquidation Rights.
(a) Liquidation Preference.
(i) In the event of any Liquidation (as defined below), either voluntary or involuntary, each share of Senior Preferred shall be converted into a right to receive, out of the assets of the Company, the Senior Liquidation Preference Amount, before any payment shall be made or any assets distributed to the holders of Common Stock, Series A Preferred or Series B Preferred (the Senior Liquidation Preference). If, upon the Liquidation, the assets to be distributed among the holders of the Senior Preferred are insufficient to permit the payment to such holders of the full Senior Liquidation Preference for their shares, then the entire assets of the Company legally available for distribution shall be distributed with equal priority and pro rata among the holders of the Senior Preferred in proportion to the full aforesaid preferential amount to which each such holder is entitled. Senior Liquidation Preference Amount shall mean, (i) with respect to a share of Series C Preferred, $1.46 per share (as adjusted for stock splits, combinations, reorganizations and the like) plus declared or accumulated but unpaid dividends on such share and (ii) with respect to a share of Series D Preferred, $1.723 per share (as adjusted for stock splits, combinations, reorganizations and the like) plus declared or accumulated but unpaid dividends on such share.
(ii) After payment in full of the Senior Liquidation Preference, each share of Series A Preferred and Series B Preferred shall be converted into a right to receive, out of the assets
- 3 -
of the Company, the Junior Preferred Liquidation Preference, before any payment shall be made or any assets distributed to the holders of Common Stock. Junior Preferred Liquidation Preference shall mean, with respect to a share of Series A Preferred, $0.92 per share (as adjusted for stock splits, combinations, reorganizations and the like) plus declared or accumulated but unpaid dividends on such share and, with respect to a share of Series B Preferred, $1.54 per share (as adjusted for stock splits, combinations, reorganizations and the like) plus declared or accumulated but unpaid dividends on such share. If, upon the Liquidation, the assets to be distributed among the holders of the Series A Preferred and Series B Preferred are insufficient to permit the payment to such holders of the full Junior Preferred Liquidation Preference for their shares, then the entire assets of the Company legally available for distribution (after payment in full of the Senior Liquidation Preference) shall be distributed with equal priority and pro rata among the holders of the Series A Preferred and Series B Preferred in proportion to the full aforesaid preferential amount to which each such holder is entitled.
(b) Remaining Assets. After the payment to the holders of Series Preferred of the full preferential amount specified above, any remaining assets of the Company shall be distributed with equal priority and pro rata among the holders of the Series Preferred and the Common Stock, treating in such circumstances each share of Series Preferred as if it had been converted into Common Stock at the then-applicable conversion rate.
(c) Liquidation. A Liquidation shall be deemed to be occasioned by, or to include, (i) the liquidation, dissolution or winding up of the Company; (ii) the acquisition of the Company by another entity by means of any transaction or series of related transactions (including, without limitation, any stock acquisition, reorganization, merger or consolidation but excluding any sale of stock for capital raising purposes) other than by means of a transaction or series of transactions in which the holders of the voting securities of the Company outstanding immediately prior to such transaction continue to retain (either by such voting securities remaining outstanding or by such voting securities being converted into voting securities of the surviving entity), as a result of shares in the Company held by such holders prior to such transaction, at least 50% of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such transaction or series of transactions, and (iii) a sale, exclusive license or other conveyance of all or substantially all of the assets of the Company, by means of a transaction or series of transactions.
(e) Shares not Treated as Both Series Preferred and Common Stock in any Distribution. Solely to the extent any shares of Series Preferred are converted into shares of Common Stock, such shares of Series Preferred shall not be entitled to be converted into shares of Common Stock in order to participate in any distribution or series of related distributions, as shares of Common Stock, without first foregoing participation in the distribution or series of related distributions as shares of Series Preferred.
(f) Determination of Value if Proceeds Other than Cash. In any Liquidation, if the proceeds received by the Company or its stockholders are other than cash, its value will be deemed its fair market value. Any securities shall be valued as follows:
(i) Securities not subject to investment letter or other similar restrictions on free marketability covered by (ii) below:
(A) If traded on a securities exchange, the value shall be deemed to be the average of the closing prices of the securities on such exchange over the 20 trading-day period ending three trading days prior to the closing of the Liquidation;
- 4 -
(B) If actively traded over-the-counter, the value shall be deemed to be the average of the closing bid or sale prices (whichever is applicable) over the 20 trading-day period ending three trading days prior to the closing of the Liquidation; and
(C) If there is no active public market, the value shall be the fair market value thereof, as determined by the Board of Directors.
(ii) The method of valuation of securities subject to investment letter or other restrictions on free marketability (other than restrictions arising solely by virtue of a stockholders status as an affiliate or former affiliate) shall be to make an appropriate discount from the market value determined as above in (i) (A), (B) or (C) to reflect the approximate fair market value thereof, as determined by the Board of Directors.
3. Conversion. The Series Preferred shall have conversion rights as follows:
(a) Right to Convert. Each share of Series Preferred shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the office of the Company or any transfer agent for the Series Preferred. Each share of Series A Preferred shall be convertible into that number of fully-paid and nonassessable shares of Common Stock that is equal to $0.92 (as adjusted for stock splits, combinations, reorganizations and the like) divided by the applicable Conversion Price (as set forth below). Each share of Series B Preferred shall be convertible into that number of fully-paid and nonassessable shares of Common Stock that is equal to $1.54 (as adjusted for stock splits, combinations, reorganizations and the like) divided by the applicable Conversion Price. Each share of Series C Preferred shall be convertible into that number of fully-paid and nonassessable shares of Common Stock that is equal to $1.46 (as adjusted for stock splits, combinations, reorganizations and the like) divided by the applicable Conversion Price. Each share of Series D Preferred shall be convertible into that number of fully-paid and nonassessable shares of Common Stock that is equal to $1.723 (as adjusted for stock splits, combinations, reorganizations and the like) divided by the applicable Conversion Price. The Conversion Price applicable to the Series A Preferred shall initially be $0.92, the Conversion Price applicable to the Series B Preferred shall initially be $1.54, the Conversion Price applicable to the Series C Preferred shall initially be $1.46 and the Conversion Price applicable to the Series D Preferred shall initially be $1.723, each shall be subject to adjustment as provided herein.
(b) Automatic Conversion. Each share of Series Preferred shall automatically be converted into shares of Common Stock at the then effective Conversion Price for such share immediately upon (1) the affirmative vote of the holders of at least 70% of the Series Preferred, voting together as a single class and the affirmative vote of the holders of at least 52% of the Series D Preferred, voting as a separate class, or (2) the consummation of a firmly underwritten public offering pursuant to an effective registration statement on Form S-1 (or any successor form) under the Securities Act of 1933, as amended (the Securities Act), at a per share price to the public reflecting a pre-money valuation of the Company of at least $200,000,000 and with net proceeds to the Company of at least $40,000,000 (after deducting underwriting commissions and offering expenses) (a Qualified Public Offering).
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(c) Mechanics of Conversion. No fractional shares of Common Stock shall be issued upon conversion of Series Preferred. In lieu of any fractional shares to which the holder would otherwise be entitled, the Company shall pay the fair market value cash equivalent of such fractional share as determined by the Board of Directors. For such purpose, all shares of Series Preferred held by each holder shall be aggregated, and any resulting fractional share of Common Stock shall be paid in cash. Before any holder of Series Preferred shall be entitled to convert the same into full shares of Common Stock, and to receive certificate(s) therefor, it shall surrender the Series Preferred certificate or certificates, duly endorsed, at the office of the Company or of any transfer agent for the Series Preferred, and shall give written notice to the Company at such office that such holder elects to convert such shares; provided, however, that in the event of an automatic conversion pursuant to paragraph 3(b) above, the outstanding shares of Series Preferred shall be converted automatically without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Company or its transfer agent; provided further, however, that the Company shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such automatic conversion unless either the certificates evidencing such shares of Series Preferred are delivered to the Company or its transfer agent as provided above, or the holder notifies the Company or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Company to indemnify the Company from any loss incurred by it in connection with such certificates.
The Company shall, as soon as practicable after delivery of the Series Preferred certificate(s), issue and deliver at such office to such holder of Series Preferred, a certificate or certificates for the number of shares of Common Stock to which he, she or it shall be entitled and a check payable to the holder in the amount of any cash amounts payable as the result of a conversion into fractional shares of Common Stock, plus any declared or accumulated but unpaid dividends on the converted Series Preferred. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Series Preferred to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date; provided, however, that if the conversion is in connection with an underwritten offer of securities registered pursuant to the Securities Act, the conversion may, at the option of any holder tendering Series Preferred for conversion, be conditioned upon the closing of the sale of securities pursuant to such offering, in which event the person(s) entitled to receive the Common Stock issuable upon such conversion of the Series Preferred shall not be deemed to have converted such Series Preferred until immediately prior to the closing of the sale of such securities.
(d) Adjustments for Subdivisions or Combinations of Common. After the date of the filing of this Restated Certificate of Incorporation, if the outstanding shares of Common Stock shall be subdivided (by stock split, stock dividend or otherwise), into a greater number of shares of Common Stock, the Conversion Price in effect immediately prior to such subdivision shall, concurrently with the effectiveness of such subdivision, be proportionately decreased. After the date of the filing of this Restated Certificate of Incorporation, if the outstanding shares of Common Stock shall be combined (by reclassification or otherwise) into a lesser number of shares of Common Stock, the Conversion Price in effect immediately prior to such combination shall, concurrently with the effectiveness of such combination, be proportionately increased.
(e) Adjustments for Reclassification, Exchange and Substitution. If the Common Stock issuable upon conversion of the Series Preferred shall be changed into the same or a different number of shares of any other class or classes of stock, whether by capital reorganization,
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reclassification or otherwise (other than a subdivision or combination of shares provided for above), concurrently with the effectiveness of such reorganization or reclassification, the Series Preferred shall be convertible into, in lieu of the number of shares of Common Stock which the holders would otherwise have been entitled to receive, a number of shares of such other class or classes of stock equivalent to the number of shares of Common Stock that would have been subject to receipt by the holders upon conversion of the Series Preferred immediately before that change.
(f) Adjustments for Reorganization, Merger, Consolidation or Sale of Assets. If the Common Stock issuable upon conversion of the Series Preferred shall be changed into the same or a different number of shares of any other class or classes of stock, whether by a merger or consolidation of this Company with or into another entity, or the sale of all or substantially all of this Companys properties and assets to any other person or entity (other than as provided for elsewhere in this Section 3 or a transaction subject to Section 2 above) then, as a part of such reorganization, merger, consolidation or sale, provision shall be made so that the holders of Series Preferred shall thereafter be entitled to receive upon conversion of the then outstanding Series Preferred, the number of shares of stock or other securities or property of the Company, or of the successor entity resulting from such merger or consolidation or sale, to which a holder of Common Stock deliverable upon conversion would have been entitled on such capital reorganization, merger, consolidation or sale. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 3 with respect to the rights of the holders of the then outstanding Series Preferred after the reorganization, merger, consolidation or sale to the end that the provisions of this Section 3 (including adjustments of the applicable Conversion Price then in effect and the number of shares purchasable upon conversion of the Series Preferred) shall be applicable after that event as nearly equivalent as may be practicable.
(g) Adjustments for Dilutive Issuances.
(i) After the date of the filing of this Restated Certificate of Incorporation, if the Company shall issue or sell any shares of Common Stock (as actually issued or, pursuant to paragraph (iii) below, deemed to be issued) for a consideration per share less than the applicable Conversion Price of a series of Series Preferred, in effect immediately prior to such issue or sale, then immediately upon such issue or sale the Conversion Price of such series of Series Preferred shall be reduced to a price (calculated to the nearest one-thousandth of a cent) determined by multiplying such prior Conversion Price by a fraction, the numerator of which shall be the number of shares of Calculated Securities (defined below) outstanding immediately prior to such issue or sale plus the number of shares of Common Stock that the aggregate consideration received by the Company for the total number of shares of Common Stock so issued or sold would purchase at such prior Conversion Price, and the denominator of which shall be the number of shares of Calculated Securities outstanding immediately prior to such issue or sale plus the number of shares of Common Stock so issued or sold. Calculated Securities means (A) all shares of Common Stock actually outstanding and (B) all Convertible Securities (as defined below) on an as-exercised, as converted to Common Stock basis. Convertible Securities shall mean any actually outstanding bonds, debentures, notes or other evidences of indebtedness, options, warrants, shares (including, but not limited to, shares of Series A Preferred, Series B Preferred, Series C Preferred or Series D Preferred) or any other securities convertible into, exercisable for, or exchangeable for Common Stock.
(ii) For the purposes of paragraph (i) above, none of the following issuances shall be considered the issuance or sale of Common Stock (collectively known as Excluded Securities):
(A) The issuance of any Common Stock or Convertible Securities (and the Common Stock issued upon conversion and/or exercise thereof) as a result of a stock split or as a dividend on the Companys capital stock.
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(B) The issuance of up to 15,096,022 shares (including against such number any shares issued prior to the filing of this Restated Certificate of Incorporation) of Common Stock (and options to purchase such shares, including exercised, outstanding and available options and stock purchase rights), or such larger number as is approved by the Board of Directors, including at least three of the Preferred Directors (as defined below), to employees, consultants or directors pursuant to any arrangement or plan approved by the Board of Directors.
(C) The issuance of shares of Common Stock or Convertible Securities (and the Common Stock issued upon conversion and/or exercise thereof) to financial institutions in connection with equipment financing arrangements approved by the Board of Directors, including at least three of the Preferred Directors (as defined below).
(D) The issuance of shares of Common Stock or Convertible Securities (and the Common Stock issued upon conversion and/or exercise thereof) pursuant to a transaction primarily for the purpose of licensing technology that is approved by the Board of Directors including all Preferred Directors.
(E) The issuance of Common Stock or Convertible Securities pursuant to the acquisition of: (i) another entity by the Company by merger, purchase of substantially all of the assets or shares, or other reorganization whereby such other entity or its stockholders own not less than a majority of the voting power of the surviving or successor entity, or (ii) technology or other intellectual property by outright purchase or exclusive license, in each case as approved by the Board of Directors, including at least three Preferred Directors (as defined below).
(F) The issuance of Common Stock issued or issuable upon conversion of the Series Preferred or as dividends or distributions on the Series Preferred.
(iii) For the purposes of paragraph (i) above, the following subparagraphs (A) to (C), inclusive, shall also be applicable:
(A) In case at any time the Company shall grant any rights to subscribe for, or any rights or options to purchase, Convertible Securities, whether or not such rights or options or the right to convert or exchange any such Convertible Securities are immediately exercisable, and the price per share for which Common Stock is issuable upon the exercise of such rights or options or upon conversion or exchange of such Convertible Securities (determined by dividing (x) the total amount, if any, received or receivable by the Company as consideration for the granting of such rights or options, plus the minimum aggregate amount of additional consideration payable to the Company upon the exercise of such rights or options, plus, in the case of any such rights or options which relate to such Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable upon the issue or sale of such Convertible Securities and upon the conversion or exchange thereof, by (y) the total maximum number of shares of Common Stock issuable upon the exercise of such rights or options or upon the conversion or exchange of all such Convertible Securities issuable upon the exercise of such rights or options) shall be less than the Conversion Price in effect immediately prior to the time of the granting of such rights or options,
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then the total maximum number of shares of Common Stock issuable upon the exercise of such rights or options or upon conversion or exchange of the total maximum amount of such Convertible Securities issuable upon the exercise of such rights or options shall (as of the date of granting of such rights or options) be deemed to be outstanding and to have been issued for such price per share.
(B) In case at any time the Company shall issue or sell any Convertible Securities, whether or not the rights to exchange or convert thereunder are immediately exercisable, and the price per share for which Common Stock is issuable upon such conversion or exchange (determined by dividing (x) the total amount received or receivable by the Company as consideration for the issue or sale of such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Company upon the conversion or exchange thereof, by (y) the total maximum number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities) shall be less than the Conversion Price in effect immediately prior to the time of such issue or sale, then the total maximum number of shares of Common Stock issuable upon conversion or exchange of such Convertible Securities shall (as of the date of the issue or sale of such Convertible Securities) be deemed to be outstanding and to have been issued for such price per share, provided that if any such issue or sale of such Convertible Securities is made upon exercise of any rights to subscribe for or to purchase or any option to purchase any such Convertible Securities for which adjustments of the conversion price have been or are to be made pursuant to other provisions of this paragraph (iii), no further adjustment of the conversion price shall be made by reason of such issue or sale.
(C) In case at any time any shares of Common Stock or Convertible Securities or any rights or options to purchase any such Common Stock, or Convertible Securities shall be issued or sold for cash, the consideration received therefor shall be deemed to be the amount received by the Company therefor. In case any shares of Common Stock or Convertible Securities or any rights or options to purchase any such Common Stock or Convertible Securities shall be issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Company shall be deemed to be the fair value of such consideration as determined by the Board of Directors. In case any shares of Common Stock or Convertible Securities or any rights or options to purchase any such Common Stock or Convertible Securities shall be issued in connection with any merger of another corporation into the Company, the amount of consideration therefor shall be deemed to be the fair value of the assets of such merged corporation as determined by the Board of Directors after deducting therefrom all cash and other consideration (if any) paid by the Company in connection with such merger.
(h) No Impairment. The Company will not, through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action taken, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in carrying out of all the provision of this Section 3 and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the holders of the Series Preferred against impairment.
(i) Certificate of Adjustments. Upon the occurrence of each adjustment of the Conversion Price pursuant to this Section 3, the Company at its expense shall promptly compute such adjustment and furnish to each holder of Series Preferred a certificate setting forth such adjustment and showing in detail the facts upon which such adjustment is based. The Company shall, upon the written request at any time of any holder of Series Preferred, furnish to such holder a like certificate setting forth (i) any and all adjustments made to the Series Preferred since the date of filing of this
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Restated Certificate of Incorporation, (ii) the Conversion Price at the time in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of Series Preferred.
(j) Notices of Record Date. In the event that the Company shall propose at any time (i) to declare any dividend; (ii) to effect any reclassification or recapitalization; or (iii) to effect a Liquidation; then, in connection with each such event, the Company shall send to the holders of the Series Preferred at least 20 days prior written notice of the date on which a record shall be taken for such dividend, Distribution or subscription rights (and specifying the date on which the holders of stock shall be entitled thereto) or for determining rights to vote in respect of the matters referred to in clauses (iii) and (iv) above.
(k) Reservation of Stock Issuable Upon Conversion. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series Preferred, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all then outstanding shares of the Series Preferred; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series Preferred, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose.
4. Voting.
(a) Except as otherwise expressly provided herein or as required by law, the holders of the Series Preferred and Common Stock shall vote together and not as separate classes.
(b) Series Preferred. Each holder of shares of Series Preferred shall be entitled to the number of votes equal to the number of shares of Common Stock into which such shares of Series Preferred held by such holder could then be converted. The holders of the Series Preferred shall be entitled to notice of any stockholders meeting in accordance with the bylaws of the Company. Fractional votes shall not, however, be permitted, and any fractional voting rights resulting from the above formula (after aggregating all shares of Common Stock into which shares of Series Preferred held by each holder could be converted), shall be disregarded.
(c) Common Stock. The holder of each share of Common Stock shall have the right to one vote for each such share and shall be entitled to notice of any stockholders meeting in accordance with the bylaws of this Company, and shall be entitled to vote upon such matters and in such manner as may be provided by law. The number of authorized shares of Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the stock of this Company entitled to vote, irrespective of the provisions of Section 242(b)(2) of the Delaware General Corporate Law.
(d) Election of Directors.
(i) The holders of the Series A Preferred, voting together as a separate class, shall be entitled to elect two members of the Board of Directors (the Series A Directors) at each meeting or pursuant to each consent of the Companys stockholders for the election of directors, and to remove from office a Series A Director and to fill any vacancy caused by the resignation, death or removal of a Series A Director;
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(ii) The holders of the Series B Preferred, voting together as a separate class, shall be entitled to elect one member of the Board of Directors (the Series B Director) at each meeting or pursuant to each consent of the Companys stockholders for the election of directors, and to remove from office the Series B Director and to fill any vacancy caused by the resignation, death or removal of the Series B Director;
(iv) The holders of the Series C Preferred, voting together as a separate class, shall be entitled to elect one member of the Board of Directors (the Series C Director) at each meeting or pursuant to each consent of the Companys stockholders for the election of directors, and to remove from office the Series C Director and to fill any vacancy caused by the resignation, death or removal of the Series C Director;
(v) The holders of the Series D Preferred, voting together as a separate class, shall be entitled to elect one member of the Board of Directors (the Series D Director and together with the Series A Directors, the Series B Director and the Series C Director, the Preferred Directors) at each meeting or pursuant to each consent of the Companys stockholders for the election of directors, and to remove from office the Series D Director and to fill any vacancy caused by the resignation, death or removal of the Series D Director;
(vi) The holders of the Common Stock, voting together as a separate class, shall be entitled to elect one member of the Board of Directors (the Common Director) at each meeting or pursuant to each consent of the Companys stockholders for the election of directors, and to remove from office the Common Director and to fill any vacancy caused by the resignation, death or removal of the Common Director; and
(vii) The holders of Common Stock and Series Preferred, voting together as a single class on an as-if-converted basis, shall be entitled to elect all remaining members of the Board of Directors at each meeting or pursuant to each consent of the Companys stockholders for the election of directors, and to remove from office such directors and to fill any vacancy caused by the resignation, death or removal of such directors.
5. Amendments and Changes.
(a) Approval by Series Preferred. Notwithstanding Section 4 above, the Company shall not, without first obtaining the approval (by vote or written consent as provided by law) of at least seventy percent (70%) of the Series Preferred then outstanding, voting together as a single, separate class:
(i) amend or waive any provision of (directly or indirectly, by merger or otherwise) this Restated Certificate of Incorporation or the bylaws of the Company;
(ii) increase or decrease the number of shares of Series Preferred that the Company shall have the authority to issue;
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(iii) create or issue (directly or indirectly, by reclassification or otherwise) any new class or series of securities having rights, preferences or privileges which are senior to, or pari passu with, the rights of the Series D Preferred;
(iv) consummate any Liquidation or reorganization;
(v) acquire all of the equity securities of another entity, or all or substantially all of the assets of another entity, in exchange for equity securities of the Company;
(vi) change the authorized number of directors of the Company;
(vii) pay or declare a dividend on any shares of the Companys capital stock other than a stock dividend on the Common Stock;
(viii) repurchase or redeem shares of the Companys stock, except in connection with the repurchase of shares of Common Stock issued to or held by employees, consultants or directors at a price not greater than the amount paid by such persons upon termination of their employment or services pursuant to agreements providing for the right of said repurchase; or
(ix) alter or change the rights, preferences, or privileges of the Series Preferred.
(b) Separate Approval by Series D Preferred. Notwithstanding Section 4 above, the Company shall not, without first obtaining the approval (by vote or written consent as provided by law) of at least 52% of the Series D Preferred then outstanding, voting together as a single, separate class:
(i) increase or decrease the number of shares of Series D Preferred that the Company shall have the authority to issue;
(ii) amend, alter or repeal any provision of this Restated Certificate of Incorporation if such action would adversely alter, in a manner different than the entire class of Series Preferred, the rights, preferences, privileges or powers of, or restrictions provided for the benefit of the Series D Preferred; or
(iii) Until December 31, 2013, enter into any agreement with respect to or consummate any equity or debt financing, except (a) the incurrence of indebtedness of the Company in an amount not to exceed $12,000,000 in the aggregate for all indebtedness incurred after the date of the filing of this Restated Certificate of Incorporation (including the issuance of any warrants to purchase Series D Preferred issued in connection with the incurrence of such indebtedness) and (b) the sale of authorized but unissued shares of Series D Preferred pursuant to that certain Series D Preferred Stock Purchase Agreement dated on or about the filing date of this Restated Certificate of Incorporation in accordance with the allocations set forth in Exhibit A-1 thereto.
(c) Separate Approval by Series C Preferred. Notwithstanding Section 4 above, the Company shall not, without first obtaining the approval (by vote or written consent as provided by law) of at least sixty-five percent (65%) of the Series C Preferred then outstanding, voting together as a single, separate class:
(i) increase or decrease the number of shares of Series C Preferred that the Company shall have the authority to issue; or
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(ii) amend, alter or repeal any provision of this Restated Certificate of Incorporation if such action would adversely alter, in a manner different than the entire class of Series Preferred, the rights, preferences, privileges or powers of, or restrictions provided for the benefit of the Series C Preferred.
(d) Separate Approval by Series B Preferred. Notwithstanding Section 4 above, the Company shall not, without first obtaining the approval (by vote or written consent as provided by law) of at least seventy-five percent (75%) of the Series B Preferred then outstanding, voting together as a single, separate class:
(i) increase or decrease the number of shares of Series B Preferred that the Company shall have the authority to issue; or
(ii) amend, alter or repeal any provision of this Restated Certificate of Incorporation if such action would adversely alter, in a manner different than the entire class of Series Preferred, the rights, preferences, privileges or powers of, or restrictions provided for the benefit of the Series B Preferred.
(e) Separate Approval by Series A Preferred. Notwithstanding Section 4 above, the Company shall not, without first obtaining the approval (by vote or written consent as provided by law) of at least two-thirds (2/3) of the Series A Preferred then outstanding, voting together as a single, separate class:
(i) increase or decrease the number of shares of Series A Preferred that the Company shall have the authority to issue; or
(ii) amend, alter or repeal any provision of this Restated Certificate of Incorporation if such action would adversely alter, in a manner different than the entire class of Series Preferred, the rights, preferences, privileges or powers of, or restrictions provided for the benefit of the Series A Preferred.
7. Redemption. The Series Preferred is not redeemable.
8. Notices. Any notice required by the provisions of this Article FOURTH to be given to the holders of Series Preferred shall be deemed given if deposited in the United States mail, postage prepaid, if deposited with a nationally recognized overnight courier, or if personally delivered, and addressed to each holder of record at such holders address appearing on the books of the Company.
FIFTH
The Board of Directors shall have the power to adopt, amend and repeal the bylaws of the Company (except insofar as the bylaws of the Company as adopted by action of the stockholders of
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the Company shall otherwise provide). Any bylaws made by the directors under the powers conferred hereby may be amended or repealed by the directors or by the stockholders, and the powers conferred in this Article FIFTH shall not abrogate the right of the stockholders to adopt, amend and repeal bylaws.
SIXTH
Election of directors need not be by written ballot unless the bylaws of the Company shall so provide.
SEVENTH
Subject to Article Fourth, Subsection B.5., the Company reserves the right to amend the provisions in this Restated Certificate of Incorporation and in any certificate amendatory hereof in the manner now or hereafter prescribed by law, and all rights conferred on stockholders or others hereunder or thereunder are granted subject to such reservation.
EIGHTH
A. To the fullest extent permitted by the Delaware General Corporation Law as the same exists or as may hereafter be amended, no director of the Company shall be personally liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director. If the Delaware General Corporation Law is amended after the filing of this Restated Certificate of Incorporation to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Company shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law as so amended.
B. The Company shall indemnify to the fullest extent permitted by law any person made or threatened to be made a party to an action or proceeding whether criminal, civil, administrative or investigative, by reason of the fact that he/she, his/her testator or intestate is or was a director, officer or employee of the Company or any predecessor of the Company or serves or served at any other enterprise as a director, officer or employee at the request of the Company or any predecessor to the Company to the same extent as permitted by law.
C. Neither any amendment nor repeal of this Article EIGHTH, nor the adoption of any provision of the Companys Certificate of Incorporation inconsistent with this Article EIGHTH, shall eliminate or reduce the effect of this Article EIGHTH in respect of any matter occurring or any action or proceeding accruing or arising or that, but for this Article EIGHTH, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision.
D. The Company may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Company or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the Company would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law.
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Exhibit 3.3
BYLAWS
OF
INTERSECT ENT, INC.
(A DELAWARE CORPORATION)
TABLE OF CONTENTS
PAGE | ||||||||
ARTICLE I | OFFICES |
1 | ||||||
Section 1. |
Registered Office |
1 | ||||||
Section 2. |
Other Offices |
1 | ||||||
ARTICLE II | CORPORATE SEAL |
1 | ||||||
Section 3. |
Corporate Seal |
1 | ||||||
ARTICLE III | STOCKHOLDERS MEETINGS |
1 | ||||||
Section 4. |
Place of Meetings |
1 | ||||||
Section 5. |
Annual Meeting |
1 | ||||||
Section 6. |
Special Meetings |
4 | ||||||
Section 7. |
Notice of Meetings |
4 | ||||||
Section 8. |
Quorum |
5 | ||||||
Section 9. |
Adjournment and Notice of Adjourned Meetings |
5 | ||||||
Section 10. |
Voting Rights |
5 | ||||||
Section 11. |
Joint Owners of Stock |
6 | ||||||
Section 12. |
List of Stockholders |
6 | ||||||
Section 13. |
Action Without Meeting |
6 | ||||||
Section 14. |
Organization |
8 | ||||||
ARTICLE IV | DIRECTORS |
8 | ||||||
Section 15. |
Number and Term of Office |
8 | ||||||
Section 16. |
Powers |
8 | ||||||
Section 17. |
Term of Directors |
8 | ||||||
Section 18. |
Vacancies |
9 | ||||||
Section 19. |
Resignation |
9 | ||||||
Section 20. |
Removal |
10 | ||||||
Section 21. |
Meetings |
10 | ||||||
(a) |
Regular Meetings |
10 | ||||||
(b) |
Special Meetings |
10 | ||||||
(c) |
Meetings by Electronic Communications Equipment |
11 | ||||||
(d) |
Notice of Special Meetings |
11 | ||||||
(e) |
Waiver of Notice |
11 |
i.
TABLE OF CONTENTS
(CONTINUED)
PAGE | ||||||||
Section 22. |
Quorum and Voting |
11 | ||||||
Section 23. |
Action Without Meeting |
11 | ||||||
Section 24. |
Fees and Compensation |
12 | ||||||
Section 25. |
Committees |
12 | ||||||
(a) | Executive Committee |
12 | ||||||
(b) | Other Committees |
12 | ||||||
(c) | Term |
12 | ||||||
(d) | Meetings |
13 | ||||||
Section 26. |
Organization |
13 | ||||||
ARTICLE V | OFFICERS |
13 | ||||||
Section 27. |
Officers Designated |
13 | ||||||
Section 28. |
Tenure and Duties of Officers |
13 | ||||||
(a) | General |
13 | ||||||
(b) | Duties of Chairman of the Board of Directors |
14 | ||||||
(c) | Duties of President |
14 | ||||||
(d) | Duties of Vice Presidents |
14 | ||||||
(e) | Duties of Secretary |
14 | ||||||
(f) | Duties of Chief Financial Officer |
14 | ||||||
Section 29. |
Delegation of Authority |
15 | ||||||
Section 30. |
Resignations |
15 | ||||||
Section 31. |
Removal |
15 | ||||||
ARTICLE VI | EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE CORPORATION | 15 | ||||||
Section 32. |
Execution of Corporate Instruments |
15 | ||||||
Section 33. |
Voting of Securities Owned by the Corporation |
16 | ||||||
ARTICLE VII | SHARES OF STOCK |
16 | ||||||
Section 34. |
Form and Execution of Certificates |
16 | ||||||
Section 35. |
Lost Certificates |
16 | ||||||
Section 36. |
Transfers |
17 | ||||||
Section 37. |
Fixing Record Dates |
17 | ||||||
Section 38. |
Registered Stockholders |
18 |
ii.
TABLE OF CONTENTS
(CONTINUED)
PAGE | ||||||||
ARTICLE VIII | OTHER SECURITIES OF THE CORPORATION |
18 | ||||||
Section 39. |
Execution of Other Securities |
18 | ||||||
ARTICLE IX | DIVIDENDS |
19 | ||||||
Section 40. |
Declaration of Dividends |
19 | ||||||
Section 41. |
Dividend Reserve |
19 | ||||||
ARTICLE X | FISCAL YEAR |
19 | ||||||
Section 42. |
Fiscal Year |
19 | ||||||
ARTICLE XI | INDEMNIFICATION |
19 | ||||||
Section 43. |
Indemnification of Directors, Executive Officers, Other Officers, Employees and Other Agents |
19 | ||||||
(a) | Directors and Executive Officers |
19 | ||||||
(b) | Other Officers Employees and Other Agents |
20 | ||||||
(c) | Expenses |
20 | ||||||
(d) | Enforcement |
20 | ||||||
(e) | Non-Exclusivity of Rights |
21 | ||||||
(f) | Survival of Rights |
21 | ||||||
(g) | Insurance |
21 | ||||||
(h) | Amendments |
21 | ||||||
(i) | Saving Clause |
22 | ||||||
(j) | Certain Definitions |
22 | ||||||
ARTICLE XII | NOTICES |
23 | ||||||
Section 44. |
Notices |
23 | ||||||
(a) | Notice to Stockholders |
23 | ||||||
(b) | Notice to Directors |
23 | ||||||
(c) | Affidavit of Mailing |
23 | ||||||
(d) | Methods of Notice |
23 | ||||||
(e) | Notice to Person with Whom Communication Is Unlawful |
23 | ||||||
ARTICLE XIII | AMENDMENTS |
24 | ||||||
Section 45. |
Amendments |
24 |
iii.
TABLE OF CONTENTS
(CONTINUED)
PAGE | ||||||||
ARTICLE XIV | RIGHT OF FIRST REFUSAL |
24 | ||||||
Section 46. |
Right of First Refusal |
24 | ||||||
ARTICLE XV | LOANS TO OFFICERS |
26 | ||||||
Section 47. |
Loans to Officers |
26 | ||||||
ARTICLE XVI | MISCELLANEOUS |
27 | ||||||
Section 48. |
Annual Report |
27 |
iv.
BYLAWS
OF
INTERSECT ENT, INC.
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the corporation in the State of Delaware shall be in the City of Wilmington, County of New Castle.
Section 2. Other Offices. The corporation shall also have and maintain an office or principal place of business at such place as may be fixed by the Board of Directors, and may also have offices at such other places, both within and without the State of Delaware, as the Board of Directors may from time to time determine or the business of the corporation may require. (Del. Code Ann., tit. 8, § 122(8))
ARTICLE II
CORPORATE SEAL
Section 3. Corporate Seal. The Board of Directors may adopt a corporate seal. The corporate seal shall consist of a die bearing the name of the corporation and the inscription, Corporate Seal-Delaware. Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. (Del. Code Ann., tit. 8, § 122(3))
ARTICLE III
STOCKHOLDERS MEETINGS
Section 4. Place of Meetings. Meetings of the stockholders of the corporation may be held at such place, either within or without the State of Delaware, as may be determined from time to time by the Board of Directors. The Board of Directors may, in its sole discretion, determine that the meeting shall not be held at any place, but may instead be held solely by means of remote communication as provided under the Delaware General Corporation Law (DGCL). (Del. Code Ann., tit. 8, § 211(a))
Section 5. Annual Meeting.
(a) The annual meeting of the stockholders of the corporation, for the purpose of election of directors and for such other business as may lawfully come before it, shall be held on such date and at such time as may be designated from time to time by the Board of Directors.
1.
Nominations of persons for election to the Board of Directors of the corporation and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders: (i) pursuant to the corporations notice of meeting of stockholders; (ii) by or at the direction of the Board of Directors; or (iii) by any stockholder of the corporation who was a stockholder of record at the time of giving of notice provided for in the following paragraph, who is entitled to vote at the meeting and who complied with the notice procedures set forth in Section 5. (Del. Code Ann., tit. 8, § 211(b)).
(b) At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (iii) of Section 5(a) of these Bylaws, (i) the stockholder must have given timely notice thereof in writing to the Secretary of the corporation, (ii) such other business must be a proper matter for stockholder action under the DGCL, (iii) if the stockholder, or the beneficial owner on whose behalf any such proposal or nomination is made, has provided the corporation with a Solicitation Notice (as defined in this Section 5(b)), such stockholder or beneficial owner must, in the case of a proposal, have delivered a proxy statement and form of proxy to holders of at least the percentage of the corporations voting shares required under applicable law to carry any such proposal, or, in the case of a nomination or nominations, have delivered a proxy statement and form of proxy to holders of a percentage of the corporations voting shares reasonably believed by such stockholder or beneficial owner to be sufficient to elect the nominee or nominees proposed to be nominated by such stockholder, and must, in either case, have included in such materials the Solicitation Notice, and (iv) if no Solicitation Notice relating thereto has been timely provided pursuant to this section, the stockholder or beneficial owner proposing such business or nomination must not have solicited a number of proxies sufficient to have required the delivery of such a Solicitation Notice under this Section 5. To be timely, a stockholders notice shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the ninetieth (90th) day nor earlier than the close of business on the one hundred twentieth (120th) day prior to the first anniversary of the preceding years annual meeting; provided, however, that in the event that the date of the annual meeting is advanced more than thirty (30) days prior to or delayed by more than thirty (30) days after the anniversary of the preceding years annual meeting, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the one hundred twentieth (120th) day prior to such annual meeting and not later than the close of business on the later of the ninetieth (90th) day prior to such annual meeting or the tenth (10th) day following the day on which public announcement of the date of such meeting is first made. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a stockholders notice as described above. Such stockholders notice shall set forth: (A) as to each person whom the stockholder proposed to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the 1934 Act) and Rule 14a-11 thereunder (including such persons written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (B) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting
2.
and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (C) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such stockholder, as they appear on the corporations books, and of such beneficial owner, (ii) the class and number of shares of the corporation which are owned beneficially and of record by such stockholder and such beneficial owner, and (iii) whether either such stockholder or beneficial owner intends to deliver a proxy statement and form of proxy to holders of, in the case of the proposal, at least the percentage of the corporations voting shares required under applicable law to carry the proposal or, in the case of a nomination or nominations, a sufficient number of holders of the corporations voting shares to elect such nominee or nominees (an affirmative statement of such intent, a Solicitation Notice).
(c) Notwithstanding anything in the second sentence of Section 5(b) of these Bylaws to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board of Directors made by the corporation at least one hundred (100) days prior to the first anniversary of the preceding years annual meeting, a stockholders notice required by this Section 5 shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the corporation not later than the close of business on the tenth (10th) day following the day on which such public announcement is first made by the corporation.
(d) Only such persons who are nominated in accordance with the procedures set forth in this Section 5 shall be eligible to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 5. Except as otherwise provided by law, the Chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made, or proposed, as the case may be, in accordance with the procedures set forth in these Bylaws and, if any proposed nomination or business is not in compliance with these Bylaws, to declare that such defective proposal or nomination shall not be presented for stockholder action at the meeting and shall be disregarded.
(e) Notwithstanding the foregoing provisions of this Section 5, in order to include information with respect to a stockholder proposal in the proxy statement and form of proxy for a stockholders meeting, stockholders must provide notice as required by the regulations promulgated under the 1934 Act. Nothing in these Bylaws shall be deemed to affect any rights of stockholders to request inclusion of proposals in the corporation proxy statement pursuant to Rule 14a-8 under the 1934 Act.
(f) For purposes of this Section 5, public announcement shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the 1934 Act.
3.
Section 6. Special Meetings.
(a) Special meetings of the stockholders of the corporation may be called, for any purpose or purposes, by (i) the Chairman of the Board of Directors, (ii) the Chief Executive Officer, (iii) the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board of Directors for adoption) or (iv) by the holders of shares entitled to cast not less than twenty percent (20%) of the votes at the meeting and shall be held at such place, on such date, and at such time as the Board of Directors shall fix. At any time or times that the corporation is subject to Section 2115(b) of the California General Corporation Law (CGCL), stockholders holding five percent (5%) or more of the outstanding shares shall have the right to call a special meeting of stockholders as set forth in Section 18(b) herein.
(b) If a special meeting is properly called by any person or persons other than the Board of Directors, the request shall be in writing, specifying the general nature of the business proposed to be transacted, and shall be delivered personally or sent by certified or registered mail, return receipt requested, or by telegraphic or other facsimile transmission to the Chairman of the Board of Directors, the Chief Executive Officer, or the Secretary of the corporation. No business may be transacted at such special meeting otherwise than specified in such notice. The Board of Directors shall determine the time and place of such special meeting, which shall be held not less than thirty-five (35) nor more than one hundred twenty (120) days after the date of the receipt of the request. Upon determination of the time and place of the meeting, the officer receiving the request shall cause notice to be given to the stockholders entitled to vote, in accordance with the provisions of Section 7 of these Bylaws. Nothing contained in this paragraph (b) shall be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the Board of Directors may be held.
Section 7. Notice of Meetings. Except as otherwise provided by law, notice, given in writing or by electronic transmission, of each meeting of stockholders shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting, such notice to specify the place, if any, date and hour, in the case of special meetings, the purpose or purposes of the meeting, and the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at any such meeting. If mailed, notice is given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholders address as it appears on the records of the corporation. Notice of the time, place, if any, and purpose of any meeting of stockholders may be waived in writing, signed by the person entitled to notice thereof or by electronic transmission by such person, either before or after such meeting, and will be waived by any stockholder by his attendance thereat in person, by remote communication, if applicable, or by proxy, except when the stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Any stockholder so waiving notice of such meeting shall be bound by the proceedings of any such meeting in all respects as if due notice thereof had been given. (Del. Code Ann., tit. 8, §§ 222, 229, 232)
4.
Section 8. Quorum. At all meetings of stockholders, except where otherwise provided by statute or by the Certificate of Incorporation, or by these Bylaws, the presence, in person, by remote communication, if applicable, or by proxy duly authorized, of the holders of a majority of the outstanding shares of stock entitled to vote shall constitute a quorum for the transaction of business. In the absence of a quorum, any meeting of stockholders may be adjourned, from time to time, either by the chairman of the meeting or by vote of the holders of a majority of the shares represented thereat, but no other business shall be transacted at such meeting. The stockholders present at a duly called or convened meeting, at which a quorum is present, may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. Except as otherwise provided by statute, or by the Certificate of Incorporation or these Bylaws, in all matters other than the election of directors, the affirmative vote of a majority of shares present in person, by remote communication, if applicable, or represented by proxy duly authorized at the meeting and entitled to vote generally on the subject matter shall be the act of the stockholders. Except as otherwise provided by statute, the Certificate of Incorporation or these Bylaws, directors shall be elected by a plurality of the votes of the shares present in person, by remote communication, if applicable, or represented by proxy duly authorized at the meeting and entitled to vote generally on the election of directors. Where a separate vote by a class or classes or series is required, except where otherwise provided by the statute or by the Certificate of Incorporation or these Bylaws, a majority of the outstanding shares of such class or classes or series, present in person, by remote communication, if applicable, or represented by proxy duly authorized, shall constitute a quorum entitled to take action with respect to that vote on that matter. Except where otherwise provided by statute or by the Certificate of Incorporation or these Bylaws, the affirmative vote of the majority (plurality, in the case of the election of directors) of shares of such class or classes or series present in person, by remote communication, if applicable, or represented by proxy at the meeting shall be the act of such class or classes or series. (Del. Code Ann., tit. 8, § 216)
Section 9. Adjournment and Notice of Adjourned Meetings. Any meeting of stockholders, whether annual or special, may be adjourned from time to time either by the chairman of the meeting or by the vote of a majority of the shares present in person, by remote communication, if applicable, or represented by proxy. When a meeting is adjourned to another time or place, if any, notice need not be given of the adjourned meeting if the time and place, if any, thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. (Del. Code Ann., tit. 8, § 222(c))
Section 10. Voting Rights. For the purpose of determining those stockholders entitled to vote at any meeting of the stockholders, except as otherwise provided by law, only persons in whose names shares stand on the stock records of the corporation on the record date, as provided in Section 12 of these Bylaws, shall be entitled to vote at any meeting of stockholders. Every person entitled to vote or execute consents shall have the right to do so either in person, by remote communication, if applicable, or by an agent or agents authorized by
5.
a proxy granted in accordance with Delaware law. An agent so appointed need not be a stockholder. No proxy shall be voted after three (3) years from its date of creation unless the proxy provides for a longer period. (Del. Code Ann., tit. 8, §§ 211(e), 212(b))
Section 11. Joint Owners of Stock. If shares or other securities having voting power stand of record in the names of two (2) or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety, or otherwise, or if two (2) or more persons have the same fiduciary relationship respecting the same shares, unless the Secretary is given written notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, their acts with respect to voting shall have the following effect: (a) if only one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the majority so voting binds all; (c) if more than one (1) votes, but the vote is evenly split on any particular matter, each faction may vote the securities in question proportionally, or may apply to the Delaware Court of Chancery for relief as provided in the DGCL, Section 217(b). If the instrument filed with the Secretary shows that any such tenancy is held in unequal interests, a majority or even-split for the purpose of subsection (c) shall be a majority or even-split in interest. (Del. Code Ann., tit. 8, § 217(b))
Section 12. List of Stockholders. The Secretary shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at said meeting, arranged in alphabetical order, showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or during ordinary business hours, at the principal place of business of the corporation. In the event that the corporation determines to make the list available on an electronic network, the corporation may take reasonable steps to ensure that such information is available only to stockholders of the corporation. The list shall be open to examination of any stockholder during the time of the meeting as provided by law. (Del. Code Ann., tit. 8, § 219)
Section 13. Action Without Meeting.
(a) Unless otherwise provided in the Certificate of Incorporation, any action required by statute to be taken at any annual or special meeting of the stockholders, or any action which may be taken at any annual or special meeting of the stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, or by electronic transmission setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. (Del. Code Ann., tit. 8, § 228)
(b) Every written consent or electronic transmission shall bear the date of signature of each stockholder who signs the consent, and no written consent or electronic transmission shall be effective to take the corporate action referred to therein unless, within sixty (60) days of the earliest dated consent delivered to the corporation in the manner herein required, written consents or electronic transmissions signed by a sufficient number of stockholders to take
6.
action are delivered to the corporation by delivery to its registered office in the State of Delaware, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporations registered office shall be by hand or by certified or registered mail, return receipt requested. (Del. Code Ann., tit. 8, § 228)
(c) Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing or by electronic transmission and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for such meeting had been the date that written consents signed by a sufficient number of stockholders to take action were delivered to the corporation as provided in Section 228(c) of the DGCL. If the action which is consented to is such as would have required the filing of a certificate under any section of the DGCL if such action had been voted on by stockholders at a meeting thereof, then the certificate filed under such section shall state, in lieu of any statement required by such section concerning any vote of stockholders, that written consent has been given in accordance with Section 228 of the DGCL.
(d) A telegram, cablegram or other electronic transmission consenting to an action to be taken and transmitted by a stockholder or proxyholder, shall be deemed to be written, signed and dated for the purposes of this section, provided that any such telegram, cablegram or other electronic transmission sets forth or is delivered with information from which the corporation can determine (i) that the telegram, cablegram or other electronic transmission was transmitted by the stockholder or proxyholder or by a person or persons authorized to act for the stockholder and (ii) the date on which such stockholder or proxyholder or authorized person or persons transmitted such telegram, cablegram or electronic transmission. The date on which such telegram, cablegram or electronic transmission is transmitted shall be deemed to be the date on which such consent was signed. No consent given by telegram, cablegram or other electronic transmission shall be deemed to have been delivered until such consent is reproduced in paper form and until such paper form shall be delivered to the corporation by delivery to its registered office in the state of Delaware, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporations registered office shall be made by hand or by certified or registered mail, return receipt requested. Notwithstanding the foregoing limitations on delivery, consents given by telegram, cablegram or other electronic transmission may be otherwise delivered to the principal place of business of the corporation or to an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded if, to the extent and in the manner provided by resolution of the board of directors of the corporation. Any copy, facsimile or other reliable reproduction of a consent in writing may be substituted or used in lieu of the original writing for any and all purposes for which the original writing could be used, provided that such copy, facsimile or other reproduction shall be a complete reproduction of the entire original writing. (Del. Code Ann., tit. 8 § 228(d))
7.
Section 14. Organization.
(a) At every meeting of stockholders, the Chairman of the Board of Directors, or, if a Chairman has not been appointed or is absent, the President, or, if the President is absent, a chairman of the meeting chosen by a majority in interest of the stockholders entitled to vote, present in person or by proxy, shall act as chairman. The Secretary, or, in his absence, an Assistant Secretary directed to do so by the President, shall act as secretary of the meeting.
(b) The Board of Directors of the corporation shall be entitled to make such rules or regulations for the conduct of meetings of stockholders as it shall deem necessary, appropriate or convenient. Subject to such rules and regulations of the Board of Directors, if any, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are necessary, appropriate or convenient for the proper conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting and the safety of those present, limitations on participation in such meeting to stockholders of record of the corporation and their duly authorized and constituted proxies and such other persons as the chairman shall permit, restrictions on entry to the meeting after the time fixed for the commencement thereof, limitations on the time allotted to questions or comments by participants and regulation of the opening and closing of the polls for balloting on matters which are to be voted on by ballot. The date and time of the opening and closing of the polls for each matter upon which the stockholders will vote at the meeting shall be announced at the meeting. Unless and to the extent determined by the Board of Directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with rules of parliamentary procedure.
ARTICLE IV
DIRECTORS
Section 15. Number and Term of Office.
The authorized number of directors of the corporation shall be fixed by the Board of Directors from time to time. Directors need not be stockholders unless so required by the Certificate of Incorporation. If for any cause, the directors shall not have been elected at an annual meeting, they may be elected as soon thereafter as convenient. (Del. Code Ann., tit. 8, §§ 141(b), 211(b), (c))
Section 16. Powers. The powers of the corporation shall be exercised, its business conducted and its property controlled by the Board of Directors, except as may be otherwise provided by statute or by the Certificate of Incorporation. (Del. Code Ann., tit. 8, § 141(a))
Section 17. Term of Directors.
(a) Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, directors shall be elected at each annual meeting of stockholders for a term of one year. Each director shall serve until his successor is duly elected and qualified or until his death, resignation or removal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.
8.
(b) No person entitled to vote at an election for directors may cumulate votes to which such person is entitled, unless, at the time of such election, the corporation is subject to Section 2115(b) of the CGCL. During such time or times that the corporation is subject to Section 2115(b) of the CGCL, every stockholder entitled to vote at an election for directors may cumulate such stockholders votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which such stockholders shares are otherwise entitled, or distribute the stockholders votes on the same principle among as many candidates as such stockholder thinks fit. No stockholder, however, shall be entitled to so cumulate such stockholders votes unless (i) the names of such candidate or candidates have been placed in nomination prior to the voting and (ii) the stockholder has given notice at the meeting, prior to the voting, of such stockholders intention to cumulate such stockholders votes. If any stockholder has given proper notice to cumulate votes, all stockholders may cumulate their votes for any candidates who have been properly placed in nomination. Under cumulative voting, the candidates receiving the highest number of votes, up to the number of directors to be elected, are elected.
Section 18. Vacancies.
(a) Unless otherwise provided in the Certificate of Incorporation, and subject to the rights of the holders of any series of Preferred Stock, any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other causes and any newly created directorships resulting from any increase in the number of directors shall, unless the Board of Directors determines by resolution that any such vacancies or newly created directorships shall be filled by stockholders, be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum of the Board of Directors. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the director for which the vacancy was created or occurred and until such directors successor shall have been elected and qualified. A vacancy in the Board of Directors shall be deemed to exist under this Bylaw in the case of the death, removal or resignation of any director. (Del. Code Ann., tit. 8, § 223(a), (b)).
(b) At any time or times that the corporation is subject to §2115(b) of the CGCL, if, after the filling of any vacancy, the directors then in office who have been elected by stockholders shall constitute less than a majority of the directors then in office, then
(i) any holder or holders of an aggregate of five percent (5%) or more of the total number of shares at the time outstanding having the right to vote for those directors may call a special meeting of stockholders; or
(ii) the Superior Court of the proper county shall, upon application of such stockholder or stockholders, summarily order a special meeting of the stockholders, to be held to elect the entire board, all in accordance with Section 305(c) of the CGCL, the term of office of any director shall terminate upon that election of a successor. (CGCL §305(c)).
Section 19. Resignation. Any director may resign at any time by delivering his or her notice in writing or by electronic transmission to the Secretary, such resignation to specify
9.
whether it will be effective at a particular time, upon receipt by the Secretary or at the pleasure of the Board of Directors. If no such specification is made, it shall be deemed effective at the pleasure of the Board of Directors. When one or more directors shall resign from the Board of Directors, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each Director so chosen shall hold office for the unexpired portion of the term of the Director whose place shall be vacated and until his successor shall have been duly elected and qualified. (Del. Code Ann., tit. 8, §§ 141(b), 223(d))
Section 20. Removal.
(a) Subject to any limitations imposed by applicable law (and assuming the corporation is not subject to Section 2115 of the CGCL), the Board of Directors or any director may be removed from office at any time (i) with cause by the affirmative vote of the holders of a majority of the voting power of all then-outstanding shares of capital stock of the corporation entitled to vote generally at an election of directors or (ii) without cause by the affirmative vote of the holders of a majority of the voting power of all then-outstanding shares of capital stock of the corporation, entitled to vote generally at an election of directors.
(b) During such time or times that the corporation is subject to Section 2115(b) of the CGCL, the Board of Directors or any individual director may be removed from office at any time without cause by the affirmative vote of the holders of at least a majority of the outstanding shares entitled to vote on such removal; provided, however, that unless the entire Board is removed, no individual director may be removed when the votes cast against such directors removal, or not consenting in writing to such removal, would be sufficient to elect that director if voted cumulatively at an election which the same total number of votes were cast (or, if such action is taken by written consent, all shares entitled to vote were voted) and the entire number of directors authorized at the time of such directors most recent election were then being elected.
Section 21. Meetings
(a) Regular Meetings. Unless otherwise restricted by the Certificate of Incorporation, regular meetings of the Board of Directors may be held at any time or date and at any place within or without the State of Delaware which has been designated by the Board of Directors and publicized among all directors, either orally or in writing, including a voice-messaging system or other system designated to record and communicate messages, facsimile, telegraph or telex, or by electronic mail or other electronic means. No further notice shall be required for a regular meeting of the Board of Directors. (Del. Code Ann., tit. 8, § 141(g))
(b) Special Meetings. Unless otherwise restricted by the Certificate of Incorporation, special meetings of the Board of Directors may be held at any time and place within or without the State of Delaware whenever called by the Chairman of the Board, the President or any two of the directors. (Del. Code Ann., tit. 8, § 141(g))
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(c) Meetings by Electronic Communications Equipment. Any member of the Board of Directors, or of any committee thereof, may participate in a meeting by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting. (Del. Code Ann., tit. 8, § 141(i))
(d) Notice of Special Meetings. Notice of the time and place of all special meetings of the Board of Directors shall be orally or in writing, by telephone, including a voice messaging system or other system or technology designed to record and communicate messages, facsimile, telegraph or telex, or by electronic mail or other electronic means, during normal business hours, at least twenty-four (24) hours before the date and time of the meeting. If notice is sent by US mail, it shall be sent by first class mail, postage prepaid at least three (3) days before the date of the meeting. Notice of any meeting may be waived in writing or by electronic transmission at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. (Del. Code Ann., tit. 8, § 229)
(e) Waiver of Notice. The transaction of all business at any meeting of the Board of Directors, or any committee thereof, however called or noticed, or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present and if, either before or after the meeting, each of the directors not present who did not receive notice shall sign a written waiver of notice or shall waive notice by electronic transmission. All such waivers shall be filed with the corporate records or made a part of the minutes of the meeting. (Del. Code Ann., tit. 8, § 229)
Section 22. Quorum and Voting.
(a) Unless the Certificate of Incorporation requires a greater number, a quorum of the Board of Directors shall consist of a majority of the exact number of directors fixed from time to time by the Board of Directors in accordance with the Certificate of Incorporation; provided, however, at any meeting, whether a quorum be present or otherwise, a majority of the directors present may adjourn from time to time until the time fixed for the next regular meeting of the Board of Directors, without notice other than by announcement at the meeting. (Del. Code Ann., tit. 8, § 141(b))
(b) At each meeting of the Board of Directors at which a quorum is present, all questions and business shall be determined by the affirmative vote of a majority of the directors present, unless a different vote be required by law, the Certificate of Incorporation or these Bylaws. (Del. Code Ann., tit. 8, § 141(b))
Section 23. Action Without Meeting. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board of Directors or committee, as the case may be, consent thereto in writing or by electronic transmission, and such writing or writings or transmission or transmissions are filed with the minutes of proceedings of the Board of Directors or committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form. (Del. Code Ann., tit. 8, § 141(f))
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Section 24. Fees and Compensation. Directors shall be entitled to such compensation for their services as may be approved by the Board of Directors, including, if so approved, by resolution of the Board of Directors, a fixed sum and expenses of attendance, if any, for attendance at each regular or special meeting of the Board of Directors and at any meeting of a committee of the Board of Directors. Nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee, or otherwise and receiving compensation therefor. (Del. Code Ann., tit. 8, § 141(h))
Section 25. Committees.
(a) Executive Committee. The Board of Directors may appoint an Executive Committee to consist of one (1) or more members of the Board of Directors. The Executive Committee, to the extent permitted by law and provided in the resolution of the Board of Directors shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to (i) approving or adopting, or recommending to the stockholders, any action or matter expressly required by the DGCL to be submitted to stockholders for approval, or (ii) adopting, amending or repealing any bylaw of the corporation. (Del. Code Ann., tit. 8, § 141(c))
(b) Other Committees. The Board of Directors may, from time to time, appoint such other committees as may be permitted by law. Such other committees appointed by the Board of Directors shall consist of one (1) or more members of the Board of Directors and shall have such powers and perform such duties as may be prescribed by the resolution or resolutions creating such committees, but in no event shall any such committee have the powers denied to the Executive Committee in these Bylaws. (Del. Code Ann., tit. 8, § 141(c))
(c) Term. The Board of Directors, subject to any requirements of any outstanding series of Preferred Stock, the provisions of subsections (a) or (b) of this Bylaw may at any time increase or decrease the number of members of a committee or terminate the existence of a committee. The membership of a committee member shall terminate on the date of his death or voluntary resignation from the committee or from the Board of Directors. The Board of Directors may at any time for any reason remove any individual committee member and the Board of Directors may fill any committee vacancy created by death, resignation, removal or increase in the number of members of the committee. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee, and, in addition, in the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. (Del. Code Ann., tit. 8, §141(c))
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(d) Meetings. Unless the Board of Directors shall otherwise provide, regular meetings of the Executive Committee or any other committee appointed pursuant to this Section 25 shall be held at such times and places as are determined by the Board of Directors, or by any such committee, and when notice thereof has been given to each member of such committee, no further notice of such regular meetings need be given thereafter. Special meetings of any such committee may be held at any place which has been determined from time to time by such committee, and may be called by any director who is a member of such committee, upon notice to the members of such committee of the time and place of such special meeting given in the manner provided for the giving of notice to members of the Board of Directors of the time and place of special meetings of the Board of Directors. Notice of any special meeting of any committee may be waived in writing at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director attends such special meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Unless otherwise provided by the Board of Directors in the resolutions authorizing the creation of the committee, a majority of the authorized number of members of any such committee shall constitute a quorum for the transaction of business, and the act of a majority of those present at any meeting at which a quorum is present shall be the act of such committee. (Del. Code Ann., tit. 8, §§ 141(c), 229)
Section 26. Organization. At every meeting of the directors, the Chairman of the Board of Directors, or, if a Chairman has not been appointed or is absent, the President, or if the President is absent, the most senior Vice President, (if a director) or, in the absence of any such person, a chairman of the meeting chosen by a majority of the directors present, shall preside over the meeting. The Secretary, or in his absence, any Assistant Secretary directed to do so by the President, shall act as secretary of the meeting.
ARTICLE V
OFFICERS
Section 27. Officers Designated. The officers of the corporation shall include, if and when designated by the Board of Directors, the Chairman of the Board of Directors, the Chief Executive Officer, the President, one or more Vice Presidents, the Secretary, the Chief Financial Officer, the Treasurer and the Controller, all of whom shall be elected at the annual organizational meeting of the Board of Directors. The Board of Directors may also appoint one or more Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such other officers and agents with such powers and duties as it shall deem necessary. The Board of Directors may assign such additional titles to one or more of the officers as it shall deem appropriate. Any one person may hold any number of offices of the corporation at any one time unless specifically prohibited therefrom by law. The salaries and other compensation of the officers of the corporation shall be fixed by or in the manner designated by the Board of Directors. (Del. Code Ann., tit. 8, §§ 122(5), 142(a), (b))
Section 28. Tenure and Duties of Officers.
(a) General. All officers shall hold office at the pleasure of the Board of Directors and until their successors shall have been duly elected and qualified, unless sooner
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removed. Any officer elected or appointed by the Board of Directors may be removed at any time by the Board of Directors. If the office of any officer becomes vacant for any reason, the vacancy may be filled by the Board of Directors. (Del. Code Ann., tit. 8, § 141(b), (e))
(b) Duties of Chairman of the Board of Directors. The Chairman of the Board of Directors, when present, shall preside at all meetings of the stockholders and the Board of Directors. The Chairman of the Board of Directors shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time. If there is no President, then the Chairman of the Board of Directors shall also serve as the Chief Executive Officer of the corporation and shall have the powers and duties prescribed in paragraph (c) of this Section 28. (Del. Code Ann., tit. 8, § 142(a))
(c) Duties of President. The President shall preside at all meetings of the stockholders and at all meetings of the Board of Directors, unless the Chairman of the Board of Directors has been appointed and is present. Unless some other officer has been elected Chief Executive Officer of the corporation, the President shall be the chief executive officer of the corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and officers of the corporation. The President shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time. (Del. Code Ann., tit. 8, § 142(a))
(d) Duties of Vice Presidents. The Vice Presidents may assume and perform the duties of the President in the absence or disability of the President or whenever the office of President is vacant. The Vice Presidents shall perform other duties commonly incident to their office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. (Del. Code Ann., tit. 8, § 142(a))
(e) Duties of Secretary. The Secretary shall attend all meetings of the stockholders and of the Board of Directors and shall record all acts and proceedings thereof in the minute book of the corporation. The Secretary shall give notice in conformity with these Bylaws of all meetings of the stockholders and of all meetings of the Board of Directors and any committee thereof requiring notice. The Secretary shall perform all other duties provided for in these Bylaws and other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time. The President may direct any Assistant Secretary to assume and perform the duties of the Secretary in the absence or disability of the Secretary, and each Assistant Secretary shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. (Del. Code Ann., tit. 8, § 142(a))
(f) Duties of Chief Financial Officer. The Chief Financial Officer shall keep or cause to be kept the books of account of the corporation in a thorough and proper manner and shall render statements of the financial affairs of the corporation in such form and as often as required by the Board of Directors or the President. The Chief Financial Officer, subject to the order of the Board of Directors, shall have the custody of all funds and securities of the
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corporation. The Chief Financial Officer shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. The President may direct the Treasurer or any Assistant Treasurer, or the Controller or any Assistant Controller to assume and perform the duties of the Chief Financial Officer in the absence or disability of the Chief Financial Officer, and each Treasurer and Assistant Treasurer and each Controller and Assistant Controller shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. (Del. Code Ann., tit. 8, § 142(a))
Section 29. Delegation of Authority. The Board of Directors may from time to time delegate the powers or duties of any officer to any other officer or agent, notwithstanding any provision hereof.
Section 30. Resignations. Any officer may resign at any time by giving notice in writing or by electronic transmission notice to the Board of Directors or to the President or to the Secretary. Any such resignation shall be effective when received by the person or persons to whom such notice is given, unless a later time is specified therein, in which event the resignation shall become effective at such later time. Unless otherwise specified in such notice, the acceptance of any such resignation shall not be necessary to make it effective. Any resignation shall be without prejudice to the rights, if any, of the corporation under any contract with the resigning officer. (Del. Code Ann., tit. 8, § 142(b))
Section 31. Removal. Any officer may be removed from office at any time, either with or without cause, by the affirmative vote of a majority of the directors in office at the time, or by the unanimous written consent of the directors in office at the time, or by any committee or superior officers upon whom such power of removal may have been conferred by the Board of Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING
OF SECURITIES OWNED BY THE CORPORATION
Section 32. Execution of Corporate Instruments. The Board of Directors may, in its discretion, determine the method and designate the signatory officer or officers, or other person or persons, to execute on behalf of the corporation any corporate instrument or document, or to sign on behalf of the corporation the corporate name without limitation, or to enter into contracts on behalf of the corporation, except where otherwise provided by law or these Bylaws, and such execution or signature shall be binding upon the corporation. (Del. Code Ann., tit. 8, §§ 103(a), 142(a), 158)
All checks and drafts drawn on banks or other depositaries on funds to the credit of the corporation or in special accounts of the corporation shall be signed by such person or persons as the Board of Directors shall authorize so to do.
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Unless authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. (Del. Code Ann., tit. 8, §§ 103(a), 142(a), 158).
Section 33. Voting of Securities Owned by the Corporation. All stock and other securities of other corporations owned or held by the corporation for itself, or for other parties in any capacity, shall be voted, and all proxies with respect thereto shall be executed, by the person authorized so to do by resolution of the Board of Directors, or, in the absence of such authorization, by the Chairman of the Board of Directors, the Chief Executive Officer, the President, or any Vice President. (Del. Code Ann., tit. 8, § 123)
ARTICLE VII
SHARES OF STOCK
Section 34. Form and Execution of Certificates. Certificates for the shares of stock of the corporation shall be in such form as is consistent with the Certificate of Incorporation and applicable law. Every holder of stock in the corporation shall be entitled to have a certificate signed by or in the name of the corporation by the Chairman of the Board of Directors, or the President or any Vice President and by the Treasurer or Assistant Treasurer or the Secretary or Assistant Secretary, certifying the number of shares owned by him in the corporation. Any or all of the signatures on the certificate may be facsimiles. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. Each certificate shall state upon the face or back thereof, in full or in summary, all of the powers, designations, preferences, and rights, and the limitations or restrictions of the shares authorized to be issued or shall, except as otherwise required by law, set forth on the face or back a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional, or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Within a reasonable time after the issuance or transfer of uncertificated stock, the corporation shall send to the registered owner thereof a written notice containing the information required to be set forth or stated on certificates pursuant to this section or otherwise required by law or with respect to this section a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. (Del. Code Ann., tit. 8, § 158)
Section 35. Lost Certificates. A new certificate or certificates shall be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen, or
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destroyed. The corporation may require, as a condition precedent to the issuance of a new certificate or certificates, the owner of such lost, stolen, or destroyed certificate or certificates, or the owners legal representative, to agree to indemnify the corporation in such manner as it shall require or to give the corporation a surety bond in such form and amount as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen, or destroyed. (Del. Code Ann., tit. 8, § 167)
Section 36. Transfers.
(a) Transfers of record of shares of stock of the corporation shall be made only upon its books by the holders thereof, in person or by attorney duly authorized, and upon the surrender of a properly endorsed certificate or certificates for a like number of shares. (Del. Code Ann., tit. 8, § 201, tit. 6, § 8- 401(1))
(b) The corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibited by the DGCL. (Del. Code Ann., tit. 8, § 160 (a))
Section 37. Fixing Record Dates.
(a) In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix, in advance, a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall, subject to applicable law, not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.
(b) In order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. Any stockholder of record seeking to have the stockholders authorize or take corporate action by written consent shall, by written notice to the Secretary, request the Board of Directors to fix a record date. The Board of Directors shall promptly, but in all events within ten (10) days after the date on which such a request is received, adopt a resolution fixing the record date. If no record date has been fixed by the Board of Directors within ten (10) days of the date on which such a request is received, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by applicable law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation by delivery
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to its registered office in the State of Delaware, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the corporations registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action.
(c) In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty (60) days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. (Del. Code Ann., tit. 8, § 213)
Section 38. Registered Stockholders. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. (Del. Code Ann., tit. 8, §§ 213(a), 219)
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
Section 39. Execution of Other Securities. All bonds, debentures and other corporate securities of the corporation, other than stock certificates (covered in Section 34), may be signed by the Chairman of the Board of Directors, the President or any Vice President, or such other person as may be authorized by the Board of Directors, and the corporate seal impressed thereon or a facsimile of such seal imprinted thereon and attested by the signature of the Secretary or an Assistant Secretary, or the Chief Financial Officer or Treasurer or an Assistant Treasurer; provided, however, that where any such bond, debenture or other corporate security shall be authenticated by the manual signature, or where permissible facsimile signature, of a trustee under an indenture pursuant to which such bond, debenture or other corporate security shall be issued, the signatures of the persons signing and attesting the corporate seal on such bond, debenture or other corporate security may be the imprinted facsimile of the signatures of such persons. Interest coupons appertaining to any such bond, debenture or other corporate security, authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an Assistant Treasurer of the corporation or such other person as may be authorized by the Board of Directors, or bear imprinted thereon the facsimile signature of such person. In case any officer who shall have signed or attested any bond, debenture or other corporate security, or whose
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facsimile signature shall appear thereon or on any such interest coupon, shall have ceased to be such officer before the bond, debenture or other corporate security so signed or attested shall have been delivered, such bond, debenture or other corporate security nevertheless may be adopted by the corporation and issued and delivered as though the person who signed the same or whose facsimile signature shall have been used thereon had not ceased to be such officer of the corporation.
ARTICLE IX
DIVIDENDS
Section 40. Declaration of Dividends. Dividends upon the capital stock of the corporation, subject to the provisions of the Certificate of Incorporation and applicable law, if any, may be declared by the Board of Directors pursuant to law at any regular or special meeting. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the Certificate of Incorporation and applicable law. (Del. Code Ann., tit. 8, §§ 170, 173)
Section 41. Dividend Reserve. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the Board of Directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the Board of Directors shall think conducive to the interests of the corporation, and the Board of Directors may modify or abolish any such reserve in the manner in which it was created. (Del. Code Ann., tit. 8, § 171)
ARTICLE X
FISCAL YEAR
Section 42. Fiscal Year. The fiscal year of the corporation shall be fixed by resolution of the Board of Directors.
ARTICLE XI
INDEMNIFICATION
Section 43. Indemnification of Directors, Executive Officers, Other Officers, Employees and Other Agents.
(a) Directors and Executive Officers. The corporation shall indemnify its directors and executive officers (for the purposes of this Article XI, executive officers shall have the meaning defined in Rule 3b-7 promulgated under the 1934 Act) to the fullest extent not prohibited by the DGCL or any other applicable law; provided, however, that the corporation may modify the extent of such indemnification by individual contracts with its directors and executive officers; and, provided, further, that the corporation shall not be required to indemnify any director or executive officer in connection with any proceeding (or part thereof) initiated by
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such person unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by the Board of Directors of the corporation, (iii) such indemnification is provided by the corporation, in its sole discretion, pursuant to the powers vested in the corporation under the Delaware General Corporation Law or any other applicable law or (iv) such indemnification is required to be made under subsection (d).
(b) Other Officers, Employees and Other Agents. The corporation shall have power to indemnify its other officers, employees and other agents as set forth in the DGCL or any other applicable law. The Board of Directors shall have the power to delegate the determination of whether indemnification shall be given to any such person except executive officers to such officers or other persons as the Board of Directors shall determine.
(c) Expenses. The corporation shall advance to any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director or executive officer of the corporation, or is or was serving at the request of the corporation as a director or executive officer of another corporation, partnership, joint venture, trust or other enterprise, prior to the final disposition of the proceeding, promptly following request therefor, all expenses incurred by any director or executive officer in connection with such proceeding, provided, however, that, if the DGCL requires, an advancement of expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such indemnitee, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to the corporation of an undertaking, by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal that such indemnitee is not entitled to be indemnified for such expenses under this Section 43 or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to paragraph (e) of this Bylaw, no advance shall be made by the corporation to an executive officer of the corporation (except by reason of the fact that such executive officer is or was a director of the corporation, in which event this paragraph shall not apply) in any action, suit or proceeding, whether civil, criminal, administrative or investigative, if a determination is reasonably and promptly made (i) by a majority vote of a quorum consisting of directors who were not parties to the proceeding, even if not a quorum, or (ii) by a committee of such directors designated by a majority of such directors, even though less than a quorum, or (iii) if there are no such directors, or such directors so direct, by independent legal counsel in a written opinion, that the facts known to the decision-making party at the time such determination is made demonstrate clearly and convincingly that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation.
(d) Enforcement. Without the necessity of entering into an express contract, all rights to indemnification and advances to directors and executive officers under this Bylaw shall be deemed to be contractual rights and be effective to the same extent and as if provided for in a contract between the corporation and the director or executive officer. Any right to indemnification or advances granted by this Bylaw to a director or executive office shall be
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enforceable by or on behalf of the person holding such right in any court of competent jurisdiction if (i) the claim for indemnification or advances is denied, in whole or in part, or (ii) no disposition of such claim is made within ninety (90) days of request therefor. The claimant in such enforcement action, if successful in whole or in part, shall be entitled to be paid also the expense of prosecuting the claim. In connection with any claim for indemnification, the corporation shall be entitled to raise as a defense to any such action that the claimant has not met the standards of conduct that make it permissible under the DGCL or any other applicable law for the corporation to indemnify the claimant for the amount claimed. In connection with any claim by an executive officer of the corporation (except in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such executive officer is or was a director of the corporation) for advances, the corporation shall be entitled to raise a defense as to any such action clear and convincing evidence that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation, or with respect to any criminal action or proceeding that such person acted without reasonable cause to believe that his conduct was lawful. Neither the failure of the corporation (including its Board of Directors, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he has met the applicable standard of conduct set forth in the DGCL or any other applicable law, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct.
(e) Non-Exclusivity of Rights. The rights conferred on any person by this Bylaw shall not be exclusive of any other right which such person may have or hereafter acquire under any applicable statute, provision of the Certificate of Incorporation, Bylaws, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding office. The corporation is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees or agents respecting indemnification and advances, to the fullest extent not prohibited by the DGCL or any other applicable law.
(f) Survival of Rights. The rights conferred on any person by this Bylaw shall continue as to a person who has ceased to be a director or executive officer and shall inure to the benefit of the heirs, executors and administrators of such a person.
(g) Insurance. To the fullest extent permitted by the DGCL, or any other applicable law, the corporation, upon approval by the Board of Directors, may purchase insurance on behalf of any person required or permitted to be indemnified pursuant to this Bylaw.
(h) Amendments. Any repeal or modification of this Bylaw shall only be prospective and shall not affect the rights under this Bylaw in effect at the time of the alleged occurrence of any action or omission to act that is the cause of any proceeding against any agent of the corporation.
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(i) Saving Clause. If this Bylaw or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the corporation shall nevertheless indemnify each director and executive officer to the full extent not prohibited by any applicable portion of this Bylaw that shall not have been invalidated, or by any other applicable law. If this Section 43 shall be invalid due to the application of the indemnification provisions of another jurisdiction, then the corporation shall indemnify each director and executive officer to the full extent under applicable law.
(j) Certain Definitions. For the purposes of this Bylaw, the following definitions shall apply:
(1) The term proceeding shall be broadly construed and shall include, without limitation, the investigation, preparation, prosecution, defense, settlement, arbitration and appeal of, and the giving of testimony in, any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative.
(2) The term expenses shall be broadly construed and shall include, without limitation, court costs, attorneys fees, witness fees, fines, amounts paid in settlement or judgment and any other costs and expenses of any nature or kind incurred in connection with any proceeding.
(3) The term the corporation shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Bylaw with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued.
(4) References to a director, executive officer, officer, employee, or agent of the corporation shall include, without limitation, situations where such person is serving at the request of the corporation as, respectively, a director, executive officer, officer, employee, trustee or agent of another corporation, partnership, joint venture, trust or other enterprise.
(5) References to other enterprises shall include employee benefit plans; references to fines shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to serving at the request of the corporation shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner not opposed to the best interests of the corporation as referred to in this Bylaw.
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ARTICLE XII
NOTICES
Section 44. Notices.
(a) Notice to Stockholders. Written notice to stockholders of stockholder meetings shall be given as provided in Section 7 herein. Without limiting the manner by which notice may otherwise be given effectively to stockholders under any agreement or contract with such stockholder, and except as otherwise required by law, written notice to stockholders for purposes other than stockholder meetings may be sent by United States mail or nationally recognized overnight courier, or by facsimile, telegraph or telex or by electronic mail or other electronic means. (Del. Code Ann., tit. 8, §§ 222, 232)
(b) Notice to Directors. Any notice required to be given to any director may be given by the method stated in subsection (a), or as provided for in Section 21 of these Bylaws. If such notice is not delivered personally, it shall be sent to such address as such director shall have filed in writing with the Secretary, or, in the absence of such filing, to the last known post office address of such director.
(c) Affidavit of Mailing. An affidavit of mailing, executed by a duly authorized and competent employee of the corporation or its transfer agent appointed with respect to the class of stock affected or other agent, specifying the name and address or the names and addresses of the stockholder or stockholders, or director or directors, to whom any such notice or notices was or were given, and the time and method of giving the same, shall in the absence of fraud, be prima facie evidence of the facts therein contained. (Del. Code Ann., tit. 8, § 222)
(d) Methods of Notice. It shall not be necessary that the same method of giving notice be employed in respect of all recipients of notice, but one permissible method may be employed in respect of any one or more, and any other permissible method or methods may be employed in respect of any other or others.
(e) Notice to Person with Whom Communication Is Unlawful. Whenever notice is required to be given, under any provision of law or of the Certificate of Incorporation or Bylaws of the corporation, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given. In the event that the action taken by the corporation is such as to require the filing of a certificate under any provision of the DGCL, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful.
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ARTICLE XIII
AMENDMENTS
Section 45. Amendments. The Board of Directors is expressly empowered to adopt, amend or repeal Bylaws of the corporation. The stockholders shall also have power to adopt, amend or repeal the Bylaws of the corporation; provided, however, that, in addition to any vote of the holders of any class or series of stock of the corporation required by law or by this Certificate of Incorporation, the affirmative vote of the holders of at least a majority of the voting power of all of the then-outstanding shares of the capital stock of the corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to adopt, amend or repeal any provision of the Bylaws of the corporation.
ARTICLE XIV
RIGHT OF FIRST REFUSAL
Section 46. Right of First Refusal. No stockholder shall sell, assign, pledge, or in any manner transfer any of the shares of common stock of the corporation or any right or interest therein, whether voluntarily or by operation of law, or by gift or otherwise, except by a transfer which meets the requirements hereinafter set forth in this bylaw:
(a) If the stockholder desires to sell or otherwise transfer any of his shares of common stock, then the stockholder shall first give written notice thereof to the corporation. The notice shall name the proposed transferee and state the number of shares to be transferred, the proposed consideration, and all other terms and conditions of the proposed transfer.
(b) For thirty (30) days following receipt of such notice, the corporation shall have the option to purchase all (but not less than all) of the shares specified in the notice at the price and upon the terms set forth in such notice; provided, however, that, with the consent of the stockholder, the corporation shall have the option to purchase a lesser portion of the shares specified in said notice at the price and upon the terms set forth therein. In the event of a gift, property settlement or other transfer in which the proposed transferee is not paying the full price for the shares, and that is not otherwise exempted from the provisions of this Section 46, the price shall be deemed to be the fair market value of the stock at such time as determined in good faith by the Board of Directors. In the event the corporation elects to purchase all of the shares or, with consent of the stockholder, a lesser portion of the shares, it shall give written notice to the transferring stockholder of its election and settlement for said shares shall be made as provided below in paragraph (d).
(c) The corporation may assign its rights hereunder.
(d) In the event the corporation and/or its assignee(s) elect to acquire any of the shares of the transferring stockholder as specified in said transferring stockholders notice, the Secretary of the corporation shall so notify the transferring stockholder and settlement thereof shall be made in cash within thirty (30) days after the Secretary of the corporation receives said transferring stockholders notice; provided that if the terms of payment set forth in
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said transferring stockholders notice were other than cash against delivery, the corporation and/or its assignee(s) shall pay for said shares on the same terms and conditions set forth in said transferring stockholders notice.
(e) In the event the corporation and/or its assignees(s) do not elect to acquire all of the shares specified in the transferring stockholders notice, said transferring stockholder may, within the sixty-day period following the expiration of the option rights granted to the corporation and/or its assignees(s) herein, transfer the shares specified in said transferring stockholders notice which were not acquired by the corporation and/or its assignees(s) as specified in said transferring stockholders notice. All shares so sold by said transferring stockholder shall continue to be subject to the provisions of this bylaw in the same manner as before said transfer.
(f) Anything to the contrary contained herein notwithstanding, the following transactions shall be exempt from the provisions of this bylaw:
(1) A stockholders transfer of any or all shares held either during such stockholders lifetime or on death by will or intestacy to such stockholders immediate family or to any custodian or trustee for the account of such stockholder or such stockholders immediate family or to any limited partnership of which the stockholder, members of such stockholders immediate family or any trust for the account of such stockholder or such stockholders immediate family will be the general of limited partner(s) of such partnership. Immediate family as used herein shall mean spouse, lineal descendant, father, mother, brother, or sister of the stockholder making such transfer.
(2) A stockholders bona fide pledge or mortgage of any shares with a commercial lending institution, provided that any subsequent transfer of said shares by said institution shall be conducted in the manner set forth in this bylaw.
(3) A stockholders transfer of any or all of such stockholders shares to the corporation or to any other stockholder of the corporation.
(4) A stockholders transfer of any or all of such stockholders shares to a person who, at the time of such transfer, is an officer or director of the corporation.
(5) A corporate stockholders transfer of any or all of its shares pursuant to and in accordance with the terms of any merger, consolidation, reclassification of shares or capital reorganization of the corporate stockholder, or pursuant to a sale of all or substantially all of the stock or assets of a corporate stockholder.
(6) A corporate stockholders transfer of any or all of its shares to any or all of its stockholders.
(7) A transfer by a stockholder which is a limited or general partnership to any or all of its partners or former partners.
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In any such case, the transferee, assignee, or other recipient shall receive and hold such stock subject to the provisions of this bylaw, and there shall be no further transfer of such stock except in accord with this bylaw.
(g) The provisions of this bylaw may be waived with respect to any transfer either by the corporation, upon duly authorized action of its Board of Directors, or by the stockholders, upon the express written consent of the owners of a majority of the voting power of the corporation (excluding the votes represented by those shares to be transferred by the transferring stockholder). This bylaw may be amended or repealed either by a duly authorized action of the Board of Directors or by the stockholders, upon the express written consent of the owners of a majority of the voting power of the corporation.
(h) Any sale or transfer, or purported sale or transfer, of securities of the corporation shall be null and void unless the terms, conditions, and provisions of this bylaw are strictly observed and followed.
(i) The foregoing right of first refusal shall terminate on either of the following dates, whichever shall first occur:
(1) On January 1, 2012; or
(2) Upon the date securities of the corporation are first offered to the public pursuant to a registration statement filed with, and declared effective by, the United States Securities and Exchange Commission under the Securities Act of 1933, as amended.
(j) The certificates representing shares of stock of the corporation shall bear on their face the following legend so long as the foregoing right of first refusal remains in effect:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION AND/OR ITS ASSIGNEE(S), AS PROVIDED IN THE BYLAWS OF THE CORPORATION.
ARTICLE XV
LOANS TO OFFICERS
Section 47. Loans to Officers. The corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or of its subsidiaries, including any officer or employee who is a Director of the corporation or its subsidiaries, whenever, in the judgment of the Board of Directors, such loan, guarantee or assistance may reasonably be expected to benefit the corporation. The loan, guarantee or other assistance may be with or without interest and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing in these Bylaws shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute. (Del. Code Ann., tit. 8, §143)
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ARTICLE XVI
MISCELLANEOUS
Section 48. Annual Report.
(a) Subject to the provisions of paragraph (b) of this Bylaw, the Board of Directors shall cause an annual report to be sent to each stockholder of the corporation not later than one hundred twenty (120) days after the close of the corporations fiscal year. Such report shall include a balance sheet as of the end of such fiscal year and an income statement and statement of changes in financial position for such fiscal year, accompanied by any report thereon of independent accounts or, if there is no such report, the certificate of an authorized officer of the corporation that such statements were prepared without audit from the books and records of the corporation. When there are more than 100 stockholders of record of the corporations shares, as determined by Section 605 of the CGCL, additional information as required by Section 1501(b) of the CGCL shall also be contained in such report, provided that if the corporation has a class of securities registered under Section 12 of the 1934 Act, the 1934 Act shall take precedence. Such report shall be sent to stockholders at least fifteen (15) days prior to the next annual meeting of stockholders after the end of the fiscal year to which it relates.
(b) If and so long as there are fewer than 100 holders of record of the corporations shares, the requirement of sending of an annual report to the stockholders of the corporation is hereby expressly waived.
27.
AMENDMENT TO BYLAWS
OF
INTERSECT ENT, INC.
APPROVED BY THE BOARD OF DIRECTORS ON SEPTEMBER 5, 2013
The following Amendment to the Bylaws (the Bylaws) of Intersect ENT, Inc., a Delaware corporation, was adopted as of September 5, 2013:
Article VII Section 36 of the Bylaws shall be amended and restated to read in its entirety as follows:
Section 36. Restrictions on Transfer.
(c) No holder of any of the shares of common stock of the corporation (the Covered Securities) may sell, transfer, assign, pledge, or otherwise dispose of or encumber any Covered Securities or any right or interest therein, whether voluntarily or by operation of law, or by gift or otherwise (each, a Transfer) without the prior written consent of the corporation, upon duly authorized action of the Board of Directors. The corporation may withhold consent for any legitimate corporate purpose, as determined by the Board of Directors. Examples of the basis for the corporation to withhold its consent include, without limitation, (i) if such Transfer is to individuals, companies or any other form of entity identified by the corporation as a potential competitor or considered by the corporation to be unfriendly; (ii) if such Transfer increases the risk of the corporation having a class of security held of record by such number of persons as will require the corporation to register such class of securities pursuant to Section 12(g) of the 1934 Act, and Rule 12g5-1 promulgated thereunder, or otherwise requiring the corporation to register any class of securities under the 1934 Act; (iii) if such Transfer would result in the loss of any federal or state securities law exemption relied upon by the corporation in connection with the initial issuance of such shares or the issuance of any other securities; (iv) if such Transfer is facilitated in any manner by any public posting, message board, trading portal, internet site, or similar method of communication, including without limitation any trading portal or internet site intended to facilitate secondary transfers of securities; (v) if such Transfer is to be effected in a brokered transaction; or (vi) if such Transfer represents a Transfer of less than all of the shares or Securities then held by the holder and its affiliates or is to be made to more than a single transferee.
(d) If a holder desires to Transfer any Covered Securities, then the holder shall first give written notice thereof to the corporation. The notice shall name the proposed transferee and state the number of shares, including shares issuable upon exercise of Securities, to be transferred, the proposed consideration, and all other terms and conditions of the proposed transfer. For the avoidance of doubt, any Covered Securities subject to Section 46 hereof remain subject to the corporations right of first refusal located in Section 46 hereof, regardless of whether (i) the Company consents to the transfer of such Covered Securities pursuant to Section 36(a) or (ii) the transfer of such Covered Securities is exempt from the restrictions of this Section 36 pursuant to Section 36(e).
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(e) Any Transfer, or purported Transfer, of Covered Securities not made in strict compliance with this Section 36 shall be null and void, shall not be recorded on the books of the corporation and shall not be recognized by the corporation.
(f) The foregoing restriction on Transfer shall terminate upon the date securities of the corporation are first offered to the public pursuant to a registration statement filed with, and declared effective by, the United States Securities and Exchange Commission under the Securities Act of 1933, as amended.
(g) The foregoing restriction on Transfer shall not apply to the following transactions:
(1) A stockholders transfer of any or all shares held either during such stockholders lifetime or on death by will or intestacy to such stockholders immediate family or to any custodian or trustee for the account of such stockholder or such stockholders immediate family or to any limited partnership of which the stockholder, members of such stockholders immediate family or any trust for the account of such stockholder or such stockholders immediate family will be the sole partners of such partnership. Immediate family as used herein shall mean spouse, lineal descendant, father, mother, brother, or sister of the stockholder making such transfer.
(h) The certificates or other documents representing Covered Securities of the corporation shall bear on their face the following legend so long as the foregoing Transfer restrictions are in effect:
THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO A TRANSFER RESTRICTION, AS PROVIDED IN THE BYLAWS OF THE CORPORATION.
Article XIV Section 46 of the Bylaws shall be amended and restated to read in its entirety as follows:
Section 46. Right of First Refusal. No stockholder shall sell, assign, pledge, or in any manner transfer any of the shares of common stock of the corporation or any right or interest therein, whether voluntarily or by operation of law, or by gift or otherwise, except by a transfer which meets the requirements hereinafter set forth in this bylaw:
(a) If the stockholder desires to sell or otherwise transfer any of his shares of common stock, then the stockholder shall first give written notice thereof to the corporation. The notice shall name the proposed transferee and state the number of shares to be transferred, the proposed consideration, and all other terms and conditions of the proposed transfer.
(b) For thirty (30) days following receipt of such notice, the corporation shall have the option to purchase all (but not less than all) of the shares specified in the notice at the price and upon the terms set forth in such notice; provided, however, that, with the consent of the stockholder, the corporation shall have the option to purchase a lesser portion of the shares specified in said notice at the price and upon the terms set forth therein. In the event of a gift, property settlement or other transfer in
2.
which the proposed transferee is not paying the full price for the shares, and that is not otherwise exempted from the provisions of this Section 46, the price shall be deemed to be the fair market value of the stock at such time as determined in good faith by the Board of Directors. In the event the corporation elects to purchase all of the shares or, with consent of the stockholder, a lesser portion of the shares, it shall give written notice to the transferring stockholder of its election and settlement for said shares shall be made as provided below in paragraph (d).
(c) The corporation may assign its rights hereunder.
(d) In the event the corporation and/or its assignee(s) elect to acquire any of the shares of the transferring stockholder as specified in said transferring stockholders notice, the Secretary of the corporation shall so notify the transferring stockholder and settlement thereof shall be made in cash within thirty (30) days after the Secretary of the corporation receives said transferring stockholders notice; provided that if the terms of payment set forth in said transferring stockholders notice were other than cash against delivery, the corporation and/or its assignee(s) shall pay for said shares on the same terms and conditions set forth in said transferring stockholders notice.
(e) In the event the corporation and/or its assignees(s) do not elect to acquire all of the shares specified in the transferring stockholders notice, said transferring stockholder may, within the sixty-day period following the expiration of the option rights granted to the corporation and/or its assignees(s) herein, transfer the shares specified in said transferring stockholders notice which were not acquired by the corporation and/or its assignees(s) as specified in said transferring stockholders notice. All shares so sold by said transferring stockholder shall continue to be subject to the provisions of this bylaw in the same manner as before said transfer.
(f) Anything to the contrary contained herein notwithstanding, the following transactions shall be exempt from the provisions of this bylaw:
(1) A stockholders transfer of any or all shares held either during such stockholders lifetime or on death by will or intestacy to such stockholders immediate family or to any custodian or trustee for the account of such stockholder or such stockholders immediate family or to any limited partnership of which the stockholder, members of such stockholders immediate family or any trust for the account of such stockholder or such stockholders immediate family will be the general of limited partner(s) of such partnership. Immediate family as used herein shall mean spouse, lineal descendant, father, mother, brother, or sister of the stockholder making such transfer.
(2) A stockholders bona fide pledge or mortgage of any shares with a commercial lending institution, provided that any subsequent transfer of said shares by said institution shall be conducted in the manner set forth in this bylaw.
(3) A stockholders transfer of any or all of such stockholders shares to the corporation or to any other stockholder of the corporation.
(4) A stockholders transfer of any or all of such stockholders shares to a person who, at the time of such transfer, is an officer or director of the corporation.
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(5) A corporate stockholders transfer of any or all of its shares pursuant to and in accordance with the terms of any merger, consolidation, reclassification of shares or capital reorganization of the corporate stockholder, or pursuant to a sale of all or substantially all of the stock or assets of a corporate stockholder.
(6) A corporate stockholders transfer of any or all of its shares to any or all of its stockholders.
(7) A transfer by a stockholder which is a limited or general partnership to any or all of its partners or former partners.
In any such case, the transferee, assignee, or other recipient shall receive and hold such stock subject to the provisions of this bylaw, and there shall be no further transfer of such stock except in accord with this bylaw.
(g) The provisions of this bylaw may be waived with respect to any transfer either by the corporation, upon duly authorized action of its Board of Directors, or by the stockholders, upon the express written consent of the owners of a majority of the voting power of the corporation (excluding the votes represented by those shares to be transferred by the transferring stockholder). This bylaw may be amended or repealed either by a duly authorized action of the Board of Directors or by the stockholders, upon the express written consent of the owners of a majority of the voting power of the corporation.
(h) Any sale or transfer, or purported sale or transfer, of securities of the corporation shall be null and void unless the terms, conditions, and provisions of this bylaw are strictly observed and followed.
(i) The foregoing right of first refusal shall terminate on the date securities of the corporation are first offered to the public pursuant to a registration statement filed with, and declared effective by, the United States Securities and Exchange Commission under the Securities Act of 1933, as amended.
(j) The certificates representing shares of stock of the corporation shall bear on their face the following legend so long as the foregoing right of first refusal remains in effect:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION AND/OR ITS ASSIGNEE(S), AS PROVIDED IN THE BYLAWS OF THE CORPORATION.
IN WITNESS WHEREOF, the undersigned has hereto subscribed his name this 5th day of September, 2013.
/s/ Matthew B. Hemington |
Matthew B. Hemington, Secretary |
4.
Exhibit 10.2
INTERSECT ENT, INC.
2003 EQUITY INCENTIVE PLAN
ADOPTED: OCTOBER 8, 2003
APPROVED BY STOCKHOLDERS: OCTOBER 30, 2003
AMENDED: JANUARY 24, 2006
APPROVED BY STOCKHOLDERS: MARCH 23, 2006
AMENDED JANUARY 26, 2007
AMENDED MARCH 16, 2007
APPROVED BY STOCKHOLDERS: JULY 3, 2007
AMENDED JANUARY 18, 2008
AMENDED APRIL 2, 2008
AMENDED MAY 28, 2008
APPROVED BY STOCKHOLDERS: MAY 28, 2008
AMENDED OCTOBER 28, 2010
APPROVED BY STOCKHOLDERS: OCTOBER 28, 2010
AMENDED SEPTEMBER 25, 2012
AMENDED NOVEMBER 27, 2012
AMENDED FEBRUARY 14, 2013
APPROVED BY STOCKHOLDERS: FEBRUARY 14, 2013
TERMINATION DATE: OCTOBER 7, 2013
1. | PURPOSES. |
(a) Eligible Stock Award Recipients. The persons eligible to receive Stock Awards are Employees, Directors and Consultants.
(b) Available Stock Awards. The purpose of the Plan is to provide a means by which eligible recipients of Stock Awards may be given an opportunity to benefit from increases in value of the Common Stock through the granting of the following Stock Awards: (i) Incentive Stock Options, (ii) Nonstatutory Stock Options, (iii) stock bonuses and (iv) rights to acquire restricted stock.
(c) General Purpose. The Company, by means of the Plan, seeks to retain the services of the group of persons eligible to receive Stock Awards, to secure and retain the services of new members of this group and to provide incentives for such persons to exert maximum efforts for the success of the Company and its Affiliates.
2. | DEFINITIONS. |
(a) Affiliate means any parent corporation or subsidiary corporation of the Company, whether now or hereafter existing, as those terms are defined in Sections 424(e) and (f), respectively, of the Code.
(b) Board means the Board of Directors of the Company.
(c) Capitalization Adjustment has the meaning ascribed to that term in Section 11(a).
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(d) Change in Control means the occurrence, in a single transaction or in a series of related transactions, of any one or more of the following events:
(i) any Exchange Act Person becomes the Owner, directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the combined voting power of the Companys then outstanding securities other than by virtue of a merger, consolidation or similar transaction. Notwithstanding the foregoing, a Change in Control shall not be deemed to occur (A) on account of the acquisition of securities of the Company by any institutional investor, any affiliate thereof or any other Exchange Act Person that acquires the Companys securities in a transaction or series of related transactions that are primarily a private financing transaction for the Company or (B) solely because the level of Ownership held by any Exchange Act Person (the Subject Person) exceeds the designated percentage threshold of the outstanding voting securities as a result of a repurchase or other acquisition of voting securities by the Company reducing the number of shares outstanding, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of voting securities by the Company, and after such share acquisition, the Subject Person becomes the Owner of any additional voting securities that, assuming the repurchase or other acquisition had not occurred, increases the percentage of the then outstanding voting securities Owned by the Subject Person over the designated percentage threshold, then a Change in Control shall be deemed to occur;
(ii) there is consummated a merger, consolidation or similar transaction involving (directly or indirectly) the Company if, immediately after the consummation of such merger, consolidation or similar transaction, the stockholders of the Company immediately prior thereto do not Own, directly or indirectly, either (A) outstanding voting securities representing more than fifty percent (50%) of the combined outstanding voting power of the surviving Entity in such merger, consolidation or similar transaction or (B) more than fifty percent (50%) of the combined outstanding voting power of the parent of the surviving Entity in such merger, consolidation or similar transaction;
(iii) the stockholders of the Company approve or the Board approves a plan of complete dissolution or liquidation of the Company, or a complete dissolution or liquidation of the Company shall otherwise occur; or
(iv) there is consummated a sale, lease, license or other disposition of all or substantially all of the consolidated assets of the Company and its Subsidiaries, other than a sale, lease, license or other disposition of all or substantially all of the consolidated assets of the Company and its Subsidiaries to an Entity, more than fifty percent (50%) of the combined voting power of the voting securities of which are Owned by stockholders of the Company in substantially the same proportion as their Ownership of the Company immediately prior to such sale, lease, license or other disposition.
The term Change in Control shall not include a sale of assets, merger or other transaction effected exclusively for the purpose of changing the domicile of the Company.
Notwithstanding the foregoing or any other provision of this Plan, the definition of Change in Control (or any analogous term) in an individual written agreement between the Company or any Affiliate and the Participant shall supersede the foregoing definition with respect to Stock Awards subject to such agreement (it being understood, however, that if no definition of Change in Control or any analogous term is set forth in such an individual written agreement, the foregoing definition shall apply).
(e) Code means the Internal Revenue Code of 1986, as amended.
2.
(f) Committee means a committee of one or more members of the Board appointed by the Board in accordance with Section 3(c).
(g) Common Stock means the common stock of the Company.
(h) Company means Intersect ENT, Inc., formerly Sinexus, Inc., a Delaware corporation.
(i) Consultant means any person, including an advisor, (i) engaged by the Company or an Affiliate to render consulting or advisory services and who is compensated for such services or (ii) serving as a member of the Board of Directors of an Affiliate and who is compensated for such services. However, the term Consultant shall not include Directors who are not compensated by the Company for their services as Directors, and the payment of a directors fee by the Company for services as a Director shall not cause a Director to be considered a Consultant for purposes of the Plan.
(j) Continuous Service means that the Participants service with the Company or an Affiliate, whether as an Employee, Director or Consultant, is not interrupted or terminated. A change in the capacity in which the Participant renders service to the Company or an Affiliate as an Employee, Consultant or Director or a change in the entity for which the Participant renders such service, provided that there is no interruption or termination of the Participants service with the Company or an Affiliate, shall not terminate a Participants Continuous Service. For example, a change in status from an employee of the Company to a consultant to an Affiliate or to a Director shall not constitute an interruption of Continuous Service. The Board or the chief executive officer of the Company, in that partys sole discretion, may determine whether Continuous Service shall be considered interrupted in the case of any leave of absence approved by that party, including sick leave, military leave or any other personal leave. Notwithstanding the foregoing, a leave of absence shall be treated as Continuous Service for purposes of vesting in a Stock Award only to such extent as may be provided in the Companys leave of absence policy or in the written terms of the Participants leave of absence.
(k) Corporate Transaction means the occurrence, in a single transaction or in a series of related transactions, of any one or more of the following events:
(i) a sale or other disposition of all or substantially all, as determined by the Board in its discretion, of the consolidated assets of the Company and its Subsidiaries;
(ii) a sale or other disposition of at least ninety percent (90%) of the outstanding securities of the Company;
(iii) a merger, consolidation or similar transaction following which the Company is not the surviving corporation; or
(iv) a merger, consolidation or similar transaction following which the Company is the surviving corporation but the shares of Common Stock outstanding immediately preceding the merger, consolidation or similar transaction are converted or exchanged by virtue of the merger, consolidation or similar transaction into other property, whether in the form of securities, cash or otherwise.
(l) Director means a member of the Board.
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(m) Disability means the inability of a person, in the opinion of a qualified physician acceptable to the Company, to perform the major duties of that persons position with the Company or an Affiliate because of the sickness or injury of the person.
(n) Employee means any person employed by the Company or an Affiliate. Service as a Director or payment of a directors fee by the Company for such service or for service as a member of the Board of Directors of an Affiliate shall not be sufficient to constitute employment by the Company or an Affiliate.
(o) Entity means a corporation, partnership or other entity.
(p) Exchange Act means the Securities Exchange Act of 1934, as amended.
(q) Exchange Act Person means any natural person, Entity or group (within the meaning of Section 13(d) or 14(d) of the Exchange Act), except that Exchange Act Person shall not include (A) the Company or any Subsidiary of the Company, (B) any employee benefit plan of the Company or any Subsidiary of the Company or any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any Subsidiary of the Company, (C) an underwriter temporarily holding securities pursuant to an offering of such securities, or (D) an Entity Owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their Ownership of stock of the Company.
(r) Fair Market Value means, as of any date, the value of the Common Stock determined in good faith by the Board, and in a manner consistent with Section 260.140.50 of Title 10 of the California Code of Regulations.
(s) Incentive Stock Option means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder.
(t) Nonstatutory Stock Option means an Option not intended to qualify as an Incentive Stock Option.
(u) Officer means any person designated by the Company as an officer.
(v) Option means an Incentive Stock Option or a Nonstatutory Stock Option granted pursuant to the Plan.
(w) Option Agreement means a written agreement between the Company and an Optionholder evidencing the terms and conditions of an individual Option grant. Each Option Agreement shall be subject to the terms and conditions of the Plan.
(x) Optionholder means a person to whom an Option is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Option.
(y) Own, Owned, Owner, Ownership A person or Entity shall be deemed to Own, to have Owned, to be the Owner of, or to have acquired Ownership of securities if such person or Entity, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares voting power, which includes the power to vote or to direct the voting, with respect to such securities.
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(z) Participant means a person to whom a Stock Award is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Stock Award.
(aa) Plan means this Intersect ENT, Inc. 2003 Equity Incentive Plan.
(bb) Securities Act means the Securities Act of 1933, as amended.
(cc) Stock Award means any right granted under the Plan, including an Option, a stock bonus and a right to acquire restricted stock.
(dd) Stock Award Agreement means a written agreement between the Company and a holder of a Stock Award evidencing the terms and conditions of an individual Stock Award grant. Each Stock Award Agreement shall be subject to the terms and conditions of the Plan.
(ee) Subsidiary means, with respect to the Company, (i) any corporation of which more than fifty percent (50%) of the outstanding capital stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether, at the time, stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, Owned by the Company, and (ii) any partnership in which the Company has a direct or indirect interest (whether in the form of voting or participation in profits or capital contribution) of more than fifty percent (50%).
(ff) Ten Percent Stockholder means a person who Owns (or is deemed to Own pursuant to Section 424(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any of its Affiliates.
3. | ADMINISTRATION. |
(a) Administration by Board. The Board shall administer the Plan unless and until the Board delegates administration to a Committee, as provided in Section 3(c).
(b) Powers of Board. The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons eligible under the Plan shall be granted Stock Awards; when and how each Stock Award shall be granted; what type or combination of types of Stock Award shall be granted; the provisions of each Stock Award granted (which need not be identical), including the time or times when a person shall be permitted to receive Common Stock pursuant to a Stock Award; and the number of shares of Common Stock with respect to which a Stock Award shall be granted to each such person.
(ii) To construe and interpret the Plan and Stock Awards granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any Stock Award Agreement, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective.
(iii) To amend the Plan or a Stock Award as provided in Section 12.
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(iv) To terminate or suspend the Plan as provided in Section 13.
(v) Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company and that are not in conflict with the provisions of the Plan.
(c) Delegation to Committee. The Board may delegate administration of the Plan to a Committee or Committees of one (1) or more members of the Board, and the term Committee shall apply to any person or persons to whom such authority has been delegated. If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, including the power to delegate to a subcommittee any of the administrative powers the Committee is authorized to exercise (and references in this Plan to the Board shall thereafter be to the Committee or subcommittee), subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan.
(d) Effect of Boards Decision. All determinations, interpretations and constructions made by the Board in good faith shall not be subject to review by any person and shall be final, binding and conclusive on all persons.
(e) Arbitration. Any dispute or claim concerning any Stock Awards granted (or not granted) pursuant to the Plan or any disputes or claims relating to or arising out of the Plan shall be fully, finally and exclusively resolved by binding and confidential arbitration conducted pursuant to the rules of Judicial Arbitration and Mediation Services, Inc. (JAMS) in California. The Company shall pay all arbitration fees. In addition to any other relief, the arbitrator may award to the prevailing party recovery of its attorneys fees and costs. By accepting a Stock Award, Participants and the Company waive their respective rights to have any such disputes or claims tried by a judge or jury.
4. | SHARES SUBJECT TO THE PLAN. |
(a) Share Reserve. Subject to the provisions of Section 11(a) relating to Capitalization Adjustments, the Common Stock that may be issued pursuant to Stock Awards shall not exceed in the aggregate fifteen million ninety-six thousand twenty-two (15,096,022) shares of Common Stock.
(b) Reversion of Shares to the Share Reserve. If any Stock Award shall for any reason expire or otherwise terminate, in whole or in part, without having been exercised in full, or if any shares of Common Stock issued to a Participant pursuant to a Stock Award are forfeited back to or repurchased by the Company because of or in connection with the failure to meet a contingency or condition required to vest such shares in the Participant, the shares of Common Stock not acquired, such Stock Award or the shares of Common Stock forfeited or repurchased under such Stock Award shall revert to and again become available for issuance under the Plan; provided, however, that subject to the provisions of Section 11(a) relating to Capitalization Adjustments, the aggregate maximum number of shares of Common Stock that may be issued as Incentive Stock Options shall equal two (2) times the Share Reserve.
(c) Source of Shares. The shares of Common Stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise.
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(d) Share Reserve Limitation. To the extent required by Section 260.140.45 of Title 10 of the California Code of Regulations, the total number of shares of Common Stock issuable upon exercise of all outstanding Options and the total number of shares of Common Stock provided for under any stock bonus or similar plan of the Company shall not exceed the applicable percentage as calculated in accordance with the conditions and exclusions of Section 260.140.45 of Title 10 of the California Code of Regulations, based on the shares of Common Stock of the Company that are outstanding at the time the calculation is made.
5. | ELIGIBILITY. |
(a) Eligibility for Specific Stock Awards. Incentive Stock Options may be granted only to Employees. Stock Awards other than Incentive Stock Options may be granted to Employees, Directors and Consultants.
(b) Ten Percent Stockholders.
(i) A Ten Percent Stockholder shall not be granted an Incentive Stock Option unless the exercise price of such Option is at least one hundred ten percent (110%) of the Fair Market Value of the Common Stock on the date of grant and the Option is not exercisable after the expiration of five (5) years from the date of grant.
(ii) A Ten Percent Stockholder shall not be granted a Nonstatutory Stock Option unless the exercise price of such Option is at least (i) one hundred ten percent (110%) of the Fair Market Value of the Common Stock on the date of grant or (ii) such lower percentage of the Fair Market Value of the Common Stock on the date of grant as is permitted by Section 260.140.41 of Title 10 of the California Code of Regulations at the time of the grant of the Option.
(iii) A Ten Percent Stockholder shall not be granted a restricted stock award unless the purchase price of the restricted stock is at least (i) one hundred percent (100%) of the Fair Market Value of the Common Stock on the date of grant or (ii) such lower percentage of the Fair Market Value of the Common Stock on the date of grant as is permitted by Section 260.140.42 of Title 10 of the California Code of Regulations at the time of the grant of the restricted stock award.
(c) Consultants. A Consultant shall not be eligible for the grant of a Stock Award if, at the time of grant, either the offer or the sale of the Companys securities to such Consultant is not exempt under Rule 701 of the Securities Act (Rule 701) because of the nature of the services that the Consultant is providing to the Company, because the Consultant is not a natural person, or because of some other provision of Rule 701, unless the Company determines that such grant need not comply with the requirements of Rule 701 and will satisfy another exemption under the Securities Act as well as comply with the securities laws of all other relevant jurisdictions.
6. | OPTION PROVISIONS. |
Each Option shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. All Options shall be separately designated Incentive Stock Options or Nonstatutory Stock Options at the time of grant, and, if certificates are issued, a separate certificate or certificates shall be issued for shares of Common Stock purchased on exercise of each type of Option. The provisions of separate Options need not be identical, but each Option shall include (through incorporation of provisions hereof by reference in the Option or otherwise) the substance of each of the following provisions:
(a) Term. Subject to the provisions of Section 5(b) regarding Ten Percent Stockholders, no Option shall be exercisable after the expiration of ten (10) years from the date it was granted.
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(b) Exercise Price of an Incentive Stock Option. Subject to the provisions of Section 5(b) regarding Ten Percent Stockholders, the exercise price of each Incentive Stock Option shall be not less than one hundred percent (100%) of the Fair Market Value of the Common Stock subject to the Option on the date the Option is granted. Notwithstanding the foregoing, an Incentive Stock Option may be granted with an exercise price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section 424(a) of the Code.
(c) Exercise Price of a Nonstatutory Stock Option. Subject to the provisions of Section 5(b) regarding Ten Percent Stockholders, the exercise price of each Nonstatutory Stock Option shall be not less than eighty-five percent (85%) of the Fair Market Value of the Common Stock subject to the Option on the date the Option is granted. Notwithstanding the foregoing, a Nonstatutory Stock Option may be granted with an exercise price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section 424(a) of the Code.
(d) Consideration. The purchase price of Common Stock acquired pursuant to an Option shall be paid, to the extent permitted by applicable statutes and regulations, either (i) in cash at the time the Option is exercised or (ii) at the discretion of the Board at the time of the grant of the Option (or subsequently in the case of a Nonstatutory Stock Option) (1) by delivery to the Company of other Common Stock, (2) according to a deferred payment or other similar arrangement with the Optionholder or (3) in any other form of legal consideration that may be acceptable to the Board. Unless otherwise specifically provided in the Option, the purchase price of Common Stock acquired pursuant to an Option that is paid by delivery to the Company of other Common Stock acquired, directly or indirectly from the Company, shall be paid only by shares of the Common Stock of the Company that have been held for more than six (6) months (or such longer or shorter period of time required to avoid a charge to earnings for financial accounting purposes). At any time that the Company is incorporated in Delaware, payment of the Common Stocks par value, as defined in the Delaware General Corporation Law, shall not be made by deferred payment.
In the case of any deferred payment arrangement, interest shall be compounded at least annually and shall be charged at the minimum rate of interest necessary to avoid (1) the treatment as interest, under any applicable provisions of the Code, of any amounts other than amounts stated to be interest under the deferred payment arrangement and (2) the treatment of the Option as a variable award for financial accounting purposes.
(e) Transferability of an Incentive Stock Option. An Incentive Stock Option shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Optionholder only by the Optionholder. Notwithstanding the foregoing, the Optionholder may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionholder, shall thereafter be entitled to exercise the Option.
(f) Transferability of a Nonstatutory Stock Option. A Nonstatutory Stock Option shall not be transferable except by will or by the laws of descent and distribution and, to the extent provided in the Option Agreement, to such further extent as permitted by Section 260.140.41(d) of Title 10 of the
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California Code of Regulations at the time of the grant of the Option, and shall be exercisable during the lifetime of the Optionholder only by the Optionholder. If the Nonstatutory Stock Option does not provide for transferability, then the Nonstatutory Stock Option shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Optionholder only by the Optionholder. Notwithstanding the foregoing, the Optionholder may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionholder, shall thereafter be entitled to exercise the Option.
(g) Vesting Generally. The total number of shares of Common Stock subject to an Option may, but need not, vest and therefore become exercisable in periodic installments that may, but need not, be equal. The Option may be subject to such other terms and conditions on the time or times when it may be exercised (which may be based on performance or other criteria) as the Board may deem appropriate. The vesting provisions of individual Options may vary. The provisions of this Section 6(g) are subject to any Option provisions governing the minimum number of shares of Common Stock as to which an Option may be exercised.
(h) Minimum Vesting. Notwithstanding the foregoing Section 6(g), to the extent that the following restrictions on vesting are required by Section 260.140.41(f) of Title 10 of the California Code of Regulations at the time of the grant of the Option, then:
(i) Options granted to an Employee who is not an Officer, Director or Consultant shall provide for vesting of the total number of shares of Common Stock at a rate of at least twenty percent (20%) per year over five (5) years from the date the Option was granted, subject to reasonable conditions such as continued employment; and
(ii) Options granted to Officers, Directors or Consultants may be made fully exercisable, subject to reasonable conditions such as continued employment, at any time or during any period established by the Company.
(i) Termination of Continuous Service. In the event that an Optionholders Continuous Service terminates (other than upon the Optionholders death or Disability), the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to exercise such Option as of the date of termination) but only within such period of time ending on the earlier of (i) the date three (3) months following the termination of the Optionholders Continuous Service (or such longer or shorter period specified in the Option Agreement, which period shall not be less than thirty (30) days unless such termination is for cause), or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionholder does not exercise his or her Option within the time specified in the Option Agreement, the Option shall terminate.
(j) Extension of Termination Date. An Optionholders Option Agreement may also provide that if the exercise of the Option following the termination of the Optionholders Continuous Service (other than upon the Optionholders death or Disability) would be prohibited at any time solely because the issuance of shares of Common Stock would violate the registration requirements under the Securities Act, then the Option shall terminate on the earlier of (i) the expiration of the term of the Option set forth in Section 6(a) or (ii) the expiration of a period of three (3) months after the termination of the Optionholders Continuous Service during which the exercise of the Option would not be in violation of such registration requirements.
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(k) Disability of Optionholder. In the event that an Optionholders Continuous Service terminates as a result of the Optionholders Disability, the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to exercise such Option as of the date of termination), but only within such period of time ending on the earlier of (i) the date twelve (12) months following such termination (or such longer or shorter period specified in the Option Agreement, which period shall not be less than six (6) months) or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionholder does not exercise his or her Option within the time specified herein, the Option shall terminate.
(l) Death of Optionholder. In the event that (i) an Optionholders Continuous Service terminates as a result of the Optionholders death or (ii) the Optionholder dies within the period (if any) specified in the Option Agreement after the termination of the Optionholders Continuous Service for a reason other than death, then the Option may be exercised (to the extent the Optionholder was entitled to exercise such Option as of the date of death) by the Optionholders estate, by a person who acquired the right to exercise the Option by bequest or inheritance or by a person designated to exercise the option upon the Optionholders death pursuant to Section 6(e) or 6(f), but only within the period ending on the earlier of (1) the date eighteen (18) months following the date of death (or such longer or shorter period specified in the Option Agreement, which period shall not be less than six (6) months) or (2) the expiration of the term of such Option as set forth in the Option Agreement. If, after death, the Option is not exercised within the time specified herein, the Option shall terminate.
(m) Early Exercise. The Option may, but need not, include a provision whereby the Optionholder may elect at any time before the Optionholders Continuous Service terminates to exercise the Option as to any part or all of the shares of Common Stock subject to the Option prior to the full vesting of the Option. Subject to the Repurchase Limitation in Section 10(h), any unvested shares of Common Stock so purchased may be subject to a repurchase option in favor of the Company or to any other restriction the Board determines to be appropriate. Provided that the Repurchase Limitation in Section 10(h) is not violated, the Company will not exercise its repurchase option until at least six (6) months (or such longer or shorter period of time required to avoid a charge to earnings for financial accounting purposes) have elapsed following exercise of the Option unless the Board otherwise specifically provides in the Option.
(n) Right of Repurchase. Subject to the Repurchase Limitation in Section 10(h), the Option may, but need not, include a provision whereby the Company may elect to repurchase all or any part of the vested shares of Common Stock acquired by the Optionholder pursuant to the exercise of the Option. Provided that the Repurchase Limitation in Section 10(h) is not violated, the Company will not exercise its repurchase option until at least six (6) months (or such longer or shorter period of time required to avoid a charge to earnings for financial accounting purposes) have elapsed following exercise of the Option unless otherwise specifically provided in the Option.
(o) Right of First Refusal. The Option may, but need not, include a provision whereby the Company may elect to exercise a right of first refusal following receipt of notice from the Optionholder of the intent to transfer all or any part of the shares of Common Stock received upon the exercise of the Option. Except as expressly provided in this Section 6(o) or in the Stock Award Agreement for the Option, such right of first refusal shall otherwise comply with any applicable provisions of the Bylaws of the Company. The Company will not exercise its right of first refusal until at least six (6) months (or such longer or shorter period of time required to avoid a charge to earnings for financial accounting purposes) have elapsed following the exercise of the Option unless otherwise specifically provided in the Option.
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7. | PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS. |
(a) Stock Bonus Awards. Each stock bonus agreement shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. The terms and conditions of stock bonus agreements may change from time to time, and the terms and conditions of separate stock bonus agreements need not be identical, but each stock bonus agreement shall include (through incorporation of provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions:
(i) Consideration. A stock bonus may be awarded in consideration for past services actually rendered to the Company or an Affiliate for its benefit.
(ii) Vesting. Subject to the Repurchase Limitation in Section 10(h), shares of Common Stock awarded under the stock bonus agreement may, but need not, be subject to a share repurchase option in favor of the Company in accordance with a vesting schedule to be determined by the Board.
(iii) Termination of Participants Continuous Service. Subject to the Repurchase Limitation in Section 10(h), in the event that a Participants Continuous Service terminates, the Company may reacquire any or all of the shares of Common Stock held by the Participant that have not vested as of the date of termination under the terms of the stock bonus agreement. Provided that the Repurchase Limitation in Section 10(h) is not violated, the Company will not exercise its repurchase option until at least six (6) months (or such longer or shorter period of time required to avoid a charge to earnings for financial accounting purposes) have elapsed following receipt of the stock bonus unless otherwise specifically provided in the stock bonus agreement.
(iv) Transferability. Rights to acquire shares of Common Stock under the stock bonus agreement shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Participant only by the Participant.
(b) Restricted Stock Awards. Each restricted stock purchase agreement shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. The terms and conditions of the restricted stock purchase agreements may change from time to time, and the terms and conditions of separate restricted stock purchase agreements need not be identical, but each restricted stock purchase agreement shall include (through incorporation of provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions:
(i) Purchase Price. Subject to the provisions of Section 5(b) regarding Ten Percent Stockholders, the purchase price of restricted stock awards shall not be less than eighty-five percent (85%) of the Common Stocks Fair Market Value on the date such award is made or at the time the purchase is consummated.
(ii) Consideration. The purchase price of Common Stock acquired pursuant to the restricted stock purchase agreement shall be paid either: (i) in cash at the time of purchase; (ii) at the discretion of the Board, according to a deferred payment or other similar arrangement with the Participant; or (iii) in any other form of legal consideration that may be acceptable to the Board in its discretion; provided, however, that at any time that the Company is incorporated in Delaware, then payment of the Common Stocks par value, as defined in the Delaware General Corporation Law, shall not be made by deferred payment.
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(iii) Vesting. Subject to the Repurchase Limitation in Section 10(h), shares of Common Stock acquired under the restricted stock purchase agreement may, but need not, be subject to a share repurchase option in favor of the Company in accordance with a vesting schedule to be determined by the Board.
(iv) Termination of Participants Continuous Service. Subject to the Repurchase Limitation in Section 10(h), in the event that a Participants Continuous Service terminates, the Company may repurchase or otherwise reacquire any or all of the shares of Common Stock held by the Participant that have not vested as of the date of termination under the terms of the restricted stock purchase agreement. Provided that the Repurchase Limitation in Section 10(h) is not violated, the Company will not exercise its repurchase option until at least six (6) months (or such longer or shorter period of time required to avoid a charge to earnings for financial accounting purposes) have elapsed following the purchase of the restricted stock unless otherwise specifically provided in the restricted stock purchase agreement.
(v) Transferability. Rights to acquire shares of Common Stock under the restricted stock purchase agreement shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Participant only by the Participant.
8. | COVENANTS OF THE COMPANY. |
(a) Availability of Shares. During the terms of the Stock Awards, the Company shall keep available at all times the number of shares of Common Stock required to satisfy such Stock Awards.
(b) Securities Law Compliance. The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to grant Stock Awards and to issue and sell shares of Common Stock upon exercise of the Stock Awards; provided, however, that this undertaking shall not require the Company to register under the Securities Act the Plan, any Stock Award or any Common Stock issued or issuable pursuant to any such Stock Award. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of Common Stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell Common Stock upon exercise of such Stock Awards unless and until such authority is obtained.
9. | USE OF PROCEEDS FROM STOCK. |
Proceeds from the sale of Common Stock pursuant to Stock Awards shall constitute general funds of the Company.
10. | MISCELLANEOUS. |
(a) Acceleration of Exercisability and Vesting. The Board shall have the power to accelerate the time at which a Stock Award may first be exercised or the time during which a Stock Award or any part thereof will vest in accordance with the Plan, notwithstanding the provisions in the Stock Award stating the time at which it may first be exercised or the time during which it will vest.
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(b) Stockholder Rights. No Participant shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Common Stock subject to such Stock Award unless and until such Participant has satisfied all requirements for exercise of the Stock Award pursuant to its terms.
(c) No Employment or other Service Rights. Nothing in the Plan or any instrument executed or Stock Award granted pursuant thereto shall confer upon any Participant any right to continue to serve the Company or an Affiliate in the capacity in effect at the time the Stock Award was granted or shall affect the right of the Company or an Affiliate to terminate (i) the employment of an Employee with or without notice and with or without cause, (ii) the service of a Consultant pursuant to the terms of such Consultants agreement with the Company or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the Company or an Affiliate, and any applicable provisions of the corporate law of the state in which the Company or the Affiliate is incorporated, as the case may be.
(d) Incentive Stock Option $100,000 Limitation. To the extent that the aggregate Fair Market Value (determined at the time of grant) of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by any Optionholder during any calendar year (under all plans of the Company and its Affiliates) exceeds one hundred thousand dollars ($100,000), the Options or portions thereof that exceed such limit (according to the order in which they were granted) shall be treated as Nonstatutory Stock Options, notwithstanding any contrary provision of a Stock Award Agreement.
(e) Investment Assurances. The Company may require a Participant, as a condition of exercising or acquiring Common Stock under any Stock Award, (i) to give written assurances satisfactory to the Company as to the Participants knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the Stock Award; and (ii) to give written assurances satisfactory to the Company stating that the Participant is acquiring Common Stock subject to the Stock Award for the Participants own account and not with any present intention of selling or otherwise distributing the Common Stock. The foregoing requirements, and any assurances given pursuant to such requirements, shall be inoperative if (1) the issuance of the shares of Common Stock upon the exercise or acquisition of Common Stock under the Stock Award has been registered under a then currently effective registration statement under the Securities Act or (2) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the Common Stock.
(f) Withholding Obligations. To the extent provided by the terms of a Stock Award Agreement, the Participant may satisfy any federal, state or local tax withholding obligation relating to the exercise or acquisition of Common Stock under a Stock Award by any of the following means (in addition to the Companys right to withhold from any compensation paid to the Participant by the Company) or by a combination of such means: (i) tendering a cash payment; (ii) authorizing the Company to withhold shares of Common Stock from the shares of Common Stock otherwise issuable to the Participant as a result of the exercise or acquisition of Common Stock under the Stock Award; provided, however, that no shares of Common Stock are withheld with a value exceeding the minimum amount of tax required to be withheld by law (or such lower amount as may be necessary to avoid variable award accounting); or (iii) delivering to the Company owned and unencumbered shares of Common Stock.
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(g) Information Obligation. To the extent required by Section 260.140.46 of Title 10 of the California Code of Regulations, the Company shall deliver financial statements to Participants at least annually. This Section 10(g) shall not apply to key Employees whose duties in connection with the Company assure them access to equivalent information.
(h) Repurchase Limitation. The terms of any repurchase option shall be specified in the Stock Award, and the repurchase price may be either the Fair Market Value of the shares of Common Stock on the date of termination of Continuous Service or the lower of (i) the Fair Market Value of the shares of Common Stock on the date of repurchase or (ii) their original purchase price. To the extent required by Section 260.140.41 and Section 260.140.42 of Title 10 of the California Code of Regulations at the time a Stock Award is made, any repurchase option contained in a Stock Award granted to a person who is not an Officer, Director or Consultant shall be upon the terms described below:
(i) Fair Market Value. If the repurchase option gives the Company the right to repurchase the shares of Common Stock upon termination of Continuous Service at not less than the Fair Market Value of the shares of Common Stock to be purchased on the date of termination of Continuous Service, then (i) the right to repurchase shall be exercised for cash or cancellation of purchase money indebtedness for the shares of Common Stock within ninety (90) days of termination of Continuous Service (or in the case of shares of Common Stock issued upon exercise of Stock Awards after such date of termination, within ninety (90) days after the date of the exercise) or such longer period as may be agreed to by the Company and the Participant (for example, for purposes of satisfying the requirements of Section 1202(c)(3) of the Code regarding qualified small business stock) and (ii) the right terminates when the shares of Common Stock become publicly traded.
(ii) Original Purchase Price. If the repurchase option gives the Company the right to repurchase the shares of Common Stock upon termination of Continuous Service at the lower of (i) the Fair Market Value of the shares of Common Stock on the date of repurchase or (ii) their original purchase price, then (x) the right to repurchase at the original purchase price shall lapse at the rate of at least twenty percent (20%) of the shares of Common Stock per year over five (5) years from the date the Stock Award is granted (without respect to the date the Stock Award was exercised or became exercisable) and (y) the right to repurchase shall be exercised for cash or cancellation of purchase money indebtedness for the shares of Common Stock within ninety (90) days of termination of Continuous Service (or in the case of shares of Common Stock issued upon exercise of Options after such date of termination, within ninety (90) days after the date of the exercise) or such longer period as may be agreed to by the Company and the Participant (for example, for purposes of satisfying the requirements of Section 1202(c)(3) of the Code regarding qualified small business stock).
11. | ADJUSTMENTS UPON CHANGES IN STOCK. |
(a) Capitalization Adjustments. If any change is made in, or other event occurs with respect to, the Common Stock subject to the Plan or subject to any Stock Award without the receipt of consideration by the Company (through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by the Company (each a Capitalization Adjustment), the Plan will be appropriately adjusted in the class(es) and maximum number of securities subject to the Plan pursuant
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to Sections 4(a) and 4(b) and the outstanding Stock Awards will be appropriately adjusted in the class(es) and number of securities and price per share of Common Stock subject to such outstanding Stock Awards. The Board shall make such adjustments, and its determination shall be final, binding and conclusive. (The conversion of any convertible securities of the Company shall not be treated as a transaction without receipt of consideration by the Company.)
(b) Dissolution or Liquidation. In the event of a dissolution or liquidation of the Company, then all outstanding Options shall terminate immediately prior to the completion of such dissolution or liquidation, and shares of Common Stock subject to the Companys repurchase option may be repurchased by the Company notwithstanding the fact that the holder of such stock is still in Continuous Service.
(c) Corporate Transaction. In the event of a Corporate Transaction, any surviving corporation or acquiring corporation may assume or continue any or all Stock Awards outstanding under the Plan or may substitute similar stock awards for Stock Awards outstanding under the Plan (it being understood that similar stock awards include, but are not limited to, awards to acquire the same consideration paid to the stockholders or the Company, as the case may be, pursuant to the Corporate Transaction), and any reacquisition or repurchase rights held by the Company in respect of Common Stock issued pursuant to Stock Awards may be assigned by the Company to the successor of the Company (or such successors parent company), if any, in connection with such Corporate Transaction. In the event that any surviving corporation or acquiring corporation does not assume or continue any or all such outstanding Stock Awards or substitute similar stock awards for such outstanding Stock Awards, then with respect to Stock Awards that have not been assumed, continued or substituted and that are held by Participants whose Continuous Service has not terminated prior to the effective time of the Corporate Transaction, the vesting of such Stock Awards (and, if applicable, the time at which such Stock Awards may be exercised) shall (contingent upon the effectiveness of the Corporate Transaction) be accelerated in full to a date prior to the effective time of such Corporate Transaction as the Board shall determine (or, if the Board shall not determine such a date, to the date that is five (5) days prior to the effective time of the Corporate Transaction), the Stock Awards shall terminate if not exercised (if applicable) at or prior to such effective time, and any reacquisition or repurchase rights held by the Company with respect to such Stock Awards held by Participants whose Continuous Service has not terminated shall (contingent upon the effectiveness of the Corporate Transaction) lapse. With respect to any other Stock Awards outstanding under the Plan that have not been assumed, continued or substituted, the vesting of such Stock Awards (and, if applicable, the time at which such Stock Award may be exercised) shall not be accelerated, unless otherwise provided in a written agreement between the Company or any Affiliate and the holder of such Stock Award, and such Stock Awards shall terminate if not exercised (if applicable) prior to the effective time of the Corporate Transaction.
(d) Change in Control. A Stock Award held by any Participant whose Continuous Service has not terminated prior to the effective time of a Change in Control may be subject to additional acceleration of vesting and exercisability upon or after such event as may be provided in the Stock Award Agreement for such Stock Award or as may be provided in any other written agreement between the Company or any Affiliate and the Participant, but in the absence of such provision, no such acceleration shall occur.
12. | AMENDMENT OF THE PLAN AND STOCK AWARDS. |
(a) Amendment of Plan. The Board at any time, and from time to time, may amend the Plan. However, except as provided in Section 11(a) relating to Capitalization Adjustments, no amendment shall be effective unless approved by the stockholders of the Company to the extent stockholder approval is necessary to satisfy the requirements of Section 422 of the Code.
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(b) Stockholder Approval. The Board, in its sole discretion, may submit any other amendment to the Plan for stockholder approval.
(c) Contemplated Amendments. It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide eligible Employees with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to Incentive Stock Options and/or to bring the Plan and/or Incentive Stock Options granted under it into compliance therewith.
(d) No Impairment of Rights. Rights under any Stock Award granted before amendment of the Plan shall not be impaired by any amendment of the Plan unless (i) the Company requests the consent of the Participant and (ii) the Participant consents in writing.
(e) Amendment of Stock Awards. The Board at any time, and from time to time, may amend the terms of any one or more Stock Awards; provided, however, that the rights under any Stock Award shall not be impaired by any such amendment unless (i) the Company requests the consent of the Participant and (ii) the Participant consents in writing.
13. | TERMINATION OR SUSPENSION OF THE PLAN. |
(a) Plan Term. The Board may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate on the day before the tenth (10th) anniversary of the date the Plan is adopted by the Board or approved by the stockholders of the Company, whichever is earlier. No Stock Awards may be granted under the Plan while the Plan is suspended or after it is terminated.
(b) No Impairment of Rights. Suspension or termination of the Plan shall not impair rights and obligations under any Stock Award granted while the Plan is in effect except with the written consent of the Participant.
14. | EFFECTIVE DATE OF PLAN. |
The Plan shall become effective as determined by the Board, but no Stock Award shall be exercised (or, in the case of a stock bonus, shall be granted) unless and until the Plan has been approved by the stockholders of the Company, which approval shall be within twelve (12) months before or after the date the Plan is adopted by the Board.
15. | CHOICE OF LAW. |
The law of the State of California shall govern all questions concerning the construction, validity and interpretation of this Plan, without regard to such states conflict of laws rules.
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INTERSECT ENT, INC.
STOCK OPTION GRANT NOTICE
(2003 EQUITY INCENTIVE PLAN)
Intersect ENT, Inc. (the Company), pursuant to its 2003 Equity Incentive Plan (the Plan), hereby grants to Optionholder an option to purchase the number of shares of the Companys Common Stock set forth below. This option is subject to all of the terms and conditions as set forth herein and in the Stock Option Agreement, the Plan and the Notice of Exercise, all of which are attached hereto and incorporated herein in their entirety.
Optionholder: | «Optionholder» | |
Date of Grant: | «GrantDate» | |
Vesting Commencement Date: | «VCD» | |
Number of Shares Subject to Option: | «Shares» | |
Exercise Price (Per Share): | $«ExercisePrice» | |
Total Exercise Price: | $«TotalExercisePrice» | |
Expiration Date: | «Expiration» |
Type of Grant: | x Incentive Stock Option1 | ¨ Nonstatutory Stock Option | ||
Exercise Schedule: | x Same as Vesting Schedule | ¨ Early Exercise Permitted | ||
Vesting Schedule: | 1/4th of the shares vest one year after the Vesting Commencement Date. | |||
1/48th of the shares vest monthly thereafter over the next three years. | ||||
Payment: | By one or a combination of the following items (described in the Stock Option Agreement): | |||
By cash or check | ||||
Pursuant to a Regulation T Program if the Shares are publicly traded | ||||
By delivery of already-owned shares if the Shares are publicly traded |
Additional Terms/Acknowledgements: The undersigned Optionholder acknowledges receipt of, and understands and agrees to, this Stock Option Grant Notice, the Stock Option Agreement and the Plan. Optionholder further acknowledges that as of the Date of Grant, this Stock Option Grant Notice, the Stock Option Agreement and the Plan set forth the entire understanding between Optionholder and the Company regarding the acquisition of stock in the Company and supersede all prior oral and written agreements on that subject with the exception of (i) options previously granted and delivered to Optionholder under the Plan, and (ii) the following agreements only:
OTHER AGREEMENTS: |
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INTERSECT ENT, INC. | «OPTIONHOLDER» | |||||
By: |
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Lisa D. Earnhardt | Signature | |||||
President & Chief Executive Officer |
ATTACHMENTS: Stock Option Agreement, 2003 Equity Incentive Plan and Notice of Exercise
1 | If this is an Incentive Stock Option, it (plus other outstanding Incentive Stock Options) cannot be first exercisable for more than $100,000 in value (measured by exercise price) in any calendar year. Any excess over $100,000 is a Nonstatutory Stock Option. |
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INTERSECT ENT, INC.
2003 EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT
(INCENTIVE STOCK OPTION OR NONSTATUTORY STOCK OPTION)
Pursuant to your Stock Option Grant Notice (Grant Notice) and this Stock Option Agreement, INTERSECT ENT, INC. (the Company) has granted you an option under its 2003 Equity Incentive Plan (the Plan) to purchase the number of shares of the Companys Common Stock indicated in your Grant Notice at the exercise price indicated in your Grant Notice. Defined terms not explicitly defined in this Stock Option Agreement but defined in the Plan shall have the same definitions as in the Plan.
The details of your option are as follows:
1. VESTING. Subject to the limitations contained herein, your option will vest as provided in your Grant Notice, provided that vesting will cease upon the termination of your Continuous Service.
2. NUMBER OF SHARES AND EXERCISE PRICE. The number of shares of Common Stock subject to your option and your exercise price per share referenced in your Grant Notice may be adjusted from time to time for Capitalization Adjustments.
3. EXERCISE PRIOR TO VESTING (EARLY EXERCISE). If permitted in your Grant Notice (i.e., the Exercise Schedule indicates that Early Exercise of your option is permitted) and subject to the provisions of your option, you may elect at any time that is both (i) during the period of your Continuous Service and (ii) during the term of your option, to exercise all or part of your option, including the nonvested portion of your option; provided, however, that:
a. a partial exercise of your option shall be deemed to cover first vested shares of Common Stock and then the earliest vesting installment of unvested shares of Common Stock;
b. any shares of Common Stock so purchased from installments that have not vested as of the date of exercise shall be subject to the purchase option in favor of the Company as described in the Companys form of Early Exercise Stock Purchase Agreement;
c. you shall enter into the Companys form of Early Exercise Stock Purchase Agreement with a vesting schedule that will result in the same vesting as if no early exercise had occurred; and
d. if your option is an Incentive Stock Option, then, to the extent that the aggregate Fair Market Value (determined at the time of grant) of the shares of Common Stock with respect to which your option plus all other Incentive Stock Options you hold are exercisable
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for the first time by you during any calendar year (under all plans of the Company and its Affiliates) exceeds one hundred thousand dollars ($100,000), your option(s) or portions thereof that exceed such limit (according to the order in which they were granted) shall be treated as Nonstatutory Stock Options.
4. METHOD OF PAYMENT. Payment of the exercise price is due in full upon exercise of all or any part of your option. You may elect to make payment of the exercise price in cash or by check or in any other manner permitted by your Grant Notice, which may include one or more of the following:
a. In the Companys sole discretion at the time your option is exercised and provided that at the time of exercise the Common Stock is publicly traded and quoted regularly in The Wall Street Journal, pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board that, prior to the issuance of Common Stock, results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay the aggregate exercise price to the Company from the sales proceeds.
b. Provided that at the time of exercise the Common Stock is publicly traded and quoted regularly in The Wall Street Journal, by delivery of already-owned shares of Common Stock either that you have held for the period required to avoid a charge to the Companys reported earnings (generally six (6) months) or that you did not acquire, directly or indirectly from the Company, that are owned free and clear of any liens, claims, encumbrances or security interests, and that are valued at Fair Market Value on the date of exercise. Delivery for these purposes, in the sole discretion of the Company at the time you exercise your option, shall include delivery to the Company of your attestation of ownership of such shares of Common Stock in a form approved by the Company. Notwithstanding the foregoing, you may not exercise your option by tender to the Company of Common Stock to the extent such tender would violate the provisions of any law, regulation or agreement restricting the redemption of the Companys stock.
5. WHOLE SHARES. You may exercise your option only for whole shares of Common Stock.
6. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary contained herein, you may not exercise your option unless the shares of Common Stock issuable upon such exercise are then registered under the Securities Act or, if such shares of Common Stock are not then so registered, the Company has determined that such exercise and issuance would be exempt from the registration requirements of the Securities Act. The exercise of your option also must comply with other applicable laws and regulations governing your option, and you may not exercise your option if the Company determines that such exercise would not be in material compliance with such laws and regulations.
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7. TERM. You may not exercise your option before the commencement or after the expiration of its term. The term of your option commences on the Date of Grant and expires upon the earliest of the following:
a. three (3) months after the termination of your Continuous Service for any reason other than your Disability or death, provided that if during any part of such three (3) month period your option is not exercisable solely because of the condition set forth in Section 6, your option shall not expire until the earlier of the Expiration Date or until it shall have been exercisable for an aggregate period of three (3) months after the termination of your Continuous Service;
b. twelve (12) months after the termination of your Continuous Service due to your Disability;
c. eighteen (18) months after your death if you die either during your Continuous Service or within three (3) months after your Continuous Service terminates;
d. the Expiration Date indicated in your Grant Notice; or
e. the day before the tenth (10th) anniversary of the Date of Grant.
If your option is an Incentive Stock Option, note that to obtain the federal income tax advantages associated with an Incentive Stock Option, the Code requires that at all times beginning on the date of grant of your option and ending on the day three (3) months before the date of your options exercise, you must be an employee of the Company or an Affiliate, except in the event of your death or your permanent and total disability, as defined in Section 22(e) of the Code. (The definition of disability in Section 22(e) of the Code is different from the definition of the Disability under the Plan). The Company has provided for extended exercisability of your option under certain circumstances for your benefit but cannot guarantee that your option will necessarily be treated as an Incentive Stock Option if you continue to provide services to the Company or an Affiliate as a Consultant or Director after your employment terminates or if you otherwise exercise your option more than three (3) months after the date your employment with the Company or an Affiliate terminates.
8. EXERCISE.
a. You may exercise the vested portion of your option (and the unvested portion of your option if your Grant Notice so permits) during its term by delivering a Notice of Exercise (in a form designated by the Company) together with the exercise price to the Secretary of the Company, or to such other person as the Company may designate, during regular business hours, together with such additional documents as the Company may then require.
b. By exercising your option you agree that, as a condition to any exercise of your option, the Company may require you to enter into an arrangement providing for the payment by you to the Company of any tax withholding obligation of the Company arising by reason of (1) the exercise of your option, (2) the lapse of any substantial risk of forfeiture to which the shares of Common Stock are subject at the time of exercise, or (3) the disposition of shares of Common Stock acquired upon such exercise.
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c. If your option is an Incentive Stock Option, by exercising your option you agree that you will notify the Company in writing within fifteen (15) days after the date of any disposition of any of the shares of the Common Stock issued upon exercise of your option that occurs within two (2) years after the date of your option grant or within one (1) year after such shares of Common Stock are transferred upon exercise of your option.
d. By exercising your option you agree that you shall not sell, dispose of, transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, any shares of Common Stock or other securities of the Company held by you, for a period of time specified by the managing underwriter(s) (not to exceed one hundred eighty (180) days) following the effective date of a registration statement of the Company filed under the Securities Act (the Lock Up Period); provided, however, that nothing contained in this section shall prevent the exercise of a repurchase option, if any, in favor of the Company during the Lock Up Period. You further agree to execute and deliver such other agreements as may be reasonably requested by the Company and/or the underwriter(s) that are consistent with the foregoing or that are necessary to give further effect thereto. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to your shares of Common Stock until the end of such period. The underwriters of the Companys stock are intended third party beneficiaries of this Section 8(d) and shall have the right, power and authority to enforce the provisions hereof as though they were a party hereto.
9. TRANSFERABILITY. Your option is not transferable, except by will or by the laws of descent and distribution, and is exercisable during your life only by you. Notwithstanding the foregoing, by delivering written notice to the Company, in a form satisfactory to the Company, you may designate a third party who, in the event of your death, shall thereafter be entitled to exercise your option.
10. RIGHT OF FIRST REFUSAL. Shares of Common Stock that you acquire upon exercise of your option are subject to any right of first refusal that may be described in the Companys bylaws in effect at such time the Company elects to exercise its right; provided, however, that if your option is an Incentive Stock Option and the right of first refusal described in the Companys bylaws in effect at the time the Company elects to exercise its right is more beneficial to you than the right of first refusal described in the Companys bylaws on the Date of Grant, then the right of first refusal described in the Companys bylaws on the Date of Grant shall apply. The Companys right of first refusal shall expire on the Listing Date. For purposes of this Agreement, Listing Date shall mean the first date upon which any security of the Company is listed (or approved for listing) upon notice of issuance on a national securities exchange or on the National Market System of the Nasdaq Stock Market (or any successor to that entity).
11. RIGHT OF REPURCHASE. To the extent provided in the Companys bylaws in effect at such time the Company elects to exercise its right, the Company shall have the right to repurchase all or any part of the shares of Common Stock you acquire pursuant to the exercise of your option.
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12. OPTION NOT A SERVICE CONTRACT. Your option is not an employment or service contract, and nothing in your option shall be deemed to create in any way whatsoever any obligation on your part to continue in the employ of the Company or an Affiliate, or of the Company or an Affiliate to continue your employment. In addition, nothing in your option shall obligate the Company or an Affiliate, their respective stockholders, Boards of Directors, Officers or Employees to continue any relationship that you might have as a Director or Consultant for the Company or an Affiliate.
13. WITHHOLDING OBLIGATIONS.
a. At the time you exercise your option, in whole or in part, or at any time thereafter as requested by the Company, you hereby authorize withholding from payroll and any other amounts payable to you, and otherwise agree to make adequate provision for (including by means of a cashless exercise pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board to the extent permitted by the Company), any sums required to satisfy the federal, state, local and foreign tax withholding obligations of the Company or an Affiliate, if any, which arise in connection with the exercise of your option.
b. Upon your request and subject to approval by the Company, in its sole discretion, and compliance with any applicable legal conditions or restrictions, the Company may withhold from fully vested shares of Common Stock otherwise issuable to you upon the exercise of your option a number of whole shares of Common Stock having a Fair Market Value, determined by the Company as of the date of exercise, not in excess of the minimum amount of tax required to be withheld by law (or such lower amount as may be necessary to avoid variable award accounting). If the date of determination of any tax withholding obligation is deferred to a date later than the date of exercise of your option, share withholding pursuant to the preceding sentence shall not be permitted unless you make a proper and timely election under Section 83(b) of the Code, covering the aggregate number of shares of Common Stock acquired upon such exercise with respect to which such determination is otherwise deferred, to accelerate the determination of such tax withholding obligation to the date of exercise of your option. Notwithstanding the filing of such election, shares of Common Stock shall be withheld solely from fully vested shares of Common Stock determined as of the date of exercise of your option that are otherwise issuable to you upon such exercise. Any adverse consequences to you arising in connection with such share withholding procedure shall be your sole responsibility.
c. You may not exercise your option unless the tax withholding obligations of the Company and/or any Affiliate are satisfied. Accordingly, you may not be able to exercise your option when desired even though your option is vested, and the Company shall have no obligation to issue a certificate for such shares of Common Stock or release such shares of Common Stock from any escrow provided for herein unless such obligations are satisfied.
14. NOTICES. Any notices provided for in your option or the Plan shall be given in writing and shall be deemed effectively given upon receipt or, in the case of notices delivered by mail by the Company to you, five (5) days after deposit in the United States mail, postage prepaid, addressed to you at the last address you provided to the Company.
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15. GOVERNING PLAN DOCUMENT. Your option is subject to all the provisions of the Plan, the provisions of which are hereby made a part of your option, and is further subject to all interpretations, amendments, rules and regulations, which may from time to time be promulgated and adopted pursuant to the Plan. In the event of any conflict between the provisions of your option and those of the Plan, the provisions of the Plan shall control.
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NOTICE OF EXERCISE
Intersect ENT, Inc. | ||||
1555 Adams Drive | ||||
Menlo Park, CA 94025 | Date of Exercise: |
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Ladies and Gentlemen:
This constitutes notice under my stock option that I elect to purchase the number of shares for the price set forth below.
Type of option (check one): | Incentive ¨ | Nonstatutory ¨ | ||
Stock option dated: |
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Number of shares as to which option is exercised: |
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Certificates to be issued in name of: |
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Total exercise price: | $ |
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Cash payment delivered herewith: | $ |
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By this exercise, I agree (i) to provide such additional documents as you may require pursuant to the terms of the 2003 Equity Incentive Plan, (ii) to provide for the payment by me to you (in the manner designated by you) of your withholding obligation, if any, relating to the exercise of this option, and (iii) if this exercise relates to an incentive stock option, to notify you in writing within fifteen (15) days after the date of any disposition of any of the shares of Common Stock issued upon exercise of this option that occurs within two (2) years after the date of grant of this option or within one (1) year after such shares of Common Stock are issued upon exercise of this option.
I hereby make the following certifications and representations with respect to the number of shares of Common Stock of the Company listed above (the Shares), which are being acquired by me for my own account upon exercise of the Option as set forth above:
I acknowledge that the Shares have not been registered under the Securities Act of 1933, as amended (the Securities Act), and are deemed to constitute restricted securities under Rule 701 and control securities under Rule 144 promulgated under the Securities Act. I warrant and represent to the Company that I have no present intention of distributing or selling said Shares, except as permitted under the Securities Act and any applicable state securities laws.
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I further acknowledge that I will not be able to resell the Shares for at least ninety days (90) after the stock of the Company becomes publicly traded (i.e., subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934) under Rule 701 and that more restrictive conditions apply to affiliates of the Company under Rule 144.
I further acknowledge that all certificates representing any of the Shares subject to the provisions of the Option shall have endorsed thereon appropriate legends reflecting the foregoing limitations, as well as any legends reflecting restrictions pursuant to the Companys Articles of Incorporation, Bylaws and/or applicable securities laws.
I further agree that, if required by the Company (or a representative of the underwriters) in connection with the first underwritten registration of the offering of any securities of the Company under the Securities Act, I will not sell or otherwise transfer or dispose of any shares of Common Stock or other securities of the Company during such period (not to exceed one hundred eighty (180) days) following the effective date of the registration statement of the Company filed under the Securities Act as may be requested by the Company or the representative of the underwriters. I further agree that the Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such period.
Very truly yours, | ||
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Signature | ||
Print Name: |
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Address: |
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Social Security No.:
25.
Exhibit 10.3
INTERSECT ENT, INC.
2013 EQUITY INCENTIVE PLAN
ADOPTED BY THE BOARD OF DIRECTORS: SEPTEMBER 5, 2013
APPROVED BY THE STOCKHOLDERS: SEPTEMBER 23, 2013
TERMINATION DATE: SEPTEMBER 4, 2023
1. | GENERAL. |
(a) Successor to and Continuation of Prior Plan. The Plan is intended as the successor to and continuation of the Intersect ENT, Inc. 2003 Equity Incentive Plan (the Prior Plan). Following the Effective Date, no additional stock awards may be granted under the Prior Plan. Any unallocated shares remaining available for issuance pursuant to the exercise of options or issuance or settlement of stock awards not previously granted under the Prior Plan as of 12:01 a.m. Pacific time on the Effective Date (the Prior Plans Available Reserve) will cease to be available under the Prior Plan at such time and will be added to the Share Reserve (as further described in Section 3(a) below) and be then immediately available for issuance pursuant to Stock Awards granted hereunder. In addition, from and after 12:01 a.m. Pacific time on the Effective Date, all outstanding stock awards granted under the Prior Plan will remain subject to the terms of the Prior Plan; provided, however, that any shares subject to outstanding stock awards granted under the Prior Plan that (i) expire or terminate for any reason prior to exercise or settlement; (ii) are forfeited, cancelled or otherwise returned to the Company because of the failure to meet a contingency or condition required to vest such shares; or (iii) are reacquired, withheld (or not issued) to satisfy a tax withholding obligation in connection with an award or to satisfy the purchase price or exercise price of a stock award (the Returning Shares) will immediately be added to the Share Reserve (as further described in Section 3(a) below) as and when such shares become Returning Shares, and become available for issuance pursuant to Stock Awards granted hereunder. All Stock Awards granted on or after 12:01 a.m. Pacific time on the Effective Date will be subject to the terms of this Plan.
(b) Eligible Stock Award Recipients. Employees, Directors and Consultants are eligible to receive Stock Awards.
(c) Available Stock Awards. The Plan provides for the grant of the following types of Stock Awards: (i) Incentive Stock Options, (ii) Nonstatutory Stock Options, (iii) Stock Appreciation Rights, (iv) Restricted Stock Awards, (v) Restricted Stock Unit Awards and (vi) Other Stock Awards.
(d) Purpose. The Plan, through the granting of Stock Awards, is intended to help the Company secure and retain the services of eligible award recipients, provide incentives for such persons to exert maximum efforts for the success of the Company and any Affiliate and provide a means by which the eligible recipients may benefit from increases in value of the Common Stock.
2. | ADMINISTRATION. |
(a) Administration by Board. The Board will administer the Plan. The Board may delegate administration of the Plan to a Committee or Committees, as provided in Section 2(c).
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(b) Powers of Board. The Board will have the power, subject to, and within the limitations of, the express provisions of the Plan:
(i) To determine (A) who will be granted Stock Awards; (B) when and how each Stock Award will be granted; (C) what type of Stock Award will be granted; (D) the provisions of each Stock Award (which need not be identical), including when a person will be permitted to exercise or otherwise receive cash or Common Stock under the Stock Award; (E) the number of shares of Common Stock subject to a Stock Award; and (F) the Fair Market Value applicable to a Stock Award.
(ii) To construe and interpret the Plan and Stock Awards granted under it, and to establish, amend and revoke rules and regulations for administration of the Plan and Stock Awards. The Board, in the exercise of these powers, may correct any defect, omission or inconsistency in the Plan or in any Stock Award Agreement, in a manner and to the extent it will deem necessary or expedient to make the Plan or Stock Award fully effective.
(iii) To settle all controversies regarding the Plan and Stock Awards granted under it.
(iv) To accelerate, in whole or in part, the time at which a Stock Award may be exercised or vest (or at which cash or shares of Common Stock may be issued).
(v) To suspend or terminate the Plan at any time. Except as otherwise provided in the Plan or a Stock Award Agreement, suspension or termination of the Plan will not impair a Participants rights under his or her then-outstanding Stock Award without his or her written consent except as provided in subsection (viii) below.
(vi) To amend the Plan in any respect the Board deems necessary or advisable, including, without limitation, by adopting amendments relating to Incentive Stock Options and certain nonqualified deferred compensation under Section 409A of the Code and/or to make the Plan or Stock Awards granted under the Plan compliant with the requirements for Incentive Stock Options or exempt from or compliant with the requirements for nonqualified deferred compensation under Section 409A of the Code, subject to the limitations, if any, of applicable law. However, if required by applicable law, and except as provided in Section 9(a) relating to Capitalization Adjustments, the Company will seek stockholder approval of any amendment of the Plan that (A) materially increases the number of shares of Common Stock available for issuance under the Plan, (B) materially expands the class of individuals eligible to receive Stock Awards under the Plan, (C) materially increases the benefits accruing to Participants under the Plan, (D) materially reduces the price at which shares of Common Stock may be issued or purchased under the Plan, (E) materially extends the term of the Plan, or (F) materially expands the types of Stock Awards available for issuance under the Plan. Except as provided in the Plan (including subsection (viii) below) or a Stock Award Agreement, no amendment of the Plan will impair a Participants rights under an outstanding Stock Award unless (1) the Company requests the consent of the affected Participant, and (2) such Participant consents in writing.
(vii) To submit any amendment to the Plan for stockholder approval, including, but not limited to, amendments to the Plan intended to satisfy the requirements of Section 422 of the Code regarding Incentive Stock Options.
(viii) To approve forms of Stock Award Agreements for use under the Plan and to amend the terms of any one or more Stock Awards, including, but not limited to, amendments to provide terms more favorable to the Participant than previously provided in the Stock Award Agreement, subject to any specified limits in the Plan that are not subject to Board discretion; provided however, that a Participants rights under any Stock Award will not be impaired by any such amendment unless (A) the Company requests the consent of the affected Participant, and (B) such Participant consents in writing.
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Notwithstanding the foregoing, (1) a Participants rights will not be deemed to have been impaired by any such amendment if the Board, in its sole discretion, determines that the amendment, taken as a whole, does not materially impair the Participants rights, and (2) subject to the limitations of applicable law, if any, the Board may amend the terms of any one or more Stock Awards without the affected Participants consent (A) to maintain the qualified status of the Stock Award as an Incentive Stock Option under Section 422 of the Code; (B) to change the terms of an Incentive Stock Option, if such change results in impairment of the Award solely because it impairs the qualified status of the Award as an Incentive Stock Option under Section 422 of the Code; (C) to clarify the manner of exemption from, or to bring the Stock Award into compliance with, Section 409A of the Code; or (D) to comply with other applicable laws.
(ix) Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company and that are not in conflict with the provisions of the Plan or Stock Awards.
(x) To adopt such procedures and sub-plans as are necessary or appropriate to permit participation in the Plan by Employees, Directors or Consultants who are foreign nationals or employed outside the United States (provided that Board approval will not be necessary for immaterial modifications to the Plan or any Stock Award Agreement that are required for compliance with the laws of the relevant foreign jurisdiction).
(xi) To effect, with the consent of any adversely affected Participant, (A) the reduction of the exercise, purchase or strike price of any outstanding Stock Award; (B) the cancellation of any outstanding Stock Award and the grant in substitution therefor of a new (1) Option or SAR, (2) Restricted Stock Award, (3) Restricted Stock Unit Award, (4) Other Stock Award, (5) cash and/or (6) other valuable consideration determined by the Board, in its sole discretion, with any such substituted award (x) covering the same or a different number of shares of Common Stock as the cancelled Stock Award and (y) granted under the Plan or another equity or compensatory plan of the Company; or (C) any other action that is treated as a repricing under generally accepted accounting principles.
(c) Delegation to Committee. The Board may delegate some or all of the administration of the Plan to a Committee or Committees. If administration of the Plan is delegated to a Committee, the Committee will have, in connection with the administration of the Plan, the powers theretofore possessed by the Board that have been delegated to the Committee, including the power to delegate to a subcommittee of the Committee any of the administrative powers the Committee is authorized to exercise (and references in this Plan to the Board will thereafter be to the Committee or subcommittee). Any delegation of administrative powers will be reflected in resolutions, not inconsistent with the provisions of the Plan, adopted from time to time by the Board or Committee (as applicable). The Committee may, at any time, abolish the subcommittee and/or revest in the Committee any powers delegated to the subcommittee. The Board may retain the authority to concurrently administer the Plan with the Committee and may, at any time, revest in the Board some or all of the powers previously delegated.
(d) Delegation to an Officer. The Board may delegate to one (1) or more Officers the authority to do one or both of the following: (i) designate Employees who are not Officers to be recipients of Options and SARs (and, to the extent permitted by applicable law, other Stock Awards) and, to the extent permitted by applicable law, the terms of such Stock Awards, and (ii) determine the number of shares of Common Stock to be subject to such Stock Awards granted to such Employees; provided, however, that the Board resolutions regarding such delegation will specify the total number of shares of Common Stock that may be subject to the Stock Awards granted by such Officer and that such Officer may not grant a Stock Award to himself or herself. Any such Stock Awards will be granted on the form
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of Stock Award Agreement most recently approved for use by the Committee or the Board, unless otherwise provided in the resolutions approving the delegation authority. The Board may not delegate authority to an Officer who is acting solely in the capacity of an Officer (and not also as a Director) to determine the Fair Market Value pursuant to Section 13(u) below.
(e) Effect of Boards Decision. All determinations, interpretations and constructions made by the Board in good faith will not be subject to review by any person and will be final, binding and conclusive on all persons.
3. | SHARES SUBJECT TO THE PLAN. |
(a) Share Reserve.
(i) Subject to Section 9(a) relating to Capitalization Adjustments, the aggregate number of shares of Common Stock that may be issued pursuant to Stock Awards from and after the Effective Date will not exceed (A) 1,702,916 shares plus (B) the Returning Shares, if any, which become available for grant under this Plan from time to time (such aggregate number of shares described in (A) and (B) above, the Share Reserve).
(ii) For clarity, the Share Reserve in this Section 3(a) is a limitation on the number of shares of Common Stock that may be issued pursuant to the Plan. Accordingly, this Section 3(a) does not limit the granting of Stock Awards except as provided in Section 7(a).
(b) Reversion of Shares to the Share Reserve. If a Stock Award or any portion thereof (i) expires or otherwise terminates without all of the shares covered by such Stock Award having been issued or (ii) is settled in cash (i.e., the Participant receives cash rather than stock), such expiration, termination or settlement will not reduce (or otherwise offset) the number of shares of Common Stock that may be available for issuance under the Plan. If any shares of Common Stock issued pursuant to a Stock Award are forfeited back to or repurchased by the Company because of the failure to meet a contingency or condition required to vest such shares in the Participant, then the shares that are forfeited or repurchased will revert to and again become available for issuance under the Plan. Any shares reacquired by the Company in satisfaction of tax withholding obligations on a Stock Award or as consideration for the exercise or purchase price of a Stock Award will again become available for issuance under the Plan.
(c) Incentive Stock Option Limit. Subject to the Share Reserve and Section 9(a) relating to Capitalization Adjustments, the aggregate maximum number of shares of Common Stock that may be issued pursuant to the exercise of Incentive Stock Options will be two (2) times the Share Reserve.
(d) Source of Shares. The stock issuable under the Plan will be shares of authorized but unissued or reacquired Common Stock, including shares repurchased by the Company on the open market or otherwise.
4. | ELIGIBILITY. |
(a) Eligibility for Specific Stock Awards. Incentive Stock Options may be granted only to employees of the Company or a parent corporation or subsidiary corporation thereof (as such terms are defined in Sections 424(e) and 424(f) of the Code). Stock Awards other than Incentive Stock Options may be granted to Employees, Directors and Consultants; provided, however, that Stock Awards may not be granted to Employees, Directors and Consultants who are providing Continuous Service only to any
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parent of the Company, as such term is defined in Rule 405, unless (i) the stock underlying such Stock Awards is treated as service recipient stock under Section 409A of the Code (for example, because the Stock Awards are granted pursuant to a corporate transaction such as a spin off transaction), or (ii) the Company, in consultation with its legal counsel, has determined that such Stock Awards are otherwise exempt from or alternatively comply with the distribution requirements of Section 409A of the Code.
(b) Ten Percent Stockholders. A Ten Percent Stockholder will not be granted an Incentive Stock Option unless the exercise price of such Option is at least one hundred ten percent (110%) of the Fair Market Value on the date of grant and the Option is not exercisable after the expiration of five (5) years from the date of grant.
(c) Consultants. A Consultant will not be eligible for the grant of a Stock Award if, at the time of grant, either the offer or sale of the Companys securities to such Consultant is not exempt under Rule 701 because of the nature of the services that the Consultant is providing to the Company, because the Consultant is not a natural person, or because of any other provision of Rule 701, unless the Company determines that such grant need not comply with the requirements of Rule 701 and will satisfy another exemption under the Securities Act as well as comply with the securities laws of all other relevant jurisdictions.
5. | PROVISIONS RELATING TO OPTIONS AND STOCK APPRECIATION RIGHTS. |
Each Option or SAR will be in such form and will contain such terms and conditions as the Board deems appropriate. All Options will be separately designated Incentive Stock Options or Nonstatutory Stock Options at the time of grant, and, if certificates are issued, a separate certificate or certificates will be issued for shares of Common Stock purchased on exercise of each type of Option. If an Option is not specifically designated as an Incentive Stock Option, or if an Option is designated as an Incentive Stock Option but some portion or all of the Option fails to qualify as an Incentive Stock Option under the applicable rules, then the Option (or portion thereof) will be a Nonstatutory Stock Option. The provisions of separate Options or SARs need not be identical; provided, however, that each Stock Award Agreement will conform to (through incorporation of provisions hereof by reference in the applicable Stock Award Agreement or otherwise) the substance of each of the following provisions:
(a) Term. Subject to the provisions of Section 4(b) regarding Ten Percent Stockholders, no Option or SAR will be exercisable after the expiration of ten (10) years from the date of its grant or such shorter period specified in the Stock Award Agreement.
(b) Exercise Price. Subject to the provisions of Section 4(b) regarding Ten Percent Stockholders, the exercise or strike price of each Option or SAR will be not less than one hundred percent (100%) of the Fair Market Value of the Common Stock subject to the Option or SAR on the date the Stock Award is granted. Notwithstanding the foregoing, an Option or SAR may be granted with an exercise or strike price lower than one hundred percent (100%) of the Fair Market Value of the Common Stock subject to the Stock Award if such Stock Award is granted pursuant to an assumption of or substitution for another option or stock appreciation right pursuant to a Corporate Transaction and in a manner consistent with the provisions of Section 409A of the Code and, if applicable, Section 424(a) of the Code. Each SAR will be denominated in shares of Common Stock equivalents.
(c) Purchase Price for Options. The purchase price of Common Stock acquired pursuant to the exercise of an Option may be paid, to the extent permitted by applicable law and as determined by the Board in its sole discretion, by any combination of the methods of payment set forth below. The Board
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will have the authority to grant Options that do not permit all of the following methods of payment (or otherwise restrict the ability to use certain methods) and to grant Options that require the consent of the Company to use a particular method of payment. The permitted methods of payment are as follows:
(i) by cash, check, bank draft or money order payable to the Company;
(ii) pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board that, prior to the issuance of the stock subject to the Option, results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay the aggregate exercise price to the Company from the sales proceeds;
(iii) by delivery to the Company (either by actual delivery or attestation) of shares of Common Stock;
(iv) if an Option is a Nonstatutory Stock Option, by a net exercise arrangement pursuant to which the Company will reduce the number of shares of Common Stock issuable upon exercise by the largest whole number of shares with a Fair Market Value that does not exceed the aggregate exercise price; provided, however, that the Company will accept a cash or other payment from the Participant to the extent of any remaining balance of the aggregate exercise price not satisfied by such reduction in the number of whole shares to be issued. Shares of Common Stock will no longer be subject to an Option and will not be exercisable thereafter to the extent that (A) shares issuable upon exercise are used to pay the exercise price pursuant to the net exercise, (B) shares are delivered to the Participant as a result of such exercise, and (C) shares are withheld to satisfy tax withholding obligations;
(v) according to a deferred payment or similar arrangement with the Optionholder; provided, however, that interest will compound at least annually and will be charged at the minimum rate of interest necessary to avoid (A) the imputation of interest income to the Company and compensation income to the Optionholder under any applicable provisions of the Code, and (B) the classification of the Option as a liability for financial accounting purposes; or
(vi) in any other form of legal consideration that may be acceptable to the Board and specified in the applicable Stock Award Agreement.
(d) Exercise and Payment of a SAR. To exercise any outstanding SAR, the Participant must provide written notice of exercise to the Company in compliance with the provisions of the Stock Award Agreement evidencing such SAR. The appreciation distribution payable on the exercise of a SAR will be not greater than an amount equal to the excess of (A) the aggregate Fair Market Value (on the date of the exercise of the SAR) of a number of shares of Common Stock equal to the number of Common Stock equivalents in which the Participant is vested under such SAR, and with respect to which the Participant is exercising the SAR on such date, over (B) the aggregate strike price of the number of Common Stock equivalents with respect to which the Participant is exercising the SAR on such date. The appreciation distribution may be paid in Common Stock, in cash, in any combination of the two or in any other form of consideration, as determined by the Board and contained in the Stock Award Agreement evidencing such SAR.
(e) Transferability of Options and SARs. The Board may, in its sole discretion, impose such limitations on the transferability of Options and SARs as the Board will determine. In the absence of such a determination by the Board to the contrary, the following restrictions on the transferability of Options and SARs will apply:
(i) Restrictions on Transfer. An Option or SAR will not be transferable except by will or by the laws of descent and distribution (and pursuant to subsections (ii) and (iii) below), and will be exercisable during the lifetime of the Participant only by the Participant. The Board may permit transfer of the Option or SAR in a manner that is not prohibited by applicable tax and securities laws. Except as explicitly provided herein, neither an Option nor a SAR may be transferred for consideration.
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(ii) Domestic Relations Orders. Subject to the approval of the Board or a duly authorized Officer, an Option or SAR may be transferred pursuant to the terms of a domestic relations order, official marital settlement agreement or other divorce or separation instrument as permitted by Treasury Regulation 1.421-1(b)(2). If an Option is an Incentive Stock Option, such Option may be deemed to be a Nonstatutory Stock Option as a result of such transfer.
(iii) Beneficiary Designation. Subject to the approval of the Board or a duly authorized Officer, a Participant may, by delivering written notice to the Company, in a form approved by the Company (or the designated broker), designate a third party who, upon the death of the Participant, will thereafter be entitled to exercise the Option or SAR and receive the Common Stock or other consideration resulting from such exercise. In the absence of such a designation, upon the death of the Participant, the executor or administrator of the Participants estate will be entitled to exercise the Option or SAR and receive the Common Stock or other consideration resulting from such exercise. However, the Company may prohibit designation of a beneficiary at any time, including due to any conclusion by the Company that such designation would be inconsistent with the provisions of applicable laws.
(f) Vesting Generally. The total number of shares of Common Stock subject to an Option or SAR may vest and become exercisable in periodic installments that may or may not be equal. The Option or SAR may be subject to such other terms and conditions on the time or times when it may or may not be exercised (which may be based on the satisfaction of performance goals or other criteria) as the Board may deem appropriate. The vesting provisions of individual Options or SARs may vary. The provisions of this Section 5(f) are subject to any Option or SAR provisions governing the minimum number of shares of Common Stock as to which an Option or SAR may be exercised.
(g) Termination of Continuous Service. Except as otherwise provided in the applicable Stock Award Agreement or other agreement between the Participant and the Company, if a Participants Continuous Service terminates (other than for Cause and other than upon the Participants death or Disability), the Participant may exercise his or her Option or SAR (to the extent that the Participant was entitled to exercise such Stock Award as of the date of termination of Continuous Service) within the period of time ending on the earlier of (i) the date three (3) months following the termination of the Participants Continuous Service (or such longer or shorter period specified in the applicable Stock Award Agreement, which period will not be less than thirty (30) days if necessary to comply with applicable laws unless such termination is for Cause) and (ii) the expiration of the term of the Option or SAR as set forth in the Stock Award Agreement. If, after termination of Continuous Service, the Participant does not exercise his or her Option or SAR within the applicable time frame, the Option or SAR (as applicable) will terminate.
(h) Extension of Termination Date. Except as otherwise provided in the applicable Stock Award Agreement or other agreement between the Participant and the Company, if the exercise of an Option or SAR following the termination of the Participants Continuous Service (other than for Cause and other than upon the Participants death or Disability) would be prohibited at any time solely because the issuance of shares of Common Stock would violate the registration requirements under the Securities Act, then the Option or SAR will terminate on the earlier of (i) the expiration of a total period of time
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(that need not be consecutive) equal to the applicable post termination exercise period after the termination of the Participants Continuous Service during which the exercise of the Option or SAR would not be in violation of such registration requirements, or (ii) the expiration of the term of the Option or SAR as set forth in the applicable Stock Award Agreement. In addition, unless otherwise provided in a Participants Stock Award Agreement, if the sale of any Common Stock received upon exercise of an Option or SAR following the termination of the Participants Continuous Service (other than for Cause) would violate the Companys insider trading policy, then the Option or SAR will terminate on the earlier of (i) the expiration of a period of time (that need not be consecutive) equal to the applicable post-termination exercise period after the termination of the Participants Continuous Service during which the sale of the Common Stock received upon exercise of the Option or SAR would not be in violation of the Companys insider trading policy, or (ii) the expiration of the term of the Option or SAR as set forth in the applicable Stock Award Agreement.
(i) Disability of Participant. Except as otherwise provided in the applicable Stock Award Agreement or other agreement between the Participant and the Company, if a Participants Continuous Service terminates as a result of the Participants Disability, the Participant may exercise his or her Option or SAR (to the extent that the Participant was entitled to exercise such Option or SAR as of the date of termination of Continuous Service), but only within such period of time ending on the earlier of (i) the date twelve (12) months following such termination of Continuous Service (or such longer or shorter period specified in the Stock Award Agreement, which period will not be less than six (6) months if necessary to comply with applicable laws), and (ii) the expiration of the term of the Option or SAR as set forth in the Stock Award Agreement. If, after termination of Continuous Service, the Participant does not exercise his or her Option or SAR within the applicable time frame, the Option or SAR (as applicable) will terminate.
(j) Death of Participant. Except as otherwise provided in the applicable Stock Award Agreement or other agreement between the Participant and the Company, if (i) a Participants Continuous Service terminates as a result of the Participants death, or (ii) the Participant dies within the period (if any) specified in the Stock Award Agreement for exercisability after the termination of the Participants Continuous Service (for a reason other than death), then the Option or SAR may be exercised (to the extent the Participant was entitled to exercise such Option or SAR as of the date of death) by the Participants estate, by a person who acquired the right to exercise the Option or SAR by bequest or inheritance or by a person designated to exercise the Option or SAR upon the Participants death, but only within the period ending on the earlier of (i) the date eighteen (18) months following the date of death (or such longer or shorter period specified in the Stock Award Agreement, which period will not be less than six (6) months if necessary to comply with applicable laws), and (ii) the expiration of the term of such Option or SAR as set forth in the Stock Award Agreement. If, after the Participants death, the Option or SAR is not exercised within the applicable time frame, the Option or SAR (as applicable) will terminate.
(k) Termination for Cause. Except as explicitly provided otherwise in a Participants Stock Award Agreement or other individual written agreement between the Company or any Affiliate and the Participant, if a Participants Continuous Service is terminated for Cause, the Option or SAR will terminate immediately upon such Participants termination of Continuous Service, and the Participant will be prohibited from exercising his or her Option or SAR from and after the time of such termination of Continuous Service.
(l) Non-Exempt Employees. If an Option or SAR is granted to an Employee who is a non-exempt employee for purposes of the Fair Labor Standards Act of 1938, as amended, the Option or SAR will not be first exercisable for any shares of Common Stock until at least six (6) months following the
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date of grant of the Option or SAR (although the Stock Award may vest prior to such date). Consistent with the provisions of the Worker Economic Opportunity Act, (i) if such non-exempt Employee dies or suffers a Disability, (ii) upon a Corporate Transaction in which such Option or SAR is not assumed, continued, or substituted, (iii) upon a Change in Control, or (iv) upon the Participants retirement (as such term may be defined in the Participants Stock Award Agreement, in another agreement between the Participant and the Company, or, if no such definition, in accordance with the Companys then current employment policies and guidelines), the vested portion of any Options and SARs may be exercised earlier than six (6) months following the date of grant. The foregoing provision is intended to operate so that any income derived by a non-exempt employee in connection with the exercise or vesting of an Option or SAR will be exempt from his or her regular rate of pay. To the extent permitted and/or required for compliance with the Worker Economic Opportunity Act to ensure that any income derived by a non-exempt employee in connection with the exercise, vesting or issuance of any shares under any other Stock Award will be exempt from the employees regular rate of pay, the provisions of this Section 5(l) will apply to all Stock Awards and are hereby incorporated by reference into such Stock Award Agreements.
(m) Early Exercise of Options. An Option may, but need not, include a provision whereby the Optionholder may elect at any time before the Optionholders Continuous Service terminates to exercise the Option as to any part or all of the shares of Common Stock subject to the Option prior to the full vesting of the Option. Subject to the Repurchase Limitation in Section 8(l), any unvested shares of Common Stock so purchased may be subject to a repurchase right in favor of the Company or to any other restriction the Board determines to be appropriate. Provided that the Repurchase Limitation in Section 8(l) is not violated, the Company will not be required to exercise its repurchase right until at least six (6) months (or such longer or shorter period of time required to avoid classification of the Option as a liability for financial accounting purposes) have elapsed following exercise of the Option unless the Board otherwise specifically provides in the Option Agreement.
(n) Right of Repurchase. Subject to the Repurchase Limitation in Section 8(l), the Option or SAR may include a provision whereby the Company may elect to repurchase all or any part of the vested shares of Common Stock acquired by the Participant pursuant to the exercise of the Option or SAR.
(o) Right of First Refusal. The Option or SAR may include a provision whereby the Company may elect to exercise a right of first refusal following receipt of notice from the Participant of the intent to transfer all or any part of the shares of Common Stock received upon the exercise of the Option or SAR. Such right of first refusal will be subject to the Repurchase Limitation in Section 8(l). Except as expressly provided in this Section 5(o) or in the Stock Award Agreement, such right of first refusal will otherwise comply with any applicable provisions of the bylaws of the Company.
6. | PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS AND SARS. |
(a) Restricted Stock Awards. Each Restricted Stock Award Agreement will be in such form and will contain such terms and conditions as the Board deems appropriate. To the extent consistent with the Companys bylaws, at the Boards election, shares of Common Stock underlying a Restricted Stock Award may be (i) held in book entry form subject to the Companys instructions until any restrictions relating to the Restricted Stock Award lapse; or (ii) evidenced by a certificate, which certificate will be held in such form and manner as determined by the Board. The terms and conditions of Restricted Stock Award Agreements may change from time to time, and the terms and conditions of separate Restricted Stock Award Agreements need not be identical. Each Restricted Stock Award Agreement will conform to (through incorporation of the provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions:
(i) Consideration. A Restricted Stock Award may be awarded in consideration for (A) cash, check, bank draft or money order payable to the Company, (B) past services to the Company or an Affiliate, or (C) any other form of legal consideration (including future services) that may be acceptable to the Board, in its sole discretion, and permissible under applicable law.
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(ii) Vesting. Subject to the Repurchase Limitation in Section 8(l), shares of Common Stock awarded under the Restricted Stock Award Agreement may be subject to forfeiture to the Company in accordance with a vesting schedule to be determined by the Board.
(iii) Termination of Participants Continuous Service. If a Participants Continuous Service terminates, the Company may receive through a forfeiture condition or a repurchase right, any or all of the shares of Common Stock held by the Participant as of the date of termination of Continuous Service under the terms of the Restricted Stock Award Agreement.
(iv) Transferability. Rights to acquire shares of Common Stock under the Restricted Stock Award Agreement will be transferable by the Participant only upon such terms and conditions as are set forth in the Restricted Stock Award Agreement, as the Board will determine in its sole discretion, so long as Common Stock awarded under the Restricted Stock Award Agreement remains subject to the terms of the Restricted Stock Award Agreement.
(v) Dividends. A Restricted Stock Award Agreement may provide that any dividends paid on Restricted Stock will be subject to the same vesting and forfeiture restrictions as apply to the shares subject to the Restricted Stock Award to which they relate.
(b) Restricted Stock Unit Awards. Each Restricted Stock Unit Award Agreement will be in such form and will contain such terms and conditions as the Board deems appropriate. The terms and conditions of Restricted Stock Unit Award Agreements may change from time to time, and the terms and conditions of separate Restricted Stock Unit Award Agreements need not be identical. Each Restricted Stock Unit Award Agreement will conform to (through incorporation of the provisions hereof by reference in the Agreement or otherwise) the substance of each of the following provisions:
(i) Consideration. At the time of grant of a Restricted Stock Unit Award, the Board will determine the consideration, if any, to be paid by the Participant upon delivery of each share of Common Stock subject to the Restricted Stock Unit Award. The consideration to be paid (if any) by the Participant for each share of Common Stock subject to a Restricted Stock Unit Award may be paid in any form of legal consideration that may be acceptable to the Board, in its sole discretion, and permissible under applicable law.
(ii) Vesting. At the time of the grant of a Restricted Stock Unit Award, the Board may impose such restrictions on or conditions to the vesting of the Restricted Stock Unit Award as it, in its sole discretion, deems appropriate.
(iii) Payment. A Restricted Stock Unit Award may be settled by the delivery of shares of Common Stock, their cash equivalent, any combination thereof or in any other form of consideration, as determined by the Board and contained in the Restricted Stock Unit Award Agreement.
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(iv) Additional Restrictions. At the time of the grant of a Restricted Stock Unit Award, the Board, as it deems appropriate, may impose such restrictions or conditions that delay the delivery of the shares of Common Stock (or their cash equivalent) subject to a Restricted Stock Unit Award to a time after the vesting of such Restricted Stock Unit Award.
(v) Dividend Equivalents. Dividend equivalents may be credited in respect of shares of Common Stock covered by a Restricted Stock Unit Award, as determined by the Board and contained in the Restricted Stock Unit Award Agreement. At the sole discretion of the Board, such dividend equivalents may be converted into additional shares of Common Stock covered by the Restricted Stock Unit Award in such manner as determined by the Board. Any additional shares covered by the Restricted Stock Unit Award credited by reason of such dividend equivalents will be subject to all of the same terms and conditions of the underlying Restricted Stock Unit Award Agreement to which they relate.
(vi) Termination of Participants Continuous Service. Except as otherwise provided in the applicable Restricted Stock Unit Award Agreement, such portion of the Restricted Stock Unit Award that has not vested will be forfeited upon the Participants termination of Continuous Service.
(vii) Compliance with Section 409A of the Code. Notwithstanding anything to the contrary set forth herein, any Restricted Stock Unit Award granted under the Plan that is not exempt from the requirements of Section 409A of the Code shall contain such provisions so that such Restricted Stock Unit Award will comply with the requirements of Section 409A of the Code. Such restrictions, if any, shall be determined by the Board and contained in the Restricted Stock Unit Award Agreement evidencing such Restricted Stock Unit Award. For example, such restrictions may include, without limitation, a requirement that any Common Stock that is to be issued in a year following the year in which the Restricted Stock Unit Award vests must be issued in accordance with a fixed pre-determined schedule.
(c) Other Stock Awards. Other forms of Stock Awards valued in whole or in part by reference to, or otherwise based on, Common Stock, including the appreciation in value thereof (e.g., options or stock rights with an exercise price or strike price less than one hundred percent (100%) of the Fair Market Value of the Common Stock at the time of grant) may be granted either alone or in addition to Stock Awards provided for under Section 5 and the preceding provisions of this Section 6. Subject to the provisions of the Plan, the Board will have sole and complete authority to determine the persons to whom and the time or times at which such Other Stock Awards will be granted, the number of shares of Common Stock (or the cash equivalent thereof) to be granted pursuant to such Other Stock Awards and all other terms and conditions of such Other Stock Awards.
7. | COVENANTS OF THE COMPANY. |
(a) Availability of Shares. The Company will keep available at all times the number of shares of Common Stock reasonably required to satisfy then-outstanding Stock Awards.
(b) Securities Law Compliance. The Company will seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to grant Stock Awards and to issue and sell shares of Common Stock upon exercise of the Stock Awards; provided, however, that this undertaking will not require the Company to register under the Securities Act the Plan, any Stock Award or any Common Stock issued or issuable pursuant to any such Stock Award. If, after reasonable efforts and at a reasonable cost, the Company is unable to obtain from any such regulatory
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commission or agency the authority that counsel for the Company deems necessary for the lawful issuance and sale of Common Stock under the Plan, the Company will be relieved from any liability for failure to issue and sell Common Stock upon exercise of such Stock Awards unless and until such authority is obtained. A Participant will not be eligible for the grant of a Stock Award or the subsequent issuance of cash or Common Stock pursuant to the Stock Award if such grant or issuance would be in violation of any applicable securities law.
(c) No Obligation to Notify or Minimize Taxes. The Company will have no duty or obligation to any Participant to advise such holder as to the time or manner of exercising such Stock Award. Furthermore, the Company will have no duty or obligation to warn or otherwise advise such holder of a pending termination or expiration of a Stock Award or a possible period in which the Stock Award may not be exercised. The Company has no duty or obligation to minimize the tax consequences of a Stock Award to the holder of such Stock Award.
8. | MISCELLANEOUS. |
(a) Use of Proceeds from Sales of Common Stock. Proceeds from the sale of shares of Common Stock pursuant to Stock Awards will constitute general funds of the Company.
(b) Corporate Action Constituting Grant of Stock Awards. Corporate action constituting a grant by the Company of a Stock Award to any Participant will be deemed completed as of the date of such corporate action, unless otherwise determined by the Board, regardless of when the instrument, certificate, or letter evidencing the Stock Award is communicated to, or actually received or accepted by, the Participant. In the event that the corporate records (e.g., Board consents, resolutions or minutes) documenting the corporate action constituting the grant contain terms (e.g., exercise price, vesting schedule or number of shares) that are inconsistent with those in the Stock Award Agreement as a result of a clerical error in the papering of the Stock Award Agreement, the corporate records will control and the Participant will have no legally binding right to the incorrect term in the Stock Award Agreement.
(c) Stockholder Rights. No Participant will be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Common Stock subject to a Stock Award unless and until (i) such Participant has satisfied all requirements for exercise of, or the issuance of shares of Common Stock under, the Stock Award pursuant to its terms, and (ii) the issuance of the Common Stock subject to the Stock Award has been entered into the books and records of the Company.
(d) No Employment or Other Service Rights. Nothing in the Plan, any Stock Award Agreement or any other instrument executed thereunder or in connection with any Stock Award granted pursuant thereto will confer upon any Participant any right to continue to serve the Company or an Affiliate in the capacity in effect at the time the Stock Award was granted or will affect the right of the Company or an Affiliate to terminate (i) the employment of an Employee with or without notice and with or without cause, (ii) the service of a Consultant pursuant to the terms of such Consultants agreement with the Company or an Affiliate, or (iii) the service of a Director pursuant to the bylaws of the Company or an Affiliate, and any applicable provisions of the corporate law of the state in which the Company or the Affiliate is incorporated, as the case may be.
(e) Change in Time Commitment. In the event a Participants regular level of time commitment in the performance of his or her services for the Company and any Affiliates is reduced (for example, and without limitation, if the Participant is an Employee of the Company and the Employee has a change in status from a full-time Employee to a part-time Employee) after the date of grant of any Stock
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Award to the Participant, the Board has the right in its sole discretion to (x) make a corresponding reduction in the number of shares subject to any portion of such Stock Award that is scheduled to vest or become payable after the date of such change in time commitment, and (y) in lieu of or in combination with such a reduction, extend the vesting or payment schedule applicable to such Stock Award. In the event of any such reduction, the Participant will have no right with respect to any portion of the Stock Award that is so reduced or extended.
(f) Incentive Stock Option Limitations. To the extent that the aggregate Fair Market Value (determined at the time of grant) of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by any Optionholder during any calendar year (under all plans of the Company and any Affiliates) exceeds one hundred thousand dollars ($100,000) (or such other limit established in the Code) or otherwise does not comply with the rules governing Incentive Stock Options, the Options or portions thereof that exceed such limit (according to the order in which they were granted) or otherwise do not comply with such rules will be treated as Nonstatutory Stock Options, notwithstanding any contrary provision of the applicable Option Agreement(s).
(g) Investment Assurances. The Company may require a Participant, as a condition of exercising or acquiring Common Stock under any Stock Award, (i) to give written assurances satisfactory to the Company as to the Participants knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the Stock Award; and (ii) to give written assurances satisfactory to the Company stating that the Participant is acquiring Common Stock subject to the Stock Award for the Participants own account and not with any present intention of selling or otherwise distributing the Common Stock. The foregoing requirements, and any assurances given pursuant to such requirements, will be inoperative if (A) the issuance of the shares upon the exercise or acquisition of Common Stock under the Stock Award has been registered under a then currently effective registration statement under the Securities Act, or (B) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the Common Stock.
(h) Withholding Obligations. Unless prohibited by the terms of a Stock Award Agreement, the Company may, in its sole discretion, satisfy any federal, state or local tax withholding obligation relating to a Stock Award by any of the following means or by a combination of such means: (i) causing the Participant to tender a cash payment; (ii) withholding shares of Common Stock from the shares of Common Stock issued or otherwise issuable to the Participant in connection with the Stock Award; provided, however, that no shares of Common Stock are withheld with a value exceeding the minimum amount of tax required to be withheld by law (or such lesser amount as may be necessary to avoid classification of the Stock Award as a liability for financial accounting purposes); (iii) withholding cash from a Stock Award settled in cash; (iv) withholding payment from any amounts otherwise payable to the Participant; or (v) by such other method as may be set forth in the Stock Award Agreement.
(i) Electronic Delivery. Any reference herein to a written agreement or document will include any agreement or document delivered electronically or posted on the Companys intranet (or other shared electronic medium controlled by the Company to which the Participant has access).
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(j) Deferrals. To the extent permitted by applicable law, the Board, in its sole discretion, may determine that the delivery of Common Stock or the payment of cash, upon the exercise, vesting or settlement of all or a portion of any Stock Award may be deferred and may establish programs and procedures for deferral elections to be made by Participants. Deferrals by Participants will be made in accordance with Section 409A of the Code. Consistent with Section 409A of the Code, the Board may provide for distributions while a Participant is still an employee or otherwise providing services to the Company. The Board is authorized to make deferrals of Stock Awards and determine when, and in what annual percentages, Participants may receive payments, including lump sum payments, following the Participants termination of Continuous Service, and implement such other terms and conditions consistent with the provisions of the Plan and in accordance with applicable law.
(k) Compliance with Section 409A of the Code. To the extent that the Board determines that any Stock Award granted hereunder is subject to Section 409A of the Code, the Stock Award Agreement evidencing such Stock Award shall incorporate the terms and conditions necessary to avoid the consequences specified in Section 409A(a)(1) of the Code. To the extent applicable, the Plan and Stock Award Agreements shall be interpreted in accordance with Section 409A of the Code.
(l) Repurchase Limitation. The terms of any repurchase right will be specified in the Stock Award Agreement. The repurchase price for vested shares of Common Stock will be the Fair Market Value of the shares of Common Stock on the date of repurchase. The repurchase price for unvested shares of Common Stock will be the lower of (i) the Fair Market Value of the shares of Common Stock on the date of repurchase or (ii) their original purchase price. However, the Company will not exercise its repurchase right until at least six (6) months (or such longer or shorter period of time necessary to avoid classification of the Stock Award as a liability for financial accounting purposes) have elapsed following delivery of shares of Common Stock subject to the Stock Award, unless otherwise specifically provided by the Board.
9. | ADJUSTMENTS UPON CHANGES IN COMMON STOCK; OTHER CORPORATE EVENTS. |
(a) Capitalization Adjustments. In the event of a Capitalization Adjustment, the Board will appropriately and proportionately adjust: (i) the class(es) and maximum number of securities subject to the Plan pursuant to Section 3(a), (ii) the class(es) and maximum number of securities that may be issued pursuant to the exercise of Incentive Stock Options pursuant to Section 3(c), and (iii) the class(es) and number of securities and price per share of stock subject to outstanding Stock Awards. The Board will make such adjustments, and its determination will be final, binding and conclusive.
(b) Dissolution. Except as otherwise provided in the Stock Award Agreement, in the event of a Dissolution of the Company, all outstanding Stock Awards (other than Stock Awards consisting of vested and outstanding shares of Common Stock not subject to a forfeiture condition or the Companys right of repurchase) will terminate immediately prior to the completion of such Dissolution, and the shares of Common Stock subject to the Companys repurchase rights or subject to a forfeiture condition may be repurchased or reacquired by the Company notwithstanding the fact that the holder of such Stock Award is providing Continuous Service, provided, however, that the Board may, in its sole discretion, cause some or all Stock Awards to become fully vested, exercisable and/or no longer subject to repurchase or forfeiture (to the extent such Stock Awards have not previously expired or terminated) before the Dissolution is completed but contingent on its completion.
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(c) Corporate Transactions. The following provisions will apply to Stock Awards in the event of a Transaction unless otherwise provided in the Stock Award Agreement or any other written agreement between the Company or any Affiliate and the Participant or unless otherwise expressly provided by the Board at the time of grant of a Stock Award. In the event of a Transaction, then, notwithstanding any other provision of the Plan, the Board may take one or more of the following actions with respect to Stock Awards, contingent upon the closing or completion of the Transaction:
(i) arrange for the surviving corporation or acquiring corporation (or the surviving or acquiring corporations parent company) to assume or continue the Stock Award or to substitute a similar stock award for the Stock Award (including, but not limited to, an award to acquire the same consideration paid to the stockholders of the Company pursuant to the Transaction);
(ii) arrange for the assignment of any reacquisition or repurchase rights held by the Company in respect of Common Stock issued pursuant to the Stock Award to the surviving corporation or acquiring corporation (or the surviving or acquiring corporations parent company);
(iii) accelerate the vesting, in whole or in part, of the Stock Award (and, if applicable, the time at which the Stock Award may be exercised) to a date prior to the effective time of such Transaction as the Board determines (or, if the Board does not determine such a date, to the date that is five (5) days prior to the effective date of the Transaction), with such Stock Award terminating if not exercised (if applicable) at or prior to the effective time of the Transaction; provided, however, that the Board may require Participants to complete and deliver to the Company a notice of exercise before the effective date of a Transaction, which exercise is contingent upon the effectiveness of such Transaction;
(iv) arrange for the lapse, in whole or in part, of any reacquisition or repurchase rights held by the Company with respect to the Stock Award;
(v) cancel or arrange for the cancellation of the Stock Award, to the extent not vested or not exercised prior to the effective time of the Transaction, in exchange for such cash consideration, if any, as the Board, in its sole discretion, may consider appropriate; and
(vi) make a payment, in such form as may be determined by the Board equal to the excess, if any, of (A) the value of the property the Participant would have received upon the exercise of the Stock Award immediately prior to the effective time of the Transaction, over (B) any exercise price payable by such holder in connection with such exercise. For clarity, this payment may be zero ($0) if the value of the property is equal to or less than the exercise price. Payments under this provision may be delayed to the same extent that payment of consideration to the holders of the Companys Common Stock in connection with the Transaction is delayed as a result of escrows, earn outs, holdbacks or any other contingencies.
The Board need not take the same action or actions with respect to all Stock Awards or portions thereof or with respect to all Participants. The Board may take different actions with respect to the vested and unvested portions of a Stock Award.
(d) Change in Control. A Stock Award may be subject to additional acceleration of vesting and exercisability upon or after a Change in Control as may be provided in the Stock Award Agreement for such Stock Award or as may be provided in any other written agreement between the Company or any Affiliate and the Participant, but in the absence of such provision, no such acceleration will occur.
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10. | PLAN TERM; EARLIER TERMINATION OR SUSPENSION OF THE PLAN. |
(a) Plan Term. The Board may suspend or terminate the Plan at any time. Unless terminated sooner by the Board, the Plan will automatically terminate on the day before the tenth (10th) anniversary of the earlier of (i) the date the Plan is adopted by the Board, or (ii) the date the Plan is approved by the stockholders of the Company. No Stock Awards may be granted under the Plan while the Plan is suspended or after it is terminated.
(b) No Impairment of Rights. Suspension or termination of the Plan will not impair rights and obligations under any Stock Award granted while the Plan is in effect except with the written consent of the affected Participant or as otherwise permitted in the Plan.
11. | EFFECTIVE DATE OF PLAN. |
This Plan will become effective on the Effective Date.
12. | CHOICE OF LAW. |
The laws of the State of California will govern all questions concerning the construction, validity and interpretation of this Plan, without regard to that states conflict of laws rules.
13. | DEFINITIONS. As used in the Plan, the following definitions will apply to the capitalized terms indicated below: |
(a) Affiliate means, at the time of determination, any parent or majority-owned subsidiary of the Company, as such terms are defined in Rule 405. The Board will have the authority to determine the time or times at which parent or majority-owned subsidiary status is determined within the foregoing definition.
(b) Board means the Board of Directors of the Company.
(c) Capitalization Adjustment means any change that is made in, or other events that occur with respect to, the Common Stock subject to the Plan or subject to any Stock Award after the Effective Date without the receipt of consideration by the Company through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, large nonrecurring cash dividend, stock split, reverse stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure, or any similar equity restructuring transaction, as that term is used in Statement of Financial Accounting Standards Board Accounting Standards Codification Topic 718 (or any successor thereto). Notwithstanding the foregoing, the conversion of any convertible securities of the Company will not be treated as a Capitalization Adjustment.
(d) Cause shall have the meaning ascribed to such term in any written agreement between the Participant and the Company defining such term and, in the absence of such agreement, such term means with respect to a Participant, the occurrence of any of the following events: (i) such Participants commission of any felony or any crime involving fraud, dishonesty or moral turpitude under the laws of the United States or any state thereof; (ii) such Participants attempted commission of, or participation in, a fraud or act of dishonesty against the Company; (iii) such Participants intentional, material violation of any contract or agreement between the Participant and the Company or of any statutory duty owed to the Company; (iv) such Participants unauthorized use or disclosure of the Companys confidential information or trade secrets; or (v) such Participants gross misconduct. The determination that a
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termination of the Participants Continuous Service is either for Cause or without Cause shall be made by the Company in its sole discretion. Any determination by the Company that the Continuous Service of a Participant was terminated with or without Cause for the purposes of outstanding Stock Awards held by such Participant shall have no effect upon any determination of the rights or obligations of the Company or such Participant for any other purpose.
(e) Change in Control means the occurrence, in a single transaction or in a series of related transactions, of any one or more of the following events:
(i) any Exchange Act Person becomes the Owner, directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the combined voting power of the Companys then outstanding securities other than by virtue of a merger, consolidation or similar transaction. Notwithstanding the foregoing, a Change in Control will not be deemed to occur (A) on account of the acquisition of securities of the Company directly from the Company, (B) on account of the acquisition of securities of the Company by an investor, any affiliate thereof or any other Exchange Act Person that acquires the Companys securities in a transaction or series of related transactions the primary purpose of which is to obtain financing for the Company through the issuance of equity securities or (C) solely because the level of Ownership held by any Exchange Act Person (the Subject Person) exceeds the designated percentage threshold of the outstanding voting securities as a result of a repurchase or other acquisition of voting securities by the Company reducing the number of shares outstanding, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of voting securities by the Company, and after such share acquisition, the Subject Person becomes the Owner of any additional voting securities that, assuming the repurchase or other acquisition had not occurred, increases the percentage of the then outstanding voting securities Owned by the Subject Person over the designated percentage threshold, then a Change in Control will be deemed to occur;
(ii) there is consummated a merger, consolidation or similar transaction involving (directly or indirectly) the Company and, immediately after the consummation of such merger, consolidation or similar transaction, the stockholders of the Company immediately prior thereto do not Own, directly or indirectly, either (A) outstanding voting securities representing more than fifty percent (50%) of the combined outstanding voting power of the surviving Entity in such merger, consolidation or similar transaction or (B) more than fifty percent (50%) of the combined outstanding voting power of the parent of the surviving Entity in such merger, consolidation or similar transaction, in each case in substantially the same proportions as their Ownership of the outstanding voting securities of the Company immediately prior to such transaction;
(iii) there is consummated a sale, lease, exclusive license or other disposition of all or substantially all of the consolidated assets of the Company and its Subsidiaries, other than a sale, lease, license or other disposition of all or substantially all of the consolidated assets of the Company and its Subsidiaries to an Entity, more than fifty percent (50%) of the combined voting power of the voting securities of which are Owned by stockholders of the Company in substantially the same proportions as their Ownership of the outstanding voting securities of the Company immediately prior to such sale, lease, license or other disposition; or
(iv) individuals who, on the date the Plan is adopted by the Board, are members of the Board (the Incumbent Board) cease for any reason to constitute at least a majority of the members of the Board; provided, however, that if the appointment or election (or nomination for election) of any new Board member was approved or recommended by a majority vote of the members of the Incumbent Board then still in office, such new member will, for purposes of this Plan, be considered as a member of the Incumbent Board.
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Notwithstanding the foregoing definition or any other provision of this Plan, (A) the term Change in Control will not include a sale of assets, merger or other transaction effected exclusively for the purpose of changing the domicile of the Company, and (B) the definition of Change in Control (or any analogous term) in an individual written agreement between the Company or any Affiliate and the Participant will supersede the foregoing definition with respect to Stock Awards subject to such agreement; provided, however, that if no definition of Change in Control or any analogous term is set forth in such an individual written agreement, the foregoing definition will apply.
(f) Code means the Internal Revenue Code of 1986, as amended, including any applicable regulations and guidance thereunder.
(g) Committee means a committee of one or more Directors to whom authority has been delegated by the Board in accordance with Section 2(c).
(h) Common Stock means the common stock of the Company.
(i) Company means Intersect ENT, Inc., a Delaware corporation.
(j) Consultant means any person, including an advisor, who is (i) engaged by the Company or an Affiliate to render consulting or advisory services and is compensated for such services, or (ii) serving as a member of the board of directors of an Affiliate and is compensated for such services. However, service solely as a Director, or payment of a fee for such service, will not cause a Director to be considered a Consultant for purposes of the Plan.
(k) Continuous Service means that the Participants service with the Company or an Affiliate, whether as an Employee, Director or Consultant, is not interrupted or terminated. A change in the capacity in which the Participant renders service to the Company or an Affiliate as an Employee, Director or Consultant or a change in the Entity for which the Participant renders such service, provided that there is no interruption or termination of the Participants service with the Company or an Affiliate, will not terminate a Participants Continuous Service; provided, however, that if the Entity for which a Participant is rendering services ceases to qualify as an Affiliate, as determined by the Board in its sole discretion, such Participants Continuous Service will be considered to have terminated on the date such Entity ceases to qualify as an Affiliate. For example, a change in status from an Employee of the Company to a Consultant of an Affiliate or to a Director will not constitute an interruption of Continuous Service. To the extent permitted by law, the Board or the chief executive officer of the Company, in that partys sole discretion, may determine whether Continuous Service will be considered interrupted in the case of (i) any leave of absence approved by the Board or chief executive officer, including sick leave, military leave or any other personal leave, or (ii) transfers between the Company, an Affiliate, or their successors. Notwithstanding the foregoing, a leave of absence will be treated as Continuous Service for purposes of vesting in a Stock Award only to such extent as may be provided in the Companys leave of absence policy, in the written terms of any leave of absence agreement or policy applicable to the Participant, or as otherwise required by law.
(l) Corporate Transaction means the consummation, in a single transaction or in a series of related transactions, of any one or more of the following events:
(i) a sale or other disposition of all or substantially all, as determined by the Board in its sole discretion, of the consolidated assets of the Company and its Subsidiaries;
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(ii) a sale or other disposition of at least ninety percent (90%) of the outstanding securities of the Company;
(iii) a merger, consolidation or similar transaction following which the Company is not the surviving corporation; or
(iv) a merger, consolidation or similar transaction following which the Company is the surviving corporation but the shares of Common Stock outstanding immediately preceding the merger, consolidation or similar transaction are converted or exchanged by virtue of the merger, consolidation or similar transaction into other property, whether in the form of securities, cash or otherwise.
(m) Director means a member of the Board.
(n) Disability means, with respect to a Participant, the inability of such Participant to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or that has lasted or can be expected to last for a continuous period of not less than twelve (12) months as provided in Sections 22(e)(3) and 409A(a)(2)(c)(i) of the Code, and will be determined by the Board on the basis of such medical evidence as the Board deems warranted under the circumstances.
(o) Dissolution means when the Company, after having executed a certificate of dissolution with the State of Delaware, has completely wound up its affairs. Conversion of the Company into a Limited Liability Company will not be considered a Dissolution for purposes of the Plan.
(p) Effective Date means the effective date of this Plan, which is the earlier of (i) the date that this Plan is first approved by the Companys stockholders, and (ii) the date this Plan is adopted by the Board.
(q) Employee means any person employed by the Company or an Affiliate. However, service solely as a Director, or payment of a fee for such services, will not cause a Director to be considered an Employee for purposes of the Plan.
(r) Entity means a corporation, partnership, limited liability company or other entity.
(s) Exchange Act means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
(t) Exchange Act Person means any natural person, Entity or group (within the meaning of Section 13(d) or 14(d) of the Exchange Act), except that Exchange Act Person will not include (i) the Company or any Subsidiary of the Company, (ii) any employee benefit plan of the Company or any Subsidiary of the Company or any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any Subsidiary of the Company, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, (iv) an Entity Owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their Ownership of stock of the Company; or (v) any natural person, Entity or group (within the meaning of Section 13(d) or 14(d) of the Exchange Act) that, as of the Effective Date, is the Owner, directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the combined voting power of the Companys then outstanding securities.
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(u) Fair Market Value means, as of any date, the value of the Common Stock determined by the Board in compliance with Section 409A of the Code or, in the case of an Incentive Stock Option, in compliance with Section 422 of the Code.
(v) Incentive Stock Option means an option granted pursuant to Section 5 of the Plan that is intended to be, and that qualifies as, an incentive stock option within the meaning of Section 422 of the Code.
(w) Nonstatutory Stock Option means any option granted pursuant to Section 5 of the Plan that does not qualify as an Incentive Stock Option.
(x) Officer means any person designated by the Company as an officer.
(y) Option means an Incentive Stock Option or a Nonstatutory Stock Option to purchase shares of Common Stock granted pursuant to the Plan.
(z) Option Agreement means a written agreement between the Company and an Optionholder evidencing the terms and conditions of an Option grant. Each Option Agreement will be subject to the terms and conditions of the Plan.
(aa) Optionholder means a person to whom an Option is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Option.
(bb) Other Stock Award means an award based in whole or in part by reference to the Common Stock which is granted pursuant to the terms and conditions of Section 6(c).
(cc) Other Stock Award Agreement means a written agreement between the Company and a holder of an Other Stock Award evidencing the terms and conditions of an Other Stock Award grant. Each Other Stock Award Agreement will be subject to the terms and conditions of the Plan.
(dd) Own, Owned, Owner, Ownership A person or Entity will be deemed to Own, to have Owned, to be the Owner of, or to have acquired Ownership of securities if such person or Entity, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares voting power, which includes the power to vote or to direct the voting, with respect to such securities.
(ee) Participant means a person to whom a Stock Award is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Stock Award.
(ff) Plan means this 2013 Intersect ENT, Inc. Equity Incentive Plan.
(gg) Restricted Stock Award means an award of shares of Common Stock which is granted pursuant to the terms and conditions of Section 6(a).
(hh) Restricted Stock Award Agreement means a written agreement between the Company and a holder of a Restricted Stock Award evidencing the terms and conditions of a Restricted Stock Award grant. Each Restricted Stock Award Agreement will be subject to the terms and conditions of the Plan.
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(ii) Restricted Stock Unit Award means a right to receive shares of Common Stock which is granted pursuant to the terms and conditions of Section 6(b).
(jj) Restricted Stock Unit Award Agreement means a written agreement between the Company and a holder of a Restricted Stock Unit Award evidencing the terms and conditions of a Restricted Stock Unit Award grant. Each Restricted Stock Unit Award Agreement will be subject to the terms and conditions of the Plan.
(kk) Rule 405 means Rule 405 promulgated under the Securities Act.
(ll) Rule 701 means Rule 701 promulgated under the Securities Act.
(mm) Securities Act means the Securities Act of 1933, as amended.
(nn) Stock Appreciation Right or SAR means a right to receive the appreciation on Common Stock that is granted pursuant to the terms and conditions of Section 5.
(oo) Stock Appreciation Right Agreement means a written agreement between the Company and a holder of a Stock Appreciation Right evidencing the terms and conditions of a Stock Appreciation Right grant. Each Stock Appreciation Right Agreement will be subject to the terms and conditions of the Plan.
(pp) Stock Award means any right to receive Common Stock granted under the Plan, including an Incentive Stock Option, a Nonstatutory Stock Option, a Restricted Stock Award, a Restricted Stock Unit Award, a Stock Appreciation Right or any Other Stock Award.
(qq) Stock Award Agreement means a written agreement between the Company and a Participant evidencing the terms and conditions of a Stock Award grant. Each Stock Award Agreement will be subject to the terms and conditions of the Plan.
(rr) Subsidiary means, with respect to the Company, (i) any corporation of which more than fifty percent (50%) of the outstanding capital stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether, at the time, stock of any other class or classes of such corporation will have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, Owned by the Company, and (ii) any partnership, limited liability company or other entity in which the Company has a direct or indirect interest (whether in the form of voting or participation in profits or capital contribution) of more than fifty percent (50%) .
(ss) Ten Percent Stockholder means a person who Owns (or is deemed to Own pursuant to Section 424(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Affiliate.
(tt) Transaction means a Corporate Transaction or a Change in Control.
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INTERSECT ENT, INC.
STOCK OPTION GRANT NOTICE
(2013 EQUITY INCENTIVE PLAN)
Intersect ENT, Inc. (the Company), pursuant to its 2013 Equity Incentive Plan (the Plan), hereby grants to Optionholder an option to purchase the number of shares of the Companys Common Stock set forth below. This option is subject to all of the terms and conditions as set forth herein and in the Option Agreement, the Plan, and the Notice of Exercise, all of which are attached hereto and incorporated herein in their entirety.
Optionholder: | «Optionholder» | |
Date of Grant: | «GrantDate» | |
Vesting Commencement Date: | «VCD» | |
Number of Shares Subject to Option: | «Shares» | |
Exercise Price (Per Share): | $«ExercisePrice» | |
Total Exercise Price: | $«TotalExercisePrice» | |
Expiration Date: | «Expiration» |
Type of Grant: | x Incentive Stock Option1 | ¨ Nonstatutory Stock Option | ||
Exercise Schedule: | x Same as Vesting Schedule | ¨ Early Exercise Permitted | ||
Vesting Schedule: | 1/4th of the shares subject to the option shall vest on the one year anniversary of the Vesting Commencement Date; the balance of the shares shall vest in a series of thirty-six (36) successive equal monthly installments measured from the first anniversary of the Vesting Commencement Date; subject to Optionholders Continuous Service. | |||
Payment: | By one or a combination of the following items (described in the Option Agreement): | |||
x By cash or check | ||||
x Pursuant to a Regulation T Program if the Shares are publicly traded | ||||
x By delivery of already-owned shares if the Shares are publicly traded |
Additional Terms/Acknowledgements: The undersigned Optionholder acknowledges receipt of, and understands and agrees to, this Stock Option Grant Notice, the Option Agreement and the Plan. Optionholder acknowledges and agrees that this Stock Option Grant Notice and the Option Agreement may not be modified, amended or revised except in a writing signed by Optionholder and a duly authorized officer of the Company. Optionholder further acknowledges that as of the Date of Grant, this Stock Option Grant Notice, the Option Agreement, and the Plan set forth the entire understanding between Optionholder and the Company regarding the acquisition of stock in the Company and supersede all prior oral and written agreements, promises and/or representations on that subject with the exception of (i) options previously granted and delivered to Optionholder under the Plan, and (ii) the following agreements only:
OTHER AGREEMENTS: |
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INTERSECT ENT, INC. | «OPTIONHOLDER» | |||||
By: |
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Lisa D. Earnhardt | Signature | |||||
President and Chief Executive Officer |
ATTACHMENTS: Option Agreement, 2013 Equity Incentive Plan and Notice of Exercise
1 | If this is an Incentive Stock Option, it (plus other outstanding Incentive Stock Options) cannot be first exercisable for more than $100,000 in value (measured by exercise price) in any calendar year. Any excess over $100,000 is a Nonstatutory Stock Option. |
INTERSECT ENT, INC.
2013 EQUITY INCENTIVE PLAN
OPTION AGREEMENT
(INCENTIVE STOCK OPTION OR NONSTATUTORY STOCK OPTION)
Pursuant to your Stock Option Grant Notice (Grant Notice) and this Option Agreement, INTERSECT ENT, INC. (the Company) has granted you an option under its 2013 Equity Incentive Plan (the Plan) to purchase the number of shares of the Companys Common Stock indicated in your Grant Notice at the exercise price indicated in your Grant Notice. Defined terms not explicitly defined in this Option Agreement but defined in the Plan shall have the same definitions as in the Plan.
The details of your option are as follows:
1. VESTING. Subject to the limitations contained herein, your option will vest as provided in your Grant Notice, provided that vesting will cease upon the termination of your Continuous Service.
2. NUMBER OF SHARES AND EXERCISE PRICE. The number of shares of Common Stock subject to your option and your exercise price per share referenced in your Grant Notice may be adjusted from time to time for Capitalization Adjustments.
3. EXERCISE RESTRICTION FOR NON-EXEMPT EMPLOYEES. In the event that you are an Employee eligible for overtime compensation under the Fair Labor Standards Act of 1938, as amended (i.e., a Non-Exempt Employee), you may not exercise your option until you have completed at least six (6) months of Continuous Service measured from the Date of Grant specified in your Grant Notice, notwithstanding any other provision of your option.
4. EXERCISE PRIOR TO VESTING (EARLY EXERCISE). If permitted in your Grant Notice (i.e., the Exercise Schedule indicates Early Exercise Permitted) and subject to the provisions of your option, you may elect at any time that is both (i) during the period of your Continuous Service and (ii) during the term of your option, to exercise all or part of your option, including the unvested portion of your option; provided, however, that:
a. a partial exercise of your option shall be deemed to cover first vested shares of Common Stock and then the earliest vesting installment of unvested shares of Common Stock;
b. any shares of Common Stock so purchased from installments that have not vested as of the date of exercise shall be subject to the purchase option in favor of the Company as described in the Companys form of Early Exercise Stock Purchase Agreement;
c. you shall enter into the Companys form of Early Exercise Stock Purchase Agreement with a vesting schedule that will result in the same vesting as if no early exercise had occurred; and
d. if your option is an Incentive Stock Option, then, to the extent that the aggregate Fair Market Value (determined at the time of grant) of the shares of Common Stock with respect to which your option plus all other Incentive Stock Options you hold are exercisable for the first time by you during any calendar year (under all plans of the Company and its Affiliates) exceeds one hundred thousand dollars ($100,000), your option(s) or portions thereof that exceed such limit (according to the order in which they were granted) shall be treated as Nonstatutory Stock Options.
5. METHOD OF PAYMENT. Payment of the exercise price is due in full upon exercise of all or any part of your option. You may elect to make payment of the exercise price in cash or by check or in any other manner permitted by your Grant Notice, which may include one or more of the following:
a. Provided that at the time of exercise the Common Stock is publicly traded and quoted regularly in The Wall Street Journal, pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board that, prior to the issuance of Common Stock, results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay the aggregate exercise price to the Company from the sales proceeds.
b. Provided that at the time of exercise the Common Stock is publicly traded and quoted regularly in The Wall Street Journal, by delivery to the Company (either by actual delivery or attestation) of already-owned shares of Common Stock that are owned free and clear of any liens, claims, encumbrances or security interests, and that are valued at Fair Market Value on the date of exercise. Notwithstanding the foregoing, you may not exercise your option by tender to the Company of Common Stock to the extent such tender would violate the provisions of any law, regulation or agreement restricting the redemption of the Companys stock.
c. Pursuant to the following deferred payment alternative:
1) Not less than one hundred percent (100%) of the aggregate exercise price, plus accrued interest, shall be due four (4) years from date of exercise or, at the Companys election, upon termination of your Continuous Service.
2) Interest shall be compounded at least annually and shall be charged at the minimum rate of interest necessary to avoid (1) the treatment as interest, under any applicable provisions of the Code, of any amounts other than amounts stated to be interest under the deferred payment arrangement and (2) the classification of your option as a liability for financial accounting purposes.
3) In order to elect the deferred payment alternative, you must, as a part of your written notice of exercise, give notice of the election of this payment alternative and, in order to secure the payment of the deferred exercise price to the Company hereunder, if the Company so requests, you must tender to the Company a promissory note and a pledge agreement covering the purchased shares of Common Stock, both in form and substance satisfactory to the Company, or such other or additional documentation as the Company may request.
6. WHOLE SHARES. You may exercise your option only for whole shares of Common Stock.
7. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary contained herein, you may not exercise your option unless the shares of Common Stock issuable upon such exercise are then registered under the Securities Act or, if such shares of Common Stock are not then so registered, the Company has determined that such exercise and issuance would be exempt from the registration requirements of the Securities Act. The exercise of your option also must comply with other applicable laws and regulations governing your option, and you may not exercise your option if the Company determines that such exercise would not be in material compliance with such laws and regulations.
8. TERM. You may not exercise your option before the commencement of its term or after its term expires. The term of your option commences on the Date of Grant and expires upon the earliest of the following:
a. immediately upon the termination of your Continuous Service for Cause;
b. three (3) months after the termination of your Continuous Service for any reason other than Cause, Disability or death, provided that if during any part of such three (3)-month period you may not exercise your option solely because of the condition set forth in the preceding paragraph relating to Securities Law Compliance, your option shall not expire until the earlier of the Expiration Date or until it shall have been exercisable for an aggregate period of three (3) months after the termination of your Continuous Service;
c. twelve (12) months after the termination of your Continuous Service due to your Disability;
d. eighteen (18) months after your death if you die during your Continuous Service;
e. the Expiration Date indicated in your Grant Notice; or
f. the day before the tenth (10th) anniversary of the Date of Grant.
Notwithstanding the foregoing, if you die during the period provided in Section 8(b) or 8(c) above, the term of your option shall not expire until the earlier of eighteen (18) months after your death, the Expiration Date indicated in your Grant Notice, or the day before the tenth (10th) anniversary of the Date of Grant.
If your option is an Incentive Stock Option, note that, to obtain the federal income tax advantages associated with an Incentive Stock Option, the Code requires that at all times beginning on the date of grant of your option and ending on the day three (3) months before the date of your options exercise, you must be an employee of the Company or an Affiliate, except in the event of your death or Disability. The Company has provided for extended exercisability of your option under certain circumstances for your benefit but cannot guarantee that your option will necessarily be treated as an Incentive Stock Option if you continue to provide services to the Company or an Affiliate as a Consultant or Director after your employment terminates or if you otherwise exercise your option more than three (3) months after the date your employment terminates.
9. EXERCISE.
a. You may exercise the vested portion of your option (and the unvested portion of your option if your Grant Notice so permits) during its term by delivering a Notice of Exercise (in a form designated by the Company) together with the exercise price to the Secretary of the Company, or to such other person as the Company may designate, during regular business hours, together with such additional documents as the Company may then require.
b. By exercising your option you agree that, as a condition to any exercise of your option, the Company may require you to enter into an arrangement providing for the payment by you to the Company of any tax withholding obligation of the Company arising by reason of (1) the exercise of your option, (2) the lapse of any substantial risk of forfeiture to which the shares of Common Stock are subject at the time of exercise, or (3) the disposition of shares of Common Stock acquired upon such exercise.
c. If your option is an Incentive Stock Option, by exercising your option you agree that you will notify the Company in writing within fifteen (15) days after the date of any disposition of any of the shares of the Common Stock issued upon exercise of your option that occurs within two (2) years after the date of your option grant or within one (1) year after such shares of Common Stock are transferred upon exercise of your option.
d. By exercising your option you agree that you shall not sell, dispose of, transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, any shares of Common Stock or other securities of the Company held by you, for a period of one hundred eighty (180) days following the effective date of a registration statement of the Company filed under the Securities Act or such longer period as necessary to permit compliance with FINRA Rule 2711 or NYSE Member Rule 472 and similar rules and regulations (the Lock-Up Period); provided, however, that nothing contained in this section shall prevent the exercise of a repurchase option, if any, in favor of the Company during the Lock-Up Period. You further agree to execute and deliver such other agreements as may be reasonably requested by the Company and/or the underwriter(s) that are consistent with the foregoing or that are necessary to give further effect thereto. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to your shares of Common Stock until the end of such period. The underwriters of the Companys stock are intended third party beneficiaries of this Section 9(d) and shall have the right, power and authority to enforce the provisions hereof as though they were a party hereto.
10. TRANSFERABILITY.
a. If your option is an Incentive Stock Option, your option is not transferable, except by will or by the laws of descent and distribution, and is exercisable during your life only by you. Notwithstanding the foregoing, by delivering written notice to the Company, in a form satisfactory to the Company, you may designate a third party who, in the event of your death, shall thereafter be entitled to exercise your option.
b. If your option is a Nonstatutory Stock Option, your option is not transferable, except (i) by will or by the laws of descent and distribution, (ii) with the prior written approval of the Company, by instrument to an inter vivos or testamentary trust, in a form accepted by the Company, in which the option is to be passed to beneficiaries upon the death of the trustor (settlor) and (iii) with the prior written approval of the Company, by gift, in a form accepted by the Company, to a permitted transferee under Rule 701 of the Securities Act.
11. RIGHT OF FIRST REFUSAL. Shares of Common Stock that you acquire upon exercise of your option are subject to any right of first refusal that may be described in the Companys bylaws in effect at such time the Company elects to exercise its right; provided, however, that if your option is an Incentive Stock Option and the right of first refusal described in the Companys bylaws in effect at the time the Company elects to exercise its right is more beneficial to you than the right of first refusal described in the Companys bylaws on the Date of Grant, then the right of first refusal described in the Companys bylaws on the Date of Grant shall apply. The Companys right of first refusal shall expire on the first date upon which any security of the Company is listed (or approved for listing) upon notice of issuance on a national securities exchange or quotation system.
12. RIGHT OF REPURCHASE. To the extent provided in the Companys bylaws in effect at such time the Company elects to exercise its right, the Company shall have the right to repurchase all or any part of the shares of Common Stock you acquire pursuant to the exercise of your option.
13. OPTION NOT A SERVICE CONTRACT. Your option is not an employment or service contract, and nothing in your option shall be deemed to create in any way whatsoever any obligation on your part to continue in the employ of the Company or an Affiliate, or of the Company or an Affiliate to continue your employment. In addition, nothing in your option shall obligate the Company or an Affiliate, their respective stockholders, Boards of Directors, Officers or Employees to continue any relationship that you might have as a Director or Consultant for the Company or an Affiliate.
14. WITHHOLDING OBLIGATIONS.
a. At the time you exercise your option, in whole or in part, or at any time thereafter as requested by the Company, you hereby authorize withholding from payroll and any other amounts payable to you, and otherwise agree to make adequate provision for (including by means of a cashless exercise pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board to the extent permitted by the Company), any sums required to satisfy the federal, state, local and foreign tax withholding obligations of the Company or an Affiliate, if any, which arise in connection with the exercise of your option.
b. Upon your request and subject to approval by the Company, in its sole discretion, and compliance with any applicable legal conditions or restrictions, the Company may withhold from fully vested shares of Common Stock otherwise issuable to you upon the exercise of your option a number of whole shares of Common Stock having a Fair Market Value, determined by the Company as of the date of exercise, not in excess of the minimum amount of tax required to be withheld by law (or such lower amount as may be necessary to avoid classification of your option as a liability for financial accounting purposes). If the date of determination of any tax withholding obligation is deferred to a date later than the date of exercise of your option, share withholding pursuant to the preceding sentence shall not be permitted unless you make a proper and timely election under Section 83(b) of the Code, covering the aggregate number of shares of Common Stock acquired upon such exercise with respect to which such determination is otherwise deferred, to accelerate the determination of such tax withholding obligation to the date of exercise of your option. Notwithstanding the filing of such election, shares of Common Stock shall be withheld solely from fully vested shares of Common Stock determined as of the date of exercise of your option that are otherwise issuable to you upon such exercise. Any adverse consequences to you arising in connection with such share withholding procedure shall be your sole responsibility.
c. You may not exercise your option unless the tax withholding obligations of the Company and/or any Affiliate are satisfied. Accordingly, you may not be able to exercise your option when desired even though your option is vested, and the Company shall have no obligation to issue a certificate for such shares of Common Stock or release such shares of Common Stock from any escrow provided for herein unless such obligations are satisfied.
15. TAX CONSEQUENCES. You hereby agree that the Company does not have a duty to design or administer the Plan or its other compensation programs in a manner that minimizes your tax liabilities. You shall not make any claim against the Company, or any of its Officers, Directors, Employees or Affiliates related to tax liabilities arising from your option or your other compensation. In particular, you acknowledge that this option is exempt from Section 409A of the Code only if the exercise price per share specified in the Grant Notice is at least equal to the fair market value per share of the Common Stock on the Date of Grant and there is no other impermissible deferral of compensation associated with the option. Because the Common Stock is not traded on an established securities market, the Fair Market Value is determined by the Board, perhaps in consultation with an independent valuation firm retained by the Company. You acknowledge that there is no guarantee that the Internal Revenue Service will agree with the valuation as determined by the Board, and you shall not make any claim against the Company, or any of its Officers, Directors, Employees or Affiliates in the event that the Internal Revenue Service asserts that the valuation determined by the Board is less than the fair market value as subsequently determined by the Internal Revenue Service.
16. NOTICES. Any notices provided for in your option or the Plan shall be given in writing and shall be deemed effectively given upon receipt or, in the case of notices delivered by mail by the Company to you, five (5) days after deposit in the United States mail, postage prepaid, addressed to you at the last address you provided to the Company.
17. GOVERNING PLAN DOCUMENT. Your option is subject to all the provisions of the Plan, the provisions of which are hereby made a part of your option, and is further subject to all interpretations, amendments, rules and regulations, which may from time to time be promulgated and adopted pursuant to the Plan. In the event of any conflict between the provisions of your option and those of the Plan, the provisions of the Plan shall control.
NOTICE OF EXERCISE
Intersect ENT, Inc. | ||||
1555 Adams Drive | ||||
Menlo Park, CA 94025 | Date of Exercise: |
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Ladies and Gentlemen:
This constitutes notice under my stock option that I elect to purchase the number of shares for the price set forth below.
Type of option (check one): | Incentive ¨ | Nonstatutory ¨ | ||
Stock option dated: |
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Number of shares as to which option is exercised: |
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Certificates to be issued in name of: |
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Total exercise price: | $ |
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Cash payment delivered herewith: | $ |
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By this exercise, I agree (i) to provide such additional documents as you may require pursuant to the terms of the INTERSECT ENT, INC. 2013 Equity Incentive Plan, (ii) to provide for the payment by me to you (in the manner designated by you) of your withholding obligation, if any, relating to the exercise of this option, and (iii) if this exercise relates to an incentive stock option, to notify you in writing within fifteen (15) days after the date of any disposition of any of the shares of Common Stock issued upon exercise of this option that occurs within two (2) years after the date of grant of this option or within one (1) year after such shares of Common Stock are issued upon exercise of this option.
I hereby make the following certifications and representations with respect to the number of shares of Common Stock of the Company listed above (the Shares), which are being acquired by me for my own account upon exercise of the Option as set forth above:
I acknowledge that the Shares have not been registered under the Securities Act of 1933, as amended (the Securities Act), and are deemed to constitute restricted securities under Rule 701 and Rule 144 promulgated under the Securities Act. I warrant and represent to the Company that I have no present intention of distributing or selling said Shares, except as permitted under the Securities Act and any applicable state securities laws.
I further acknowledge that I will not be able to resell the Shares for at least ninety (90) days after the stock of the Company becomes publicly traded (i.e., subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934) under Rule 701 and that more restrictive conditions apply to affiliates of the Company under Rule 144.
I further acknowledge that all certificates representing any of the Shares subject to the provisions of the Option shall have endorsed thereon appropriate legends reflecting the foregoing limitations, as well as any legends reflecting restrictions pursuant to the Companys Certificate of Incorporation, Bylaws and/or applicable securities laws.
I further agree that, if required by the Company (or a representative of the underwriters) in connection with the first underwritten registration of the offering of any securities of the Company under the Securities Act, I will not sell, dispose of, transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, any shares of Common Stock or other securities of the Company for a period of one hundred eighty (180) days following the effective date of a registration statement of the Company filed under the Securities Act or such longer period as necessary to permit compliance with FINRA Rule 2711 or NYSE Member Rule 472 and similar rules and regulations (the Lock-Up Period). I further agree to execute and deliver such other agreements as may be reasonably requested by the Company and/or the underwriter(s) that are consistent with the foregoing or that are necessary to give further effect thereto. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such period.
Very truly yours, | ||
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Social Security No.:
Exhibit 10.6
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
This Amended and Restated Investor Rights Agreement (the Agreement) is made as of February 15, 2013, among Intersect ENT, Inc., a Delaware corporation (the Company), and the stockholders listed on Exhibit A hereto (individually an Investor and collectively the Investors).
RECITALS
WHEREAS, certain of the Investors are purchasing shares of the Companys Series D Preferred Stock (the Series D Stock), pursuant to that certain Series D Preferred Stock Purchase Agreement (the Purchase Agreement) of even date herewith (the Financing);
WHEREAS, the obligations in the Purchase Agreement are conditioned upon the execution and delivery of this Agreement;
WHEREAS, certain of the Investors (the Prior Investors) are holders of the Companys Series A Preferred Stock (the Series A Stock), Series B Preferred Stock (the Series B Stock) and Series C Preferred Stock (the Series C Stock);
WHEREAS, the Prior Investors and the Company are parties to an Investor Rights Agreement dated October 28, 2010 (the Prior Agreement);
WHEREAS, the parties to the Prior Agreement desire to amend and restate the Prior Agreement and accept the rights and covenants hereof in lieu of their rights and covenants under the Prior Agreement; and
WHEREAS, in connection with the consummation of the Financing, the Company and the Investors have agreed to the registration rights, information rights, and other rights as set forth below.
NOW, THEREFORE, in consideration of these premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
AGREEMENT
1. Restrictions on Transferability; Registration Rights
1.1 Certain Definitions. As used in this Agreement, the following terms have the following respective meanings:
Board means the board of directors of the Company.
Commission means the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act.
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Convertible Securities means any bonds, debentures, notes or other evidences of indebtedness, options, warrants, shares (including, but not limited to, shares of Series A Stock, Series B Stock and Series C Stock) or any other securities convertible into, exercisable for, or exchangeable for Common Stock.
Excluded Securities shall have the meaning ascribed to such term in the Fourth Article, subsection B.3.(g)(ii) of the Companys Restated Certificate of Incorporation.
Exchange Act means the Securities Exchange Act of 1934, as amended, or any similar successor federal statute, and the rules and regulations thereunder, all as the same shall be in effect from time to time.
Form S-3 Initiating Holders means any Holder or Holders who propose to register securities, the aggregate offering price of which, net of underwriting discounts and commissions, exceeds $1,000,000.
Holder means (i) any Investor holding Registrable Securities and (ii) any person holding Registrable Securities to whom the rights under this Agreement have been transferred in accordance with Section 1.11 hereof.
Initiating Holders means any Holder or Holders who in the aggregate hold not less than 30% of the Registrable Securities then outstanding and who propose to register (i) securities equal to at least 20% of such Holders or Holders shares in the IPO (or any lesser percentage if the anticipated aggregate proceeds (after deduction for underwriters discounts and expenses related to issuance) exceeds $10,000,000), or (ii) securities then held by such Holder or Holders after the IPO.
IPO means the first public offering of the Common Stock of the Company to the general public that is affected pursuant to a registration statement filed with, and declared effective by, the Commission under the Securities Act.
New Securities means any shares of capital stock of the Company, including Common Stock and Preferred Stock, whether authorized or not, and rights, options, or warrants to purchase said shares of capital stock, and securities of any type whatsoever that are, or may become, convertible into capital stock; provided, however, that the term New Securities does not include Excluded Securities.
Other Stockholders means persons other than Holders who, by virtue of agreements with the Company, are entitled to include their securities in certain registrations hereunder.
Pinnacle Warrant means that certain warrant to purchase stock, dated November 15, 2007 held by Pinnacle Ventures II Equity Holdings, L.L.C.
Pro Rata Portion means the ratio that (x) the sum of the number of shares of the Companys Common Stock held by an Investor immediately prior to the issuance of
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New Securities, assuming full conversion of the Shares then held by such Investor into the Companys Common Stock, bears to (y) the sum of the total number of shares of the Companys Common Stock then outstanding, assuming full conversion of all Shares then outstanding into the Companys Common Stock.
Qualified Public Offering shall have the meaning ascribed to such term in the Fourth section, subsection B.3.(b) of the Companys Restated Certificate of Incorporation.
The terms register, registered and registration refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of the effectiveness of such registration statement.
Registration Expenses shall mean all expenses incurred by the Company in complying with Sections 1.3, 1.4 and 1.5 hereof, including, without limitation, all registration, qualification, listing and filing fees, printing expenses, escrow fees, reasonable fees for one counsel for the selling Holders, blue sky fees and expenses, and the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company which shall be paid in any event by the Company).
Registrable Securities shall mean (i) shares of Common Stock issued or issuable pursuant to the conversion of the Shares, (ii) for purposes of Section 1 (excluding 1.3) and Section 4 only, Common Stock issued or issuable pursuant to conversion of the Warrant Shares, (iii) any Common Stock of the Company issued as a dividend or other distribution with respect to or in exchange for or in replacement of the shares referenced in clause (i) and (ii) above, and (iv) any shares of Common Stock, or any shares of Common Stock issued or issuable (directly or indirectly) upon conversion and/or exercise of any other securities of the Company, acquired by the Investors after the date of this Agreement; provided, however, that shares of Common Stock or other securities shall only be treated as Registrable Securities if and so long as they have not been (A) sold to or through a broker or dealer or underwriter in a public distribution or a public securities transaction, (B) sold in a transaction exempt from the registration and prospectus delivery requirements of the Securities Act under Section 4(1) thereof so that all transfer restrictions and restrictive legends with respect thereto are removed upon the consummation of such sale, or (C) transferred in a transaction pursuant to which the registration rights are not also assigned in accordance with Section 1.11 hereof.
Restricted Securities shall mean the securities of the Company required to bear the legend set forth in Section 1.2 hereof.
Rule 144 means Rule 144 as promulgated by the Commission under the Securities Act, as such Rule may be amended from time to time, or any similar successor rule that may be promulgated by the Commission.
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Rule 145 means Rule 145 as promulgated by the Commission under the Securities Act, as such Rule may be amended from time to time, or any similar successor rule that may be promulgated by the Commission.
Securities Act shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder or any similar federal statute and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time.
Selling Expenses shall mean all underwriting discounts, selling commissions and stock transfer taxes applicable to the securities registered by the Holders.
Series A Warrants means those certain warrants to purchase Series A Stock held by the Investors, other than the SVB Warrant and the Pinnacle Warrant.
Shares means the Companys Series A Stock, Series B Stock, Series C Stock, Series D Stock and the Series A Stock issuable upon exercise of the Series A Warrants.
SVB Warrant means that certain warrant to purchase stock, dated March 20, 2007 held by SVB Financial Group.
Warrant Shares means the shares of Series A Stock issuable upon exercise of the SVB Warrant and the Pinnacle Warrant.
1.2 Restrictions.
(a) Each Holder agrees not to make any disposition of all or any portion of the Registrable Securities unless and until the transferee has agreed in writing for the benefit of the Company to be bound by this Section 1.2 and Section 1.3, provided and to the extent such Sections are then applicable, and (i) there is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such registration statement, or (ii) such Holder shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, and, if reasonably requested by the Company, such Holder shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration under the Securities Act. Notwithstanding the foregoing, no such registration statement or opinion of counsel shall be necessary for a transfer to an affiliate of a Holder or by a Holder which is (A) a partnership to its partners or retired partners in accordance with partnership interests, (B) a limited liability company to its members or former members in accordance with their interest in the limited liability company, (C) a corporation to its stockholders in accordance with their interests in the corporation, or (D) to the Holders family member or trust for the benefit of an individual Holder, provided in the case of a transfer to an affiliate and all cases enumerated in clauses (A) (D) that the transferee is subject to the terms of this Section 1.2 and Section 1.3 as if such transferee were an original Holder hereunder. Each Holder consents to the Company making a notation on its records and giving instructions to any transfer agent of the Restricted Securities in order to implement the restrictions on transfer established in this Section 1.2.
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(b) Each certificate representing Registrable Securities shall be stamped or otherwise imprinted with legends substantially in the following forms (in addition to any legend required under applicable state securities laws, the Companys charter documents or any other agreement between the Company and the Holder thereof):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SUCH ACT, OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL OR OTHER EVIDENCE, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.
(c) The Company shall promptly reissue unlegended certificates at the request of any Holder thereof if the Holder shall have obtained an opinion of counsel reasonably acceptable to the Company to the effect that the securities proposed to be disposed of may lawfully be disposed of without registration, qualification or legend.
1.3 Requested Registration.
(a) Request for Registration. If the Company shall receive from Initiating Holders a written request that the Company effect any registration, qualification or compliance, the Company will:
(i) promptly deliver written notice of the proposed registration, qualification, or compliance to all other Holders; and
(ii) as soon as practicable, use best efforts to effect such registration, qualification or compliance (including, without limitation, the execution of an undertaking to file post-effective amendments, appropriate qualification under applicable blue sky or other state securities laws, and appropriate compliance with applicable regulations issued under the Securities Act and any other governmental requirements or regulations) as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any Holder or Holders joining in such request as are specified in a written request delivered to the Company within 20 days after delivery of such written notice from the Company;
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provided, however, that the Company shall not be obligated to take any action to effect any such registration, qualification, or compliance pursuant to this Section 1.3:
(A) Prior to the earlier of: (i) two years following the date of this Agreement, and (ii) six months following the effective date of the IPO;
(B) After the Company has effected two such registrations pursuant to this Section 1.3, such registrations have been declared or ordered effective, and the securities offered pursuant to such registrations have been sold;
(C) During the period starting with the date 60 days prior to the Companys estimated date of filing of, and ending on a date 180 days after the effective date of, a registration initiated by the Company; provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective and that the Companys estimate of the date of filing such registration statement is made in good faith in a certificate signed by the President of the Company;
(D) In any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification or compliance unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act; or
(E) If in the good faith judgment of the Board, such registration would be seriously detrimental to the Company and the Board concludes, as a result, that it is essential to defer the filing of such registration statement at such time, and the Company thereafter delivers to the Initiating Holders a certificate, signed by the President or Chief Executive Officer of the Company, stating that in the good faith judgment of the Board it would be detrimental to the Company or its stockholders for a registration statement to be filed in the near future, then the Companys obligation to use best efforts to register, qualify or comply under this Section 1.3 shall be deferred for a period not to exceed 90 days from the delivery of the written request from the Initiating Holders.
Subject to the foregoing clauses (A) through (E), the Company shall file a registration statement covering the Registrable Securities so requested to be registered as soon as practicable and shall cause such registration to become effective no later than ninety (90) days after receipt of the request or requests of the Initiating Holders. The registration statement filed pursuant to the request of the Initiating Holders may, subject to the provisions of Sections 1.3(c) and Section 1.2 hereof, include other securities of the Company with respect to which registration rights have been granted, and may include securities being sold for the account of the Company.
(b) Underwriting. The right of any Holder to registration pursuant to this Section 1.3 shall be conditioned upon such Holders participation in such underwriting and the inclusion of such Holders Registrable Securities in the underwriting to the extent provided herein. A Holder may elect to include in such underwriting all or a part of the Registrable Securities held by such Holder.
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(c) Procedures. If the Company shall request inclusion in any registration pursuant to this Section 1.3 of securities being sold for its own account, or if other persons shall request inclusion in any registration pursuant to this Section 1.3, the Initiating Holders shall, on behalf of all Holders, offer to include such securities in the underwriting and may condition such offer on their acceptance of the applicable provisions of this Section 1. The Company shall (together with all Holders or other persons proposing to distribute their securities through such underwriting) enter into and perform its obligations under an underwriting agreement in customary form with the managing underwriter selected for such underwriting by a majority in interest of the Initiating Holders (which managing underwriter shall be reasonably acceptable to the Company). Notwithstanding any other provision of this Section 1.3, if the managing underwriter advises the Initiating Holders in writing that marketing factors require a limitation of the number of shares to be underwritten, the number of shares that may be included in the registration and underwriting shall be allocated first, to the Holders on a pro rata basis based on the total number of Registrable Securities held by the Holders; second, to any stockholder of the Company (other than a Holder) on a pro rata basis; and third, to the Company. Notwithstanding the foregoing, in no event shall (i) the amount of securities of the selling Holders included in the offering be reduced below 25% of the total amount of securities included in such offering, unless such offering is a Qualified Public Offering, in which case the selling Holders may be excluded if the underwriters make the determination described above and no other stockholders securities are included in such offering or (ii) any securities held by Other Stockholders be included in such offering if any Registrable Securities held by a Holder (and that such Holder has requested to be registered) are excluded from such offering. For purposes of the preceding sentence concerning apportionment, for any selling stockholder that is a Holder of Registrable Securities and that is a venture capital fund, partnership or corporation, the affiliated venture capital funds, partners, retired partners, stockholders and related individuals of such Holder, or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single Selling Holder, and any pro rata reduction with respect to such Selling Holder shall be based upon the aggregate amount of Registrable Securities owned by all such related entities and individuals. The Company shall advise all holders of securities requesting registration of the number of shares of securities that are entitled to be included in the registration and underwriting shall be allocated as set forth in Section 1.12. If any person who has requested inclusion in such registration as provided above disapproves of the terms of the underwriting, such person shall be excluded therefrom by written notice delivered by the Company or the managing underwriter. Any Registrable Securities and/or other securities so excluded or withdrawn shall also be withdrawn from registration. Any Registrable Securities and/or other securities so excluded or withdrawn shall also be withdrawn from registration.
1.4 Registration on Form S-3.
(a) Qualification on Form S-3. After the IPO, the Company shall use best efforts to qualify for registration on Form S-3 or any comparable or successor form. To that end the Company shall register (whether or not required by law to do so) its Common Stock under the Exchange Act in accordance with the provisions of the Exchange Act following the effective date of the first registration of any securities of the Company on Form S-1 or any comparable or successor form or forms.
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(b) Request for Registration on Form S-3. After the Company has qualified for the use of Form S-3, if the Company shall receive from Form S-3 Initiating Holders a written request that the Company effect a registration on Form S-3 the Company will:
(i) promptly deliver written notice of the proposed registration to all other Holders; and
(ii) as soon as practicable, use best efforts to effect such registration, qualification or compliance (including, without limitation, the execution of an undertaking to file post-effective amendments, appropriate qualification under applicable blue sky or other state securities laws, and appropriate compliance with applicable regulations issued under the Securities Act and any other governmental requirements or regulations) as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any Holder or Holders joining in such request as are specified in a written request delivered to the Company within 20 days after delivery of such written notice from the Company;
provided, however, that the Company shall not be obligated to take any action to effect any such registration, qualification or compliance pursuant to this Section 1.4 if:
(A) The Company has effected two such registrations during the preceding twelve-month period;
(B) The condition in Section 1.3(a)(ii)(C) has been met;
(C) The condition in Section 1.3(a)(ii)(D) has been met; or
(D) The condition in Section 1.3(a)(ii)(E) has been met.
(c) Underwriting; Procedure. If a registration requested under this Section 1.4 is for an underwritten offering, the provisions of Sections 1.3(b) and 1.3(c) shall apply to such registration.
(d) S-3s not Demands. Registrations effected pursuant to this Section 1.4 shall not be counted as demands for registration or registrations effected pursuant to Section 1.3.
1.5 Company Registration.
(a) Notice of Registration. If the Company shall determine to register any of its securities, either for its own account or the account of a security holder or holders other than (A) a registration pursuant to Sections 1.3 or 1.4 hereof, (B) a registration relating solely to employee benefit plans, (C) a registration relating solely to a Rule 145 transaction or (D) a registration on any registration form that does not permit secondary sales, the Company will:
(i) deliver to each Holder written notice thereof within 30 days of such determination; and
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(ii) use best efforts to include in such registration (and any related qualification under blue sky laws or other compliance), except as set forth in Section 1.5(b) below, and in any underwriting involved therein, all the Registrable Securities specified in a written request or requests made by any Holder and delivered to the Company within ten days after the written notice is delivered by the Company. Such written request may include all or a portion of a Holders Registrable Securities.
(b) Underwriting; Procedures. If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to Section 1.5(a)(i). In such event, the right of any Holder to registration pursuant to this Section 1.5 shall be conditioned upon such Holders participation in such underwriting and the inclusion of Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company and the other holders distributing their securities through such underwriting) enter into and perform their obligations under an underwriting agreement in customary form with the managing underwriter selected for such underwriting by the Company. Notwithstanding any other provision of this Section 1.5, if the managing underwriter determines that marketing factors require a limitation of the number of shares to be underwritten, the number of shares that may be included in the registration and underwriting shall be allocated first, to the Company; second, to the Holders on a pro rata basis based on the total number of Registrable Securities held by the Holders; and third, to any stockholder of the Company (other than a Holder) on a pro rata basis. Notwithstanding the foregoing, in no event shall (i) the amount of securities of the selling Holders included in the offering be reduced below 25% of the total amount of securities included in such offering, unless such offering is a Qualified Public Offering, in which case the selling Holders may be excluded if the underwriters make the determination described above and no other stockholders securities are included in such offering or (ii) any securities held by Other Stockholders be included in such offering if any Registrable Securities held by a Holder (and that such Holder has requested to be registered) are excluded from such offering. For purposes of the preceding sentence concerning apportionment, for any selling stockholder that is a Holder of Registrable Securities and that is a venture capital fund, partnership or corporation, the affiliated venture capital funds, partners, retired partners, stockholders and related individuals of such Holder, or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single Selling Holder, and any pro rata reduction with respect to such Selling Holder shall be based upon the aggregate amount of Registrable Securities owned by all such related entities and individuals. The Company shall advise all holders of securities requesting registration of the number of shares of securities that are entitled to be included in the registration and underwriting shall be allocated as set forth in Section 1.12. If any person who has requested inclusion in such registration as provided above disapproves of the terms of the underwriting, such person shall be excluded therefrom by written notice delivered by the Company or the managing underwriter. Any Registrable Securities and/or other securities so excluded or withdrawn shall also be withdrawn from registration.
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(c) Right to Terminate Registration. The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 1.5 prior to the effectiveness of such registration, whether or not any Holder has elected to include securities in such registration.
1.6 Registration Procedures. In the case of each registration, qualification, or compliance effected by the Company pursuant to this Section 1, the Company will keep each Holder advised in writing as to the initiation of each registration, qualification, and compliance and as to the completion thereof and, at its expense, the Company will:
(a) Prepare and file with the Commission a registration statement with respect to such securities and use best efforts to cause such registration statement to become and remain effective for at least 120 days or until the distribution described in the registration statement has been completed, whichever occurs first; provided, however, that (i) such 120-day period shall be extended for a period of time equal to the period the Holder refrains from selling any securities included in such registration at the request of an underwriter of common stock or other securities of the Company, and (ii) in the case of any registration of Registrable Securities on Form S-3 which are intended to be offered on a continuous or delayed basis, such 120-day period shall be extended, if necessary, to up to 180 days provided that if Rule 415, or any successor rule under the Securities Act, permits an offering on a continuous or delayed basis, and provided further that if applicable rules under the Securities Act governing the obligation to file a post-effective amendment permit, in lieu of filing a post-effective amendment which (A) includes any prospectus required by Section 10(a)(3) of the Securities Act or (B) reflects facts or events representing a material or fundamental change in the information set forth in the registration statement, the incorporation by reference of information required to be included in (A) and (B) above shall be contained in periodic reports filed pursuant to Section 13 or 15(d) of the Exchange Act in the registration statement;
(b) Furnish to the Holders participating in such registration and to the underwriters of the securities being registered such reasonable number of copies of the registration statement, preliminary prospectus, final prospectus, and such other documents as such underwriters may reasonably request in order to facilitate the public offering of such securities;
(c) Prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection with such registration statements as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement;
(d) Notify each seller of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a
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material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading or incomplete in the light of the circumstances then existing, and at the request of any such seller, prepare and furnish to such seller a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchaser of such shares, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading or incomplete in the light of the circumstances then existing;
(e) Use best efforts to register and qualify the securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions;
(f) Cause all such Registrable Securities to be listed on each securities exchange on which similar securities issued by the Company are then listed;
(g) Provide a transfer agent and registrar for all Registrable Securities and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration; and
(h) Use best efforts to furnish, at the request of any Holder requesting registration of Registrable Securities pursuant to this Section 1, on the date that such Registrable Securities are delivered to the underwriters for sale in connection with a registration pursuant to this Section 1, if such securities are being sold through underwriters, or, if such securities are not being sold through underwriters, on the date that the registration statement with respect to such securities becomes effective, (i) an opinion, dated such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities and (ii) a letter, dated such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities (to the extent the then-applicable standards of professional conduct permit said letter to be addressed to the Holders).
1.7 Information by Holder. The Holder or Holders of Registrable Securities included in any registration shall furnish to the Company such information regarding such Holder or Holders, the Registrable Securities held by them, and the distribution proposed by such Holder or Holders as the Company may request in writing and as shall be required in connection with any registration, qualification or compliance referred to in this Section 1, and the refusal to furnish such information by any Holder or Holders shall relieve the Company of its obligations in this Section 1 with respect to such Holder or Holders. Furthermore, the Company shall have no obligation with respect to any registration requested pursuant to Section 1.3 or Section 1.4 of this Agreement if, as a result of the application of the preceding sentence, the number of shares
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or the anticipated aggregate offering price of the Registrable Securities to be included in the registration does not equal or exceed the number of shares or the anticipated aggregate offering price required to originally trigger the Companys obligation to initiate such registration as specified in the definition of Initiating Holders or Form S-3 Initiating Holders, whichever is applicable.
1.8 Indemnification.
(a) To the extent permitted by law, the Company will indemnify and hold harmless each Holder, each of its officers, directors, partners, legal counsel and accountants, and each person controlling such Holder within the meaning of Section 15 of the Securities Act, with respect to which registration, qualification, or compliance has been effected pursuant to this Section 1, and each underwriter, if any, and each person who controls any underwriter within the meaning of Section 15 of the Securities Act, against all expenses, claims, losses, damages or liabilities (or actions, proceedings or settlements in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, offering circular, or other document (including any related registration statement, notification, or the like), or any amendment or supplement thereto, incident to any such registration, qualification, or compliance, or based on or arising out of any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, or any violation by the Company of the Securities Act or any rule or regulation promulgated under the Securities Act applicable to the Company in connection with any such registration, qualification or compliance, and the Company will reimburse each such Holder, each of its officers, directors, partners, legal counsel and accountants, and each person controlling such Holder, each such underwriter and each person who controls any such underwriter, for any legal and any other expenses reasonably incurred in connection with investigating, preparing, defending or settling any such claim, loss, damage, liability or action, as such expenses are incurred, provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission or alleged untrue statement or omission, made in reliance upon and in conformity with written information furnished to the Company by such Holder, controlling person, or underwriter and stated to be specifically for use therein. The Company shall not be required to indemnify any person against any liability arising out of the failure of any Holder or any person acting on behalf of a Holder to deliver a prospectus as required by the Securities Act. It is agreed that the indemnity agreement contained in this Section 1.8 shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld).
(b) To the extent permitted by law, each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such registration, qualification, or compliance is being effected, indemnify the Company, each of its directors, officers, partners, legal counsel and accountants, and each underwriter, if any, of the Companys securities covered by such a registration statement, each person who controls the Company or such underwriter within the meaning of Section 15 of the Securities Act, and each other such
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Holder and Other Stockholder, each of their officers, directors, and partners and each person controlling such Holder or Other Stockholder within the meaning of Section 15 of the Securities Act, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular, or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company and such Holders, Other Stockholders, directors, officers, partners, legal counsel and accountants, persons, underwriters or control persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, as such expenses are incurred, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Company by such Holder and stated to be specifically for use therein, provided, however, that the obligations of such Holder hereunder shall not apply to amounts paid in settlement of any such claims, losses, damages or liabilities (or actions in respect thereof) if such settlement is effected without the consent of such Holder (which consent shall not be unreasonably withheld); and provided that that in no event shall any indemnity under this Section 1.8 exceed the gross proceeds received by such Holder in such offering.
(c) Each party entitled to indemnification under this Section 1.8 (the Indemnified Party) shall give notice to the party required to provide indemnification (the Indemnifying Party) promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense at such partys expense, and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 1 unless the failure to give such notice is materially prejudicial to an Indemnifying Partys ability to defend such action. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. Each Indemnified Party shall furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with the defense of such claim and litigation resulting therefrom.
(d) If the indemnification provided for in this Section 1.8 is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any claim, loss, damage, liability or expense referred to therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party hereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such claim, loss, damage, liability or expense in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one
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hand and the Indemnified party on the other in connection with the statements or omissions that resulted in such claim, loss, damage, liability, or expense, as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and of the Indemnified Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact related to information supplied by the Indemnifying Party or by the Indemnified Party and the parties relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. The Company and the Holders agree that it would not be just and equitable if contribution pursuant to this Section 1.8 were based solely upon the number of entities from whom contribution was requested or by any other method of allocation which does not take account of the equitable considerations referred to above. In no event shall any contribution by a Holder under this Section 1.8 exceed the gross proceeds received by such Holder in such offering.
(e) The amount paid or payable by an Indemnified Party as a result of the losses, claims, damages, and liabilities referred to above in this Section 1.8 shall be deemed to include any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such action or claim, subject to the provisions of Section 1.8(c). No person guilty of fraudulent misrepresentation (within the meaning of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.
(f) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control.
(g) The obligations of the Company and Holders under this Section 1.8 shall survive the completion of any offering of Registrable Securities in a registration statement.
1.9 Expenses of Registration. All Registration Expenses incurred in connection with any registration effected pursuant to 1.3, 1.4 or 1.5 and reasonable fees for one counsel for the selling Holders shall be borne by the Company; provided, however, that if the Holders bear the Registration Expenses for any registration proceeding begun pursuant to Section 1.3 and subsequently withdrawn by the Holders registering shares therein, such registration proceeding shall not be counted as a requested registration pursuant to Section 1.3. Furthermore, in the event that a withdrawal by the Holders is based upon material adverse information relating to the Company that is different from the information known or available (upon request from the Company or otherwise) to the Holders requesting registration at the time of their request for registration under Section 1.3, such registration proceeding shall not be counted as a requested registration pursuant to Section 1.3, even though the Holders do not bear the Registration Expenses for such registration. All Selling Expenses relating to securities registered on behalf of the Holders shall be borne by the holders of the registered securities included in such registration pro rata on the basis of the number of shares so registered.
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1.10 Rule 144 Reporting. With a view to making available the benefits of certain rules and regulations of the Commission which may at any time permit the sale of the Restricted Securities to the public without registration after such time as a public market exists for the Common Stock of the Company, the Company agrees to use best efforts to:
(a) Make and keep public information available, as those terms are understood and defined in Rule 144, at all times after the effective date that the Company becomes subject to the reporting requirements of the Securities Act or the Exchange Act;
(b) File with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements); and
(c) So long as a Holder owns any Restricted Securities, to furnish to the Holder forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of Rule 144 and of any other reporting requirements of the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), a copy of the most recent annual or quarterly report of the Company, and such other reports and documents of the Company and other information in the possession of or reasonably obtainable by the Company as a Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing a Holder to sell any such securities without registration.
1.11 Transfer of Registration Rights. The rights to cause the Company to register securities granted to any party hereto under Section 1 may be assigned by a Holder only to a transferee or assignee who acquires at least 20% of shares of Registrable Securities (as appropriately adjusted for stock splits and the like) held by such Holder, provided that the Company is given written notice at the time of or within a reasonable time after said assignment, stating the name and address of the transferee or assignee and identifying the securities with respect to which such registration rights are being assigned, and, provided further, that the assignee of such rights assumes in writing the obligations of such Holder under this Section 1. Notwithstanding the foregoing, no such minimum share assignment requirement shall be necessary for an assignment to an affiliate of a Holder or by a Holder which is (A) a partnership to its partners or retired partners in accordance with partnership interests, (B) a limited liability company to its members or former members in accordance with their interest in the limited liability company, (C) a corporation to its stockholders in accordance with their interests in the corporation or (D) to the Holders family member or trust for the benefit of an individual Holder.
1.12 Procedure for Underwriter Cutbacks. In any circumstance in which all of the Registrable Securities and other shares of Common Stock of the Company with registration rights (the Other Shares) requested to be included in a registration on behalf of Holders or Other Stockholders cannot be so included as a result of limitations of the aggregate number of shares of Registrable Securities and Other Shares that may be so included, the number of shares of Registrable Securities and Other Shares that may be so included shall be allocated among the Holders and Other Stockholders requesting inclusion of shares pro rata based upon the total number of Registrable Securities or Other Shares held by such Holders and Other Stockholders,
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respectively; provided, however, that such allocation shall not operate to reduce the aggregate number of Registrable Securities or Other Shares to be included in such registration if any Holder or Other Stockholder does not request inclusion of the maximum number of shares of Registrable Securities or Other Shares allocated to such Holder or Other Stockholder pursuant to the above-described procedure, in which case the remaining portion of his allocation shall be reallocated among those requesting Holders and Other Stockholders whose allocations did not satisfy their requests pro rata on the basis of total number of shares of Registrable Securities and Other Shares held by such Holders and Other Stockholders, and this procedure shall be repeated until all shares of Registrable Securities and Other Shares which may be included in the registration on behalf of the Holders and Other Stockholders have been so allocated. Notwithstanding anything else set forth herein or in any other agreement, the Company shall not limit the number of Registrable Securities to be included in a registration pursuant to this Agreement in order to include Other Shares, or in the case of registrations pursuant to Section 1.3 or 1.4 hereof, in order to include in such registration securities registered for the Companys own account.
1.13 Standoff Agreement. In connection with the IPO and upon request of the Company or the underwriters managing such offering of the Companys securities, each Holder hereby agrees not to sell, make any short sale of, loan, pledge or otherwise hypothecate or encumber, grant any option for the purchase of, or otherwise dispose of any securities of the Company (other than any disposed of in the registration and those acquired by the Holder in the registration or thereafter in open market transactions) without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed 180 days from the effective date of such registration or such other period as may be requested by the Company or an underwriter to facilitate compliance with NASD Rule 2711 or NYSE Rule 472, or any successor provisions or amendments thereto) as may be requested by the Company or such managing underwriters and to execute an agreement reflecting the foregoing as may be requested by the underwriters at the time of the IPO. The foregoing provisions of this Section 1.13 shall apply only to the IPO, shall not apply to the sale of any shares to an underwriter pursuant to an underwriting agreement, and shall be applicable to the Holders only if all officers, directors, and stockholders individually owning more than one percent (1%) of the Companys outstanding Common Stock (after giving effect to conversion into Common Stock of all outstanding Preferred Stock) are subject to the same restrictions. The underwriters in connection with such registration are intended third-party beneficiaries of this Section 1.13 and shall have the right, power, and authority to enforce the provisions hereof as though they were a party hereto. Each Holder further agrees to execute such agreements as may be reasonably requested by the underwriters in connection with such registration that are consistent with this Section 1.13 or that are necessary to give further effect thereto. Any discretionary waiver or termination of the restrictions of any or all of such agreements by the Company or the underwriters shall apply pro rata to all Holders subject to such agreements, based on the number of shares subject to such agreements.
1.14 Termination of Rights. The rights of any particular Holder to cause the Company to register securities under Sections 1.3, 1.4 and 1.5 shall terminate with respect to such Holder upon the earlier of (i) five years following the consummation of a Qualified Public Offering, or (ii) when, after the Companys first firm commitment underwritten public offering of its Common Stock registered under the Securities Act, such Holder can sell all of its Registrable Securities within a three month period pursuant to Rule 144.
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1.15 Limitations of Subsequent Registration Rights. From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders of at least seventy percent (70%) of the outstanding Registrable Securities, enter into any agreement with any holder or prospective holder of any securities of the Company which would allow such holder or prospective holder (a) to include such securities in any registration filed under Section 1 hereof, unless under the terms of such agreement, such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of his securities will not reduce the amount of the Registrable Securities of the Holders which is included or (b) to make a demand registration which could result in such registration statement being declared effective prior to the earlier of either of the dates set forth in Section 1.3(a) or within 120 days after the effective date of any registration effected pursuant to Section 1.3.
1.16 Foreign Registrations. Any registration of the Companys shares of capital stock under the laws of any nation other than the United States for purposes of making a public offering of the Companys capital stock in such other nation and creating a public market for the Companys capital stock in such other nation shall be subject to the express prior written approval of the US Venture Partners IX, L.P., KPCB Holdings, Inc., PTV Sciences II, L.P. and Norwest Venture Partners XI, LP (collectively with its affiliates, NVP) or their affiliates which approval may be withheld in their sole discretion, for any reason.
2. Right of First Refusal
2.1 Right of First Refusal.
(a) Right of First Refusal. Subject to the terms and conditions contained in this Section 2.1, the Company hereby grants to each Investor who owns shares of Registrable Securities the right of first refusal to purchase such Investors Pro Rata Portion of any New Securities which the Company may, from time to time, propose to issue and sell.
(b) Notice of Right. In the event the Company proposes to undertake an issuance of New Securities, it shall give each Investor written notice of its intention, describing the type of New Securities and the price and terms upon which the Company proposes to issue the same. Each Investor shall have 20 days from the date of delivery of any such notice to agree to purchase up to such Investors Pro Rata Portion of such New Securities, for the price and upon the terms specified in the notice, by delivering written notice to the Company and stating therein the quantity of New Securities to be purchased.
(c) Lapse and Reinstatement of Right. The Company shall have 90 days following the 20 day period described in Section 2.1(b) to sell or enter into an agreement (pursuant to which the sale of New Securities covered thereby shall be closed, if at all, within 30 days from the date of said agreement) to sell the New Securities with respect to which the Investors right of first refusal was not exercised, at a price and upon terms no more favorable to the purchasers of such securities than specified in the Companys notice. In the event the
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Company has not sold the New Securities or entered into an agreement to sell the New Securities within said 90 day period (or sold and issued New Securities in accordance with the foregoing within 30 days from the date of said agreement), the Company shall not thereafter issue or sell any New Securities without first offering such securities to the Investors in the manner provided above.
2.2 Assignment of Right of First Refusal. The right of first refusal granted hereunder may not be assigned or transferred, except that such right is assignable (i) by each Investor to any wholly owned subsidiary or parent of, or to any corporation or entity that is, within the meaning of the Securities Act, controlling, controlled by, or under common control with, any such Investor; or (ii) between and among any Investors.
2.3 Termination of Right of First Refusal. The right of first refusal granted under Section 2.1 of this Agreement shall expire immediately prior to the earlier of: (a) the consummation of the IPO; or (b) the consummation of a Liquidation as defined in the Companys Restated Certificate of Incorporation.
3. Affirmative Covenants of the Company. The Company hereby covenants and agrees as follows:
3.1 Detailed Financial Information. So long as an Investor holds at least 2,000,000 shares of Registrable Securities (as adjusted for any stock splits, consolidations and the like) (a Major Investor), the Company will furnish to each Major Investor such following reports:
(a) Within 30 days of the end of each calendar month, a monthly income statement, balance sheet, and cash flow statements signed by the senior financial officer of the Company;
(b) Within 30 days at the end of each fiscal quarter, a quarterly income statement, balance sheet, and cash flow statements signed by the senior financial officer of the Company;
(c) Within 180 days of fiscal year end, annual financial statements certified by a nationally recognized accounting firm;
(d) No later than thirty (30) days prior the start of each new fiscal year, a Board-approved budget and summary operating plan for the fiscal year; and
(e) As soon as practicable following the end of each fiscal quarter, a summary capitalization table including all shares, option, warrant, and debt holders.
3.2 Company Confidential Information. Each Investor agrees to hold in confidence and trust and not to misuse or disclose any confidential information provided pursuant to this Section 3. The Company shall not be required to comply with this Section 3 in respect of any Investor whom the Board determines in good faith to be a competitor or an officer, employee, director, or greater than 10% stockholder of a competitor.
18
3.3 Inspection. The Company shall permit each Major Investor, at such Major Investors expense, to visit and inspect the Companys properties, to examine its books of account and records and to discuss the Companys affairs, finances and accounts with its officers, all at such reasonable times as may be requested by such Major Investor; provided, however, that the Company shall not be obligated pursuant to this Section 3.3 to provide access to any information which it reasonably considers to be a trade secret or similar confidential information.
3.4 Stock Option Vesting; Company Repurchase Rights. Unless otherwise approved by a majority of the Board, the Company shall cause (i) all stock options granted during the term of this Agreement to vest as follows: twenty-five percent (25%) of the shares vest one (1) year following the vesting commencement date, with the remaining seventy-five percent (75%) vesting in equal installments over the next three (3) years, (ii) all unvested shares acquired by an employee of the Company pursuant to a stock purchase plan or stock option plan to be subject to repurchase by the Company upon such employees termination of employment with the Company at the price per share at which such shares were originally acquired by such employee and (iii) all unvested shares acquired by an employee pursuant to a stock purchase plan or stock option plan to be non-transferrable by the holder thereof until fully vested.
3.5 Director and Officer Insurance. The Company will use its best efforts to obtain and maintain in full force and effect director and officer liability insurance in an amount satisfactory to the Board of Directors.
3.6 Right to Conduct Activities. The Company hereby agrees and acknowledges that NVP is a professional investment fund, and as such invests in numerous portfolio companies, some of which may be deemed competitive with the Companys business (as currently conducted or as currently proposed to be conducted). The Company hereby agrees that, to the extent permitted under applicable law, NVP shall not be liable to the Company for any claim arising out of, or based upon, (a) the investment by NVP in any entity competitive with the Company, or (b) actions taken by any partner, officer or other representative of NVP to assist any such competitive company, whether or not such action was taken as a member of the board of directors of such competitive company or otherwise, and whether or not such action has a detrimental effect on the Company; provided, however that the foregoing shall not relieve (x) NVP or any party from liability associated with the willful misuse of the Companys confidential information obtained pursuant to Section 3.2, or (ii) any director or officer of the Company from any liability associated with his or her fiduciary duties to the Company.
3.7 Foreign Corrupt Practices Act Enforcement Actions. The Company shall promptly notify NVP should the Company become aware of any Enforcement Action (as defined in the Purchase Agreement).
3.8 Termination of Covenants. The covenants set forth in Sections 3.1, 3.3 and 3.4 shall terminate and be of no further force or effect upon the earlier to occur of (a) the consummation of the IPO; (b) the consummation of a Liquidation as defined in the Companys Restated Certificate of Incorporation; or (c) the date on which the Company is required to file reports with the Commission pursuant to Section 13 or 15(d) of the Exchange Act.
19
4. Miscellaneous.
4.1 Governing Law. This Agreement shall be governed in all respects by the laws of the State of California without regard to choice of laws or conflict of laws provisions thereof.
4.2 Successors and Assigns. Except as otherwise specifically set forth in this Agreement, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors, and administrators of the parties hereto. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided by this Agreement.
4.3 Entire Agreement. This Agreement and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement among the parties with regard to the subjects hereof and thereof.
4.4 Notices, Etc. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by registered or certified mail, postage prepaid, return receipt requested, or otherwise delivered by hand or by messenger or confirmed facsimile, addressed (a) if to an Investor, at such Investors address set forth on the signature page of this Agreement, or at such other address as such Investor shall have furnished to the Company in writing, or (b) if to any other holder of any Shares, at such address as such holder shall have furnished the Company in writing, or, until any such holder so furnishes an address to the Company, then to and at the address of the last holder of such Shares who has so furnished an address to the Company, or (c) if to the Company, at its address set forth on the signature page of this Agreement addressed to the attention of the Corporate Secretary, or at such other address as the Company shall have furnished to the Investors. Unless specifically stated otherwise, if notice is provided by mail, it shall be deemed to be delivered upon proper deposit in a mailbox, if notice is provided by facsimile, it shall be deemed to be delivered upon receipt by the sender of confirmation of facsimile transmission, and if notice is delivered by hand or by messenger, it shall be deemed to be delivered upon actual delivery.
4.5 Delays or Omissions. No delay or omission to exercise any right, power or remedy accruing to any Investor upon any breach or default of the Company under this Agreement shall impair any such right, power or remedy of such party, nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing or as provided in this Agreement. All remedies, either under this Agreement or by law or otherwise afforded to any party, shall be cumulative and not alternative.
20
4.6 Dispute Resolution Fees. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys fees, costs, and disbursements in addition to any other relief to which such party may be entitled.
4.7 Counterparts. This Agreement may be executed in any number of counterparts and signatures may be delivered by facsimile, each of which may be executed by less than all parties, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one instrument.
4.8 Severability. If any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable, or void, portions of such provision, or such provision in its entirety, to the extent necessary, shall be severed from this Agreement and the balance of this Agreement shall be enforceable in accordance with its terms.
4.9 Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.
4.10 Amendment and Waiver. Any provision of this Agreement may be amended or waived (either generally or in a particular instance and either retroactively or prospectively) with the written consent of the Company and an Investor or Investors holding, in the aggregate, at least seventy percent (70%) of the outstanding shares of the Registrable Securities provided, however that Sections 3.6 and 3.7 may be amended or waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of NVP. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each Investor and the Company.
4.11 Effect of Amendment or Waiver. The Investors and their successors and assigns acknowledge that by the operation of Section 4.10 hereof Investors holding at least seventy percent (70%) of the outstanding Registrable Securities, acting in conjunction with the Company, will have the right and power to diminish or eliminate any or all rights pursuant to this Agreement.
4.12 Aggregation of Stock. All shares of Preferred Stock and Common Stock of the Company held or acquired by affiliated entities or persons shall be aggregated for the purpose of determining the availability of any rights under this Agreement.
4.13 Exclusivity. In the event that the Company receives an unsolicited offer from a third party to consummate a transaction described in Article IV, subsection B.2.(c)(ii-iii) of the Companys Restated Certificate of Incorporation (an Offer), then, for a period of 30 days after receipt of the Offer, the Company will not agree to exclusively negotiate with such third party.
4.14 Amendment and Restatement of Prior Agreement. The Prior Agreement is hereby amended in its entirety and restated herein. All provisions of, rights granted in and
21
covenants made in the Prior Agreement are hereby waived, released and superseded in their entirety and shall have no further force or effect, including, without limitation, all rights of first refusal and any notice period associated therewith otherwise applicable to the transactions contemplated by the Purchase Agreement.
[THIS SPACE LEFT BLANK INTENTIONALLY]
22
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.
COMPANY: | ||
INTERSECT ENT, INC. | ||
By: | /s/ Lisa D. Earnhardt | |
Lisa D. Earnhardt | ||
President and Chief Executive Officer |
SERIES D PREFERRED STOCK FINANCING
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
INVESTOR: | ||
U.S. VENTURE PARTNERS IX, L.P. | ||
By: | Presidio Management Group IX, L.L.C. | |
Its: | General Partner | |
By: | /s/ Michael P. Maher | |
Michael P. Maher | ||
Its: | Attorney-In-Fact |
Address: | 2735 Sand Hill Road | |
Menlo Park, CA 94025 | ||
Attn: Chief Financial Officer | ||
deals@usvp.com |
SERIES D PREFERRED STOCK FINANCING
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
INVESTOR: | ||
KPCB HOLDING, INC., AS NOMINEE | ||
By: | /s/ Susan Biglieri | |
Susan Biglieri |
Address: | 2750 Sand Hill Road | |
Menlo Park CA 94025 |
SERIES D PREFERRED STOCK FINANCING
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
INVESTOR: | ||
Norwest Venture Partners XI, LP | ||
By: | Genesis VC Partners XI, LLC, General Partner | |
By: | NVP Associates, LLC, | |
Managing Member | ||
By: | /s/ Casper de Clercq | |
Casper de Clercq |
Address: | 525 University Avenue, Suite 800 | |
Palo Alto, CA 94301-1922 | ||
Attn: General Counsel |
SERIES D PREFERRED STOCK FINANCING
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
INVESTOR: | ||
PTV SCIENCES II, L.P. | ||
By: | Pinto Technology Ventures GP II, L.P. | |
Its: | General Partner | |
By: | Pinto TV GP Company, LLC | |
Its: | General Partner | |
By: | /s/ Rick D. Anderson | |
Rick D. Anderson | ||
Managing Director |
Address: | 3600 N. Capital of Texas Hwy | |
Building B, Suite 245 | ||
Austin, TX 78746 |
SERIES D PREFERRED STOCK FINANCING
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
INVESTORS: | ||
DAG VENTURES III-QP, L.P. | ||
By: | DAG Ventures Management III, LLC | |
Its: | General Partner | |
By: | /s/ John Cadeddu | |
John Cadeddu, Managing Director |
Address: | 251 Lytton Avenue, Suite 200 | |
Palo Alto, CA 94301 |
DAG VENTURES III, L.P. | ||
By: | DAG Ventures Management III, LLC | |
Its: | General Partner | |
By: | /s/ John Cadeddu | |
John Cadeddu, Managing Director |
Address: | 251 Lytton Avenue, Suite 200 | |
Palo Alto, CA 94301 |
DAG VENTURES GP FUND III, LLC | ||
By: | DAG Ventures Management III, LLC | |
Its: | Managing Member | |
By: | /s/ John Cadeddu | |
John Cadeddu, Managing Director |
Address: | 251 Lytton Avenue, Suite 200 | |
Palo Alto, CA 94301 |
SERIES D PREFERRED STOCK FINANCING
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
INVESTORS: | ||
FREDERIC H. MOLL | ||
/s/ Frederic H. Moll | ||
Signature |
Address: | 3746 Clay Street | |
San Francisco, CA 94118 | ||
|
THE DUANE FAMILY TRUST | ||
By: | /s/ Jon R. Duane | |
Jon R. Duane, Trustee |
Address: | 149 Selby Lane | |
Atherton, CA 94027 | ||
DAVID W. GRYSKA | ||
/s/ David W. Gryska | ||
Signature | ||
Address: | 27 Tehama | |
Carmel, CA 93923 |
SERIES D PREFERRED STOCK FINANCING
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
INVESTORS: | ||
CASILLI FAMILY HOLDINGS | ||
By: | /s/ Gerald S. Casilli | |
Gerald S. Casilli, Managing Partner |
Address: | 2905 Woodside Road | |
Woodside, CA 95006 | ||
Attn: Gerald S. Casilli |
CASILLI INVESTMENT PARTNERS | ||
By: | /s/ Gerald S. Casilli | |
Gerald S. Casilli, Partner |
Address: | 2905 Woodside Road | |
Woodside, CA 95006 | ||
Attn: Gerald S. Casilli |
CASILLI REVOCABLE TRUST | ||
By: | /s/ Gerald S. Casilli | |
Gerald S. Casilli, Trustee |
Address: | 2905 Woodside Road | |
Woodside, CA 95006 | ||
Attn: Gerald S. Casilli |
SERIES D PREFERRED STOCK FINANCING
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
INVESTORS: | ||
CHEYENNE SINEXUS PARTNERS, L.P. | ||
By: | /s/ Gregory F. Eaton | |
Gregory F. Eaton | ||
Managing Director |
Address: | 2995 Woodside Road, Suite 400 | |
Woodside, CA 94062 | ||
GREGORY F. EATON | ||
/s/ Gregory F. Eaton | ||
Signature | ||
Address: | c/o Cheyenne Partners | |
2995 Woodside Road, Suite 400 | ||
Woodside, CA 94062 |
HARMONY PARTNERS FUND I, L.P. | ||
BY: HARMONY PARTNERS I, LLC | ||
ITS: GENERAL PARTNER | ||
By: | /s/ Gregory F. Eaton | |
Name: | Gregory Eaton, Managing Director |
Address: | Suite 240 | |
2200 Sand Hill Road | ||
Menlo Park, CA 94025 |
SERIES D PREFERRED STOCK FINANCING
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
INVESTORS: | ||
ESTATE OF RICHARD BREWER | ||
/s/ Julie Brewer | ||
Signature | ||
Address: | 5 Bird Hill Lane | |
Santa Cruz, CA 95060 | ||
GARY KREMEN | ||
| ||
Signature | ||
Address: | 1259 El Camino Real, Suite 500 | |
Menlo Park, CA 94025 | ||
STEPHEN P. MOORE AND LAURIE D. MOORE | ||
TRUST DATED 5/17/02 | ||
/s/ Stephen P. Moore | ||
Signature | ||
Address: | 1485 Kingwood Drive | |
Hillsborough, CA 94010 | ||
JOHN OSTERWEIS, TRUSTEE FOR THE | ||
OSTERWEIS REVOCABLE TRUST | ||
U/A DATED 9/13/93 | ||
| ||
Signature | ||
Address: | c/o Osterweis Capital Management | |
One Maritime Plaza, Suite 800 | ||
San Francisco, CA 94111 |
SERIES D PREFERRED STOCK FINANCING
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
INVESTOR: | ||
W. JOHN NICHOLSON & CYNTHIA NICHOLSON | ||
2001 CRT | ||
By: |
| |
W. John Nicholson, Trustee |
Address: | P.O. Box 620312 | |
Woodside, CA 94062 |
SERIES D PREFERRED STOCK FINANCING
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
INVESTOR: | ||
THE BOARD OF TRUSTEES OF THE LELAND STANFORD JUNIOR UNIVERSITY (DAPER I) | ||
By: | /s/ Martina S. Poquet | |
Martina S. Poquet, | ||
Managing Director Separate Investments |
Address: | Stanford Management Company | |
Attn: Jeffrey Sefa-Boakye | ||
635 Knight Way | ||
Stanford, CA 94305-7297 |
SERIES D PREFERRED STOCK FINANCING
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
INVESTOR: | ||
MEDTRONIC, INC. | ||
By: | /s/ Chadwick M. Cornell | |
Name: | Chadwick M. Cornell | |
Title: | VP, Corporate Development |
Address: | 710 Medtronic Parkway | |
Minneapolis, MN 55432 | ||
|
SERIES D PREFERRED STOCK FINANCING
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
INVESTORS: | ||
SVB FINANCIAL GROUP | ||
By: |
|
Print Name: |
|
Title: |
|
Address: |
| |
|
PINNACLE VENTURES II EQUITY HOLDINGS, L.L.C. |
By: |
|
Print Name: |
|
Title: |
|
Address: |
| |
|
SERIES D PREFERRED STOCK FINANCING
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
INVESTOR: | ||
By: | /s/ Robert Binney | |
Name: | Robert Binney | |
Title: | VP, Sales |
Address: | 4235 Iron Duke Ct. | |
Duluth, GA 30097 | ||
|
SERIES D PREFERRED STOCK FINANCING
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
INVESTOR: | ||
By: | /s/ David J. Christopher | |
Name: | David J. Christopher | |
Title: | Territory Manager |
Address: | 139 Valley View Rd. | |
New Hartford, NY 13413 | ||
|
SERIES D PREFERRED STOCK FINANCING
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
INVESTOR: | ||
By: | /s/ Monika De Martini | |
Name: | David P. and Monika A. De Martini | |
Living Trust, dtd 11/16/04 | ||
Title: | Trustee (Intesect ENT CFO) |
Address: | 505 Broughton Lane | |
Foster City, CA 94404 | ||
|
SERIES D PREFERRED STOCK FINANCING
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
INVESTOR: | ||
By: | /s/ Nicholas J. Freeman | |
Name: | Nicholas J. Freeman | |
Title: | Regional Sales Manager |
Address: | 2642 W. Cortez, #1 | |
Chicago, IL 60622 | ||
|
SERIES D PREFERRED STOCK FINANCING
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
INVESTOR: | ||
By: | /s/ Matthew A. Gelfman | |
Name: | Matthew A. Gelfman | |
Title: | NYC TM |
Address: | 18 Cedar Drive East | |
Old Bethpage, NY 11804 | ||
|
SERIES D PREFERRED STOCK FINANCING
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
INVESTOR: | ||
By: | /s/ Louis J. Groza | |
Name: | Louis J. Groza | |
Title: | Sales |
Address: | 2685 Henthorn Rd | |
Columbus, OH 43221 | ||
|
SERIES D PREFERRED STOCK FINANCING
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
INVESTOR: | ||
By: | /s/ Richard Kaufman | |
Name: | Richard Kaufman | |
Title: | C.O.O. Intersect ENT |
Address: | 80 Old Orchard Road | |
Los Gatos, CA 95033 | ||
|
SERIES D PREFERRED STOCK FINANCING
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
INVESTOR: | ||
By: | /s/ Michelle Kirrene | |
Name: | Michelle Kirrene | |
Title: | Territory Manager |
Address: | 655 5th Street, #13 | |
San Francisco, CA 94107 | ||
|
SERIES D PREFERRED STOCK FINANCING
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
INVESTOR: | ||
By: | /s/ Daniel Madara | |
Name: | Daniel Madara | |
Title: | Territory Manager |
Address: | 806 Standish Avenue | |
Westfield, NJ 07090 | ||
|
SERIES D PREFERRED STOCK FINANCING
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
INVESTOR: | ||
By: | /s/ Brandon Pardon | |
Name: | Brandon Pardon | |
Title: | Territory Manager |
Address: | 3719 Kalanchoe Pl | |
Wesley Chapel, FL 33544 | ||
|
SERIES D PREFERRED STOCK FINANCING
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
INVESTOR: | ||
By: | /s/ Clayton Garrett Perry | |
Name: | Clayton Garrett Perry | |
Title: | Territory Manager |
Address: | 8610 Cabron Ave | |
Dallas, TX 75209 | ||
|
SERIES D PREFERRED STOCK FINANCING
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
INVESTOR: | ||
By: | /s/ Stephen B. Shreiner | |
Name: | Stephen B. Shreiner | |
Title: | Regional Sales Manager |
Address: | 9328 Chiswell Road | |
Dallas, TX 75238 | ||
|
SERIES D PREFERRED STOCK FINANCING
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
INVESTOR: | ||
By: | /s/ Brian Stenger | |
Name: | Brian Stenger | |
Title: | Territory Manager |
Address: | 4222 N. 34th Pl | |
Phoenix, AZ 85018 | ||
|
SERIES D PREFERRED STOCK FINANCING
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
INVESTOR: | ||
By: | /s/ Maureen Swink | |
Name: | Maureen Swink | |
Title: | Territory Manager |
Address: | 18416 Harbor Light Blvd | |
Cornelius, NC 28031 | ||
|
SERIES D PREFERRED STOCK FINANCING
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
INVESTOR: | ||
By: | /s/ David M. Tompkins | |
Name: | David M. Tompkins | |
Title: | Sales |
Address: | 1409 E. 35th Place | |
Tulsa, OK 74105 | ||
|
SERIES D PREFERRED STOCK FINANCING
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
INVESTOR: | ||
By: | /s/ Amy Wolbeck | |
Name: | Amy Wolbeck | |
Title: | Intersect ENT VP, RA/QA |
Address: | 4913 Kinsington Court | |
Santa Rosa, CA 95405 | ||
|
SERIES D PREFERRED STOCK FINANCING
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
EXHIBIT A
INVESTORS
Norwest Venture Partners XI, LP
U.S. Venture Partners IX, L.P.
KPCB Holdings, Inc., as nominee
PTV Sciences II, L.P.
DAG Ventures III-QP, L.P.
DAG Ventures III, L.P.
DAG Ventures GP Fund III, LLC
Medtronic, Inc.
Frederic H. Moll
Duane Family Trust, Jon R. Duane, Trustee
Casilli Family Holdings
Casilli Investment Partners
Casilli Revocable Trust
The Board of Trustees of the Leland Stanford Junior University (DAPER I)
Cheyenne Sinexus Partners, L.P.
W. John Nicholson & Cynthia Nicholson 2001 CRT
David W. Gryska
Richard B. Brewer
Gregory F. Eaton
Harmony Partners Fund I, L.P.
Gary Kremen
Steve Moore
John Osterweis
John Osterweis, Trustee for the Osterweis Revocable Trust u/a dated 9/13/93
SVB Financial Group
Pinnacle Ventures II Equity Holdings, L.L.C.
SERIES D PREFERRED STOCK FINANCING
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
EXHIBIT A
Robert H. Binney
David J. Christopher
David P and Monika A De Martini Living Trust dated 11/16/2004
Nicholas J. Freeman
Matthew A. Gelfman
Louis J. Groza
Richard Kaufman
Michelle Kirrene
Daniel Madara
Brandon Pardon
Clayton G. Perry
Stephen B. Shreiner
Brian R. Stenger
Maureen Swink
David M. Tompkins
Amy Wolbeck
SERIES D PREFERRED STOCK FINANCING
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
EXHIBIT A
Exhibit 10.7
LEASE
BY AND BETWEEN
MENLO BUSINESS PARK, LLC, LESSOR
AND
INTERSECT ENT, INC., LESSEE
Menlo Business Park
1555 Adams Drive, Suite B
Menlo Park, California
March 2, 2012
TABLE OF CONTENTS
Paragraph |
Page |
|||||
1. | Lease |
1 | ||||
2. | Term |
2 | ||||
3. | Option to Extend |
4 | ||||
4. | Monthly Base Rent |
5 | ||||
5. | Additional Rent; Operating Expenses and Taxes |
6 | ||||
6. | Payment of Rent |
10 | ||||
7. | Security Deposit |
11 | ||||
8. | Use |
13 | ||||
9. | Hazardous Materials |
13 | ||||
10. | Taxes on Lessees Property |
15 | ||||
11. | Insurance |
16 | ||||
12. | Indemnification |
17 | ||||
13. | Tenant Improvements; Condition of the Premises; Equipment Allowance |
18 | ||||
14. | Maintenance and Repairs; Alterations; Surrender and Restoration |
21 | ||||
15. | Utilities and Services |
24 | ||||
16. | Liens |
25 | ||||
17. | Assignment and Subletting |
25 | ||||
18. | Non-Waiver |
28 | ||||
19. | Holding Over |
29 | ||||
20. | Damage or Destruction |
29 | ||||
21. | Eminent Domain |
31 | ||||
22. | Remedies |
31 | ||||
23. | Lessees Personal Property |
33 | ||||
24. | Notices |
33 | ||||
25. | Estoppel Certificate |
34 | ||||
26. | Signage |
34 | ||||
27. | Real Estate Brokers |
34 | ||||
28. | Parking |
34 | ||||
29. | Subordination; Attornment |
34 | ||||
30. | No Termination Right |
35 | ||||
31. | Lessors Entry |
35 | ||||
32. | Attorneys Fees |
35 | ||||
33. | Compliance with CC&Rs |
36 | ||||
34. | Quiet Enjoyment |
36 | ||||
35. | Financial Information |
36 | ||||
36. | Relocation of Lessee |
36 | ||||
37. | SDN List |
36 |
i
TABLE OF CONTENTS
(continued)
Paragraph |
Page |
|||||
38. |
Right of First Offer |
36 | ||||
39. |
General Provisions |
37 |
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SCHEDULE OF EXHIBITS
EXHIBIT A | Legal Description | |
EXHIBIT B | Menlo Business Park Master Plan | |
EXHIBIT C | Floor Plan of the Building | |
EXHIBIT D | Form of SNDA | |
EXHIBIT E | Description of Tenant Improvements | |
EXHIBIT F | Chemicals List | |
EXHIBIT G | List of Furniture |
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LEASE
Menlo Business Park
1555 Adams Drive
Menlo Park, California
THIS LEASE, referred to herein as this Lease, is made and entered into as of March 2, 2012, by and between MENLO BUSINESS PARK, LLC, a California limited liability company, hereafter referred to as Lessor, and INTERSECT ENT, INC., a Delaware corporation, hereafter referred to as Lessee or Intersect ENT.
RECITALS:
A. Lessor is the owner of the real property located in Menlo Business Park, Menlo Park, California, commonly referred to as 1555 Adams Drive, Menlo Park, California, more particularly described on Exhibit A attached hereto and incorporated by reference herein, consisting of a parcel of land containing approximately 2.815 acres, together with all easements and appurtenances thereto (the Land) and the existing building thereon, referred to as Building #17, 1555 Adams Drive, containing approximately 47,573 rentable square feet and all other improvements located thereon (collectively, the Improvements). The Land and Improvements are referred to herein collectively as the Property. The Property is shown on the Menlo Business Park Master Plan attached hereto as Exhibit B. Building #17 is sometimes referred to herein as the Building. The floor plan of Building #17 is attached hereto as Exhibit C.
B. Lessor and Lessee wish to enter into this Lease of the Premises upon the terms and conditions set forth herein.
NOW, THEREFORE, the parties agree as follows:
1. Lease.
(a) Lessor hereby leases to Lessee, and Lessee leases from Lessor, at the rental rate and upon the terms and conditions set forth herein, the portion of the Building consisting of approximately 32,458 rentable square feet, as shown on the floor plan of the Building attached hereto as Exhibit C. Said total of approximately 32,458 rentable square feet, together with Lessees share of the on-site parking spaces on the Land which Lessee has the right to use pursuant to Paragraph 28, and the non-exclusive right to use the common areas of the Building and the other Improvements on the Property intended for use in common by the tenants of the Building, are referred to herein collectively as the Premises. Lessees Share of the Building is 68.23% (32,458/47,573).
(b) Lessee desires to use certain cubicles and equipment located in the Premises as of the Commencement Date, which the parties will itemize and list on Exhibit G attached hereto on or before the Commencement Date (the Furniture); it being understood that such Furniture shall be installed and the cubicles included in the Furniture will be provided by Lessor with data cabling (subject to the terms of Section 13(h) below) and power as of the Commencement Date. If Lessee decides not to use any of Lessors Furniture currently in the Premises, Lessor shall remove the same, but leave the data cabling and power for Lessees future
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use. If at any time during the Term, Lessee desires to use additional cubicles or office furniture owned by Lessor which is located elsewhere in the Menlo Business Park, then Lessee shall so notify Lessor and to the extent available, Lessor shall make such additional furniture available to Lessee and the parties shall update Exhibit G accordingly. Lessee shall be responsible for the cost to move such additional furniture to the Premises and the installation of same therein. Thereafter, the additional furniture shall be considered part of the Furniture for the purposes of this Lease. Lessor hereby grants to Lessee a license to use the Furniture in the Premises at no additional charge during the term of the Lease. Lessee agrees to maintain and use the Furniture with care and in a reasonable manner. Lessee shall return such Furniture to Lessor upon Lessees surrender of the Premises in substantially the condition existing as of the Commencement Date, normal wear and tear excepted.
2. Term.
(a) The term of this Lease (the term or the Term) shall commence on the date that the conditions described in Paragraph 2(c) are satisfied (the Commencement Date).
(b) The term of this Lease shall expire on the date which is the last day of the thirty-sixth (36th) month following the Commencement Date (the Expiration Date), unless extended or sooner terminated in accordance with the provisions hereof.
(c) Lessor shall deliver possession of the Premises to Lessee with the Tenant Improvements described in Paragraph 13(a) substantially completed (as defined in Paragraph 13(b) below), which date is anticipated to be June 1, 2012. On the Commencement Date, the Premises and Building and all of the systems of the Premises and Building, shall be in good operating condition and repair, including, but not limited to, the HVAC, mechanical, lighting, electrical, life safety, and plumbing systems, structural systems and all windows and the roof in water tight condition, and in compliance with all applicable laws (including the Americans with Disabilities Act).
(d) If for any reason the Premises is not in the condition required by Paragraph 2(c) on June 1, 2012, Lessor shall not be subject to any liability therefore, nor shall such failure affect the validity of this Lease, or the obligations of Lessee hereunder, but in such case, Lessee shall not, except as otherwise provided herein, be obligated to pay Operating Expenses, Taxes, or Monthly Base Rent until possession of the Premises is delivered to Lessee with the Tenant Improvements substantially completed. Notwithstanding the foregoing, if the Commencement Date has not occurred by July 31, 2012, as such date will be extended day for day for each day of Tenant Delay (as defined in Paragraph 13(d) below), then Lessee shall have the option, in its sole and absolute discretion, to terminate this Lease; and upon such termination, Lessor shall refund the Security Deposit and any advance rent to Lessee and the parties shall be released of any liability hereunder.
(e) Lessee acknowledges that the applicable ordinance of the City of Menlo Park (the City) requires that Lessee must obtain a Conditional Use Permit (CUP) from the City if Lessee maintains on the Premises five (5) gallons or more of Hazardous Materials (as defined in Paragraph 9). Accordingly, until the date Lessee obtains the CUP from the City permitting Lessee to maintain on the Premises five (5) gallons or more of Hazardous Materials,
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Lessee shall maintain less than five (5) gallons of Hazardous Materials on the Premises. If Lessee is required by the applicable City ordinance to obtain a CUP, Lessee shall promptly apply for and shall use its commercially reasonable good faith diligent efforts to comply with the Citys requirements for the issuance to Lessee of the CUP. Lessor shall assist Lessee in the filing and processing of the application for the CUP, and Lessee shall pay all costs and fees associated with such efforts; provided, however, that Lessor shall not be responsible for the issuance of the CUP. Lessee shall deliver a copy of the CUP to Lessor and Lessee shall comply with the provisions thereof. If Lessee is unable to obtain the CUP from the City within one hundred twenty (120) days of the date of this Lease, then in such event, Lessee shall have the option, in its sole and absolute discretion, to terminate this Lease; provided, however, that as a condition to such termination, Lessee shall reimburse Lessor for its costs associated with this Lease as of the date of termination, including, without limitation, architectural and engineering expenses, hard construction costs, free rent periods, and leasing commissions. Upon the termination of this Lease and reimbursement of Lessors expenses in accordance with the preceding sentence, Lessor shall refund the Security Deposit and any advance rent to Lessee and the parties shall be released of any liability hereunder except as otherwise expressly set forth herein.
(f) Prior to the Commencement Date and upon receipt of the insurance certificates requires hereunder, Lessee shall have access to the Premises for the purpose of installation of Lessees fixtures, furniture, telecommunications equipment and other personal property. Such entry by Lessee prior to the Commencement Date shall be referred to herein as Early Entry. During the course of any Early Entry, all terms and conditions of this Lease, except for Monthly Base Rent (as defined in Paragraph 4 below) and Additional Rent (as defined in Paragraph 5 below) shall apply. Lessee shall not interfere with the construction of the Tenant Improvements and such interference shall be deemed a Tenant Delay and any delay in providing Lessee with possession of the Premises in the condition required herein due to such Early Entry shall not serve to extend the term of this Lease or cause Lessor to be liable for any damages arising therefrom.
(g) Prior to the Commencement Date and upon fifteen (15) days prior written notice to Lessor, Lessee may occupy all or a portion of the second (2nd) floor of the Premises in accordance with the terms and conditions set forth in this Paragraph 2(g) (such portion referred to herein as the Temporary Space) until the Commencement Date. During the lease of the Temporary Space, all terms and conditions of this Lease shall apply, except for Monthly Base Rent and Additional Rent. In lieu of the foregoing described rental amounts, Lessee shall pay to Lessor rent in the amount of Three and 00/100 Dollars ($3.00) per rentable square foot of Temporary Space in advance monthly installments, in lawful money of the United States; provided, however, that up to ninety (90) days of occupancy in such Temporary Space shall be rent-free. During the lease of the Temporary Space, Lessee shall not interfere with the construction of the Tenant Improvements and any delay in providing Lessee with possession of the Premises in the condition required herein due to such lease of the Temporary Space shall be deemed a Tenant Delay and shall not serve to extend the term of this Lease or to make Lessor liable for any damages arising therefrom.
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3. Option to Extend.
(a) Provided Lessee is not in default of its obligations under this Lease either at the time of exercise or on the commencement date of the Extended Term (as hereinafter defined), Lessee shall have one (1) option to re-lease the Premises for a term of three (3) years (the Extended Term) on the same terms and conditions as set forth in this Lease except that (i) the Base Monthly Rent for the extended term shall be adjusted to the Extended Term Rate, as defined in Paragraph 3(c) below, and (iii) Lessee shall accept the Premises in their then as is condition and Paragraph 13, Tenant Improvements, shall not apply to the Extended Term. This option to extend is granted for the personal benefit of Intersect ENT and its Permitted Transferee(s) only, and shall be exercisable only by Intersect ENT or a Permitted Transferee (as defined in Paragraph 17(f) below). This option to extend may not be assigned or transferred to any assignee or sublessee, other than a Permitted Transferee, without the prior written consent of Lessor.
(b) Lessee shall give Lessor written notice of its intent to exercise its option no earlier than two hundred seventy (270) days and no later than six (6) months prior to the expiration of the initial Term (the Option Exercise Period). If Lessee does not exercise the Option to Extend within the Option Exercise Period, the Option to Extend shall lapse, time being of the essence.
(c) The initial Monthly Base Rent for the Premises during the Extended Term, the Extended Term Rate shall be determined pursuant to the provisions of this Paragraph 3(c), and shall equal ninety five percent (95%) of the then current fair market rental for the Premises on the commencement date of the Extended Term, which shall be based on what a willing new lessee would pay and a willing lessor would accept at arms length for comparable premises in the city of Menlo Park of similar age, size, quality of construction and specifications (excluding the value of any improvements to the Premises made at Lessees cost with Lessors prior written consent except as otherwise permitted herein) for a lease similar to this Lease for the same uses specified hereunder and taking into consideration that there will be no free rent, improvement allowance, or other rent concessions.
Upon the written request by Lessee to Lessor received by Lessor at any time during the Option Exercise Period and prior to the exercise by Lessee of the Option to Extend, Lessor shall, within fifteen (15) days of such request, give Lessee written notice of Lessors good faith opinion of the Extended Term Rate. Thereafter, upon the request of Lessee, Lessor and Lessee shall enter into good faith negotiations in an effort to reach agreement on the Extended Term Rate.
If Lessor and Lessee are unable to agree upon the Extended Term Rate within fifteen (15) days of Lessors notice to Lessee of Lessors good faith opinion of the Extended Term Rate, said amount shall be determined by appraisal. The appraisal shall be performed by one appraiser if the parties are able to agree upon one appraiser. If the parties are unable to agree upon one appraiser, then each party shall appoint an appraiser and the two appraisers shall select a third appraiser. Each appraiser selected shall be a member of the American Institute of Real Estate Appraisers (AIREA) with at least five (5) years of full-time commercial real estate appraisal experience in the Menlo Park office/R&D/manufacturing rental market.
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If only one appraiser is selected, that appraiser shall notify the parties in simple letter form of its determination of the Extended Term Rate within fifteen (15) days following its selection. Said appraisal shall be binding on the parties as the appraised current Extended Term Rate. If multiple appraisers are selected, each appraiser shall within ten (10) days of being selected make its determination of the Extended Term Rate in simple letter form. If two (2) or more of the appraisers agree on said amount, such agreement shall be binding upon the parties. If multiple appraisers are selected and two (2) appraisers are unable to agree on the Extended Term Rate the Extended Term Rate shall be determined by taking the mean average of the appraisals; provided, that any high or low appraisal, differing from the middle appraisal by more than ten percent (10%) of the middle appraisal, shall be disregarded in calculating the average. The Extended Term Rate shall be increased by three percent (3%) annually on each anniversary of the commencement of the Extended Term.
If only one appraiser is selected, then each party shall pay one-half of the fees and expenses of that appraiser. If three appraisers are selected, each party shall bear the fees and expenses of the appraiser it selects and one-half of the fees and expenses of the third appraiser.
(d) Thereafter, provided that Lessee has previously given timely notice to Lessor of the exercise by Lessee of the Option to Extend, Lessor and Lessee shall execute an amendment to this Lease stating that the initial Monthly Base Rent for the Premises during the Extended Term shall be equal to the determination by appraisal.
4. Monthly Base Rent.
(a) Commencing on the Commencement Date and continuing on the first day of each calendar month thereafter during the term of this Lease, Lessee shall pay to Lessor in monthly installments in advance Monthly Base Rent, in lawful money of the United States as follows:
Period |
Rentable SF | Rent/RSF/Mo. | Monthly Base Rent NNN | |||||||||
Year 1 |
32,458 | * | $ | 1.80 | * | $ | 58,424.40 | * | ||||
Year 2 |
32,458 | $ | 1.854 | $ | 60,177.13 | |||||||
Year 3 |
32,458 | $ | 1.909 | $ | 61,982.44 |
* | Notwithstanding the foregoing, for a period of nine (9) months following the Commencement Date, Lessee shall have the right to occupy all of the Premises but Monthly Base Rent shall be calculated based on 20,000 Rentable SF ($36,000 per month); provided, however, that Lessees Share for Additional Rent shall still be calculated based on 32,458 Rentable SF. |
(b) Upon the execution and delivery of this Lease by Lessor and Lessee, Lessee shall pay to Lessor the sum of Thirty Six Thousand and 00/100 Dollars ($36,000.00), which shall be applied to the Rent for the first calendar month of the Term. Thereafter, Monthly Base Rent shall be paid monthly in advance on the first day of each calendar month. Lessee shall also deliver to Lessor upon the execution and delivery of this Lease, cash and/or a Letter of Credit (as defined in Paragraph 7 below) in the total amount of One Hundred Eighty Five Thousand Nine Hundred Forty Seven and 35/100 ($185,947.35) representing the Security Deposit in accordance with the terms and conditions set forth in Paragraph 7 below.
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5. Additional Rent; Operating Expenses and Taxes.
(a) In addition to the Monthly Base Rent payable by Lessee pursuant to Paragraph 4, commencing on the Commencement Date Lessee shall pay to Lessor, as Additional Rent, (1) Lessees Share (as defined in Paragraph 1(a) above) of the operating expenses of the Property, (2) Lessees pro rata share of the operating expenses of Menlo Business Park of which the Property is a part, in accordance with Paragraph 5(b) hereof, and (3) Lessees pro rata share of the Taxes (as defined in Paragraph 5(c) below). Lessees pro rata share of the operating expenses of Menlo Business Park is 4.01% based upon the ratio of the number of square feet of the Land allocable to the Property to the total number of square feet of land in Menlo Business Park. The operating expenses of Menlo Business Park currently include maintenance of the common areas of Menlo Business Park, parking lot lighting (cost of electricity and maintenance of the fixtures), maintenance of the network conduit, all landscape maintenance and irrigation of Menlo Business Park, Lessors insurance coverages of Menlo Business Park, and security patrol. The operating expenses of Menlo Business Park may include other commercially reasonable and customary items from time to time during the term of this Lease. Monthly Base Rent and Additional Rent are referred to herein collectively as rent.
(b) Operating Expenses, as used herein, shall include all commercially reasonable and customary direct costs incurred by Lessor in the management; operation, maintenance, repair and replacement of the Property, including the cost of all maintenance, repairs, and restoration of the Property performed by Lessor pursuant to Paragraphs I 4(b) and 14(c) hereof, as determined by generally accepted accounting principles (unless excluded by this Lease), including, but not limited to:
Personal property taxes related to the Premises; any parking taxes or parking levies imposed on the Premises in the future by any governmental agency; the management fee charged for the management and operation of Menlo Business Park, in an amount equal to four percent (4%) of the total gross income received by Lessor from Lessee (including Monthly Base Rent and Additional Rent) and not just Lessees Share of this fee; water and sewer charges; waste disposal; commercially reasonable insurance premiums for insurance coverages maintained by Lessor pursuant to Paragraph 11(b) hereof; license, permit, and inspection fees; charges for electricity, heating, air conditioning, gas, and any other utilities (including, without limitation, any temporary or permanent utility surcharge or other exaction); security; maintenance, repair, and replacement of the roof membrane; painting and repairing, interior and exterior; maintenance and replacement of floor and window coverings; repair, maintenance, and replacement of air-conditioning, heating, mechanical and electrical systems, elevators, plumbing and sewage systems; janitorial service; landscaping, gardening, and tree trimming; glazing; repair, maintenance, cleaning, sweeping, striping, and resurfacing of the parking area; exterior Building lighting and parking lot lighting; supplies, materials, equipment and tools in the maintenance of the Property; costs for accounting services incurred in the calculation, of Operating Expenses and Taxes as defined herein; and the cost of any other capital expenditures for any improvements or changes to the Building which are required by laws, ordinances, or other governmental regulations adopted after the Commencement Date, or for any items or capital expenditures voluntarily made by Lessor which are intended to and have the effect of reducing Operating Expenses; provided, however, that except for capital improvements required because of Lessees specific use of the Property, if Lessor is required to or voluntarily makes
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such capital improvements, Lessor shall amortize the cost of said improvements over the useful life of said improvements calculated in accordance with generally accepted accounting principles (together with interest on the unamortized balance at the rate equal to the effective rate of interest on Lessors bank line of credit at the time of completion of said improvements, but in no event in excess of seven percent (7%) per annum) as an Operating Expense in accordance with generally accepted accounting principles, except that with respect to capital improvements made to save Operating Expenses such amortization shall not be at a rate greater than the actual savings in Operating Expenses. Operating Expenses shall also include any other reasonable and customary expense or charge, whether or not described herein not specifically excluded by other provisions of this Lease, which in accordance with generally accepted accounting principles would be considered an expense of managing, operating, maintaining, and repairing the Property.
(c) Real property taxes and assessments upon the Property, during each lease year or partial lease year during the term of this Lease are referred to herein as Taxes.
As used herein, Taxes shall mean:
(1) all real estate taxes, assessments, charges and any other taxes levied or assessed against the Property including the Land, the Building, and all improvements located thereon, including any increase in Taxes resulting from a reassessment following any transfer of ownership of the Property or any interest therein or following any improvements to the Premises after the Commencement Date; and
(2) all other taxes which may be levied in lieu of real estate taxes, assessments, and other fees, charges, and levies, general and special, ordinary and extraordinary, unforeseen as well as foreseen, of any kind and nature by any authority having the direct or indirect power to tax, including without limitation any governmental authority or any improvement or other district or division thereof, for public improvements, services, or benefits which are assessed, levied, confirmed, imposed, or become a lien (i) upon the Property, and/or any legal or equitable interest of Lessor in any part thereof; or (ii) upon this transaction or any document to which Lessee is a party creating or transferring any interest in the Property; and (iii) any tax or excise, however described, imposed in addition to, or in substitution partially or totally of, any tax previously included within the definition of Taxes or any tax the nature of which was previously included in the definition Taxes.
Not included within the definition of Taxes are any net income, profits, capital stock, transfer, franchise, estate, succession, gift or inheritance taxes imposed by any governmental authority. Taxes also shall not include penalties or interest charges assessed on delinquent Taxes so long as Lessee is not in default in the payment of Monthly Base Rent or Additional Rent.
With respect to any assessments which may be levied against or upon the Property, or the Land, which under the laws then in force may be evidenced by improvement or other bonds, or may be paid in annual installments, only the amount of such annual installment (with appropriate proration of any partial year) and statutory interest shall be included within the computation of the annual Taxes levied against the Property.
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(d) The following costs (Costs) shall be excluded from the definition of Operating Expenses:
(1) Costs occasioned by the act, omission or violation of law by Lessor, or any other occupant of the Property or their respective agents, employees or contractors;
(2) Costs for which Lessor receives reimbursement from others, including reimbursement from insurance;
(3) Interest, charges and fees incurred on debt or payments on any deed of trust or ground lease on the Property, or Menlo Business Park;
(4) Advertising or promotional costs or other costs incurred by Lessor in procuring tenants for the Property or other portions of Menlo Business Park;
(5) Costs incurred in repairing, maintaining or replacing any structural elements of the Building for which Lessor is responsible pursuant to Paragraph 14(a) hereof including the foundations and exterior walls (except the interior faces thereof), roof structure (excluding the roof membrane), and other structural elements of the Building and Property as defined as structural elements in the building codes applicable to the Building (except as otherwise expressly excluded in Paragraph 14(a) hereof);
(6) Any wages, bonuses or other compensation of employees above the grade of building manager and any executive salary of any officer or employee of Lessor, including fringe benefits other than insurance plans and tax-qualified benefit plans, or any fee, profit or compensation retained by Lessor or its affiliates for management and administration of the Property in excess of the management fee referred to in Paragraph 5(b) of this Lease;
(7) General office overhead and general and administrative expenses of Lessor, except as specifically provided in Paragraph 5(b);
(8) Leasing expenses and broker commissions payable by Lessor;
(9) Costs occasioned by casualties or by the exercise of the power of eminent domain;
(10) Costs to correct any construction defect in the Building or the Premises existing on the Commencement Date, or to comply with any covenant, condition, restriction, underwriters requirement or law applicable on the Commencement Date;
(11) Costs of any renovation, improvement, painting or redecorating of any portion of the Property or other buildings in Menlo Business Park not made available for Lessees use;
(12) Costs incurred in connection with negotiations or disputes with any other tenant or occupant of Menlo Business Park, and costs arising from the violation by Lessoror any other tenant or occupant of Menlo Business Park of the terms and conditions of any other lease or agreement or of any law;
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(13) Increases in premiums for insurance carried by Lessor attributable solely to activities of any other tenant or occupant of the Property or Menlo Business Park;
(14) Costs incurred in connection with the presence of any Hazardous Materials on the Property or on other property in Menlo Business Park that were not released by Lessee or its employees, agents, contractors, invitees, sublessees, successors or assigns;
(15) Expense reserves or depreciation,
(16) Costs which could properly be capitalized under generally accepted accounting principles, except to the extent amortized over the useful life of the capital item in question as set forth in Paragraph 5(b) above;
(17) Political contributions; and
(18) Sculptures and other artwork (including any insurance thereon), Lessor shall at all times use its best efforts to operate the Property in an economically reasonable manner at costs not disproportionately higher than those experienced by other comparable premises in the market area in which the Property is located (Menlo Park).
(e) Prior to the execution of this Lease, Lessor has delivered to Lessee Lessors estimate of 2012 Operating Expenses. Throughout the term of this Lease, as close as reasonably possible to the end of each calendar year thereafter but no later than April I of the following year, Lessor shall notify Lessee of the Operating Expenses estimated by Lessor for the calendar year 2013, and for each following calendar year. Concurrently with such notice, Lessor shall provide a description of such Operating Expenses and Taxes. Commencing on the Commencement Date, and on the first (1st) day of each calendar month thereafter, Lessee shall pay to Lessor, as Additional Rent, one-twelfth (1/12th) of the estimated Operating Expenses and Taxes. If at any time during any such calendar year, it appears to Lessor that the Operating Expenses or Taxes for such year will vary from Lessors estimate, Lessor may, by written notice to Lessee, revise Lessors estimate for such year and the Additional Rent and Taxes payments by Lessee for such year shall thereafter be based upon such revised estimate. Lessor shall furnish to Lessee with such revised estimate written verification showing that the actual Operating Expenses or Taxes are greater than Lessors estimate. The increase in the monthly installments of Additional Rent and Taxes resulting from Lessors revised estimate shall not be retroactive, but the Additional Rent and Taxes for each calendar year shall be subject to adjustment between Lessor and Lessee after the close of the calendar year, as provided below.
Within approximately ninety (90) days after the expiration of each calendar year of the term but no later than April 1 of the succeeding year, Lessor shall furnish Lessee a statement certified by a responsible employee or agent of Lessor (the Operating Statement) with respect to such year, prepared by an employee or agent of Lessor, showing the actual Operating Expenses and Taxes for such year broken down by component expenses and the total
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payments made by Lessee for such year on the basis of any previous estimate of such Operating Expenses and Taxes, all in sufficient detail for verification by Lessee. Unless Lessee raises any objections to the Operating Statement within ninety (90) days after receipt of the same, such statement shall conclusively be deemed correct and Lessee shall have no right thereafter to dispute such statement or any item therein or the computation of Operating Expenses and/or Taxes. Lessee or its accountants shall have the right to inspect and audit Lessors books and records with respect to this Lease once each Lease Year to verify actual Operating Expenses and/or Taxes, Should Lessee retain any accountant or accounting firm to audit or inspect Lessors books and records pursuant to this Paragraph 5(e), such accountant or accounting firm shall be one of national standing and retained on an hourly rate basis or based upon a fixed fee and shall not be paid on a contingency basis. Lessors books and records shall be kept in accord with generally accepted accounting principles. If Lessees audit of the Operating Expenses and/or Taxes for any year reveals a net overcharge of more than five percent (5%), Lessor promptly shall reimburse Lessee for the cost of the audit; otherwise, Lessee shall bear the cost of Lessees audit. If Lessee objects to Lessors Operating Statement, Lessee shall continue to pay on a monthly basis the Operating Expenses and/or Taxes based upon the prior years Operating Statement until the dispute is resolved.
If Lessees Share of the Operating Expenses and Taxes for the year as finally determined exceeds the total payments made by Lessee based on Lessors estimates, Lessee shall pay to Lessor the deficiency, within thirty (30) days after the receipt of Lessors Operating Statement. If the total payments made by Lessee based on Lessors estimate of the Operating Expenses and/or Taxes exceed the Operating Expenses and/or Taxes, Lessees extra payment, plus the cost of the audit if charged to Lessor, shall be credited against payments of Monthly Base Rent and Additional Rent next due hereunder.
Notwithstanding the expiration or termination of this Lease, within thirty (30) days after Lessees receipt of Lessors Operating Statement or the completion of Lessees audit regarding the Operating Expenses and/or Taxes for the calendar year in which this Lease terminates, Lessee shall pay to Lessor or shall receive from Lessor, as the case may be, an amount equal to the difference between the Operating Expenses and/or Taxes for such year, as finally determined, and the amount previously paid by Lessee on account thereof (prorated to the expiration date or the termination date of this Lease). The foregoing obligations of Lessor and Lessee shall survive the expiration or sooner termination of this Lease.
6. Payment of Rent.
(a) All rent shall be due and payable in lawful money of the United States of America at the address of Lessor set forth in Paragraph 24, Notices, without deduction or offset and without prior demand or notice, unless otherwise specified herein. Monthly Base Rent and Additional Rent for month one shall be paid in accordance with Paragraph 4(b). Thereafter, Monthly Base Rent and Additional Rent shall be payable monthly, in advance, on the first day of each calendar month. Lessees obligation to pay rent for any partial month of the term shall be prorated on the basis of a thirty (30) day month.
(b) If any installment of Monthly Base Rent, Additional Rent or any other sum due from Lessee is not received by Lessor within five (5) days after the same is due, Lessee
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shall pay to Lessor an additional sum equal to five percent (5%) of the amount overdue as a late charge. The parties agree that this late charge represents a fair and reasonable estimate of the costs that Lessor will incur by reason of the late payment by Lessee. Acceptance of any late charge shall not constitute a waiver of Lessees default with respect to the overdue amount. Any amount not paid within ten (10) days after Lessees receipt of written notice that such amount is due shall bear interest from the date due until paid at the lesser rate of (1) the prime rate of interest as published in the Wall Street Journal, plus three percent (3%) or (2) the maximum rate allowed by law (the Interest Rate), in addition to the late payment charge.
Initials: Lessor | Lessee |
7. Security Deposit.
(a) Security Deposit. Lessee shall deposit with Lessor, and Lessor shall hold, the sum of One Hundred Eighty Five Thousand Nine Hundred Forty Seven and 35/100 Dollars ($185,984.34) (the Security Deposit), as security for Lessees faithful performance of Lessees obligations under this Lease including, but not limited to, the payment of rent when due, the repair of any damage to the Premises caused by Lessee, and the surrender of the Premises to Lessor on the expiration or sooner termination of the term in a clean condition, and otherwise in the condition required by Paragraph 14. If Lessee fails to pay Monthly Base Rent or Additional Rent or any other charges due hereunder within applicable notice and cure periods, or if Lessee fails to surrender possession of the Premises on the expiration date or earlier termination date of the term in the condition required by Paragraph 14, or if there is an Event of Default under this Lease (as defined in Paragraph 22), Lessor may use, apply or retain all or any portion of said Security Deposit to the extent reasonably necessary to cure the breach, for the payment of any amount due Lessor, and to reimburse or compensate Lessor for any liability, cost, expense, loss or damage (including attorneys fees) which Lessor may suffer or incur by reason thereof. Notwithstanding anything to the contrary herein, the Security Deposit may be retained and applied by Lessor (a) to offset rent which is unpaid either before or after termination of this Lease, and (b) against other damages suffered by Lessor before or after termination of this Lease. If Lessor uses or applies all or any portion of the Security Deposit, Lessee shall within ten (10) business days after written request therefor deposit with Lessor the amount sufficient to restore the Security Deposit to the original amount required by this Lease. Lessor shall not be required to keep all or any part of the Security Deposit separate from its general accounts. No part of the Security Deposit shall be considered to be held in trust, to bear interest or other increment for its use, or to be prepayment for any moneys to be paid by Lessee under this Lease.
(b) Return of Security Deposit. Lessor shall, at the expiration or earlier termination of the term hereof and after Lessee has vacated the Premises in the condition required hereunder, return to Lessee (or, at Lessors option, to the last assignee, if any, of Lessees interest herein), that portion of the Security Deposit not properly used or applied by Lessor, provided that there is then no uncured event of default by Lessee hereunder and there is then no unsatisfied claim by Lessor against Lessee for damages in the event this Lease has been terminated.
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(c) Letter of Credit. Lessee, at Lessees option, at any time during the Term, may deposit with Lessor an unconditional and irrevocable letter of credit in the amount of Sixty One Thousand Nine Hundred Eighty Two and 45/100 Dollars ($61,982.45) (the Letter of Credit) and in the form required herein, as security for the full and faithful performance of each and every obligation of Lessee under the Lease. The Letter of Credit, together with (1) any cash from time to time held by Lessor as part of the security deposit following a draw on the Letter of Credit or (2) any cash from time to time held by Lessor as part of the security deposit under this Paragraph 7, is referred to herein as the Security Deposit. The Letter of Credit shall be in the form and containing the terms required herein, running in favor of Lessor, issued by a solvent nationally recognized bank approved by Lessor and in a form reasonably satisfactory to Lessor. The Letter of Credit, and each subsequent replacement Letter of Credit, delivered by Lessee hereunder as the Security Deposit shall expire no earlier than twelve (12) months after issuance and shall provide for automatic renewals of one-year periods unless the issuer has provided Lessor written notice of non-renewal at least sixty (60) days prior to the then expiration date, in which case Lessee shall provide a replacement letter of credit meeting the requirements of this Paragraph 7 no later than thirty (30) days prior to the expiration date of the then outstanding and expiring Letter of Credit. Failure by Lessee to deliver cash or any replacement Letter of Credit as required above shall entitle Lessor to draw under the outstanding Letter(s) of Credit and to retain the entire proceeds thereof for application as the Security Deposit under this Lease. Each Letter of Credit shall be for the benefit of Lessor and its successors and assigns, shall be expressly transferable at no cost by Lessor to such successors and assigns, and shall entitle Lessor or its successors or assigns to draw from time to time under the Letter of Credit in portions or in whole upon presentation of (i) a sight draft, and (ii) a statement executed by Lessor stating that Lessor is entitled to make the subject draw pursuant to the terms of this Lease. If at any time during the Term of this Lease, the bank or financial institution that issues the Letter of Credit is declared insolvent, or is placed into receivership by the Federal Deposit Insurance Corporation or any other governmental or quasi-governmental institution, then following written notice from Lessor, Lessee shall have thirty (30) days to replace the Letter of Credit with a new letter of credit from a bank or financial institution acceptable to Lessor in Lessors reasonable discretion. If Lessee does not replace the Letter of Credit with a new letter of credit from a bank or financial institution acceptable to Lessor within such thirty (30) day period, then notwithstanding anything in the Lease to the contrary, Lessor shall have the right to draw upon the Letter of Credit for the full amount of the Letter of Credit. In such event, the Letter of Credit funds shall immediately become part of the Security Deposit under this Lease. Lessor shall not be obligated to keep any proceeds from a draw on the Letter of Credit separate from its general funds, and Lessee shall not be entitled to interest on either.
(d) Transfer. If Lessor disposes of .its interest in the Building, Lessor shall deliver or credit the Security Deposit to Lessors successor-in-interest, and Lessor thereupon shall be relieved of further responsibility with respect to the Security Deposit. Upon a sale or other transfer of the Property or the Building, or any financing of Lessors interest therein, Lessor shall transfer the Security Deposit to its transferee or lender. With respect to the Letter of Credit, within five (5) days after notice of such transfer or financing, Lessee, at its sole cost, shall arrange for the transfer of the Letter of Credit to the new landlord or the lender, as designated by Lessor in the foregoing notice or have the Letter of Credit reissued in the name of the new landlord or the lender. Following any such transfer of the Security Deposit and the written assumption of this Lease by the transferee, Lessee shall look solely to the new landlord or lender for the return of such cash Security Deposit or Letter of Credit and the provisions hereof shall apply to every transfer or assignment made of the Security Deposit to a new landlord.
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(e) Reduction in the Amount of the Security Deposit. Following expiration of the eighteenth (18th) month of the Term, provided that both (i) no Event of Default has occurred and is continuing as of the date that is five (5) business days prior to such date and (ii) no Event of Default described in Paragraph 22 hereof has occurred on three (3) or more occasions during the portion of the Term preceding such date, then, the Security Deposit shall be reduced effective as of the first (1st) day of the nineteenth (19th) term of the Lease by the amount of Ninety Two Thousand Nine Hundred Seventy Three and 68/100 Dollars ($92,973.68). To the extent that Lessor holds a Letter of Credit delivered in accordance with the provisions of Paragraph 7(c) above, then the reduction of the Security Deposit contemplated herein shall first be realized by the return of the Letter of Credit to Lessee.
(f) Waiver. In no event or circumstance shall Lessee have the right to any use of the Security Deposit and, specifically, Lessee may not use the Security Deposit as a credit or to otherwise offset any payments required hereunder, including, but not limited to, rent or any portion thereof. Lessee waives (i) California Civil Code Section 1950.7 and any and all other laws, rules and regulations applicable to security deposits in the commercial context (Security Deposit Laws), and (ii) any and all rights, duties and obligations either party may now has, or in the future will have, relating to or arising from the Security Deposit Laws. Nothing in this Paragraph 7 shall he construed to limit the amount of damages recoverable by Lessor or any other remedy to the amount of the Security Deposit. Lessor and Lessee agree that Lessor may, in addition, claim those sums reasonably necessary to compensate Lessor for any foreseeable or unforeseeable loss or damage caused by the act or omission of Lessee. Lessee may not assign or encumber the Security Deposit, and any attempt to do so shall be void and, in all events, not binding upon Lessor.
8. Use. Lessee shall use and occupy the Premises for general office uses, research and development and medical device manufacturing, which includes the application of third party manufactured pharmaceuticals to such medical devices, shipping and receiving and other such related legal uses which are permitted by applicable zoning ordinances and the covenants, conditions, and restrictions for Menlo Business Park and which are reasonably approved by Lessor in writing (which approval shall not be unreasonably conditioned, delayed or withheld), and for no other use or purpose without Lessors prior written consent. Use of the Premises for the manufacture of integrated circuits or the manufacture of other electronic components is expressly prohibited. Any use of the Premises by Lessee or by any sublessee or assignee approved by Lessor pursuant to Paragraph 17 shall comply with the provisions of this Paragraph 8.
9. Hazardous Materials.
(a) The term Hazardous Materials as used in this Lease shall include any substance defined or regulated as radioactive, flammable, toxic, a biohazard, medical waste, hazardous material, extremely hazardous material, hazardous waste, hazardous substance, toxic substance, industrial process waste, or special waste in any Environmental Laws as hereafter defined. Hazardous Materials shall include, but not be limitedto, petroleum, gasoline, natural gas, natural gas liquids, liquified natural gas, synthetic gas, and/or crude oil or any products, by-products or fractions thereof.
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(b) Lessee shall not engage in any activity in or on the Premises or the Property which constitutes a Reportable Use of Hazardous Materials without the express prior written consent of Lessor and timely compliance (at Lessees expense) with all Environmental Laws. Reportable Use shall mean (i) the installation or use of any above or below ground storage tank, (ii) the generation, possession, storage, use, transportation, or disposal of Hazardous Materials that require a permit from, or with respect to which a report, notice, registration or business plan is required to be filed with, any governmental authority, and/or (iii) the presence at the Premises or the Property of Hazardous Materials with respect to which any Environmental Law requires that a notice be given to persons entering or occupying the Premises, the Property, or neighboring properties. Notwithstanding the foregoing, Lessee may use in the Premises the chemicals listed on Exhibit F and any ordinary and customary office supplies and cleaning materials, so long as any such use is in compliance with all Environmental Laws, is not a Reportable Use, and does not expose the Premises, the Property, or neighboring property to any meaningful risk of contamination or damage or expose Lessor to any liability therefor. In addition, Lessor may condition its consent to any Reportable Use upon receiving such additional assurances as Lessor reasonably deems necessary to protect itself, the public, the Premises, the Property, and/or the environment against damage, contamination, injury and/or liability, including, but not limited to, the installation (and removal on or before Lease expiration or termination) of protective modifications (such as concrete encasements) and/or increasing the Security Deposit.
(c) Environmental Laws shall mean and include any Federal, State, or local statute, law, ordinance, code, rule, regulation, order, or decree regulating, relating to, or imposing liability or standards of conduct concerning, any hazardous, toxic, or dangerous waste, substance, element, compound, mixture or material, as now or at any time hereafter in effect including, without limitation, California Health and Safety Code §§25100 et seq., §§25300 et seq., Sections 25281(1) and 25501 of the California Health and Safety Code, Section 13050 of the Water Code, the Federal Comprehensive Environmental Response, Compensation and Liability Act, as amended, 42 U.S.C. §§9601 et seq. (CERCLA), the Superfund Amendments and Reauthorization Act, 42 U.S.C. §§9601 et seq., the Federal Toxic Substances Control Act, 15 U.S.C. §§2601 et seq., the Federal Resource Conservation and Recovery Act as amended, 42 U.S.C. §§6901 et seq., the Federal Hazardous Material Transportation Act, 49 U.S.C. §§1801 et seq., the Federal Clean Air Act, 42 U.S.C. §7401 et seq., the Federal Water Pollution Control Act, 33 U.S.C. §1251 et seq., the River and Harbors Act of 1899, 33 U.S.C. §§401 et seq., and all rules and regulations of the EPA, the California Environmental Protection Agency, or any other state or federal department, board or any other agency or governmental board or entity having jurisdiction over the environment, as any of the foregoing have been, or are hereafter amended.
(d) if Lessee knows; or has reasonable cause to believe, that Hazardous Materials have come to be located in, on, under or about the Premises or the Property, other than as previously consented to by Lessor, Lessee shall immediately give written notice of such fact to Lessor and provide Lessor with a copy of any report, notice, claim or other documentation which it has concerning the presence of such Hazardous Materials.
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(e) Lessee and Lessees agents, employees, and contractors shall not cause any Hazardous Materials to be discharged or released into the Building or into the plumbing or sewage system of the Building or into or onto the Land underlying or adjacent to the Building in violation of any Environmental Laws. Lessee shall promptly, at Lessees expense, take all investigatory and/or remedial action reasonably recommended, whether or not formally ordered or required, for the cleanup of any contamination caused by Lessee or caused by any of Lessees employees, agents, or contractors, and for the maintenance, security and/or monitoring of the Premises, the Property, or neighboring properties if such contamination is caused by a release or emission of any Hazardous Materials by Lessee or by any of Lessees employees, agents, or contractors.
(f) Lessee shall indemnify, defend and hold Lessor and its agents, employees and lenders and the Premises and the Property, harmless from any and all claims, damages, fines, judgments, penalties, costs, liabilities or losses (including, without limitation, any and all sums paid for settlement of claims, attorneys fees, consultant and expert fees) arising during or after the term from or in connection with the presence of Hazardous Materials in or on the Premises, the Property, or Menlo Business Park as a result of Lessees breach of the foregoing covenant, or as a result of the negligence, willful misconduct or other acts of Lessee, Lessees employees, agents, contractors, invitees, sublessees, successor or assigns. Without limitation of the foregoing, this indemnification shall include any and all costs incurred due to any investigation of the site (if contamination or release is a result of Lessees breach of the foregoing covenant) or any cleanup (including consultants and attorneys fess and testing), removal, remediation, restoration and/or abatement thereof, or of any contamination therein involved, mandated by a federal, state or local agency or political subdivision. The foregoing indemnity shall survive the expiration or earlier termination of this Lease. No termination, cancellation or release agreement entered into by Lessor and Lessee shall release Lessee from its obligations under this Lease with respect to Hazardous Materials, unless specifically so agreed by Lessor in writing at the time of such agreement.
(g) To the current actual knowledge of John C. Tarlton, President of Tarlton Properties, Inc., Lessors property manager, except as disclosed to Lessee in writing by Lessor or as contained in any environmental site assessment report delivered by Lessor to Lessee prior to the execution of this Lease, (l ) no Hazardous Materials are present on the Property or the soil, surface water or groundwater thereof, (2) no underground storage tanks are present on the Property, and (3) no action, proceeding or claim is pending or threatened regarding the Property concerning any Hazardous Materials or pursuant to any environmental law. Lessee shall not be responsible under this Lease, and Lessor hereby releases Lessee from responsibility for and indemnifies and agrees to hold Lessee harmless from any Hazardous Materials present on the Menlo Business Park that were not released by Lessee or its employees, agents, contractors, invitees, sublessees, successors or assigns, including any pre-existing Hazardous Materials.
10. Taxes on Lessees Property. Lessee shall pay before delinquency any and all taxes, assessments, license fees, and public charges levied, assessed, or imposed and which become payable during the lease term and any extension thereof upon Lessees equipment, fixtures, furniture, and personal property installed or located in the Premises.
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11. Insurance.
(a) Lessee shall, at Lessees sole cost and expense, provide and keep in force commencing with the Commencement Date of the initial lease term and continuing during the initial lease term and the option extension period if exercised, a general commercial liability insurance policy with a recognized casualty insurance company qualified to do business in California, insuring against liability occasioned by an occurrence in, on, about, or related to the Premises or the Property, or arising out of the condition, use, occupancy, alteration or maintenance of the Premises or the Property, and covering the contractual liability referred to in Paragraph 12(a) of this Lease, having a combined single limit for both bodily injury and property damage in an amount not less than Three Million Dollars ($3,000,000). All such insurance carried by Lessee shall be in a form reasonably satisfactory to Lessor and its mortgage lender and shall be carried with companies that have a general policyholders rating of not less than A and a financial rating of not less than Class X in the most current edition of Bests Insurance Reports; shall provide that such policies shall not be subject to material alteration or cancellation except after at least twenty (20) days prior written notice to Lessor; and shall be primary as to Lessor. Prior to the Commencement Date and upon renewal of such policies not less than ten (10) days prior to the expiration of the term of such coverage, Lessee shall deliver to Lessor certificates of insurance confirming such coverage, together with evidence of the payment of the premium therefor, naming Lessor and Lessors property manager, Tarlton Properties, as additional insureds. If Lessee fails to procure and maintain the insurance required hereunder, and such failure continues for five (5) days after written notice thereof from Lessor, Lessor may, but shall not be required to, order such insurance at Lessees expense and Lessee shall reimburse Lessor for all costs incurred by .Lessor with respect thereto. Lessees reimbursement to Lessor for such amounts shall be deemed Additional Rent, and shall include all sums disbursed, incurred or deposited by Lessor, including Lessors costs, expenses and reasonable attorneys fees with interest thereon at the Interest Rate.
(b) Lessor shall obtain and carry in Lessors name, as insured, as an Operating Expense of the Property as provided in Paragraph 5(b), during the lease term, all risk property insurance coverage (with rental loss insurance coverage for a period of one year), flood insurance, public liability and property damage insurance, and insurance against such other risks or casualties as Lessor shall reasonably determine, including, but not limited to, insurance coverages required of Lessor by the beneficiary of any deed of trust which encumbers the Property, including earthquake insurance coverage insuring Lessors interest in the Property (including the Tenant improvements completed pursuant to Paragraph 13 and any other leasehold improvements to the Premises constructed by Lessor or by Lessee with Lessors prior written approval) in an amount not less than the full replacement cost of the Building and all other Improvements from time to time. The proceeds of any such insurance shall be payable solely to Lessor and Lessee shall have no right or interest therein. Lessor shall have no obligation to insure against loss by Lessee to Lessees leasehold improvements installed at Lessees expense, or Lessees equipment, fixtures, furniture, or other personal property of Lessee in or about the Premises occurring from any cause whatsoever. Lessors public liability insurance shall provide for contractual liability referred to in Paragraph 12(b) of this Lease.
(c) Notwithstanding anything to the contrary contained in this Lease, but only if such release would not invalidate or otherwise compromise any insurance policy carried b
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either party, the parties release each other, and their respective authorized representatives, employees, officers, directors, shareholders, managers, members, assignees, subtenants, invitees, successors, agents, contractors and property managers, from any claims for damage to any person or to the Premises or the Property, and to the fixtures, personal property, leasehold improvements and alterations of either Lessor or Lessee in or on the Premises or the Property that are caused by or result from risks required by this Lease to be insured against or actually insured against under any property insurance policies carried by the parties and in force at the time of any such damage, whichever is greater. This waiver applies whether or not the loss is due to the negligent acts or omissions of Lessor or Lessee or their respective authorized officers, directors, employees, agents, contractors, or invitees.
(d) Each party shall cause each property insurance policy obtained by it to provide that the insurance company waives all right of recovery by way of subrogation against either party in connection with the above waiver and any damage covered by any policy; provided, however, that such provision or endorsement shall not be required if the applicable policy of insurance permits the named insured to waive rights of subrogation on a blanket basis, in which case the blanket waiver shall be acceptable. Neither party shall be liable to the other for any damage caused by fire or any of the risks insured against under any insurance policy required by this Lease.
12. Indemnification.
(a) Lessee waives all claims against Lessor for damages to property, or to goods, wares, and merchandise stored in, upon, or about the Premises, and for injuries to persons in, upon, or about the Premises or the Property from any cause arising at any time, except as may be caused by the .gross negligence or willful misconduct of Lessor or its employees, agents or contractors. Lessee shall indemnify, defend, and hold harmless Lessor from claims, suits, actions, or liabilities for personal injury, death or for loss or damage to property that arise from (1) any activity, work, or thing done, permitted by Lessee in or about the Premises or the Property, (2) for bodily injury or damage to property which arises in or about the Property to the extent the injury or damage to property results from the negligent acts or omissions of Lessee, its employees, agents or contractors, and (3) based on any breach or default by Lessee in the performance of any obligation on Lessees part to be performed under this Lease.
(b) Lessor shall indemnify, defend, and hold harmless Lessee from claims, suits, actions, or liabilities for personal injury, death or for loss or damage to property that arise from (1) any activity, work, or thing done, permitted or suffered by Lessor in or about the Premises or the Property, (2) for bodily injury or damage to property which arises in or about the Property to the extent the injury or damage to property results from the negligent acts or omissions of Lessor, its employees, agents or contractors, and (3) based on any breach or default by Lessor in the performance of any obligation on Lessors part to be performed under this Lease.
(c) In the absence of comparative or concurrent negligence on the part of Lessee or Lessor, their respective agents, affiliates, and subsidiaries, or their respective officers, directors, members, employees or contractors, the foregoing indemnities by Lessee and Lessor shall also include reasonable costs, expenses and attorneys fees incurred in connection with any
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indemnified claim or incurred by the indemnitee in successfully establishing the right to indemnity. The indemnitor shall have the right to assume the defense of any claim subject to the foregoing indemnities with counsel reasonably satisfactory to the indemnitee. The indemnitee agrees to cooperate fully with the indemnitor and its counsel in any matter where the indemnitor elects to defend, provided the indemnitor shall promptly reimburse the indemnitee for reasonable costs and expenses incurred in connection with its duty to cooperate.
The foregoing indemnities shall survive the expiration or earlier termination of this Lease and are conditioned upon the indemnitee providing prompt notice to the indemnitor of any claim or occurrence that is likely to give rise to a claim, suit, action or liability that will fall within the scope of the foregoing indemnities, along with sufficient details that will enable the indemnitor to make a reasonable investigation of the claim.
When the claim is caused by the joint negligence or willful misconduct of Lessee and Lessor or by the indemnitor party and a third party unrelated to the indemnitor party (except indemnitors agents, officers, employees or invitees), the indemnitors duty to indemnify and defend shall be proportionate to the indemnitors allocable share of joint negligence or willful misconduct.
(d) Lessor shall not be liable to Lessee for any damage caused by any act or negligence of any other occupant of the Building or any other owner or occupant of adjoining or contiguous property, nor for overflow, breakage, or leakage of water, steam, gas, or electricity from pipes, wires, or otherwise in the Premises or the Building, except to the extent caused by the gross negligence or willful misconduct of Lessor or Lessors employees, agents, or contractors. Except as otherwise herein provided, Lessee will pay for damage to the Premises or the Property caused by the misuse or neglect of the Premises or the Property by Lessee or its employees, agents, or contractors, including, but not limited to, the breakage of glass in the Building.
13. Tenant Improvements; Condition of the Premises; Equipment Allowance.
(a) Lessor shall cause to be constructed certain interior improvements and modifications to the Premises substantially consistent with those described on Exhibit E attached hereto (the Tenant Improvements) and as further detailed in and in accordance with the construction plans (as described in Paragraph 13(b) below). The Tenant Improvements shall be constructed under the supervisions of Tarlton Properties, Inc. as construction manager at a fee equal to five percent (5%) of hard construction costs, and Lessor, or Tarlton Properties, Inc., as construction manager therefor, shall enter into any and all contracts required to complete the Tenant Improvements, including contracts with architects, engineers and other contractors. Lessee shall also have the right to hire its own third party project manager, the cost for which shall not be paid from the Tenant Improvement Allowance.
(b) Lessor shall cause to be prepared the construction plans for the Tenant Improvements that are consistent with and are logical evolutions of the Tenant Improvements described on Exhibit E attached hereto so soon as reasonably practicable following the mutual execution and delivery of the Lease by Lessor and Lessee. Upon completion of the construction plans, Lessor shall immediately forward such plans to Lessee for approval, which approval shall
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not be unreasonably withheld or delayed. Within five (5) days following Lessees receipt of the construction plans, Lessee shall notify Lessor in writing whether Lessee approves or reasonably disapproves of the construction plans. If Lessee reasonably disapproves of the proposed construction plans, Lessees written notice of disapproval shall specify any changes or modifications Lessee desires in the construction plans. Within five (5) days thereafter, Lessor will then revise the construction plans, taking into account the reasons for Lessees disapproval (provided, however, that Lessor shall not be required to make any revision to the construction plans that Lessor reasonably disapproves), and shall resubmit the construction plans to Lessee for its approval. Lessee shall approve or disapprove the revised construction plans within three (3) days after receipt thereof. Such procedure shall be repeated as necessary until Lessee has approved the construction plans; provided, however, that any failure of Lessee to fully and finally approve the construction plans within twenty-five (25) days after receipt of the first drafts thereof from Lessor shall constitute a Tenant Delay, as long as Lessor has not unreasonably delayed preparation and delivery of the construction plans. Lessor shall not unreasonably withhold its approval of any change requested by Lessee to the construction plans which does not materially delay the Commencement Date.
(c) Lessee shall be entitled to a one-time tenant improvement allowance in an amount equal to Twelve Dollars ($12.00) per rentable square foot of the Premises for hard and soft costs related to the design and construction of the Tenant Improvements (the Tenant Improvement Allowance), which Tenant Improvement Allowance shall be disbursed by Lessor directly to the applicable design professional, contractor, materialman or other laborer. Lessee shall be responsible for all costs of the design and construction of the Tenant Improvements in excess of the Tenant Improvement Allowance (such difference referred to herein as the Tenant Improvement Shortfall). Lessee shall pay the Tenant Improvement Shortfall upon written request from Lessor accompanied by invoices reflecting such amounts due within thirty (30) days following Lessees receipt of such payment request.
(d) The terms Substantially Complete, Substantially Completed or Substantial Completion shall mean the date the Tenant Improvements arc completed and the Premises are in the condition required hereunder, excepting only Punch List items (as defined below) or the date the foregoing would have occurred but for a Tenant Delay (as hereinafter defined). Subject to completion of the Tenant Improvements, Lessee shall accept the Premises in their as is condition on the Commencement Date, subject to Lessors express representations and warranties set forth herein. The term Tenant Delay shall mean any delay incurred by Lessor in completing the Tenant Improvements due to (i) a delay by Lessee, or by any person employed or engaged by Lessee, in approving or delivering to Lessor any plans, schedules or information, including, without limitation, the construction plans beyond the applicable time period set forth in this Paragraph 13, if any; (ii) Lessees Early Entry (as provided under Paragraph 2(f) above); (iii) any changes requested by Lessee in or to work previously approved in the construction plans; or (iv) the failure of Lessee to pay as and when due all or any portion of the Tenant Improvement Shortfall.
(e) The Tenant Improvements shall be constructed in accordance with all applicable laws and the terms of this Lease, in a good and workmanlike manner, free of defects and using new materials and equipment of good quality. Upon delivery of the Premises, Lessee shall coordinate a walk through of the Premises, and Lessor and Lessee shall complete a punch
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list indicating any minor deficiencies in the Tenant Improvements, which do not materially interfere with Lessees ability to conduct business operations at the Premises (Punch List). Lessor shall promptly cause such items set forth in the Punch List to be completed as required for compliance with the Tenant Improvements.
(f) Lessee waives all right to make repairs at the expense of Lessor, or to deduct the costs thereof from the rent, and Lessee waives all rights under Section 1941 and 1942 of the Civil Code of the State of California. At the expiration or sooner termination of this Lease, Lessee shall surrender the Premises in a clean and good condition, except for ordinary wear and tear and except for damage caused by casualty, the elements, acts of God, a taking by eminent domain, and, subject to the terms of Paragraph 14(f) below, alterations or other improvements made by Lessee with Lessors prior written consent which Lessee is not required to remove as a condition to Lessors approval of such alterations or improvements (in no event shall any portion of the Tenant Improvements constructed in accordance with Paragraph 13(a) be required to be removed).
(g) Lessor agrees to provide an equipment improvement allowance in the amount of Four Hundred Fifty Thousand and 00/100 Dollars ($450,000.00) (Equipment Allowance) to Lessee for the purpose of the purchase and installation in the Premises of modular clean room equipment and related components (including, without limitation, supplemental power and HVAC units) to be used in the Premises during the Term. Lessee hereby acknowledges that the Equipment Allowance is being provided pursuant to an equipment loan (the Loan) to Lessor from Avid Bank (Equipment Lender) and as such, at Equipment Lenders request, all equipment purchased with the Equipment Allowance shall be security for the Loan and shall be subject to the terms and conditions of the Loan, including, without limitation, any and all remedies of Equipment Lender. An equipment purchased with the Equipment Allowance shall be the property of Lessor and shall be surrendered by Lessee with the Premises upon the Expiration Date or earlier termination of this Lease. Lessor hereby agrees to amortize the amount of the Equipment Allowance over the remaining term of the Lease (together with interest on the unamortized balance of the rate equal to eight percent (8%) per annum), which amount shall be paid by Lessee as Additional Rent. Agreement of the Equipment Lender to provide the Loan shall be a condition precedent to the effectiveness of this Lease and Lessor shall provide Lessee with written acknowledgment of such agreement from Equipment Lender within five (5) business days of the date of this Lease.
(h) Lessee, in its sole discretion, may request that Lessor upgrade the data cabling in the cubicles and Premises. If Lessee elects to have Lessor upgrade the existing second floor data cabling in any cubicles or if Lessee elects to have Lessor upgrade and re-wire the existing second floor hard walled ports, then in either event, Lessor and Lessee shall equally share the cost to upgrade such data cabling. If Lessee elects to have Lessor upgrade the existing first floor hard walled ports, then Lessor and Lessee shall equally share the cost to upgrade such data cabling. If Lessee elects to have Lessor upgrade or install any other data cabling on the first floor, then Lessee shall pay the entire cost thereof. In any event, Lessor shall be responsible, at its sole cost and expense, for causing any existing data cabling that Lessee does not intend to upgrade or replace as set forth herein, to be properly re-terminated for and accessible to Lessee. Lessor shall solicit pricing proposals from at least three (3) contractors for such data cablingwork and select the lowest cost option reasonably satisfactory to Lessor and Lessee, and Lessor shall pay the construction management fee in connection with such data cabling work.
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14. Maintenance and Repairs; Alterations: Surrender and Restoration.
(a) Lessor shall, at Lessors sole expense, keep in good order, condition, and repair and replace when necessary, the structural elements of the roof (excluding the roof membrane which Lessor shall maintain, but the cost of which shall be included as an Operating Expense), and the structural elements of the foundation and exterior walls (except the interior faces thereof), of the Building, and other structural elements of the Building and the Property as structural elements are defined in building codes applicable to the Building, excluding any alterations, structural or otherwise, made by Lessee to the Building which are not approved in writing by Lessor prior to the construction or installation thereof by Lessee. Lessor shall perform and construct, and Lessee shall not be responsible for performing or constructing, any repairs, maintenance, or improvements (1) required as a result of any casualty damage (not caused by the willful or negligent acts or omissions of Lessee) or as a result of any taking pursuant to the exercise of the power of eminent domain, or (2) for which Lessor has a right of reimbursement from third parties based on construction or other warranties, contractor guarantees, or insurance claims. For thirty (30) days following the Commencement Date with respect to the HVAC system and ninety (90) days following the Commencement Date with respect to all other aspects of the Property (the Notice Period), Lessee shall have the opportunity to complete non-invasive diligence to ascertain the condition of the Property. Lessor shall repair or replace, as necessary, any components of the Premises which are not in good working condition as of the Commencement Date to the extent Lessee provides written notice thereof to Lessor within the Notice Period.
(b) Lessor shall provide or cause to be provided and shall supervise the performance of as an Operating Expense of the Property pursuant to Paragraph 5(b) hereof (except as set forth in Paragraph 14(a) above), all services and work relating to the operation, maintenance, repair, and replacement, as needed, of the Property, including the HVAC, mechanical, electrical, and plumbing systems in the Building; the interior of the Building; the roof membrane; the outside areas of the Property; the interior and exterior janitorial service for the Building; landscaping, tree trimming, resurfacing and restriping of the parking lot, repairing and maintaining the walkways; exterior building painting, exterior building lighting, parking lot lighting, and exterior security patrol in keeping with the standards typically employed in a first class office/R&D park. In the event Lessee provides Lessor with written notice of the need for any repairs, Lessor shall commence any such repairs promptly following receipt by Lessor of such notice and Lessor shall diligently prosecute such repairs to completion.
(c) Subject to the foregoing and except as provided elsewhere in this Lease, Lessee shall at all times use and occupy the Premises in a manner which keeps the Premises in good and safe order, condition, and repair. Lessor shall execute and maintain in full force and effect throughout the term as an Operating Expense of the Property pursuant to Paragraph 5(b) a service contract with a recognized air conditioning service company. Lessor may, if Lessor determines that it is necessary to do so, obtain on a semi-annual basis an inspection report of the IIVAC system from a separate HVAC service firm designated by Lessor for the purpose of monitoring the performance of the I IVAC maintenance and repair work performed by the HVAC
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service firm which performs the regular repair and maintenance. The cost of such inspection report shall be an Operating Expense pursuant to Paragraph 5. Subject to the release of claims and waiver of subrogation contained in Paragraph 11, if Lessor is required to make any repairs to the Property by reason of Lessees negligent acts or omissions, Lessor may add the cost of such repairs to the next installment of rent which shall thereafter become due, and Lessee shall promptly pay the same upon receipt of an invoice therefor.
(d) From and after the Commencement Date, Lessee may, from time to time, at its own cost and expense and without the consent of Lessor make nonstructural alterations to the interior of the Premises the cost of which in any one instance is Twenty Five Thousand Dollars ($25,000) or less, and the aggregate cost of all such work during the term of this Lease does not exceed Fifty Thousand Dollars ($50,000), provided Lessee first notifies Lessor in writing of any such nonstructural alterations. Otherwise, Lessee shall not make any additional alterations, improvements, or additions to the Premises without delivering to Lessor a complete set of plans and specifications for such work, obtaining and delivering copies to Lessor of all permits or other governmental approvals required for such work and obtaining Lessors prior written consent thereto, which consent shall not be unreasonably delayed, conditioned, or withheld. All alterations and additions shall be installed by a licensed contractor reasonably approved by Lessor, at Lessees sole cost and expense, in compliance with all applicable laws, rules, regulations and ordinances. Lessee shall keep the Premises and the Property free from any liens arising out of any work performed, materials furnished or obligations incurred by or on behalf of Lessee. If any nonstructural alterations to the interior of the Premises exceed Twenty Five Thousand Dollars ($25,000) in cost in any one instance, or exceed the aggregate cost of Fifty Thousand Dollars ($50,000) during the term of this Lease, Lessee shall employ Tarlton Properties, Inc. as a construction manager for such alterations and pay a construction manager fee equal to five percent (5%) of hard construction costs. Lessor may condition its consent to, among other things, Lessee agreeing in writing to remove any such alterations prior to the expiration of the lease term and Lessee agreeing to restore the Premises to its condition prior to such alterations at Lessees expense. Upon Lessees written request, Lessor shall advise Lessee in writing at the time consent is granted whether Lessor will require Lessee to remove any alterations from the Premises prior to the termination of this Lease.
All alterations, trade fixtures and personal property installed in the Premises. solely at Lessees expense (Lessees Property) shall during the term of this Lease remain Lessees property and Lessee shall be entitled to all depreciation, amortization and other tax benefits with respect thereto. Upon the expiration or sooner termination of this Lease all alterations, fixtures and improvements to the Premises, installed in more than a de minimis manner, whether made by Lessor or installed by Lessee at Lessees expense, which shall specifically exclude Lessees Property, shall be surrendered by Lessee with the Premises and shall become the property of Lessor.
(e) Lessee shall, at Lessees sole cost and expense, fully, diligently and in a timely manner, comply with all present and future Laws, which term is used in this Lease to mean all laws, rules, regulations, ordinances, directives, orders, covenants, permits of all governmental agencies and authorities, easements and restrictions of record, the requirements of any applicable fire insurance underwriter or rating bureau or board of fire underwriters, relating in any manner to the Premises and/or Lessees use or occupancy of the Premises (including but
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not limited to matters pertaining to industrial hygiene, environmental conditions on, in, under or about the Premises, including soil and groundwater conditions, subject to the provisions of Paragraph 9 hereof, and the use, generation, manufacture, production, installation, maintenance, removal, transportation, storage, spill, or release of any Hazardous Materials (which are addressed in Paragraph 9 hereof)), now in effect or which may hereafter come into effect. Lessee shall, within five (5) days after receipt of Lessors written request, provide Lessor with copies of all documents and information, including but not limited to permits, registrations, manifests, applications, reports and certificates, evidencing Lessees compliance with any Laws specified by Lessor, and shall immediately upon receipt, notify Lessor in writing (with copies of any documents involved) of any threatened or actual claim, notice, citation, warning, complaint or report pertaining to or involving failure by Lessee or the Premises to comply with any Laws. Notwithstanding the foregoing, any structural changes or repairs or other changes or repairs to the Property of any nature which would be considered a capital expenditure under generally accepted accounting principles to the Premises shall be made by Lessor at Lessees expense if such structural repairs or changes are required by reason of the specific nature of the use of the Premises by Lessee. If such changes or repairs are not required by reason of the specific nature of Lessees use of the Premises and arc capital expenditures, the cost of such changes or repairs shall be treated as an Operating Expense and amortized in accordance with the provisions Of Paragraph 5(b).
(f) Lessee shall surrender the Premises by the last day of the lease term or any earlier termination date in accordance with Paragraph 13(e) and this Paragraph 14(f), with all of the improvements to the Premises, parts, and surfaces thereof clean and free of debris and in good operating order, broom clean condition, and state of repair, except for ordinary wear and tear and except for damage caused by casualty, the elements, acts of God, a taking by eminent domain. Lessees failure to surrender the Premises in accordance with the terms and conditions of this Lease, including, without limitation, this Paragraph 14(f) shall be deemed to be a material default under the Lease. Ordinary wear and tear shall not include any damage or deterioration that would have been prevented by good maintenance practice or by Lessee performing all of its obligations under this Lease. Notwithstanding the foregoing, prior to the last day of the Term (or earlier termination of the Lease), Lessee shall (i) restore all walls in the Premises to the same condition existing immediately following completion of the Tenant Improvements, including patching and sanding all holes to match the original texture of the walls and painting; (ii) replace any broken, chipped, stained or discolored ceiling tiles in the Premises to match the existing tiles; and (iii) vacuum and steam clean all carpets and remove all stains and to the extent any stains measuring more than one-half inch in diameter cannot be removed by such steam cleaning, then Lessee shall replace the stained portion of the carpet with the same color existing as of the Commencement Date; provided, however, that the foregoing obligation shall not apply to any stains existing as of the Commencement Date. In addition to the foregoing, the obligations of Lessee shall include the repair of any damage occasioned by the installation, maintenance, or removal of Lessees trade fixtures, furnishings, equipment, and alterations, and the restoration of the Premises to its condition upon completion of the Tenant Improvements (1) if Lessors consent thereto was conditioned upon such removal and restoration upon expiration or sooner termination of the Lease term pursuant to Paragraph 14(d), or (2) if Lessee made any such alterations, additions, or improvements without obtaining Lessors prior written consent in breach of Paragraph 14(d) and within a reasonable time prior to the expiration or sooner termination of the Lease term Lessor gives written notice to Lessee requiring Lessee to perform such removal and restoration.
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(g) Prior to the expiration of the term of this Lease or any earlier termination date, Lessee shall, at Lessees expense, obtain written closure reports from the San Mateo County Health Department and from the Menlo Park Fire Protection District with respect to any Hazardous Materials used, stored, or released by Lessee on or about the Premises. Both written closure reports shall provide written certification that all Hazardous Materials have been removed from the Premises and that no further action is required in connection with the closure of the Premises. Any removal and remediation of Hazardous Materials by Lessee shall be certified in writing as (1) complete and (2) having been properly performed, by the San Mateo County Health Department and the Menlo Park Fire Protection District and a copy of such written certifications shall be delivered by Lessee to Lessor no later than the last day of the Term of this Lease.
15. Utilities and Services.
(a) Lessee shall contract for and pay for, telephone services and all electricity, gas, water, heat and air conditioning service (subject to the terms of Paragraph 14(b) and (c) above), janitorial service, refuse pick-up, sewer charges, and all other utilities or services supplied to or consumed by Lessee, its agents, employees, contractors, and invitees on or about the Premises. To the extent commercially reasonable to do so, Lessor shall cause, at its sole cost and expense, the Premises to be separately metered for utilities. To the extent any of the foregoing utilities or services are not able to be separately metered or charged to the Premises, then Lessor shall contract for and pay for such services and Lessee shall reimburse Lessor therefor pursuant to Paragraph 4(e) as an Operating Expense, subject to equitable adjustments for high consumption tenants made in Lessors reasonable discretion.
(b) Lessor shall not be liable to Lessee for any interruption or failure of any utility services to the Building or the Premises unless caused by the negligence or willful acts or Lessor, or Lessors employees, agents, or contractors, in which case if the Premises should become not reasonably suitable for Lessees use as a consequence of cessation of utilities or other services resulting from the negligence or willful acts of Lessor, Lessors employees, agents or contactors for ten (10) consecutive days, then Lessee shall be entitled to an equitable abatement of rent to the extent of the interference with Lessees use of the Premises occasioned thereby and rent shall abate beginning on the date of such interruption until service is restored. Except with respect to the foregoing rental abatement, Lessee shall not be relieved from the performance of any covenant or agreement in this Lease because of any such failure. Unless such failure is caused by the negligence or willful acts or omissions of Lessor or Lessors employees, agents, or contractors, or by Lessors breach in the performance of Lessors express obligations hereunder, Lessor shall make all repairs to the Property required to restore such services to the Premises and the cost thereof shall be payable by Lessee pursuant to Paragraph. 5(e) as a current Operating Expense, or as a capital improvement which is amortized over its useful life (together with interest thereon) as an Operating Expense in accordance with generally accepted accounting principles as described in Paragraph 5(b).
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16. Liens. Lessee agrees to keep the Property free from all liens arising out of any work performed, materials furnished, or obligations incurred by Lessee. Lessee shall give Lessor at least ten (10) days prior written notice before commencing any work of improvement on the Premises, the contract price for which exceeds Ten Thousand Dollars ($10,000). Lessor shall have the right to post notices of non-responsibility with respect to any such work. If Lessee shall, in good faith, contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense, defend and protect itself, Lessor and the Property against the same, and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof against the Lessor or the Property. If Lessor shall require, Lessee shall furnish to Lessor a surety bond satisfactory to Lessor in an amount equal to one and one-half times the amount of such contested claim or demand, indemnifying Lessor against liability for the same, as required by law for the holding of the Property free from the effect of such lien or claim.
17. Assignment and Subletting.
(a) Except as otherwise provided in this Paragraph 17, Lessee shall not assign this Lease, or any interest, voluntarily or involuntarily, and shall not sublet the Premises or any part thereof, or any right or privilege appurtenant thereto, or suffer any other person (the agents and servants of Lessee excepted) to occupy or use the Premises, or any portion thereof, without the prior written consent of Lessor in each instance pursuant to the terms and conditions set forth below, which consent shall not be unreasonably withheld, subject to the following provisions; provided, however, Lessee shall not assign this Lease, or any interest, voluntarily or involuntarily, and shall not sublet the Premises or any part thereof, or any right or privilege appurtenant thereto, or suffer any other person (the agents and servants of Lessee excepted) to occupy or use the Premises, or any portion thereof, if Lessee shall be in default under this Lease past any applicable cure period.
(b) Prior to any assignment or sublease which Lessee desires to make (other than a Permitted Transfer pursuant to Paragraph 17(0), Lessee shall provide to Lessor the name and address of the proposed assignee or sublessee, and true and complete copies of all documents relating to Lessees prospective agreement to assign or sublease, a copy of a current financial statement for such proposed assignee or sublessee, and any other relevant information requested by Lessor within five (5) days after receipt of notice of the proposed assignment or sublease and Lessee shall specify all consideration to be received by Lessee for such assignment or sublease in the form of lump sum payments, installments of rent, or otherwise. For purposes of this Paragraph 17, the term consideration shall include all money or other consideration to be received by Lessee for such assignment or sublease. Within ten (10) days after the receipt of such documentation and other information, Lessor shall (1) notify Lessee in writing that Lessor elects to consent to the proposed assignment or sublease subject to the terms and conditions hereinafter set forth; (2) notify Lessee in writing that Lessor refuses such consent, specifying reasonable grounds for such refusal; or (3) except with respect to a Permitted Transfer pursuant to Paragraph 17(0, if at the time Lessee requests that Lessor consent to an assignment or sublease Lessee has vacated the Premises and is not conducting on-going operations in the Building, Lessor may notify Lessee that Lessor elects to terminate this Lease, provided that with respect to a proposed sublease of a portion of the Premises Lessors termination right shall apply only to the proposed sublease space, and specifying the effective date of termination which shall be the same as the commencement date of the proposed sublease. If Lessor elects to terminate
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this Lease pursuant to the foregoing provision, upon the effective date of termination, Lessor and Lessee shall each be released and discharged from any liability or obligation to the other under this Lease accruing thereafter with respect to the Premises or the portion thereof to which the termination applies, except for any obligations then outstanding and except for any indemnity obligations which survive the expiration or termination of this Lease by the express terms hereof, and Lessee agrees that Lessor may enter into a direct lease with such proposed assignee or sublessee without any obligation or liability to Lessee.
In deciding whether to consent to any proposed assignment or sublease, Lessor may take into account reasonable conditions, including, but not limited to, the following, have been satisfied:
(1) In Lessors reasonable judgment, the proposed assignee or subtenant is engaged in such a business, that the Premises, or the relevant part thereof, will be used in such a manner which complies with Paragraph 8 hereof entitled Use and Lessee or the proposed assignee or sublessee submits to Lessor documentary evidence reasonably satisfactory to Lessor that such proposed use constitutes a permitted use of the Premises pursuant to the ordinances and regulations of the City of Menlo Park;
(2) The proposed assignee or subtenant is a reputable entity or individual with sufficient financial net worth so as to reasonably indicate that it will be able to meet its obligations under this Lease or the sublease in a timely manner; and
(3) The proposed assignment or sublease is approved by Lessors mortgage lender if such lender has the right to approve or disapprove proposed assignments or subleases. Lessor shall use its good faith efforts to obtain such approval from its lender within ten (10) days after receipt by Lessor of Lessees written request for consent and the documentation and information referred to in the first sentence of Paragraph 17(b) above.
(c) As a condition to Lessors granting its consent to any assignment or sublease, (1) Lessor may require that Lessee pay to Lessor, as and when received by Lessee, fifty percent (50%) of the amount of any excess of the consideration to be received by Lessee in connection with said assignment or sublease over and above the rental amount fixed by this Lease and payable by Lessee to Lessor, after deducting only (i) the unamortized cost of the Tenant Improvements paid for by Lessee which remains on the Premises at the effective date of the assignment or on the commencement date of the sublease which are then in a serviceable condition and useable by the assignee or sublessee and not demolished or removed by the assignee or sublessee, (ii) a standard leasing commission payable by Lessee in consummating such assignment or sublease, and (iii) reasonable attorneys fees incurred by Lessee and Lessor in negotiating and reviewing the assignment or sublease documentation (but with respect to Lessors attorneys fees the deduction shall only be to the extent such fees are reimbursed by Lessee to Lessor), all of which costs shall be subject to Lessors reasonable approval; and (2) Lessee and the proposed assignee or sublessee shall demonstrate to Lessors reasonable satisfaction that each of the criteria referred to in subparagraph (b) above is satisfied.
(d) Each assignment or sublease agreement to which Lessor has consented shall be an instrument in writing in form satisfactory to Lessor, in its reasonable discretion, and
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shall be executed by both Lessee and the assignee or sublessee, as the case may be. Each such assignment or sublease agreement shall recite that it is and shall be subject and subordinate to the provisions of this Lease, that the assignee or sublessee accepts such assignment or sublease, that Lessors consent thereto shall not constitute a consent to any subsequent assignment or subletting by Lessee or the assignee or sublessee, and, except as otherwise set forth in a sublease approved by Lessor, the assignee or sublessee agrees to perform all of the obligations of Lessee hereunder (to the extent such obligations relate to the portion of the Premises assigned or subleased), and that the termination of this Lease shall, at Lessors sole election, constitute a termination of every such assignment or sublease.
(e) In the event Lessor shall consent to an assignment or sublease, Lessee shall nonetheless remain primarily liable for all obligations and liabilities of Lessee under this Lease, including but not limited to the payment of rent.
(f) Notwithstanding the foregoing, Lessee may, without Lessors prior written consent and without any participation by Lessor in assignment and subletting proceeds, but with prior notice and documentation, as required pursuant to this Paragraph 17(f), provided to Lessor, sublet a portion or the entire Premises or assign this Lease to (i) a subsidiary, affiliate, division or corporation controlled or under common control with Lessee (affiliate); (ii) to a successor corporation related to Lessee by merger, consolidation or reorganization; or (iii) to a purchaser of substantially all of Lessees business operations conducted on the Premises (each such transaction referred to herein as a Permitted Transfer and each of the foregoing transferees referred to herein as a Permitted Transferee), provided that any such Permitted Transferee shall have a current verifiable net worth prior to the transfer at least equal to that of Lessee on the Commencement Date of this Lease, or, if less, financial resources sufficient, in Lessors reasonable good faith judgment, to perform the obligations under the assignment or sublease, as applicable. Lessees foregoing rights in this Paragraph 17(f) to assign this Lease or to sublease all or a portion of the entire Premises shall be subject to the following conditions: (1) Lessee shall not be in default hereunder past any applicable cure period; (2) in the case of an assignment or subletting to an affiliate, Lessee shall remain liable to Lessor hereunder if Lessee is a surviving entity; (3) the transferee or successor entity shall expressly assume in writing all of Lessees obligations hereunder; and (4) Lessee shall provide Lessor with prior notice of such proposed transfer and deliver to Lessor all documents reasonably requested by Lessor relating to such transfer, including but not limited to documentation sufficient to establish such proposed transferees current verifiable net worth prior to the transfer at least equal to that of Lessee on the Commencement Date of this Lease, or, if less, financial resources sufficient, in Lessors reasonable good faith judgment, to perform the obligations under the assignment or sublease, as applicable.
(g) Neither the sale nor transfer of Lessees capital stock in any private financing raising equity capital or in a public offering pursuant to an effective registration statement filed by Lessee with the Securities and Exchange Commission, or the sale or transfer of Lessees securities at any time after Lessees securities are publicly traded , shall be deemed an assignment, subletting, or other transfer of this Lease or the Premises, provided, that in the event of the sale, transfer or issuance of Lessees securities in connection with a merger, consolidation, or reorganization, the conditions set forth in Paragraph 17(f) shall apply.
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(h) Subject to the provisions of this Paragraph 17 any assignment or sublease without Lessors prior written consent shall at Lessors election be void. The consent by Lessor to any assignment or sublease shall not constitute a waiver of the provisions of this Paragraph 17, including the requirement of Lessors prior written consent, with respect to any subsequent assignment or sublease. If Lessee shall purport to assign this Lease, or sublease all or any portion of the Premises, or permit any person or persons other than Lessee to occupy the Premises, without Lessors prior written consent (if such consent is required hereunder), Lessor may collect rent from the person or persons then or thereafter occupying the Premises and apply the net amount collected to the rent reserved herein, but no such collection shall be deemed a waiver of Lessors rights and remedies under this Paragraph 17, or the acceptance of any such purported assignee, sublessee, or occupant, or a release of Lessee from the further performance by Lessee of covenants on the part of Lessee herein contained.
(i) Lessee shall not hypothecate or encumber its interest under this Lease or any rights of Lessee hereunder, or enter into any license or concession agreement respecting all or any portion of the Premises, without Lessors prior written consent which consent Lessor may grant or withhold in Lessors absolute discretion without any liability to Lessee. Lessees granting of any such encumbrance, license, or concession agreement shall constitute an assignment for purposes of this Paragraph 17.
(j) In the event of any sale or exchange of the Property by Lessor and assignment of this Lease by Lessor, Lessor shall, upon providing Lessee with written confirmation that the assignee has assumed all obligations of Lessor under this Lease and Lessor has delivered any Security Deposit held by Lessor to Lessors successor in interest, be and hereby is entirely relieved of all liability under any and all of Lessors covenants and obligations contained in or derived from this Lease with respect to the period commencing with the consummation of the sale or exchange and assignment.
(k) Lessee hereby acknowledges that the foregoing terms and conditions are reasonable and, therefore, that Lessor has the remedy described in California Civil Code Section 1951.4 (Lessor may continue the Lease in effect after Lessees breach and abandonment and recover rent as it becomes due, if Lessee has the right to sublet or assign, subject only to reasonable limitations).
18. Non-Waiver.
(a) No waiver of any provision of this Lease shall be implied by any failure of Lessor to enforce any remedy for the violation of that provision, even if that violation continues or is repeated. Any waiver by Lessor of any provision of this Lease must be in writing.
(b) No receipt of Lessor of a lesser payment than the rent required under this Lease shall be considered to be other than on account of the earliest rent due, and no endorsement or statement on any check or letter accompanying a payment or check shall be considered an accord and satisfaction. Lessor may accept checks or payments without prejudice to Lessors right to recover all amounts due and pursue all other remedies provided for in this Lease.
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Lessors receipt of monies from Lessee after giving notice to Lessee terminating this Lease shall in no way reinstate, continue, or extend the Lease term or affect the termination notice given by Lessor before the receipt of those monies. After serving notice terminating this Lease, filing an action, or obtaining final judgment for possession of the Premises, Lessor may receive and collect any rent, and the payment of that rent shall not waive or affect such prior notice, action, or judgment.
19. Holding Over. Lessee shall vacate the Premises and deliver the same to Lessor upon the expiration or sooner termination of this Lease. In the event of holding over by Lessee after the expiration or termination of this Lease, such holding over shall be on a month-to-month tenancy and all of the terms and provisions of this Lease shall be applicable during such period including the obligation to pay Operating Expenses and Taxes, except that Lessee shall pay Lessor as Monthly Base Rent during such holdover an amount equal to the greater of (1) one hundred fifty percent (150%) of the Monthly Base Rent in effect at the expiration of the term, or (2) the then market rent for comparable research and development/office space. If such holdover is without Lessors written consent, Lessee shall pay to Lessor upon demand, in addition to the Monthly Base Rent, Operating Expenses and Taxes as aforesaid, all costs, expenses, and consequential damages incurred by Lessor as a result of such holdover. The rental payable during such holdover period without Lessors written consent shall be payable to Lessor on demand.
20. Damage or Destruction.
(a) In the event of a total destruction during the term from any cause of the Building, either party may elect to terminate this Lease by giving written notice of termination to the other party within sixty (60) days after the casualty occurs. A total destruction (Total Destruction) shall be deemed to have occurred for this purpose if the Building or the Premises that are the subject of this Lease are destroyed to the extent of seventy-five percent (75%) or more of the replacement cost thereof. If the Lease is not terminated, Lessor shall repair and restore the Premises in a diligent manner and this Lease shall continue in full force and effect, except that Monthly Base Rent and Additional Rent of the Premises which are the subject of this Lease shall be abated in accordance with Paragraph 20(d) below.
(b) In the event of a destruction of the Building which does not constitute Total Destruction as defined in Paragraph 20(a) above, there are at least twelve (12) months remaining in the term of this Lease, and the casualty is from a cause which is insured under Lessors all risk property insurance, or is insured under any other coverage then carried by Lessor, Lessor shall forthwith repair the same, and this Lease shall continue in full force and effect, except that Monthly Base Rent and Additional Rent shall be abated in accordance with Paragraph 20(d) below. If any of the foregoing conditions is not met, Lessor shall have the option of either repairing and restoring the Building and Improvements, or terminating this Lease by giving written notice of termination to Lessee within thirty (30) days after the casualty, subject to the provisions of Paragraph 20(c). Notwithstanding the foregoing, Lessor shall not have the right to terminate this Lease if the cost to repair the damage to the Building or to restore the Premises would cost less than five percent (5%) of the replacement cost of the Building, regardless of whether or not the casualty is insured provided that there are at least twelve (12) months remaining in the term of this Lease. In the event that Lessor elects to terminate this
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Lease, Lessee shall have the right within ten (10) days after receipt of the termination notice to give written notice to Lessor of Lessees commitment to pay for the repair of such damage without reimbursement from Lessor, except for any insurance proceeds paid to Lessor that will he made available to Lessee. Lessee shall provide Lessor with any deficiency or satisfactory assurance thereof within thirty (30) days after making such commitment. In such event, this Lease shall continue in full force and effect, and Lessor shall proceed to make such repairs as soon as reasonably possible after the required funds are available.
(c) Lessors election to repair and restore the Building and Improvements or to terminate this Lease, shall be made and written notice thereof shall be given to Lessee within sixty (60) days after the casualty. Notwithstanding the foregoing, (1) Lessee may terminate this Lease by written notice to Lessor if Lessor has not obtained all necessary governmental permits for the restoration and commenced construction of the restoration within one hundred (100) days after the casualty; or (2) if Lessor elects to repair and restore the Building and Improvements under subparagraph (b) above, but (A) there are less than twelve (12) months remaining in the term of this Lease, (B) Lessor estimates that the time for repair will exceed one hundred (100) days, or (C) the repairs and restoration are not substantially completed within one hundred eighty (180) days after the casualty plus the period of any force majeure delays (as defined in subparagraph (e)), Lessee may terminate this Lease by written notice to Lessor given within thirty (30) days after the expiration of said period of one hundred eighty (180) days after the casualty, provided that the repairs and restoration are not substantially completed prior to the receipt by Lessor of such notice of termination.
(d) In the event of repair, reconstruction, or restoration as provided herein, the Monthly Base Rent and Additional Rent shall be abated proportionally in the ratio which the Lessees use of the Premises is impaired during the period of such repair, reconstruction, or restoration, from the date of the casualty until such repair, reconstruction or restoration is completed.
(e) With respect to any destruction of the Building and Improvements which Lessor is obligated to repair, or may elect to repair, under the terms of this Paragraph 20, the provisions of Section 1932, Subdivision 2, and of Section 1933, Subdivision 4, of the Civil Code of the State of California are waived by the parties. Lessors obligation to repair and restore the Building and Improvements shall include the Tenant Improvements referred to in Paragraph 13. Lessors time for completion of the repairs and restoration of the Building and Improvements referred to above shall be extended by a period equal to any delays (force majeure delays) caused by strikes, labor disputes, unavailability of materials, inclement weather, or acts of God.
(f) In the event of termination of this Lease pursuant to any of the provisions of this Paragraph 20, the Monthly Base Rent and Additional Rent shall be apportioned on a per diem basis and shall he paid to the date of the casualty. In no event shall Lessor be liable to Lessee for any damages resulting to Lessee from the occurrence of such casualty, or from the repairing or restoration of the Building and Improvements, or from the termination of this Lease as provided herein, nor shall Lessee be relieved thereby from any of Lessees obligations hereunder, except to the extent and upon the conditions expressly set forth in this Paragraph 20.
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21. Eminent Domain.
(a) If the whole or any substantial part of the Property is taken or condemned by any competent public authority for any public use or purpose, the term of this Lease shall end upon the earlier to occur of the date when the possession of the part so taken shall be required for such use or purpose or the vesting of title in such public authority. Rent shall be apportioned as of the date of such termination. Lessee shall be entitled to receive any damages awarded by the court for (i) leasehold improvements installed at Lessees expense or other property owned by Lessee, and (ii) reasonable costs of moving by Lessee. The entire balance of the award shall be the property of Lessor.
(b) If there is a partial taking of the Property by eminent domain which is not a substantial part of the Property and the Premises remain reasonably suitable for continued use and occupancy by Lessee for the purposes referred to in Paragraph 8, Lessor shall complete any necessary repairs in a diligent manner and this Lease shall remain in full force and effect with a just and proportionate abatement of the Monthly Base Rent and Additional Rent, based on the extent to which Lessees use of the Premises is impaired thereafter. If after a partial taking, the Premises are not reasonably suitable for Lessees continued use and occupancy for the uses permitted herein, Lessee may terminate this Lease effective on the earlier of the date title vests in the public authority or the date possession is taken. Subject to the provisions of Paragraph 21(a), the entire award for such taking shall be the property of Lessor.
22. Remedies. If Lessee fails to make any payment of rent or any other sum due under this Lease for five (5) days after receipt by Lessee of written notice from Lessor; or if Lessee breaches any other term of this Lease for thirty (30) days after receipt by Lessee of written notice from Lessor (unless such default is incapable of cure within thirty (30) days and Lessee commences cure within thirty (30) days and diligently prosecutes the cure to completion within a reasonable time, not to exceed ninety (90) days); or if Lessees interest herein, or any part thereof, is assigned or transferred, either voluntarily or by operation of law (except as expressly permitted by other provisions of this Lease); or if Lessee makes a general assignment for the benefit of its creditors; or if this Lease is rejected (i) by a bankruptcy trustee for Lessee, (ii) by Lessee as debtor in possession, or (iii) by failure of Lessee as a bankrupt debtor to act timely in assuming or rejecting this Lease; then any of such events shall constitute an event of default and breach of this Lease by Lessee and Lessor may, at its option, elect the remedies specified in either subparagraph (a) or (b) below. Any such rejection of this Lease referred to above shall not cause an automatic termination of this Lease. Whenever in this Lease reference is made to a default by Lessee, such reference shall refer to an event of default as defined in this Paragraph 22 (each, an Event of Default).
(a) Lessor may, with or without further notice or demand, and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such Event of Default, repossess the Premises and remove all persons and property therefrom. If Lessor repossesses the Premises because of an Event of Default under this Lease, this Lease shall terminate and Lessor may recover from Lessee:
(1) the worth at the time of award of the unpaid rent which had been earned at the time of termination including interest thereon at a rate equal to the discount rate
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established by the Federal Reserve Bank of San Francisco for member banks, plus one percent (1%), or the maximum legal rate of interest, whichever is less, from the time of termination until paid;
(2) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Lessee proves could have been reasonably avoided, including interest thereon at a rate equal to the Federal discount rate plus one percent (1%) per annum, or the maximum legal rate of interest, whichever is less, from the time of termination until paid;
(3) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss for the same period that Lessee proves could be reasonably avoided discounted at the discount rate established by the Federal Reserve Bank of San Francisco for member banks at the time of the award plus one percent (1%); and
(4) any other amount necessary to compensate Lessor for all the detriment proximately caused by Lessees breach or by Lessees failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom,
(b) If Lessor does not repossess the Premises, then this Lease shall continue in effect for so long as Lessor does not terminate Lessees right to possession and Lessor may enforce all of its rights and remedies under this Lease, including the right to recover the rent and other sums due from Lessee hereunder. For the purposes of this Paragraph 22, the following do not constitute a repossession of the Premises by Lessor or a termination of the Lease by Lessor:
(1) Acts of maintenance or preservation by Lessor or efforts by Lessor to relet the Premises; or
(2) The appointment of a receiver by Lessor to protect Lessors interests under this Lease.
(c) Lessors failure to perform or observe any of its obligations under this Lease or to correct a breach of any warranty or representation made in this Lease within thirty (30) days after receipt of written notice from Lessee setting forth in reasonable detail the nature and extent of the failure referencing pertinent Lease provisions or if more than thirty (30) days is required to cure the breach, Lessors failure to begin curing within the thirty (30) day period and diligently prosecute the cure to completion, shall constitute a default. If Lessor commits a default, Lessees sole remedy shall be to institute an action against Lessor for damages or for equitable relief, but Lessee shall not have the right to punitive damages, consequential damages, rent abatement, offset against rent, or to terminate this Lease in the event of any default by Lessor.
(d) All covenants and agreements to be performed by Lessee under this Lease shall be at its sole cost and expense and without abatement of rent or other sums due under this Lease, unless otherwise specified in this Lease. If Lessee shall fail to pay any sum of money required to be paid by Lessee under this Lease or shall fail to perform any other act on Lessees
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part to be performed under this Lease within the time periods described in the first Paragraph of Paragraph 22(a), Lessor may, but shall not be obligated so to do and without waiving or releasing Lessee from any obligations of Lessee, make any such payment or perform any such other act on Lessees part to be made or performed as provided in this Lease. All sums paid by Lessor, whether to fulfill Lessees unfulfilled payment obligations, to perform Lessees unfulfilled performance obligations, or to compel Lessee to fulfill or perform its obligations under this Lease, and all incidental costs, including attorneys fees, plus an administrative fee of five percent (5%) of all amounts so expended by Lessor, shall be deemed additional rent hereunder and shall be payable to Lessor upon demand.
23. Lessees Personal Property. If any personal property of Lessee remains on the Premises after (1) Lessor terminates this Lease pursuant to Paragraph 22 above following an Event of Default by Lessee, or (2) after the expiration of the Lease term or after the termination of this Lease pursuant to any other provisions hereof, Lessor shall give written notice thereof to Lessee pursuant to applicable law. Lessor shall thereafter release, store, and dispose of any such personal property of Lessee in accordance with the provisions of applicable law.
24. Notices. All notices, demands, consents or approvals (collectively, Notices) which may or are required to be given by either party to the other under this Lease shall be in writing and shall be deemed to have been fully given (a) when received or refused, if personally delivered, (b) upon senders written confirmation of facsimile transmission to the fax numbers set forth below; provided that any Facsimile confirmed as received after 5:00 Pacific Standard Time shall be deemed received the next day and further provided that such evidence of confirmation and notice is also promptly delivered by one of the methods described in subsections (a), (c) or (d) of this Paragraph 24, (c) seventy two (72) hours after being deposited in the United States mail, postage prepaid, sent by Certified or Registered Mail, or (d) twenty-four (24) hours after being deposited with a nationally recognized overnight courier service. Each Notice shall be addressed to Lessor and Lessee at the following address or facsimile number, or to such place as either party may from time to time designate in a written notice to the other party:
Lessor: | Menlo Business Park, LLC | |
c/o Tarlton Properties, Inc. | ||
1530 OBrien Drive, Suite C | ||
Menlo Park, California 94025 | ||
Attention: John C. Tarlton, President | ||
Telephone: (650) 330-3600 | ||
Facsimile Number: (650) 330-3636 | ||
Lessee: | Intersect ENT | |
1555 Adams Drive, Suite B | ||
Menlo Park, California 94025 | ||
Attention: Monika De Martini | ||
Telephone: (650) 641-2104 |
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25. Estoppel Certificate. Lessee and Lessor shall within fifteen (15) days following request by the other party (the Requesting Party), execute and deliver to the Requesting Party an Estoppel Certificate in commercially reasonable form, certifying to the following: (1) the Commencement Date and Expiration Date of the term of this Lease, (2) that this Lease has not been modified and that this Lease is in full force and effect, or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect; (3) the date to which the rent and other charges are paid in advance, if at all; (4) the amount of any Security Deposit held by Lessor; and (5) there are not, to the responding partys knowledge, any uncured defaults on the part of the Requesting Party hereunder, or if there are uncured defaults on the part of the Requesting Party, stating the nature of such uncured defaults.
26. Signage. Lessee may place Lessees vinyl lettering signage on the glass near the front door entrance to the Building and in the interior of the Building near the Premises and Lessee shall be permitted to place its logo on the monument signage for the Building. All of Lessees signage shall comply with the Menlo Park sign ordinances and regulations and shall be subject to Lessors prior approval as to the location, size and design thereof. The cost of the installation of Lessees sign on the glass at the front door entrance and in the interior of the Building and on the monument sign shall be paid by Lessee. Any additional signage shall be subject to Lessors prior approval and, if approved, shall be installed at Lessees expense.
27. Real Estate Brokers. Lessor shall pay a leasing commission to Tarlton Properties, Inc., who has acted as exclusive leasing agent for Lessor in connection with this Agreement, pursuant to a separate agreement between Lessor and said broker. Lessor shall also pay a leasing commission to Cornish & Carey, who has acted as leasing agent for Lessee in connection with this Agreement, pursuant to a separate agreement between Lessor and said broker. Each party represents and warrants to the other party that it has not had any dealings with any real estate broker, finder, or other person with respect to this Agreement other than the above named brokers, Each party shall hold harmless the other party from all damages, expenses, and liabilities resulting from any claims that may be asserted against the other party by any broker, finder, or other person with whom the other party has or purportedly has dealt, other than the above named brokers.
28. Parking. At no additional cost to Lessee, Lessee shall have the right, during the Term and any Extended Term, to the (a) nonexclusive use of one hundred (100) unreserved on-site vehicular parking spaces in the parking area for the Building and (b) exclusive use of eight (8) reserved on-site vehicular parking spaces near the front entrance of the Building, all such use shall be subject to such rules and regulations for such parking facilities which may be established or altered by Lessor at any time from time to time during the Lease term, provided that such rules and regulations shall not unreasonably interfere with Lessees parking rights. Vehicles of Lessee or its employees shall not park in driveways or occupy parking spaces or other areas reserved for deliveries, or loading or unloading.
29. Subordination; Attornment.
(a) This Lease, without any further instrument, shall at all times be subject and subordinate to the lien of any and all mortgages and deeds of trust which may now or hereafter be placed on, against or affect Lessors estate in the real property of which the Premises
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form a part, and to all advances made or hereafter to be made upon the security thereof, and to all renewals, modifications, consolidations, replacements and extensions thereof. Lessor shall obtain an SNDA from the existing lender (Lender) within sixty (60) days after the date of this Lease, such SNDA to be substantially in Lenders form, a copy of which is attached hereto as Exhibit D. Lessor shall use reasonable efforts to cause the beneficiary of any deed of trust executed by Lessor as trust or after the date hereof to execute a recognition and non-disturbance agreement in a form reasonably satisfactory to Lessor, Lessee and such beneficiary which (I) provides that this Lease shall not be terminated so long as Lessee is not in default under this Lease, and (2) that upon acquiring title to the Property by foreclosure or otherwise such holder shall recognize all of Lessees rights hereunder which accrue thereafter; provided, however, that Lessors failure to do so shall not constitute a default by Lessor or permit Lessee to terminate this Lease.
(b) In confirmation of such subordination, Lessee shall promptly execute any certificate or other instrument which Lessor may reasonably deem proper to evidence such subordination, without expense to Lessee; provided, however, that if any person or persons purchasing or otherwise acquiring the real property of which the Premises form a part by any sale, sales and/or other proceedings under such mortgages and/or deeds of trust, shall elect to continue this Lease in full force and effect in the same manner and with like effect as if such person or persons had been named as Lessor herein, then this Lease shall continue in full force and effect as aforesaid, and Lessee hereby attorns and agrees to attorn to such person or persons writing upon request.
(c) If Lessee is notified in writing of Lessors default under any deed of trust affecting the Premises and if Lessee is instructed in writing by the party giving notice to make Lessees rental payments to beneficiary Lessee shall comply with such request without liability to Lessor until Lessee receives written confirmation that such default has been cured by Lessor and that the deed of trust has been reinstated.
30. No Termination Right. Lessee shall not have the right to terminate this Lease as a result of any default by Lessor and Lessees remedies in the event of a default by Lessor shall be limited to the remedy set forth in Paragraph 22(c). Lessee expressly waives the defense of constructive eviction.
31. Lessors Entry. Except in the case of an emergency and except for permitted entry during Lessees normal working hours, both of which may occur without prior notice to Lessee, Lessor and Lessors agents shall provide Lessee with at least twenty-four (24) hours notice prior to entry of the Premises. Lessor may enter the Premises for any reasonable purpose related to Lessors ownership of the Property. Such entry by Lessor and Lessors agents shall not impair Lessees operations more than reasonably necessary. Lessor and Lessors agents shall at all times be accompanied by Lessee during any such entry except in case of emergency and except for janitorial work. Lessor may enter the Premises without prior notice to Lessee if Lessee has vacated the Premises.
32. Attorneys Fees. If any action at law or in equity shall be brought to recover any rent under this Lease, or for or on account of any breach of or to enforce or interpret any of the provisions of this Lease or for recovery of the possession of the Premises, the prevailing party
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shall be entitled to recover from the other party costs of suit and reasonable attorneys fees, the amount of which may be fixed by the court and if so fixed shall be made a part of any judgment rendered.
33. Compliance with CC&Rs. During the term of this Lease and any option extension period, Lessee shall comply, at Lessees expense, with all of the covenants, conditions, and restrictions affecting the Premises which are recorded in the Official Records of San Mateo County, California, and which are in effect as of the date of this Lease, and of which Lessee has received a copy from Lessor.
34. Quiet Enjoyment. Upon payment by Lessee of the rent for the Premises and the observance and performance of all of the covenants, conditions, and provisions on Lessees part to be observed and performed under this Lease, Lessee shall have quiet enjoyment and possession of the Premises for the entire term hereof subject to all of the provisions of this Lease.
35. Financial Information. Lessee represents and warrants to Lessor that all financial and other information that it has provided to Lessor prior to the date of this Lease is true, correct and complete.
36. Intentionally Deleted.
37. SDN List. Lessee represents and warrants to Lessor that Lessee is not, and the entities or individuals that constitute Lessee, that may own or control Lessee, or that may he owned or controlled by Lessee (in all cases, other than through the ownership of publicly traded, direct or indirect ownership interests) (each a Subject Lessee Party) are not, (i) in violation of any laws relating to terrorism or money laundering, or (ii) among the individuals or entities identified on any list compiled pursuant to Executive Order 13224 or published by the Office of Foreign Assets Control, U.S. Department of the Treasury (OFAC) for the purpose of identifying suspected terrorists or on the most current list published by the OFAC at its official website, http://www.treas.gov/ofac/tllsdn.pdf or any replacement website or other replacement official publication of such list which identifies an Specially Designated National or blocked person (either of which are referred to herein as a SDN). If at anytime during the Lease Term Lessor discovers that Lessee has breached the foregoing representations and warranties, or Lessor reasonably believes that Lessee or any Subject Lessee Party is in violation of any laws relating to terrorism or money laundering or that Lessee or any Subject Lessee Party is identified as an SDN, Lessee shall be deemed in default under this Lease following three (3) days written notice from Lessor to Lessee unless, within such three day period, Lessee delivers written evidence, reasonably acceptable to Lessor, that Lessee is not in violation of such laws or that Lessee (or the Subject Lessee Party, as applicable) is not a person or entity identified as an SDN. Except as otherwise expressly provided in the foregoing sentence, and without further notice, any default by Lessee under this Paragraph 37 shall be deemed an incurable default by Lessee and, in addition to any other rights and remedies that Lessor may have upon such default, Lessor shall also have the right to immediately terminate this Lease upon written notice to Lessee and recover possession of the Premises.
38. Right of First Offer. Subject to the rights of any existing Lessees, if at any time during the initial Term space in the remainder of the Building adjacent to the Premises becomes
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available for lease (the Available Space), then Lessor, prior to entering into a lease with any third party respecting the Available Space, shall first offer to lease the same to Lessee by delivery of notice to Lessee (the Availability Notice). The Availability Notice shall set forth the terms upon which Lessor would be willing to lease to Lessee the Available Space, as determined by Lessor in its sole discretion, Lessee shall have ten (10) business days after receipt of the Availability Notice to unconditionally accept in writing or reject the terms set forth in the Availability Notice it being understood that Lessees failure to respond within the foregoing period shall be deemed a rejection of such terms. If Lessee does not unconditionally accept in writing the terms set forth in the Availability Notice within such ten (10) business day period, then Lessees rights under this Paragraph shall lapse and terminate and Lessor shall be entitled to lease the Available Space to any other party on such terms as Lessor desires; provided that the rental rate (taking into account adjustments for any differences between so-called net leases and gross leases) and Lessee improvement allowance, if any, shall not be materially less than that originally offered to Lessee, unless Lessor has first again offered the Available Space to Lessee for lease on the terms offered to the third party in accordance with the procedures specified above in this Paragraph. If Lessee accepts in writing the terms set forth in the Availability Notice, then for the period starting on the date of Lessees delivery of the Availability Notice to Lessee and ending thirty (30) days thereafter (the Waiting Period), Lessor shall not enter into any binding agreement to lease the Available Space to any other party, provided Lessor shall have the right to market the Available Space for lease. During the Waiting Period, Lessor and Lessee shall negotiate in good faith the terms of a definitive written amendment to this Lease or a new lease (a Definitive Lease Agreement), consistent with the terms set forth in the Availability Notice and otherwise on such terms and conditions acceptable to Lessor and Lessee. If Lessee and Lessor fail to execute and deliver a Definitive Lease Agreement within the Waiting Period, then Lessees rights under this Paragraph shall lapse and terminate, and Lessor shall be entitled to lease the Available Space to any other party on such terms as Lessor desires; provided that the rental rate (taking into account adjustments for any differences between so-called net leases and gross leases) and Lessee improvement allowance, if any, shall not be materially less than that originally offered to Lessee, unless Lessor has first again offered the Available Space to Lessee for lease on the terms offered to the third party in accordance with the procedures specified above in this Paragraph. Lessor shall not be required to offer the Available Space to Lessee during any period in which an event of default has occurred and is continuing. Furthermore, unless expressly mentioned and approved in the written consent of Lessor to any assignment or sublet as provided in this Lease, the right of first offer to lease under this Paragraph is granted for the personal benefit of Intersect ENT or a Permitted Transferee and may not be assigned or transferred by Intersect ENT or any Permitted Transferee. In any event, should Lessor elect not to lease the remaining ground floor space of the Building during the Term or Extended Term and a separate tenant occupies the remaining ground floor space, then in such event Lessor, at Lessors sole cost and expense, shall construct a restroom in the core of the ground floor of the Premises. For the purpose of reducing future disruption, prior to the Commencement Date, Lessor shall, at its sole cost and expense, stub the drainage pipe infrastructure in connection with the foregoing construction of a restroom.
39. General Provisions.
(a) Nothing contained in this Lease shall be deemed or construed by the parties hereto or by any third person to create the relationship of principal and agent or of
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partnership or of joint venture of any association between Lessor and Lessee, and neither the method of computation of rent nor any other provisions contained in this Lease nor any acts of the parties hereto shall be deemed to create any relationship between Lessor and Lessee other than the relationship of landlord and tenant.
(b) Each and all of the provisions of this Lease shall be binding upon and inure to the benefit of the parties hereto, and except as otherwise specifically provided elsewhere in this Lease, their respective heirs, executors, administrators, successors, and assigns, subject at all times, nevertheless, to all agreements and restrictions contained elsewhere in this Lease with respect to the assignment, transfer, encumbering, or subletting of all or any part of Lessees interest in this Lease.
(c) The captions of the paragraphs of this Lease are for convenience only and shall not be considered or referred to in resolving questions of interpretation or construction.
(d) This Lease is and shall be considered to be the only agreement between the parties hereto and their representatives and agents. All provisions of the non-binding letter of intent, negotiations, and oral agreements that are acceptable to both parties have been merged into and are included herein. There are no other representations or warranties between the parties and all reliance with respect to representations is solely upon the representations and agreements contained in this instrument.
(e) The laws of the State of California shall govern the validity, performance, and enforcement of this Lease. Notwithstanding which of the parties may be deemed to have prepared this Lease, this Lease shall not be interpreted either for or against Lessor or Lessee, but this Lease shall be interpreted in accordance with the general tenor of the language in an effort to reach an equitable result.
(f) Time is of the essence with respect to the performance of each of the covenants and agreements contained in this Lease.
(g) Lessee hereby expressly waives any and all rights of redemption granted by or under any present or future law in the event of Lessee being evicted or dispossessed for any cause, or in the event Lessor obtains possession of the Premises by reason of the breach by Lessee of any of the covenants and conditions of the Lease or otherwise. The rights given to Lessor herein are in addition to any rights that may be given to Lessor by any statute or otherwise.
(h) Recourse by Lessee for breach of this Lease by Lessor shall be expressly limited to Lessors interest in the Property and the rents, issues and profits therefrom, and in the event of any such breach or default by Lessor Lessee hereby waives the right to proceed against any other assets of Lessor or against any other assets of any manager or member of Lessor.
(i) Any provision or provisions of this Lease which shall be found to be invalid, void or illegal by a court of competent jurisdiction, shall in no way affect, impair, or invalidate any other provisions hereof, and the remaining provisions hereof shall nevertheless remain in full force and effect.
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(i) This Lease may be modified in writing only, signed by the parties in interest at the time of such modification.
(k) Each party represents to the other that the person signing this Lease on its behalf is properly authorized to do so, and in the event this Lease is signed by an agent or other third party on behalf of either Lessor or Lessee, written authority to sign on behalf of such party in favor of the agent or third party shall be provided to the other party hereto upon request.
(l) No binding agreement between the parties with respect to the Premises shall arise or become effective until this Lease has been duly executed by both Lessee and Lessor and a fully executed copy of this Lease has been delivered to both Lessee and Lessor.
(m) Lessor and Lessee acknowledge that, except in the event Lessee becomes a publicly reporting company, or Lessee merges with a public company, and as result Lessee is required to file this Lease with the SEC, or otherwise make public disclosures regarding this Lease, the terms and conditions of this Lease constitute confidential information of Lessor and Lessee and neither party shall disseminate orally or in written form a copy of this Lease, lease proposals, lease drafts, or other documentation containing the terms, details or conditions contained herein to any third party without obtaining the prior written consent of the other party. The foregoing shall not restrict the disclosing of this Lease or its terms to the attorneys, accountants, or other authorized business representatives or agents of the parties, or to the extent such disclosure is required in the normal conduct of Lessees business or to comply with applicable laws. Neither Lessor nor Lessee shall make any public announcement of the consummation of this Lease transaction without the prior approval of the other party. Nothing in this Paragraph shall prevent Lessor from submitting a copy of this Lease to the Court in connection with any action to enforce the provisions hereof.
(n) The rights and remedies that either party may have under this Lease or at law or in equity, upon any breach, are distinct, separate and cumulative and shall not be deemed inconsistent with each other, and no one of them shall be deemed to be exclusive of any other.
(o) Lessee waives any claim for consequential damages which Lessee may have against Lessor for breach of or failure to perform or observe the requirements and obligations created by this Lease.
(p) Lessor and Lessee each agree to and they hereby do, to the maximum extent permitted by law, waive trial by jury in any action, proceeding or counterclaim brought by either of the parties hereto against the other on any matters whatsoever arising out of or in any way connected with this Lease, the relationship of Lessor and Lessee, Lessees use or occupancy of the Premises and/or any claim of injury or damage, and any statutory remedy.
(q) This Lease shall not be recorded.
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IN WITNESS WHEREOF, the Lessor and Lessee have duly executed this Lease as of the date first set forth herein.
Lessor | ||
MENLO BUSINESS PARK, LLC, a California limited liability company | ||
By: | /s/ J. O. Ottmans | |
J. O. Ottmans, II, Manager | ||
By: | /s/ James R. Swartz | |
James R. Swartz, Manager | ||
Lessee | ||
Intersect ENT, Inc. a Delaware corporation | ||
By: | /s/ Lisa Earnhardt | |
Name: | Lisa Earnhardt | |
Its: | President & CEO | |
By: |
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Its: |
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EXHIBIT A
LEGAL DESCRIPTION
The land referred to in this Report is situated in the State of California, County of San Mateo, City of Menlo Park and is described as follows:
PARCEL J:
Parcel I as shown on that certain map entitled MENLO BUSINESS PARK PARCEL MAP, FOR MERGER OF PARCELS B AND C AS SHOWN ON MAP FILED AUGUST 19, 1986 IN VOLUME 57 OF PARCEL MAPS AT PAGES 86-87 AND LOTS 17 AND 18 OF THE TRACT OF MENLO BUSINESS PARK FILED APRIL 9, 1984 IN VOLUME III OF MAPS AT PAGES 50-52, SAN MATEO COUNTY RECORDS, MENLO PARK SAN MATEO COUNTY, CALIFORNIA, filed February 28, 1989 in Book 61 of Parcel Maps at pages 94 and 95, Records of San Mateo County, State of California.
A.P. NO.: 055-474-140 JPN III 050 000 17 I
III 050 000 18 T
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EXHIBIT B
MENLO BUSINESS PARK MASTER PLAN
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EXHIBIT C
Floor Plan
EXHIBIT D
Form of SNDA
RECORDING REQUESTED BY AND
WHEN RECORDED MAIL TO:
(Space Above For Recorders Use) |
SUBORDINATION, NON-DISTURBANCE
AND ATTORNMENT AGREEMENT
(754167)
THIS AGREEMENT, made and entered into as of the day of December, 2004, by and between PRINCIPAL I,IFE INSURANCE COMPANY, an Iowa corporation, with a principal office at c/o Principal Real Estate Investors, I,LC, 801 Grand Avenue, Des Moines, Iowa 50392-1360 (hereinafter called Lender) , MENLO BUSINESS PARK, LLC, a California limited liability company, with its principal office at c/o Tarlton Properties, Inc., 1530 OBrien Drive, Suite C, Menlo Park, California 94025 (hereinafter called Lessor), and , with its principal office at , Menlo Park, California 94025 (hereinafter called Lessee);
WITNESSETH:
WHEREAS, Lessee has by a written lease dated (hereinafter called the Lease) leased from Lessor all or part of certain real estate and improvements thereon located in the city of Menlo Park, state of California, as more particularly described in Exhibit A attached hereto (the Demised Premises); and
WHEREAS, Lessor is encumbering the Demised Premises as security for a. loan (the Loan) from Lender to Lessor (the Mortgage); and
WHEREAS, Lessee, Lessor and Lender have agreed to the following with respect to their mutual rights and obligations pursuant to the Lease and the Mortgage;
NOW, THEREFORE, for and in consideration of Ten Dollars ($10.00) paid by each party to the other and the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt whereof is hereby acknowledged, the parties hereto do hereby covenant and agree as follows:
Lessees interest in the Lease and all rights of Lessee thereunder, including but not limited to, any purchase option or right of first refusal in connection with a sale of the Demised Premises, if any, shall be and are hereby declared subject and subordinate to the Mortgage upon the Demised Premises and its terms, and the term Mortgage as used herein shall also include any amendment, supplement, modification, renewal, refinance or replacement thereof. Lender further agrees not to join Lessee in any foreclosure proceeding except to the extent necessary under applicable law, but such joinder shall not be in derogation of the rights of Lessee as set forth in this Agreement.
Notwithstanding anything herein to the contrary, Lender agrees to recognize Lessees purchase option or right of first refusal, if any, only to the extent the purchase price for the sale of the Demised Premises is paid directly and immediately to Lender and is sufficient to pay in full the then outstanding indebtedness under the Loan, including any applicable premium.
In the event of any foreclosure of the Mortgage or any conveyance in lieu of foreclosure, provided that the Lessee shall not then he in default beyond any grace period under the Lease and that the Lease shall then be in full force and effect, then Lender shall neither terminate the Lease nor join Lessee in foreclosure proceedings, nor disturb Lessees possession, and the Lease shall continue in full force and effect as a direct lease between Lessee and Lender. In the event Lender, its successors and/or assigns acquire the Demised Premises through foreclosure proceedings, deed-in-lieu of foreclosure, or otherwise, such event shall not activate Lessees purchase option or right of first refusal, if any.
After the receipt by Lessee of notice from Lender of any foreclosure of the Mortgage or any conveyance of the Demised Premises in lieu of foreclosure, Lessee will thereafter attorn to and recognize Lender or any purchaser at any foreclosure sale or otherwise as its substitute lessor on the terms and conditions set forth in the Lease.
Lessee hereby agrees that if Lessee has the right to terminate the Lease or to claim a partial or total eviction, or to abate or reduce rent due to a Lessor default under the Lease, Lessee will not exercise such right until it has given written notice to Lender, and Lender has failed within thirty (30) days after both receipt of such notice and the date when it shall have become entitled to remedy the same, to commence to cure such default and thereafter diligently prosecute such cure to completion within ninety (90) days of Lenders commencement to cure such default.
This Agreement and its terms shall be governed by the laws of the state where the Demised Premises are located and shall be binding upon and inure to the benefit of Lender, Lessor and Lessee and their respective successors and assigns, including, without limitation, any purchaser at any foreclosure sale or otherwise. This Agreement may not be modified orally or in any manner other than by an agreement, in writing, signed by the parties.
This Agreement may be executed in counterparts, each of which shall be deemed to be an original, and such counterparts when taken together shall constitute but one agreement.
IN WITNESS WHEREOF, this Agreement has been fully executed under seal on the day and year first above written.
LENDER | PRINCIPAL LIFE INSURANCE | |||||||||
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By: | PRINCIPAL REAL ESTATE INVESTORS, tic, a Delaware limited liability company, its authorized signatory | |||||||||
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LESSOR | MENLO BUSINESS PARK, LLC, | |||||||||
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On , before me, , a Notary Public in and for said state, personally appeared , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument, the person, or the entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
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On , before me, , a Notary Public in and for said state, personally appeared , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument, the person, or the entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
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On , before me, , a Notary Public in and for said state, personally appeared , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument, the person, or the entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
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Notary Public in and for said State |
(SEAL)
STATE OF |
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) ss. | ||||
COUNTY OF |
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On , before me, , a Notary Public in and for said state, personally appeared , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument, the person, or the entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
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Notary Public in and for said State |
(SEAL)
STATE OF |
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) ss. | ||||
COUNTY OF |
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On , before me, , a Notary Public in and for said state, personally appeared , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument, the person, or the entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
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Notary Public in and for said State |
(SEAL)
EXHIBIT E
Description of Tenant Improvements
In accordance with Paragraph 13, Lessor shall complete the following Tenant Improvements:
(see attached)
* If during the initial Term of the Lease, Lessor leases the remaining ground floor portion of the Building to a tenant other than Lessee, then Lessor, at Lessors sole cost and expense, shall construct a restroom core in the ground floor portion of the Premises.
PROPOSAL REV3
February 22, 2012
Tarlton Properties
Menlo Park. CA
Attention: | John Tarlton | |
Subject: | H.V.A.C. BUDGET PROPOSAL REV3 | |
INTERSECT ENT T1 | ||
1555 ADAMS DRIVE | ||
MENLO PARK, CA |
Dear John:
Western Allied Mechanical is pleased to present this budget proposal to design, furnish and install the heating, ventilating and air conditioning system for the subject project.
This proposal has been prepared based in accordance with the marked up floor plan drawings sent 1/19/2012 and the as-built drawings.
Design Summary:
Spray Room:
Spray room shall have - 68 F design temperature with humidity control of 35% RH +/- 5% RH. Spray room will be initially - 800 square feet and will be expanded the 1,200 square feet. Room to be a Class 10.000 space with HEPA filtered supply and low wall return. System will be designed with 100% OSA and 3,200 CFM of spray room exhaust.
For the mechanical system the core equipment including AHU, humidification system, acetone exhaust shall be sized for the full build out. It is expected that the space wane hard ceiling and walls with fully seated vapor barrier with one entrance and exit from the space. We have assumed 5W per square foot of internal electrical load, 1.2 W/SF for lighting and 4 people.
For the acetone removal, we have reviewed BAAQMD requirements for VOC s. The limit for any one person emitting Acetone is 4,653 kg/yr.
3840 microgram = 0.00000384 kilogram
60 x 24 x 365 = 525,600min/year
525,600 x .00000334 = 2.018 kg/year. This appears to be way below the standard; but this needs to be confirmed
LICENSE NO. 826782
Page 2
Intersect ENT Budget Proposal REV3
02/22/12
BAAQMD Regulation:
8-4-302 Solvents and Surface Coating Requirements: A person shall not use solvents or apply surface coatings one or more of the following requirements are satisfied: 302.1 A person shall not emit more than 4,533 kg (5 tons) of volatile organic compounds (VOC) from any source during any calendar year; or 302.2 Emissions are controlled by approved emission control system with an overall abatement efficiency of 85% on a mass basis. If reduction is achieved by incineration, at least 90% by weight of the organic compound emissions shall be oxidized to carbon dioxide; or 302.3 The coating operation uses a coating with a VOC content less than or equal to 420 grams per liter (3.5 lb/gal) of coating as applied.
CER Rooms:
The CER rooms will be composed of the 1,500 square foot area northeast of the spray room (Propel, S8, and expanded implant line) with a small 900 square foot
area southeast of the spray room (S8 delivery system line. The We have assume Class 10.000 untiring fan powered HEPA filtration. Roughly half of the HEPAs will be direct ducted to the AC unit supply. The others will
recirculate to the space. For budgetary purposes, we have assumed low wall returns will be needed in the corners of each area and that the temperature may fluctuate in the space 72° + -3-4° F. We have assumed 5W per square foot of
internal electrical load. 1,2 W/SF for lighting and 4 People.
Gowning:
We have assumed that the current layout is not changing and that HEPA filtered supply is all that is required.
Inclusions:
The following items are specifically included us this proposal:
Item | Qty, | Description | ||
1. |
1 | 4.000 CFM rooftop air handler to spray room lab including: | ||
100% OSA | ||||
Hot water preheat coil | ||||
Glycol chilled water coil | ||||
Electric steam humidifier | ||||
7.5HP premium efficiency supply fan with VED | ||||
Low velocity filter section with 35/95% filtration | ||||
DDC Controls | ||||
Note: | ||||
1. Unit will be mounted in the equipment yard | ||||
2. Unit will require separate 460V power to supply fan | ||||
3. Unit will require 1201/ power for controls | ||||
4. Unit will require condensate chains from cooling and humidification section. | ||||
2. |
1 | 30-ton air cooled glycol chiller including: | ||
Single point power connection | ||||
Low temp proms required for dehumidification | ||||
Factory Start up |
LICENSE NO: 826782
Page 3
Intersect ENT Budget Proposal REV3
02/22/12
Note: | ||||
1. Unit will be mounted in the equipment yard adjacent to the air handling unit. | ||||
2. Unit will require make op water and drain by the plumber | ||||
3. Unit MCA is 69.9 Amps | ||||
3. |
1 | 105 lb/hr Electric Steam humidifier including: | ||
40 kW electrical load | ||||
Modulating capacity | ||||
Duct high humidity sensor | ||||
DDC controls. | ||||
Sized for 100% OSA. | ||||
Note; This unit will require electrical commotion, a 6 GPM make-up water line. and a drain by others. | ||||
4. |
1 | 3,200 CFM utility set exhaust fan | ||
5 HP premium efficiency fan | ||||
Vibration isolation | ||||
Note: We have assumed, based on the acetone usage that we can safely exhaust the acetone to the atmosphere and that the dilution iv such that it will comply with BAAQMD requirements. | ||||
5. |
1 | 200 MBH boiler skid including: | ||
1 HP hot water pomp | ||||
Expansion tank | ||||
Pot feeder | ||||
Note: | ||||
1. Boiler will be mounted in the service yard and will require gas. make-up water, and drain. | ||||
2 Hot water pump will require power | ||||
3. Boiler will require 120V power | ||||
6. |
25 | 99,99% fan powered HEPA filters to serve CER labs | ||
Note: This pricing assumes~2,800 square feet of CER lab with 8 foot modular clean room systems on either side | ||||
7. |
2 | 99.99% fan powered HEPA filters to serve gowing room with hard ceiling adaptors | ||
8. |
8 | 99.99% terminal HEPA filters with hard ceiling adaptors to serve spray room. | ||
Note: Additional fan powered HEPA filters will be required for the future expansion of the spray room. | ||||
9. |
12 | Griller, registers, and diffusers | ||
(L2) Low wall return grilles |
LICENSE NO. 826782
Page 4
Intersect ENT Budget Proposal REV3
02/22/12
10. |
Lot | Ductwork; | ||
All lab spray lab ductwork will be low pressure round or rectangular galvanized sheet metal ductwork built in accordance with S.M.A.C.N.A. | ||||
All CER office supply and return air ductwork will be pre-insulated Alumifilex with a final 6 Acoustiflex final connection for noise attenuation. | ||||
We have assumed that we will provide (&) exhaust headers each exhausting 400 CFM with connections for (32) spray hoods. Spray hoods and final connections are assumed to be provided by tenant. | ||||
(12) Low in-wall returns requiring 8 deep walls or exposed ductwork finish | ||||
(10) Relocate supply and return diffusers | ||||
(27) Ducted HEPA Filters | ||||
11. |
Lot | Piping | ||
All chilled water hot water, and humidifier piping will be Type L copper pipe and fitting. | ||||
12. |
Lot | Insulation | ||
All supply and return ductwork and piping system shall be insulated in accordance with Title 24. | ||||
All exposed supply and return roof cruet will be externally wrapped with Aluminum faced jacket. | ||||
13. |
Lot | Controls: | ||
DDC Controls: We have included a DDC system for the new equipment serving the spray lab. The following will have DDC controls: | ||||
(1) Air handler with VFD control | ||||
(1) Boiler plant | ||||
(1) Chiller plant | ||||
(1) Electric humidifier | ||||
Other Controls: | ||||
Relocate (5) existing thermostats | ||||
Installation of (1) unit smoke detector | ||||
(4) Magnehelic room pressure gauges | ||||
Note: We are assuming that all existing equipment will be controlled by existing t-stats, time clocks, in their current locations. |
LICENSE NO. 826782
Page 5
Intersect ENT Budget Proposal REV3
02/22/12
14. |
Lot | N.E.B.B. certified start-up. test and balance. | ||
15. |
Lot | Project management including attendance of all design coordination meetings, pre-construction meetings, construction meetings, and all job management functions. | ||
16. |
Lot | Professionally engineered drawing. prepared by in-house Registered Professional Mechanical Engineer. | ||
17, |
Lot | All rigging, hoisting and material handling as required to accommodate this scope of work. |
RV3 Budget Price:
The total bet price for the H.V.A.C. work as described including all taxes, licenses, and insurance, excluding bond, is $304,403.00
Clarifications:
1. | We need to clarify tine acetone scrubbing requirement as well as the BAAQMD requirements with the tenant to find out why the requirement was generated as we have assumed based on the calculations above that dilution is a suitable option. |
Exclusions:
This proposal specifically excludes the following items:
1. | All electrical work including power and 120 volt wiring, conduit disconnect switches, motor starters, interlock wiring of smoke/fire dampers, smoke detectors arid smoke detector wiring. |
2. | All plumbing work including gas, make-up water, and condensate piping. |
3. | All structural engineering and/or support work as required to accommodate mechanical equipment including all steel or wood air conditioning supports. |
4. | All cutting, coring, patching, painting, roofing, roof screens, etc. |
5. | All overtime work. |
6. | Survey and/or repair of existing H.V.A.C. equipment. |
7. | Removal and/or replacement of ceiling tile or grid as required to accommodate mechanical modifications. |
8. | All architectural sheetmetal and/or louvers. |
9. | All work associated with hazardous materials (lead, asbestos. etc.). |
10. | All permits and fees. |
11. | Excluded are cash discount in exchange for quick payment, regardless of pre bid documents, unless specifically agreed to in writing by Western Allied. |
LICENSE NO. 826782
Page 6
Intersect ENT Budget Proposal REV3
02/22/12
Western Allied Mechanical appreciates the opportunity to present this proposal and looks forward to working with you on this project
Should you have any questions, or if I can be of further assistance, please feel free to call.
Sincerely,
/s/ Zachary Russi |
Zachary Russi, P.E. LEED AP |
Project Executive |
Note: This price is valid for 90 days from date of issuance. Should this proposal expire, a revised proposal can be provided upon request.
LICENSE NO. 826782
Tarlton Properties, Inc. Summary Sheet
Project: | Intersect ENT Tenant Improvement | |
Project Address: | 1555 Adams Drive, Menlo Park | |
Contractor: | TBD | |
Budget Basis | DES Drawings & Subsequent Meetings/Phone Conversations | |
Construction Area: | 32,458 SF |
Category |
Sub-Total | Cost Per SF | ||||||
Electrical. |
120,000 | 3.70 | ||||||
HVAC |
304,403 | 9.38 | ||||||
Demolition |
7, 000 | 0.22 | ||||||
Plumbing |
20,000 | 0.62 | ||||||
Walls (210 LF + Smoothwall) |
25,000 | 0.77 | ||||||
Doors (6 singles & 1 double) |
12,000 | 0.37 | ||||||
Sprinklers |
35,000 | 1.08 | ||||||
Paint |
8,000 | 0.25 | ||||||
Flooring New & Patch |
5,000 | 0.15 | ||||||
Modular Clean Room Wails 000 SF) |
75,000 | 2.31 | ||||||
Chan Link I 100LF & 3 gates i |
7,500 | 0.23 | ||||||
Pass Throughs (4 EA) |
20,000 | 0.62 | ||||||
Hard Lid (1,200 SF) |
9,000 | 0.28 | ||||||
Saw Cut & Patch Back |
5,000 | 0.15 | ||||||
T-Bar |
10,000 | 0.31 | ||||||
Janitorial |
1,500 | 0.05 | ||||||
Supervision, Overhead & Profit (10%) |
66,440 | 2.05 | ||||||
Sub-Total Hard Costs & Projected GMP |
730.843 | 22.52 | ||||||
|
|
|
|
|||||
Contingency for Project Generated COs (5%) |
38.542 | 1.13 | ||||||
Permits/Fees (Estimate) |
21.921 | 0.68 | ||||||
Architectural & Engineering *** |
21,000 | 0.85 | ||||||
Construction Management **** |
38.389 | 1.18 | ||||||
TOTAL |
848,680 | 26.15 | ||||||
|
|
|
|
|||||
Tenant improvement Allowance |
(300.000 | ) | (12..02 | ) | ||||
Equipment Loan |
(450,000 | ) | (13.86 | ) | ||||
Reuiqrired Value Engineering |
8.880 | 0.27 |
*** | NIC any add for increased scope |
**** | Calculated at 5% of hard costs, per lease. This fee is for the coordination and oversight of the entire process, including entitlements, etc. |
Chemicals List
HAZARDOUS MATERIALS INVENTORY
TENANT NAME: | DATE: | |
SUITE NUMBER(S): |
Chemical |
Primary Hazard |
Secondary Hazard |
S, L or G? |
current |
Projected |
Largos |
Amount in Use |
Amount in |
EHS? | |||||||||
Acetone | Flarnmability | Irritation | L | 30 L | 100 L | 4 L | 6 L | 30 L | ||||||||||
Isopropyl Alcohol | Flarnmability | Irritation | L | 20 L. | 40 L | 10 L | 10 L | 10 L | ||||||||||
Mometasone Furoate |
Irritation | NA | S | 60g | 300 g | 50 g | 60 g | NA | ||||||||||
PLEA Copolymers | Irritation | NA | 5 | 3 Kg | 6 Kg | 1 Kg | 3 Kg | NA | ||||||||||
Acetonitrile | Flarnmability | Irritation | L | 1 L | 2 L | 1 L | 1 L | 1 L | ||||||||||
PEG | Irritation | NA | S | 1 Kg | 2 Kg. | 1 Kg | 1 Kg | NA | ||||||||||
Desiccant | Irritation | NA | S | 15 Kg | 30 Kg | 1.5 Kg | NA | |||||||||||
Methylene Chloride |
Flarnmability | Irritation | L | 1L | 2 L | 1 L | 1 L | 1 L |
EXHIBIT G
I.IST OF FURNITURE
Exhibit 10.8
SINEXUS, INC.
January 28, 2008
Lisa Earnhart
[HOME ADDRESS]
Re: | Employment Terms |
Dear Lisa:
Sinexus, Inc. (the Company) is pleased to offer you the position of President and Chief Executive Officer of the Company on the following terms.
Your employment with the Company will commence on a mutually agreeable date (Start Date). You will be responsible for all aspects of the Company and shall perform such duties as are ordinary, customary and necessary in your role as the President and Chief Executive Officer. You will report directly to the Board of Directors of the Company (the Board). Of course, the Company may change your position, duties, and work location from time to time as it deems necessary.
Your annual base salary compensation will be $300,000 per year, less payroll deductions and all required withholdings (Base Salary). You will be paid semi-monthly and you will be eligible for the following standard Company benefits: medical insurance, vacation, sick leave, holidays. Details about these benefits are available for your review. Sinexus may modify compensation and benefits from time to time as it deems necessary.
You will be eligible to receive an annual bonus of up to thirty-five percent (35%) of your annual base salary payable upon the achievement of certain milestones mutually agreed upon by you and the Company. Your bonus, however, shall be a minimum of $105,000.00 (Minimum Bonus) for calendar year 2008. This Minimum Bonus shall be pro-rated based on the number of whole weeks you work for Sinexus during 2008.
Subject to the approval of the Companys Board of Directors, you will be granted an initial option to purchase shares of the Companys Common Stock equal to 5% (Ownership Percentage) of the Companys capital stock, on a fully diluted basis (Initial Grant). The per share exercise price for such stock shall be equal to the fair market value of the Common Stock on the date of grant which will be shortly after your Start Date. In addition, after the initial closing of the Companys Series B Preferred Stock Financing, the Company will recommend you be granted an additional option for the number of shares required to maintain your Ownership Percentage (Additional Grant). Your Additional Grant shall have an exercise price equal to the fair market value on the date it is granted which will be shortly after the initial closing. Any options to be granted beyond the Initial Grant and the Additional Grant shall be granted at the
discretion of the Board of Directors. Your options shall vest over four years from the date of grant, with twenty-five percent (25%) vesting at the first anniversary of employment and the balance vesting on a monthly basis thereafter. Provided, however, in the event the Company is sold to a third party during your employment, your options shall contain a double-trigger acceleration provision such that if triggered, all your outstanding option shares shall become fully vested.
As a Company employee, you will be expected to abide by Company rules and regulations and sign and comply with the attached Proprietary Information and Inventions Agreement which prohibits unauthorized use or disclosure of Company proprietary information.
In your work for the Company, you will be expected not to use or disclose any confidential information, including trade secrets, of any former employer or other person to whom you have an obligation of confidentiality. Rather, you will be expected to use only that information which is generally known and used by persons with training and experience comparable to your own, which is common knowledge in the industry or otherwise legally in the public domain, or which is otherwise provided or developed by the Company. You agree that you will not bring onto Company premises any unpublished documents or property belonging to any former employer or other person to whom you have an obligation of confidentiality.
You may terminate your employment with Company at any time and for any reason whatsoever simply by notifying the Company. Likewise, the Company may terminate your employment at any time and for any reason whatsoever, with or without cause or advance notice.
In the event of your death, permanent disability, resignation for Good Reason, or you are terminated without Cause (all as defined below)(Termination of Services): (i) you shall receive six (6) months Base Salary, to be paid monthly; (ii) all your outstanding options will continue to vest for a period of twelve (12) months following Termination of Services.
Cause means (1) any willful, material violation by you of any law or regulation applicable to the business of the Company, (2) your commission of any felony or any other crime involving moral turpitude, or any willful perpetration by you of a common law fraud, (3) your commission of an act of personal dishonesty which involves personal profit in connection with the Company or any other entity having a material business relationship with the Company, or (4) any willful and continued failure or refusal by you to perform the material, lawful, duties required of you in your capacity as a senior executive of the Company or a material breach of any applicable invention assignment and/or confidentiality agreement or similar agreement that materially damages the Company; provided that with respect to willful and continued failures or refusals to performs duties, the Company will give written notice of such event and will give you ten (10) calendar days to cure such event before it may terminate you.
Good Reason for a resignation would exist in the event of (1) a material reduction in your salary, (2) a material reduction in your responsibilities (provided no such reduction shall be deemed to have occurred solely by reason of the change in the Companys status from that of an independent company to that of a subsidiary of a buyer of the Company following a change of control of the Company), or (3) a relocation of the offices that your are required to work at a location more than fifty (50) miles from the office at which you previously were required to work
This letter, together with your Proprietary Information and Inventions Agreement, forms the complete and exclusive statement of your employment agreement with Sinexus. The employment terms in this letter supersede any other agreements or promises made to you by anyone, whether oral or written. This letter agreement cannot be changed except in a writing signed by you and a duly authorized officer of the Company.
Please sign and date this letter, and return it to me by Feb. 20, 2008, if you wish to accept employment at Company under the terms described above.
We look forward to your favorable reply and to a productive and enjoyable work relationship.
Sincerely,
/s/ Donald J. Eaton |
Donald J. Eaton |
President and Chief Executive Officer |
Accepted:
/s/ Lisa Earnhardt |
2/21/08 | |||
Lisa Earnhart | Date |
Attachment: Proprietary Information and Inventions Agreement
![]() |
1555 Adams Drive Menlo Park, CA 94025 T.650.641.2100 F.650.641.2120 |
July 11, 2013
VIA HAND DELIVERY
Lisa D. Earnhardt
Intersect ENT, Inc.
1049 Elwell Court
Palo Alto, CA 94304
Re: | New Employment Terms |
Dear Lisa:
As we have discussed, this letter agreement confirms an amendment (the Amendment) to the terms of your employment offer letter with Intersect ENT, Inc. (the Company) dated January 28, 2008 (the Offer Letter). The new employment terms contained in this Amendment are effective as of the date this Amendment is executed (the Effective Date).
Your Offer Letter is hereby amended to reflect the following:
1. | Position: |
Your position is President and Chief Executive Officer.
2. | Severance: |
The tenth, eleventh and twelfth paragraphs of the Offer Letter are hereby amended and restated to read as follows:
In the event of your death, permanent disability, resignation for Good Reason, or you are terminated without Cause (all as defined below) (Termination of Services) and provided such termination constitutes a separation from service (as defined under Treasury Regulation Section 1.409A-1(h), without regard to any alternative definition thereunder): you shall receive (i) twelve (12) months Base Salary, less all applicable withholdings and deductions, paid over such 12-month period immediately following the Separation from Service, on the schedule described below (the Salary Continuation); (ii) all your outstanding options will vest in full upon such Termination of Services and (iii) a lump sum payment equal to your annual target bonus (collectively, the Severance Benefits).
Such Severance Benefits are conditional upon (a) your continuing to comply with your obligations under your Proprietary Information and Inventions Agreement during the period of time in which you are receiving the Severance
July 11, 2013
Lisa D. Earnhardt
Page 2
Benefits; (b) your delivering to the Company an effective, general release of claims in favor of the Company in a form acceptable to the Company within 60 days following your Separation from Service; and (c) if you are a member of the Board, your resignation from the Board, to be effective no later than the date of your termination date (or such other date as requested by the Board). The Salary Continuation will be paid in equal installments on the Companys regular payroll schedule and will be subject to applicable tax withholdings over the period outlined above following the date of your Termination of Services; provided, however, that no payments will be made prior to the 60th day following your Termination of Services. On the 60th day following your Termination of Services, the Company will pay you in a lump sum the Salary Continuation that you would have received on or prior to such date under the original schedule but for the delay while waiting for the 60th day in compliance with Section 409A of the Internal Revenue Code of 1986, as amended (Code Section 409A) and the effectiveness of the release, with the balance of the Salary Continuation being paid as originally scheduled.
Cause means (1) any willful, material violation by you of any law or regulation applicable to the business of the Company, (2) your commission of any felony or any other crime involving moral turpitude, or any willful perpetration by you of a common law fraud, (3) your commission of an act of personal dishonesty which involves personal profit in connection with the Company or any other entity having a material business relationship with the Company, or (4) any willful and continued failure or refusal by you to perform the material, lawful duties required of you in your capacity as a senior executive of the Company or a material breach of any applicable invention assignment and/or confidentiality agreement or similar agreement that materially damages the Company; provided that with respect to willful and continued failures or refusals to perform duties, the Company will give written notice of such event and will give you ten (10) calendar days to cure such event before it may terminate you.
Good Reason for your resignation would exist upon the occurrence of any of the following events without your written consent: (1) a material reduction in your base salary, (2) a material reduction in your responsibilities (provided no such reduction shall be deemed to have occurred solely by reason of the change in the Companys status from that of an independent company to that of a subsidiary of a buyer of the Company following a change of control of the Company), or (3) a relocation of the office where you are required to work to a location more than fifty (50) miles from the office where you previously were required to work; provided, however, that to resign for Good Reason, you must (1) provide written notice to the Companys Vice President of Finance within 30 days after the first occurrence of the event giving rise to Good Reason setting forth the basis for your resignation, (2) allow the Company at least 30 days from receipt of such written notice to cure such event, and (3) if such event is not reasonably cured within such period, your resignation from all positions you then hold with the Company is effective not later than 90 days after the expiration of the cure period.
July 11, 2013
Lisa D. Earnhardt
Page 3
3. | Section 409A. |
A new thirteenth paragraph is added to the Offer Letter to read as follows:
It is intended that all of the benefits and payments under this letter satisfy, to the greatest extent possible, the exemptions from the application of Code Section 409A provided under Treasury Regulations 1.409A-1(b)(4), 1.409A-1(b)(5) and 1.409A-1(b)(9), and this letter will be construed to the greatest extent possible as consistent with those provisions. If not so exempt, this letter (and any definitions hereunder) will be construed in a manner that complies with Code Section 409A, and incorporates by reference all required definitions and payment terms. For purposes of Code Section 409A (including, without limitation, for purposes of Treasury Regulation Section 1.409A-2(b)(2)(iii)), your right to receive any installment payments under this letter (whether severance payments, reimbursements or otherwise) will be treated as a right to receive a series of separate payments and, accordingly, each installment payment hereunder will at all times be considered a separate and distinct payment. Notwithstanding any provision to the contrary in this letter, if you are deemed by the Company at the time of your Termination of Services to be a specified employee for purposes of Code Section 409A(a)(2)(B)(i), and if any of the payments upon your Termination of Services set forth herein and/or under any other agreement with the Company are deemed to be deferred compensation, then if delayed commencement of any portion of such payments is required to avoid a prohibited distribution under Code Section 409A(a)(2)(B)(i) and the related adverse taxation under Code Section 409A, the timing of the payments upon your Termination of Services will be delayed as follows: on the earlier to occur of (i) the date that is six months and one day after the effective date of your Termination of Services, and (ii) the date of the your death (such earlier date, the Delayed Initial Payment Date), the Company will (A) pay to you a lump sum amount equal to the sum of the payments upon Termination of Services that you would otherwise have received through the Delayed Initial Payment Date if the commencement of the payments had not been delayed pursuant to this paragraph, and (B) commence paying the balance of the payments in accordance with the applicable payment schedules set forth above.
Except as modified herein, all other terms of the Offer Letter shall remain in full force and effect.
This Amendment, together with the Offer Letter and your Proprietary Information and Inventions Agreement, constitutes the entire agreement between you and the Company regarding the terms of your employment. It supersedes any prior statements, representations or promises made to you concerning the subjects contained in this Amendment and the Offer Letter, and only can be modified in a writing signed by you and a duly authorized director or officer of the Company.
July 11, 2013
Lisa D. Earnhardt
Page 4
Please sign below if these terms are acceptable to you, and return the fully signed Amendment to me within five (5) business days.
Understood and Agreed:
/s/ Lisa D. Earnhardt |
/s/ Monika A. De Martin | |||
Lisa D. Earnhardt | Monika A. De Martini | |||
President and Chief Executive Officer | Chief Financial Officer | |||
Intersect ENT, Inc. | Intersect ENT, Inc. | |||
7/11/13 |
7/19/13 | |||
Date | Date |
Exhibit 10.9
June 23, 2011
Robert Binney
[HOME ADDRESS]
Re: | Employment Terms |
Dear Rob:
Intersect ENT, Inc. (the Company) is pleased to offer you the position of Vice President of Sales on the following terms.
You will report to me, Lisa Earnhardt, representing Intersect ENT in the United States. Of course, the Company may change your position, duties, and work location from time to time in its discretion.
Your base salary will be paid at the rate of $150,000 per year, less payroll deductions and all required withholdings. You will be paid twice monthly. Additionally, you will be eligible for $160,000 of variable target compensation based on sales performance that will be paid quarterly ($40,000). For the first six months, this variable compensation will be guaranteed at $40,000/quarter, assuming you remain an employee in good standing for that full period. You will be eligible for the following Company benefits: medical insurance, life insurance, long-term disability, flexible spending plan, personal time off (PTO) of 5 weeks per year, and holidays. PTO includes both vacation and sick time. Additionally, as a member of the sales team, you will receive a car allowance of $700/month. Details about these benefit plans are available for your review. On an annual basis during the term of your employment with the Company, the Company will consider granting you an annual increase in your base salary. The Company may change compensation and benefits from time to time in its discretion.
Subject to and following approval by the Companys Board of Directors (the Board), the Company shall grant you an option to purchase 350,000 shares of the Companys common stock at the fair market value as determined by the Board as of the date of grant (the Option). The Option will be subject to the terms and conditions of the Companys 2003 Equity Incentive Plan (the Plan) and your grant agreement. Your grant agreement will include a four year vesting schedule, under which 25% of your Option will vest 12 months after the first day of your employment and 1/48th of the total will vest monthly over the next three years, until either the Option is fully vested or your employment ends, whichever occurs first.
In the event of a change of control, shares subject to outstanding options granted will be accelerated as to 50% of the unvested options upon a change of control and 50% of the unvested options upon termination without cause or good reason within 12 months of a change of control.
Robert Binney
June 23, 2011
Page 2
In the event of a change of control, if the successor does not assume or substitute the outstanding option for an equivalent award, then the shares subject to the option shall fully vest.
As a condition of your employment, you will be required to abide by the Companys policies and procedures, as may be in effect from time to time. You also agree to read, sign and comply with the Companys Employee Confidential Information and Inventions Assignment Agreement (Confidential Information Agreement), attached hereto as Exhibit A.
In your work for the Company, you will be expected not to make unauthorized use or disclosure of any confidential information or materials, including trade secrets, of any former employer or other third party to whom you have an obligation of confidentiality. Rather, you will be expected to use only that information generally known and used by persons with training and experience comparable to your own, which is common knowledge in the industry or otherwise legally in the public domain, or which is otherwise provided or developed by the Company.
Your employment relationship is at-will. Accordingly, you may terminate your employment with the Company at any time and for any reason whatsoever simply by notifying the Company. Likewise, the Company may terminate your employment at any time, with or without cause or advance notice.
This letter, together with your Confidential Information Agreement, forms the complete and exclusive statement of your agreement with the Company concerning the subject matter hereof. The terms in this letter supersede any other representations or agreements made to you by any party, whether oral or written. The terms of this agreement cannot be changed (except with respect to those changes expressly reserved to the Companys discretion in this letter) without a written agreement signed by you and a duly authorized officer of the Company. This agreement is to be governed by the laws of the state of California without reference to conflicts of law principles. In case any provision contained in this agreement shall, for any reason, be held invalid or unenforceable in any respect, such invalidity or unenforceability shall not affect the other provisions of this agreement, and such provision will be construed and enforced so as to render it valid and enforceable consistent with the general intent of the parties insofar as possible under applicable law. With respect to the enforcement of this agreement, no waiver of any right hereunder shall be effective unless it is in writing. For purposes of construction of this agreement, any ambiguity shall not be construed against either party as the drafter. This agreement may be executed in more than one counterpart, and signatures transmitted via facsimile shall be deemed equivalent to originals. As required by law, this offer is subject to satisfactory proof of your identity and right to work in the United States.
Robert Binney
June 23, 2011
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If you wish to accept employment at the Company under the terms described above, please sign and date this letter and the Confidential Information Agreement, and return them to me by June 30, 2011. If you accept our offer, we would like you to start on July 15, 2011 or on another start date mutually agreeable to you and the Company.
We look forward to your favorable reply and to a productive and enjoyable work relationship.
Sincerely,
INTERSECT ENT, INC. |
/s/ Lisa Earnhardt |
Lisa Earnhardt, CEO |
Exhibit A Confidential Information Agreement
Understood and Accepted:
/s/ Rob Binney |
6-25-11 |
|||||
[Employee] | Date |
November 18, 2013
VIA HAND DELIVERY
Robert Binney
Intersect ENT, Inc.
1555 Adams Drive
Menlo Park, CA 94025
Re: | New Employment Terms |
Dear Robert:
As we have discussed, this letter agreement confirms an amendment (the Amendment) to the terms of your employment offer letter with Intersect ENT, Inc. (the Company) dated June 23, 2011 (the Offer Letter). The new employment terms contained in this Amendment are effective as of the date that this Amendment is executed.
Your Offer Letter is hereby amended to reflect the following:
1. | Severance Upon Termination in Connection with Change in Control: |
Subject to your obligations below, you will be entitled to the following:
(a) Upon the occurrence of a Change of Control Transaction (as defined below), the vesting of all outstanding stock options held by you shall be accelerated such that 50% unvested shares subject to your outstanding options shall be fully vested.
(b) You shall receive the Severance Benefits (as defined below) if in connection with or within twelve (12) months after a Change of Control Transaction, your employment is either (i) terminated by the Company or a successor entity without Cause (defined below), or (ii) terminated by you due to your resignation for Good Reason (defined below), but only if the event constituting Good Reason upon which your resignation is based occurs in connection with or subsequent to and as a result of such Change of Control Transaction and further provided that such termination constitutes a separation from service (as defined under Treasury Regulation Section 1.409A-1(h), without regard to any alternative definition thereunder, a Separation from Service).
(c) Definitions:
(i) A Change of Control Transaction shall have occurred if the Company consummates a change of control merger or acquisition transaction (not including any initial public offering of the Companys securities) as described in Article 4, Section B(2)(c) subsections (ii) and (iii) of the Companys Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State on February 15, 2013.
Robert Binney
June 23, 2011
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(ii) Severance Benefits shall mean (i) payment of six (6) months of your base salary, less all applicable withholdings and deductions, paid over such 6-month period immediately following the Separation from Service, on the schedule described below (the Salary Continuation) (ii) a lump sum payment equal to your annual target bonus prorated for the number of days of the then current bonus period worked prior to your Separation from Service and (iii) vesting of all outstanding stock options held by you such that all unvested shares subject to your outstanding options shall be fully vested.
Such Severance Benefits are conditional upon (a) your continuing to comply with your obligations under your Proprietary Information and Inventions Agreement during the period of time in which you are receiving the Severance Benefits; and (b) your delivering to the Company an effective, general release of claims in favor of the Company in a form acceptable to the Company within 60 days following your Separation from Service. The Salary Continuation will be paid in equal installments on the Companys regular payroll schedule and will be subject to applicable tax withholdings over the period outlined above following the date of your Separation from Service; provided, however, that no payments will be made prior to the 60th day following your Separation from Service. On the 60th day following your Separation from Service, the Company will pay you in a lump sum the Salary Continuation and the pro-rated target bonus payment that you would have received on or prior to such date under the original schedule but for the delay while waiting for the 60th day in compliance with Section 409A of the Internal Revenue Code of 1986, as amended (Code Section 409A) and the effectiveness of the release, with the balance of the Salary Continuation being paid as originally scheduled.
For the purposes of the Offer Letter, Cause shall mean any of the following conduct by you: (i) embezzlement, misappropriation of corporate funds, or other material acts of dishonesty; (ii) commission or conviction of any felony, or of any misdemeanor involving moral turpitude, or entry of a plea of guilty or nolo contendere to any felony or misdemeanor; (iii) engagement in any activity that you know or should know could materially harm the business or reputation of the Company; (iv) material failure to adhere to the Companys corporate codes, policies or procedures as in effect from time to time; (v) material violation of any statutory, contractual, or common law duty or obligation to the Company, including, without limitation, the duty of loyalty; (vi) material breach of the Confidentiality Agreement; (vii) repeated failure, in the reasonable judgment of the Board, to substantially perform your assigned duties or responsibilities after written notice from the Board describing the failure(s) in reasonable detail and your failure to cure such failure(s) within thirty (30) days of receiving such written notice; or material breach of the Proprietary Information and Inventions Agreement executed by you.
Robert Binney
June 23, 2011
Page 3
For the purposes of the Offer Letter, Good Reason shall mean any of the following which occurs without your written consent: (i) a relocation of the office where you are required to work to a location more than thirty-five (35) miles from the office where you previously were required to work; (ii) a material decrease in your base salary (except for salary decreases generally applicable to the Companys other executive employees); or (iii) a material reduction in the scope of your duties or responsibilities, provided, however, that to resign for Good Reason, you must (1) provide written notice to the Companys chief Executive Officer within 30 days after the first occurrence of the event giving rise to Good Reason setting forth the basis for your resignation, (2) allow the Company at least 30 days from receipt of such written notice to cure such event, and (3) if such event is not reasonably cured within such period, your resignation from all positions you then hold with the Company is effective not later than 90 days after the expiration of the cure period.
2. | Code Section 409A. |
It is intended that all of the benefits and payments under this letter satisfy, to the greatest extent possible, the exemptions from the application of Code Section 409A provided under Treasury Regulations 1.409A-1(b)(4), 1.409A-1(b)(5) and 1.409A-1(b)(9), and this letter will be construed to the greatest extent possible as consistent with those provisions. If not so exempt, this letter (and any definitions hereunder) will be construed in a manner that complies with Code Section 409A, and incorporates by reference all required definitions and payment terms. For purposes of Code Section 409A (including, without limitation, for purposes of Treasury Regulation Section 1.409A-2(b)(2)(iii)), your right to receive any installment payments under this letter (whether severance payments, reimbursements or otherwise) will be treated as a right to receive a series of separate payments and, accordingly, each installment payment hereunder will at all times be considered a separate and distinct payment. Notwithstanding any provision to the contrary in this letter, if you are deemed by the Company at the time of your Separation from Service to be a specified employee for purposes of Code Section 409A(a)(2)(B)(i), and if any of the payments upon your Termination of Services set forth herein and/or under any other agreement with the Company are deemed to be deferred compensation, then if delayed commencement of any portion of such payments is required to avoid a prohibited distribution under Code Section 409A(a)(2)(B)(i) and the related adverse taxation under Code Section 409A, the timing of the payments upon your Separation from Service will be delayed as follows: on the earlier to occur of (i) the date that is six months and one day after the effective date of your Termination of Services, and (ii) the date of the your death (such earlier date, the Delayed Initial Payment Date), the Company will (A) pay to you a lump sum amount equal to the sum of the payments upon your Separation from Service that you would otherwise have received through the Delayed Initial Payment Date if the commencement of the payments had not been delayed pursuant to this paragraph, and (B) commence paying the balance of the payments in accordance with the applicable payment schedules set forth above.
Except as modified herein, all other terms of the Offer Letter shall remain in full force and effect.
Robert Binney
June 23, 2011
Page 4
This Amendment, together with the Offer Letter and your Proprietary Information and Inventions Agreement, constitutes the entire agreement between you and the Company regarding the terms of your employment. It supersedes any prior statements, representations or promises made to you concerning the subjects contained in this Amendment and the Offer Letter, and only can be modified in a writing signed by you and a duly authorized director or officer of the Company.
Please sign below if these terms are acceptable to you, and return the fully signed Amendment to me within five (5) business days.
Understood and Agree: |
/s/ Robert Binney |
Robert Binney
Vice President of Sales Intersect ENT, Inc.
Lisa D. Earnhardt
President and Chief Executive Officer Intersect ENT, Inc.
Date: | 11/20/13 |
Exhibit 10.10
May 15, 2014
Ms. Jeryl Lynn Hilleman
[Home Address]
Re: | Employment Offer |
Dear Jeryl:
Intersect ENT, Inc. (the Company) is pleased to offer you employment on the following terms:
Position. Your initial title will be Chief Financial Officer and you will report directly to me. You will be based in our 1555 Adams Drive, Menlo Park, CA 94025 site. Of course, the Company may change your position, duties, and work location from time to time in its discretion.
Cash Compensation. This is an exempt, full-time position and your starting base pay will be $335,000 per year, less payroll deductions and all required withholdings. You will be paid every other week, on Fridays. On an annual basis during the term of your employment with the Company, the Company will consider granting you an annual increase in your base salary. The Company may change compensation from time to time at its discretion.
You will be eligible to participate in our 2014 Company performance bonus, with a target amount equal to 25% of your 2014 bonus-eligible earnings.
In addition, and subject to your starting work on or before June 4, 2014, the Company will pay you a lump sum cash signing bonus of $25,000, subject to applicable tax withholdings. The signing bonus will be paid not later than the first full payroll cycle after your start date. If your employment with the Company ends voluntarily or for Cause (as defined below) within the first twelve (12) months after your start date, you will be required to repay a pro-rata amount of the after tax value of the signing bonus, based on the number of days you were not actually employed during such period.
Employee Benefits. You will be eligible to participate in a number of Company-sponsored benefits including medical, dental, and vision insurance, life and AD&D insurance, long term disability insurance, flexible spending plan, employee assistance program, travel assistance plan (these are effective the 1st day of the month following your date of hire), 401K, personal time off of 5 weeks per year, and holidays. Details about these benefit plans are available for your review. The Company may change benefits from time to time at its discretion.
Stock Options. Subject to and following approval by the Companys Board of Directors (the Board), the Company shall grant you an option to purchase 700,000 shares of the Companys common stock at the fair market value as determined by the Board as of the date of grant (the Option). The Option will be subject to the terms and conditions of the Companys 2013 Equity Incentive Plan (the Plan) and your grant agreement. Your grant agreement will include a four year vesting schedule, under which 25% of your Option will vest 12 months after the first day of your employment and 1/48th of the total will vest monthly over the next three years, until either the Option is fully vested or your employment ends, whichever occurs first.
Policies and Procedures. As a condition of your employment, you will be required to abide by the Companys policies and procedures, as may be in effect from time to time, including but not limited to the Companys Employee Handbook, as it may be adopted and modified from time to time.
In your work for the Company, you will be expected not to make unauthorized use or disclosure of any confidential information or materials, including trade secrets, of any former employer or other third party to whom you have an obligation of confidentiality. Rather, you will be expected to use only that information generally known and used by persons with training and experience comparable to your own, which is common knowledge in the industry or otherwise legally in the public domain, or which is otherwise provided or developed by the Company or developed or obtained by you in the course of your work for the Company.
Also as a condition of employment, you will be required to read, sign, and comply with the Companys Employee Confidential Information and Inventions Assignment Agreement (Confidential Information Agreement), copy of which is enclosed herewith.
Severance
Severance upon Termination or in Connection with Change in Control:
Subject to your obligations below, you will be entitled to the following:
(a) | If the Company closes a Change in Control Transaction (as defined below) prior to December 4, 2014, the vesting of the outstanding stock options held by you shall be accelerated immediately prior to the closing of the transaction such that the number of shares that shall be vested will be (i) the number of shares subject to your outstanding options that would have vested prior to the closing of such transaction had such stock options vested monthly from your start date (the Monthly Vesting) plus (ii) 50% of the unvested shares subject to your outstanding options after giving effect to the Monthly Vesting. After December 4, 2014, the vesting of the outstanding options held by you shall be accelerated such that 100% of unvested shares subject to your outstanding options shall be fully vested upon the occurrence of i) the closing of the Change in Control Transaction, and ii) in connection with or within twelve (12) months after a Change in Control Transaction, your employment is either (A) terminated by the Company or a successor entity without Cause (defined below), or (B) terminated by you due to your resignation for Good Reason. |
Page 2
(b) | In addition, you shall receive the Severance Benefits (as defined below) if in connection with or within twelve (12) months after a Change in Control Transaction, your employment is either (i) terminated by the Company or a successor entity without Cause (defined below), or (ii) terminated by you due to your resignation for Good Reason (defined below), and provided such termination constitutes a separation from service (as defined under Treasury Regulation Section 1.409A-1(h)). |
(c) | If, other than in connection with a Change in Control Transaction, you die or suffer permanent disability or if your employment is either (i) terminated by the Company or a successor entity without Cause or (ii) terminated by you due to your resignation for Good Reason, and provided such termination constitutes a separation from service, you shall receive (1) the Severance Benefits and (2) the vesting of the outstanding options held by you shall be accelerated such that 100% of unvested shares subject to your outstanding options shall be fully vested. |
(d) | Definitions: |
(i) | Change in Control Transaction shall have occurred if the Company consummates a change in control merger or acquisition transaction (not including any initial public offering of the Companys securities) as described in Article 4, Section B(2)(c) subsections (ii) and (iii) of the Companys Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State on February 15, 2013. |
(ii) | Severance Benefits shall mean (i) payment of twelve (12) months of your base salary, less all applicable withholdings and deductions, paid over such 12-month period immediately following Separation from Service, on the schedule described below (the Salary Continuation), and (ii) a lump sum payment equal to your annual target bonus prorated for the number of days of the then current bonus period worked prior to your separation from service. |
(iii) | The benefits set forth in (a)-(c) above are conditional upon (a) your continuing to comply with your obligations under your Confidential Information Agreement during the period of time in which you are receiving such benefits; and (b) your delivering to the Company and effective, general release of claims in favor of the Company in a form acceptable to the Company within 60 days following your Separation from Service. The Salary Continuation will be paid in equal installments on the Companys regular payroll schedule and will be subject to applicable tax withholdings over the period outlined above following the date of your separation from service; provided, however, that no payments will be made prior to the 60th day following your separation from service. |
(iv) | For the purposes of this Offer Letter, Cause shall mean any of the following conduct by you: (i) embezzlement, misappropriation of corporate funds, or other material acts of dishonesty; (ii) commission or conviction of any felony, or of any misdemeanor involving moral turpitude, or entry into a plea of guilty or nolo |
Page 3
contendere to any felony or misdemeanor; (iii) engagement in an activity that you know or should know could materially harm the business or reputation of the Company; (iv) material failure to adhere to the Companys corporate codes, policies or procedures as in effect from time to time; (v) material violation of any statutory, contractual, or common law duty or obligation to the Company, including, without limitation, the duty of loyalty; (vi) material breach of the Confidentiality Agreement; (vii) repeated failure, in the reasonable judgment of the Board describing the failure(s) in reasonable detail and your failure to cure such failure(s) within thirty (30) days of receiving such written notice. |
For the purpose of this Offer Letter, Good Reason shall mean any of the following which occurs without your written consent: (i) a relocation of the office where you are required to work to a location of more than thirty-five (35) miles from the office where you previously were required to work; (ii) a material decrease in your base salary (except for salary decreases generally applicable to the Companys other executive employees); or (iii)a material reduction in the scope of your duties and responsibilities, provided, however, that to resign for Good Reason, you must (1) provide written notice to the Companys chief Executive Officer within 30 days after the first occurrence of the event giving rise to Good reason setting forth the basis for your resignation, (2) allow the Company at least thirty (30) days from receipt of such written notice to cure such event, and (3) if such event is not reasonably cured within such period, your resignation from all positions you then hold with the Company is effective not later than ninety (90) days after the expiration of the cure period.
Employment Relationship. Your employment relationship is at-will. Accordingly, you may terminate your employment with the Company at any time and for any reason whatsoever simply by notifying the Company. Likewise, the Company may terminate your employment at any time, with or without cause or advance notice.
For purposes of federal immigration law, you will be required to provide to the Company documentary evidence of your identity and eligibility for employment in the United States.
This letter, together with your Confidential Information Agreement, forms the complete and exclusive statement of your agreement with the Company concerning the subject matter hereof. The terms in this letter supersede any other representations or agreements made to you by any party, whether oral or written. The terms of this agreement cannot be changed (except with respect to those changes expressly reserved to the Companys discretion in this letter) without a written agreement signed by you and a duly authorized officer of the Company. This agreement is to be governed by the laws of the state of California without reference to conflicts of law principles. In case any provision contained in this agreement shall, for any reason, be held invalid or unenforceable in any respect, such invalidity or unenforceability shall not affect the other provisions of this agreement, and such provision will be construed and enforced so as to render it valid and enforceable consistent with the general intent of the parties insofar as possible under applicable law. With respect to the enforcement of this agreement, no waiver of any right hereunder shall be effective unless it is in writing. For purposes of construction of this agreement, any ambiguity shall not be construed against either party as the drafter. This
Page 4
agreement may be executed in more than one counterpart, and signatures transmitted via facsimile shall be deemed equivalent to originals. As required by law, this offer is subject to satisfactory proof of your identity and right to work in the United States.
If you wish to accept employment at the Company under the terms described above, please sign and date this letter, the Confidential Information Agreement and return them to me upon receipt. If you accept our offer, we would like you to begin employment on June 2, 2014 (contingent upon successful completion of background investigation) or on such other start date as may be mutually agreeable to you and the Company.
We look forward to your favorable reply and to a productive and enjoyable work relationship.
Sincerely,
INTERSECT ENT, INC.
/s/ Lisa D. Earnhardt |
Lisa D. Earnhardt President and Chief Executive Officer |
Exhibit A Employee Confidential Information and Inventions Assignment Agreement
Exhibit B Release of Information Authorization
Understood and Accepted:
/s/ Jeryl Lynn Hilleman |
5-21-14 | |||
Ms. Jeryl Lynn Hilleman | Date |
Page 5
Exhibit 10.11
SINEXUS, INC.
December 6, 2006
Richard Kaufman
[HOME ADDRESS]
Re: | Employment Terms |
Dear Rich:
Sinexus, Inc. (the Company) is pleased to offer you the position of Vice President and Chief Operating Officer on the following terms.
Your employment will commence with the Company on January 4, 2007 (Start Date). You will be responsible for all product and clinical/regulatory development operations and will directly report to the Chief Executive Officer.
Your base compensation will be $275,000 per year (Base Compensation), less payroll deductions and all required withholdings. You will be paid semi-monthly and you will be eligible for the following standard Company benefits: medical insurance, vacation (5 weeks per year), sick leave, holidays, flex-work as needed, business class travel, and matching 401k (when a program is available). Details about these benefits are available for your review. Sinexus may modify compensation and benefits from time to time as it deems necessary.
You will be eligible to receive an annual bonus (Annual Bonus) between thirty to forty percent (30-40%) of your annual base salary at the end of your first year of employment payable upon the achievement of certain milestones mutually agreed upon by you and the Company. Your Annual Bonus, however, shall be a minimum of $55,000 (i.e., 20% of your base salary) for calendar year 2007. In addition, the Company will pay you a bonus of one hundred seventy-five thousand ($175,000) dollars on your Start Date (Signing Bonus) and an additional Signing Bonus of fifty thousand ($50,000) on the date of your first anniversary at the Company. Provided, however, these Signing Bonuses must be repaid to the Company pro-rata if you elect to terminate your employment of the Company within twenty-four (24) months from your Start Date. For example, if you leave after eighteen (18) months, you must repay to the Company twenty-five percent (25%) of your total Signing Bonuses ($56,250).
Subject to the approval of the Companys Board of Directors, you will be granted an option to purchase 450,000 shares of the Companys Common Stock with a per share exercise price equal to the fair market value of the Common Stock on the date of grant. Your option shall vest over four years with twenty five percent (25%) vesting at the first anniversary of employment and the balance vesting on a monthly basis thereafter. In addition, on an annual basis during the term of your employment, beginning at the end of your first anniversary, the Company shall consider awarding you stock options based on your performance with the Company, as well as consider granting you an annual merit increase in your Base Salary in the range of three to ten percent (3 10%).
Upon the commencement of your employment, the Company shall offer you a loan in the principal sum of three hundred thousand dollars ($300,000) (Sinexus Loan). The proceeds from the Sinexus Loan shall be used exclusively to pay the outstanding balance of the loan currently outstanding between yourself and Abbott Corporation until such loan is paid in full. Any imputed interest on the Sinexus Loan by the IRS shall be paid in the same manner as your current loan from Abbott Corporation. The Sinexus Loan shall be secured by any stock or options you hold in Sinexus. The Sinexus Loan may be pre-paid at anytime and will become due and payable in full if you leave the employment of Sinexus. You shall commence repayment of the Sinexus Loan by contributing a minimum of fifty percent (50%) of your Annual Bonus you receive beginning at the end of your third year of employment at the Company and continuing thereafter until the Sinexus Loan is paid in full.
As a Company employee, you will be expected to abide by Company rules and regulations and sign and comply with the attached Proprietary Information and Inventions Agreement which prohibits unauthorized use or disclosure of Company proprietary information.
In your work for the Company, you will be expected not to use or disclose any confidential information, including trade secrets, of any former employer or other person to whom you have an obligation of confidentiality. Rather, you will be expected to use only that information which is generally known and used by persons with training and experience comparable to your own, which is common knowledge in the industry or otherwise legally in the public domain, or which is otherwise provided or developed by the Company. You agree that you will not bring onto Company premises any unpublished documents or property belonging to any former employer or other person to whom you have an obligation of confidentiality.
You may terminate your employment with Company at any time and for any reason whatsoever simply by notifying Company. Likewise, Company may terminate your employment at any time and for any reason whatsoever, with or without cause or advance notice. As required by law, this offer is subject to satisfactory proof of your right to work in the United States.
This letter, together with your Proprietary Information and Inventions Agreement, forms the complete and exclusive statement of your employment agreement with Sinexus. The employment terms in this letter supersede any other agreements or promises made to you by anyone, whether oral or written. This letter agreement cannot be changed except in a writing signed by you and a duly authorized officer of the Company.
Please sign and date this letter, and return it to me by December 7, 2006, if you wish to accept employment at Company under the terms described above.
2.
We look forward to your favorable reply and to a productive and enjoyable work relationship.
Sincerely,
/s/ Donald J. Eaton |
Donald J. Eaton |
President and Chief Executive Officer |
Accepted:
/s/ Richard Kaufman |
12/7/06 | |||
Richard Kaufman | Date |
Attachment: Proprietary Information and Inventions Agreement
3.
November 18, 2013
VIA HAND DELIVERY
Richard Kaufman
Intersect ENT, Inc.
1555 Adams Drive
Menlo Park, CA 94025
Re: | New Employment Terms |
Dear Richard:
As we have discussed, this letter agreement confirms an amendment (the Amendment) to the terms of your employment offer letter with Intersect ENT, Inc. (the Company) dated December 6, 2006 (the Offer Letter). The new employment terms contained in this Amendment are effective as of the date that this Amendment is executed.
Your Offer Letter is hereby amended to reflect the following:
1. | Severance Upon Termination in Connection with Change in Control: |
Subject to your obligations below, you will be entitled to the following:
(a) Upon the occurrence of a Change of Control Transaction (as defined below), the vesting of all outstanding stock options held by you shall be accelerated such that 50% unvested shares subject to your outstanding options shall be fully vested.
(b) You shall receive the Severance Benefits (as defined below) if in connection with or within twelve (12) months after a Change of Control Transaction, your employment is either (i) terminated by the Company or a successor entity without Cause (defined below), or (ii) terminated by you due to your resignation for Good Reason (defined below), but only if the event constituting Good Reason upon which your resignation is based occurs in connection with or subsequent to and as a result of such Change of Control Transaction and further provided that such termination constitutes a separation from service (as defined under Treasury Regulation Section 1.409A-1(h), without regard to any alternative definition thereunder, a Separation from Service).
(c) Definitions:
(i) A Change of Control Transaction shall have occurred if the Company consummates a change of control merger or acquisition transaction (not including any initial public offering of the Companys securities) as described in Article 4, Section B(2)(c) subsections (ii) and (iii) of the Companys Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State on February 15, 2013.
Richard Kaufman
Page 2
(ii) Severance Benefits shall mean (i) payment of six (6) months of your base salary, less all applicable withholdings and deductions, paid over such 6-month period immediately following the Separation from Service, on the schedule described below (the Salary Continuation) (ii) a lump sum payment equal to your annual target bonus prorated for the number of days of the then current bonus period worked prior to your Separation from Service and (iii) vesting of all outstanding stock options held by you such that all unvested shares subject to your outstanding options shall be fully vested.
Such Severance Benefits are conditional upon (a) your continuing to comply with your obligations under your Proprietary Information and Inventions Agreement during the period of time in which you are receiving the Severance Benefits; and (b) your delivering to the Company an effective, general release of claims in favor of the Company in a form acceptable to the Company within 60 days following your Separation from Service. The Salary Continuation will be paid in equal installments on the Companys regular payroll schedule and will be subject to applicable tax withholdings over the period outlined above following the date of your Separation from Service; provided, however, that no payments will be made prior to the 60th day following your Separation from Service. On the 60th day following your Separation from Service, the Company will pay you in a lump sum the Salary Continuation and the pro-rated target bonus payment that you would have received on or prior to such date under the original schedule but for the delay while waiting for the 60th day in compliance with Section 409A of the Internal Revenue Code of 1986, as amended (Code Section 409A) and the effectiveness of the release, with the balance of the Salary Continuation being paid as originally scheduled.
For the purposes of the Offer Letter, Cause shall mean any of the following conduct by you: (i) embezzlement, misappropriation of corporate funds, or other material acts of dishonesty; (ii) commission or conviction of any felony, or of any misdemeanor involving moral turpitude, or entry of a plea of guilty or nolo contendere to any felony or misdemeanor; (iii) engagement in any activity that you know or should know could materially harm the business or reputation of the Company; (iv) material failure to adhere to the Companys corporate codes, policies or procedures as in effect from time to time; (v) material violation of any statutory, contractual, or common law duty or obligation to the Company, including, without limitation, the duty of loyalty; (vi) material breach of the Confidentiality Agreement; (vii) repeated failure, in the reasonable judgment of the Board, to substantially perform your assigned duties or responsibilities after written notice from the Board describing the failure(s) in reasonable detail and your failure to cure such failure(s) within thirty (30) days of receiving such written notice; or material breach of the Proprietary Information and Inventions Agreement executed by you.
Richard Kaufman
Page 3
For the purposes of the Offer Letter, Good Reason shall mean any of the following which occurs without your written consent: (i) a relocation of the office where you are required to work to a location more than thirty-five (35) miles from the office where you previously were required to work; (ii) a material decrease in your base salary (except for salary decreases generally applicable to the Companys other executive employees); or (iii) a material reduction in the scope of your duties or responsibilities, provided, however, that to resign for Good Reason, you must (1) provide written notice to the Companys chief Executive Officer within 30 days after the first occurrence of the event giving rise to Good Reason setting forth the basis for your resignation, (2) allow the Company at least 30 days from receipt of such written notice to cure such event, and (3) if such event is not reasonably cured within such period, your resignation from all positions you then hold with the Company is effective not later than 90 days after the expiration of the cure period.
2. | Code Section 409A. |
It is intended that all of the benefits and payments under this letter satisfy, to the greatest extent possible, the exemptions from the application of Code Section 409A provided under Treasury Regulations 1.409A-l(b)(4), 1.409A-l(b)(5) and 1.409A-l(b)(9), and this letter will be construed to the greatest extent possible as consistent with those provisions. If not so exempt, this letter (and any definitions hereunder) will be construed in a manner that complies with Code Section 409A, and incorporates by reference all required definitions and payment terms. For purposes of Code Section 409A (including, without limitation, for purposes of Treasury Regulation Section 1.409A-2(b)(2)(iii)), your right to receive any installment payments under this letter (whether severance payments, reimbursements or otherwise) will be treated as a right to receive a series of separate payments and, accordingly, each installment payment hereunder will at all times be considered a separate and distinct payment. Notwithstanding any provision to the contrary in this letter, if you are deemed by the Company at the time of your Separation from Service to be a specified employee for purposes of Code Section 409A(a)(2)(B)(i), and if any of the payments upon your Termination of Services set forth herein and/or under any other agreement with the Company are deemed to be deferred compensation, then if delayed commencement of any portion of such payments is required to avoid a prohibited distribution under Code Section 409A(a)(2)(B)(i) and the related adverse taxation under Code Section 409A, the timing of the payments upon your Separation from Service will be delayed as follows: on the earlier to occur of (i) the date that is six months and one day after the effective date of your Termination of Services, and (ii) the date of the your death (such earlier date, the Delayed Initial Payment Date), the Company will (A) pay to you a lump sum amount equal to the sum of the payments upon your Separation from Service that you would otherwise have received through the Delayed Initial Payment Date if the commencement of the payments had not been delayed pursuant to this paragraph, and (B) commence paying the balance of the payments in accordance with the applicable payment schedules set forth above.
Richard Kaufman
Page 4
Except as modified herein, all other terms of the Offer Letter shall remain in full force and effect.
This Amendment, together with the Offer Letter and your Proprietary Information and Inventions Agreement, constitutes the entire agreement between you and the Company regarding the terms of your employment. It supersedes any prior statements, representations or promises made to you concerning the subjects contained in this Amendment and the Offer Letter, and only can be modified in a writing signed by you and a duly authorized director or officer of the Company.
Please sign below if these terms are acceptable to you, and return the fully signed Amendment to me within five (5) business days.
Understood and Agreed:
/s/ Richard Kaufman |
/s/ Lisa D. Earnhardt |
|||||
Richard Kaufman | Lisa D. Earnhardt | |||||
SVP and Chief Operating Officer | President and Chief Executive Officer | |||||
Intersect ENT, Inc. | Intersect ENT, Inc. | |||||
11/20/13 |
11/20/13 |
|||||
Date | Date |
Exhibit 10.12
SINEXUS INC.
September 15, 2006
James Stambaugh
[Address]
Re: | Employment Terms |
Dear James:
Sinexus, Inc. (the Company) is pleased to offer you the position of Vice President of Clinical & Regulatory on the following terms.
You will be responsible for all clinical and regulatory matters and will directly report to the Chief Executive Officer.
Your compensation will be $200,000 per year, less payroll deductions and all required withholdings. You will be paid semi-monthly and you will be eligible for the following standard Company benefits: medical insurance, vacation, sick leave, holidays. Details about these benefits are available for your review. You will receive 20 days of paid vacation annually. In addition, until the Company has benefits reasonably comparable to the benefits you currently receive from Guidant Corporation (Guidant), the Company shall pay the COBRA premiums to continue the group held insurance coverage Guidant provides you at the level in effect as of your Start Date (as defined below), to the extent allowed by applicable law. The Company will also pay the premiums for your term life insurance while you are employed with the Company with death benefits in an amount up to twice your annual salary. The Company may modify compensation and benefits from time to time as it deems necessary.
You will be eligible to receive an annual bonus of up to twenty percent (20%) of your annual base salary payable upon the achievement of certain milestones mutually agreed upon by you and the Company. In addition, the Company will pay you a bonus of $100,000 dollars on your Start Date (Signing Bonus). You will be obligated to repay $50,000 of the Signing Bonus if you leave the Company voluntarily or are terminated for Cause (as defined below) for any reason within six months after your Start Date. Subject to the approval of the Companys Board of Directors, you will be granted an option to purchase 250,000 shares of the Companys Common Stock with a per share exercise price equal to the fair market value of the Common Stock on the date of grant. Your option shall vest over four years with twenty-five percent (25%) vesting at the first anniversary of employment and the balance vesting in equal increments on a monthly basis thereafter. The Company will consider in connection with your future annual performance reviews awarding you options to purchase additional shares of the Companys Common Stock.
Cause shall mean misconduct, including: (i) conviction of any felony or any crime involving moral turpitude or dishonesty; (ii) willful and material breach of your duties that has not been cured within 30 days after written notice from the Companys Board of Directors of such breach; (iii) intentional and material damage to the Companys property; or (iv) material breach of the Proprietary Information and Inventions Agreement executed by you.
As a Company employee, you will be expected to abide by Company rules and regulations and sign and comply with the attached Proprietary Information and Inventions Agreement which prohibits unauthorized use or disclosure of Company proprietary information.
In your work for the Company, you will be expected not to use or disclose any confidential information, including trade secrets of any former employer or other person to whom you have an obligation of confidentiality. Rather, you will be expected to use only that information which is generally known and used by persons with training and experience comparable to your own, which is common knowledge in the industry or otherwise legally in the public domain, or which is otherwise provided or developed by the Company. You agree that you will not bring onto Company premises any unpublished documents or property belonging to any former employer or other person to whom you have an obligation of confidentiality.
Normal working hours are from 8:00 a.m. to 5:00 p.m., Monday through Friday, or as agreed by you and Chief Executive Officer. You may work one day per week from your residence, or as agreed by you and Chief Executive Officer. As an exempt salaried employee, you will be expected to work additional hours as required by the nature of your work assignments.
You may terminate your employment with the Company at any time and for any reason whatsoever simply by notifying the Company. Likewise, the Company may terminate your employment at any time and for any reason whatsoever, with or without cause or advance notice. As required by law, this offer is subject to satisfactory proof of your right to work in the United States.
This letter, together with your Proprietary Information and Inventions Agreement, forms the complete and exclusive statement of your employment agreement with Sinexus. The employment terms in this letter supersede any other agreements or promises made to you by anyone, whether oral or written. This letter agreement cannot be changed except in a writing signed by you and a duly authorized officer of the Company.
Please sign and date this letter, and return it to me by September 25, 2006, if you wish to accept employment at the Company under the terms described above. If you accept our offer, we would like you to start on October 23, 2006 (Start Date).
We look forward to your favorable reply and to a productive and enjoyable work relationship.
Sincerely,
/s/ Donald J. Eaton |
Donald J. Eaton |
President and Chief Executive Officer |
Accepted:
/s/ James Stambaugh |
9/25/06 | |||
James Stambaugh | Date |
Attachment: Proprietary Information and Inventions Agreement
![]() |
1555 Adams Drive Menlo Park, CA 94025 T: 650.641.2100 F: 650.641.2120 |
November 18, 2013
VIA HAND DELIVERY
James Stambaugh
Intersect ENT, Inc.
1555 Adams Drive
Menlo Park, CA 94025
Re: | New Employment Terms |
Dear James:
As we have discussed, this letter agreement confirms an amendment (the Amendment) to the terms of your employment offer letter with Intersect ENT, Inc. (the Company) dated September 15, 2006 (the Offer Letter). The new employment terms contained in this Amendment are effective as of the date that this Amendment is executed.
Your Offer Letter is hereby amended to reflect the following:
1. | Severance Upon Termination in Connection with Change in Control: |
Subject to your obligations below, you will be entitled to the following:
(a) Upon the occurrence of a Change of Control Transaction (as defined below), the vesting of all outstanding stock options held by you shall be accelerated such that 50% unvested shares subject to your outstanding options shall be fully vested.
(b) You shall receive the Severance Benefits (as defined below) if in connection with or within twelve (12) months after a Change of Control Transaction, your employment is either (i) terminated by the Company or a successor entity without Cause (defined below), or (ii) terminated by you due to your resignation for Good Reason (defined below), but only if the event constituting Good Reason upon which your resignation is based occurs in connection with or subsequent to and as a result of such Change of Control Transaction and further provided that such termination constitutes a separation from service (as defined under Treasury Regulation Section 1.409A-1(h), without regard to any alternative definition thereunder, a Separation from Service).
(c) Definitions:
A Change of Control Transaction shall have occurred if the Company consummates a change of control merger or acquisition transaction (not including any initial
James Stambaugh
Page 2
public offering of the Companys securities) as described in Article 4, Section B(2)(c) subsections (ii) and (iii) of the Companys Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State on February 15, 2013.
(ii) Severance Benefits shall mean (i) payment of six (6) months of your base salary, less all applicable withholdings and deductions, paid over such 6-month period immediately following the Separation from Service, on the schedule described below (the Salary Continuation) (ii) a lump sum payment equal to your annual target bonus prorated for the number of days of the then current bonus period worked prior to your Separation from Service and (iii) vesting of all outstanding stock options held by you such that all unvested shares subject to your outstanding options shall be fully vested.
Such Severance Benefits are conditional upon (a) your continuing to comply with your obligations under your Proprietary Information and Inventions Agreement during the period of time in which you are receiving the Severance Benefits; and (b) your delivering to the Company an effective, general release of claims in favor of the Company in a form acceptable to the Company within 60 days following your Separation from Service. The Salary Continuation will be paid in equal installments on the Companys regular payroll schedule and will be subject to applicable tax withholdings over the period outlined above following the date of your Separation from Service; provided, however, that no payments will be made prior to the 60th day following your Separation from Service. On the 60th day following your Separation from Service, the Company will pay you in a lump sum the Salary Continuation and the pro-rated target bonus payment that you would have received on or prior to such date under the original schedule but for the delay while waiting for the 60th day in compliance with Section 409A of the Internal Revenue Code of 1986, as amended (Code Section 409A) and the effectiveness of the release, with the balance of the Salary Continuation being paid as originally scheduled.
For the purposes of the Offer Letter, Cause shall mean any of the following conduct by you: (i) embezzlement, misappropriation of corporate funds, or other material acts of dishonesty; (ii) commission or conviction of any felony, or of any misdemeanor involving moral turpitude, or entry of a plea of guilty or nolo contendere to any felony or misdemeanor; (iii) engagement in any activity that you know or should know could materially harm the business or reputation of the Company; (iv) material failure to adhere to the Companys corporate codes, policies or procedures as in effect from time to time; (v) material violation of any statutory, contractual, or common law duty or obligation to the Company, including, without limitation, the duty of loyalty; (vi) material breach of the Confidentiality Agreement; (vii) repeated failure, in the reasonable judgment of the Board, to substantially perform your assigned duties or responsibilities after written notice from the Board describing the failure(s) in reasonable detail and your failure to cure such failure(s) within thirty (30) days of receiving such written notice; or material breach of the Proprietary Information and Inventions Agreement executed by you.
James Stambaugh
Page 3
For the purposes of the Offer Letter, Good Reason shall mean any of the following which occurs without your written consent: (i) a relocation of the office where you are required to work to a location more than thirty-five (35) miles from the office where you previously were required to work; (ii) a material decrease in your base salary (except for salary decreases generally applicable to the Companys other executive employees); or (iii) a material reduction m the scope of your duties or responsibilities, provided, however, that to resign for Good Reason, you must (1) provide written notice to the Companys chief Executive Officer within 30 days after the first occurrence of the event giving rise to Good Reason setting forth the basis for your resignation, (2) allow the Company at least 30 days from receipt of such written notice to cure such event, and (3) if such event is not reasonably cured within such period, your resignation from all positions you then hold with the Company is effective not later than 90 days after the expiration of the cure period.
2. | Code Section 409A. |
It is intended that all of the benefits and payments under this letter satisfy, to the greatest extent possible, the exemptions from the application of Code Section 409A provided under Treasury Regulations 1.409A-1(b)(4), 1.409A-1(b)(5) and 1.409A-1(b)(9), and this letter will be construed to the greatest extent possible as consistent with those provisions. If not so exempt, this letter (and any definitions hereunder) will be construed in a manner that complies with Code Section 409A, and incorporates by reference all required definitions and payment terms. For purposes of Code Section 409A (including, without limitation, for purposes of Treasury Regulation Section 1.409A-2(b)(2)(iii)), your right to receive any installment payments under this letter (whether severance payments, reimbursements or otherwise) will be treated as a right to receive a series of separate payments and, accordingly, each installment payment hereunder will at all times be considered a separate and distinct payment. Notwithstanding any provision to the contrary in this letter, if you are deemed by the Company at the time of your Separation from Service to be a specified employee for purposes of Code Section 409A(a)(2)(B)(i), and if any of the payments upon your Termination of Services set forth herein and/or under any other agreement with the Company are deemed to be deferred compensation, then if delayed commencement of any portion of such payments is required to avoid a prohibited distribution under Code Section 409A(a)(2)(B)(i) and the related adverse taxation under Code Section 409A, the timing of the payments upon your Separation from Service will be delayed as follows: on the earlier to occur of (i) the date that is six months and one day after the effective date of your Termination of Services, and (ii) the date of the your death (such earlier date, the Delayed Initial Payment Date), the Company will (A) pay to you a lump sum amount equal to the sum of the payments upon your Separation from Service that you would otherwise have received through the Delayed Initial Payment Date if the commencement of the payments had not been delayed pursuant to this paragraph, and (B) commence paying the balance of the payments in accordance with the applicable payment schedules set forth above.
Except as modified herein, all other terms of the Offer Letter shall remain in full force and effect.
James Stambaugh
Page 4
This Amendment, together with the Offer Letter and your Proprietary Information and Inventions Agreement, constitutes the entire agreement between you and the Company regarding the terms of your employment. It supersedes any prior statements, representations or promises made to you concerning the subjects contained in this Amendment and the Offer Letter, and only can be modified in a writing signed by you and a duly authorized director or officer of the Company.
Please sign below if these terms are acceptable to you, and return the fully signed Amendment to me within five (5) business days.
Understood and Agreed: | ||||
|
/s/ Lisa D. Earnhardt | |||
James Stambaugh | Lisa D. Earnhardt | |||
Vice President of Clinical and Reimbursement | President and Chief Executive Officer | |||
Intersect ENT, Inc. | Intersect ENT, Inc. | |||
|
| |||
11/22/13 |
11/20/13 | |||
Date | Date |
Exhibit 10.13
SINEXUS, INC.
January 30, 2007
Susan Bialecke
[HOME ADDRESS]
Re: | Employment Terms |
Dear Susan:
Sinexus, Inc. (the Company) is pleased to offer you the position of Director of Market Development on the following terms.
Your employment will commence with the Company on April 1, 2007 (Start Date). You will be responsible for all marketing development of the Sinexus products and will directly report to the Chief Operating Officer.
Your annual base compensation will be $185,000 per year, less payroll deductions and all required withholdings (Base Compensation). You will be paid semi-monthly and you will be eligible for the following standard Company benefits: medical insurance, vacation (4.0 weeks per year), sick leave, holidays, flex-work as needed, and matching 401k (when a program is available). Details about these benefits are available for your review. Sinexus may modify compensation and benefits from time to time as it deems necessary.
You will be eligible to receive an annual bonus (Annual Bonus) within the range of ten to twenty percent (10-20%) of your Base Compensation at the end of your first year of employment payable upon the achievement of certain milestones manually agreed upon by you and the Company and your overall performance. Your Annual Bonus, however, shall be a minimum of $18,500 (i.e., 10% of your base salary) for calendar year 2007. In addition, the Company will pay you a bonus of thirty thousand ($30,000) dollars on your Start Date (Signing Bonus). Provided, however, this Signing Bonus must be repaid to the Company pro-rata if you elect to terminate your employment at the Company within twenty-four (24) months from your Start Date. For example, if you leave after eighteen (18) months you must repay to the Company twenty-five percent (25%) of your total Signing Bonus ($7,500).
Subject to the approval by the Companys Board of Directors, you will be granted an option to purchase 100,000 shares of the Companys Common Stock with a per share exercise price equal to the fair market value of the Common Stock on the date of grant. Your option shall vest over four years with twenty-five percent (25%) vesting at the first anniversary of employment and the balance vesting on a monthly basis thereafter. In addition, on an annual basis during the term of your employment, beginning at the end of your first anniversary, the Company shall consider awarding you stock options based on your performance with the Company, as well as consider granting you an annual increase in your Base Salary in the range of three to ten percent (3 10%).
As a Company employee, you will be expected to abide by the Company rules and regulations and sign and comply with the attached Proprietary Information and Inventions Agreement which prohibits unauthorized use or disclosure of Company proprietary information.
In your work for the Company, you will be expected not to use or disclose any confidential information, including trade secrets, of any former employer or other person to whom you have an obligation of confidentiality. Rather, you will be expected to use only that information which is generally known and used by persons with training and experience comparable to your own, which is common knowledge in the industry or otherwise legally in the public domain, or which is otherwise provided or developed by the Company. You agree that you will not bring onto Company premises any unpublished documents or property belonging to any former employer or other person to whom you have an obligation of confidentiality.
You may terminate your employment with the Company at any time and for any reason whatsoever simply by notifying the Company. Likewise, the Company may terminate your employment at any time and for any reason whatsoever, with or without cause or advance notice.
This letter, together with your Proprietary Information and Inventions Agreement, forms the complete and exclusive statement of your employment agreement with Sinexus. The employment terms in this letter supersede any other agreements or promises made to you by anyone, whether oral or written. This letter agreement cannot be changed except in a writing signed by you and a duly authorized officer of the Company.
Please sign and date this letter, and return it to me by February 1, 2007, if you wish to accept employment at Company under the terms described above.
We look forward to your favorable reply and to a productive and enjoyable work relationship.
Sincerely,
/s/ Donald J. Eaton |
Donald J. Eaton |
President and Chief Executive Officer |
Accepted:
Susan Bialecke |
1-31-07 | |||
Susan Bialecke | Date |
Attachment: Proprietary Information and Inventions Agreement
November 18, 2013
VIA HAND DELIVERY
Susan P. Stimson
Intersect ENT, Inc.
1555 Adams Drive
Menlo Park, CA 94025
Re: | New Employment Terms |
Dear Susan:
As we have discussed, this letter agreement confirms an amendment (the Amendment) to the terms of your employment offer letter with Intersect ENT, Inc. (the Company) dated January 30, 2007 (the Offer Letter). The new employment terms contained in this Amendment are effective as of the date that this Amendment is executed.
Your Offer Letter is hereby amended to reflect the following:
1. | Severance Upon Termination in Connection with Change in Control: |
Subject to your obligations below, you will be entitled to the following:
(a) Upon the occurrence of a Change of Control Transaction (as defined below), the vesting of all outstanding stock options held by you shall be accelerated such that 50% unvested shares subject to your outstanding options shall be fully vested.
(b) You shall receive the Severance Benefits (as defined below) if in connection with or within twelve (12) months after a Change of Control Transaction, your employment is either (i) terminated by the Company or a successor entity without Cause (defined below), or (ii) terminated by you due to your resignation for Good Reason (defined below), but only if the event constituting Good Reason upon which your resignation is based occurs in connection with or subsequent to and as a result of such Change of Control Transaction and further provided that such termination constitutes a separation from service (as defined under Treasury Regulation Section 1.409A-1(h), without regard to any alternative definition thereunder, a Separation from Service).
(c) Definitions:
(i) A Change of Control Transaction shall have occurred if the Company consummates a change of control merger or acquisition transaction (not including any initial public offering of the Companys securities) as described in Article 4, Section B(2)(c) subsections (ii) and (iii) of the Companys Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State on February 15, 2013.
Susan P. Stimson
Page 2
(ii) Severance Benefits shall mean (i) payment of six (6) months of your base salary, less all applicable withholdings and deductions, paid over such 6-month period immediately following the Separation from Service, on the schedule described below (the Salary Continuation) (ii) a lump sum payment equal to your annual target bonus prorated for the number of days of the then current bonus period worked prior to your Separation from Service and (iii) vesting of all outstanding stock options held by you such that all unvested shares subject to your outstanding options shall be fully vested.
Such Severance Benefits are conditional upon (a) your continuing to comply with your obligations under your Proprietary Information and Inventions Agreement during the period of time in which you are receiving the Severance Benefits; and (b) your delivering to the Company an effective, general release of claims in favor of the Company in a form acceptable to the Company within 60 days following your Separation from Service. The Salary Continuation will be paid in equal installments on the Companys regular payroll schedule and will be subject to applicable tax withholdings over the period outlined above following the date of your Separation from Service; provided, however, that no payments will be made prior to the 60th day following your Separation from Service. On the 60th day following your Separation from Service, the Company will pay you in a lump sum the Salary Continuation and the pro-rated target bonus payment that you would have received on or prior to such date under the original schedule but for the delay while waiting for the 60th day in compliance with Section 409A of the Internal Revenue Code of 1986, as amended (Code Section 409A) and the effectiveness of the release, with the balance of the Salary Continuation being paid as originally scheduled.
For the purposes of the Offer Letter, Cause shall mean any of the following conduct by you: (i) embezzlement, misappropriation of corporate funds, or other material acts of dishonesty; (ii) commission or conviction of any felony, or of any misdemeanor involving moral turpitude, or entry of a plea of guilty or nolo contendere to any felony or misdemeanor; (iii) engagement in any activity that you know or should know could materially harm the business or reputation of the Company; (iv) material failure to adhere to the Companys corporate codes, policies or procedures as in effect from time to time; (v) material violation of any statutory, contractual, or common law duty or obligation to the Company, including, without limitation, the duty of loyalty; (vi) material breach of the Confidentiality Agreement; (vii) repeated failure, in the reasonable judgment of the Board, to substantially perform your assigned duties or responsibilities after written notice from the Board describing the failure(s) in reasonable detail and your failure to cure such failure(s) within thirty (30) days of receiving such written notice; or material breach of the Proprietary Information and Inventions Agreement executed by you.
Susan P. Stimson
Page 3
For the purposes of the Offer Letter, Good Reason shall mean any of the following which occurs without your written consent: (i) a relocation of the office where you are required to work to a location more than thirty-five (35) miles from the office where you previously were required to work; (ii) a material decrease in your base salary (except for salary decreases generally applicable to the Companys other executive employees); or (iii) a material reduction in the scope of your duties or responsibilities, provided, however, that to resign for Good Reason, you must (1) provide written notice to the Companys chief Executive Officer within 30 days after the first occurrence of the event giving rise to Good Reason setting forth the basis for your resignation, (2) allow the Company at least 30 days from receipt of such written notice to cure such event, and (3) if such event is not reasonably cured within such period, your resignation from all positions you then hold with the Company is effective not later than 90 days after the expiration of the cure period.
2. | Code Section 409A. |
It is intended that all of the benefits and payments under this letter satisfy, to the greatest extent possible, the exemptions from the application of Code Section 409A provided under Treasury Regulations 1.409A-l(b)(4), 1.409A-l(b)(5) and 1.409A-l(b)(9), and this letter will be construed to the greatest extent possible as consistent with those provisions. If not so exempt, this letter (and any definitions hereunder) will be construed in a manner that complies with Code Section 409A, and incorporates by reference all required definitions and payment terms. For purposes of Code Section 409A (including, without limitation, for purposes of Treasury Regulation Section 1.409A-2(b)(2)(iii)), your right to receive any installment payments under this letter (whether severance payments, reimbursements or otherwise) will be treated as a right to receive a series of separate payments and, accordingly, each installment payment hereunder will at all times be considered a separate and distinct payment. Notwithstanding any provision to the contrary in this letter, if you are deemed by the Company at the time of your Separation from Service to be a specified employee for purposes of Code Section 409A(a)(2)(B)(i), and if any of the payments upon your Termination of Services set forth herein and/or under any other agreement with the Company are deemed to be deferred compensation, then if delayed commencement of any portion of such payments is required to avoid a prohibited distribution under Code Section 409A(a)(2)(B)(i) and the related adverse taxation under Code Section 409A, the timing of the payments upon your Separation from Service will be delayed as follows: on the earlier to occur of (i) the date that is six months and one day after the effective date of your Termination of Services, and (ii) the date of the your death (such earlier date, the Delayed Initial Payment Date), the Company will (A) pay to you a lump sum amount equal to the sum of the payments upon your Separation from Service that you would otherwise have received through the Delayed Initial Payment Date if the commencement of the payments had not been delayed pursuant to this paragraph, and (B) commence paying the balance of the payments in accordance with the applicable payment schedules set forth above.
Susan P. Stimson
Page 4
Except as modified herein, all other terms of the Offer Letter shall remain in full force and effect.
This Amendment, together with the Offer Letter and your Proprietary Information and Inventions Agreement, constitutes the entire agreement between you and the Company regarding the terms of your employment. It supersedes any prior statements, representations or promises made to you concerning the subjects contained in this Amendment and the Offer Letter, and only can be modified in a writing signed by you and a duly authorized director or officer of the Company.
Please sign below if these terms are acceptable to you, and return the fully signed Amendment to me within five (5) business days.
Understood and Agreed:
/s/ Susan P. Stimson |
/s/ Lisa D. Earnhardt | |||
Susan P. Stimson | Lisa D. Earnhardt | |||
Vice President of Marketing | President and Chief Executive Officer | |||
Intersect ENT, Inc. | Intersect ENT, Inc. | |||
11-20-2013 |
11-20-2013 | |||
Date | Date |
Exhibit 10.14
November 24, 2008
Amy Conuel
[HOME ADDRESS]
Re: | Employment Terms |
Dear Amy:
Sinexus, Inc. (the Company) is pleased to offer you the position of Director, Regulatory Affairs on the following terms.
In your position as Director, Regulatory Affairs, you will be responsible for development of regulatory strategies, providing regulatory guidance to the Sinexus team, direct interaction with regulatory agencies, preparing regulatory submissions, and other activities. You will report to James Stambaugh, and you will be based at our offices located at 1049 Elwell Court, Palo Alto, CA 94303. Of course, the Company may change your position, duties, and work location from time to time in its discretion.
Your base salary will be paid at the rate of $14,583.00 per month, less payroll deductions and all required withholdings. You will be paid twice monthly and you will be eligible for the following Company benefits: medical/dental/vision insurance, personal time off (4 weeks per year), and holidays. Details about these benefit plans are available for your review. On an annual basis during the term of your employment with the Company, the Company will consider granting you an annual increase in your base pay. The Company may change compensation and benefits from time to time in its discretion.
Subject to and following approval by the Companys Board of Directors (the Board), the Company shall grant you an option to purchase 70,000 shares of the Companys common stock at the fair market value as determined by the Board as of the date of grant (the Option). The Option will be subject to the terms and conditions of the Companys 2003 Equity Incentive Plan (the Plan) and your grant agreement. Your grant agreement will include a four year vesting schedule, under which 25% of your Option will vest 12 months after the first day of your employment and 1/48th of the total will vest monthly over the next three years, until either the Option is fully vested or your employment ends, whichever occurs first. During the term of your employment with the Company, the Company may consider awarding you additional stock options. This will be based upon Company performance as well as your individual performance with the Company and is subject to and following approval by the Board.
As a condition of your employment, you will be required to abide by the Companys policies and procedures, including but not limited to the policies set forth in the Companys Employee Handbook, as may be in effect from time to time. You also agree to read, sign and comply with the Companys Employee Confidential Information and Inventions Assignment Agreement (Confidential Information Agreement), attached hereto as Exhibit A.
In your work for the Company, you will be expected not to make unauthorized use or disclosure of any confidential information or materials, including trade secrets, of any former employer or other third party to whom you have an obligation of confidentiality. Rather, you will be expected to use only that information
Amy C. Wolbeck
Page 2
generally known and used by persons with training and experience comparable to your own, which is common knowledge in the industry or otherwise legally in the public domain, or which is otherwise provided or developed by the Company.
Your employment relationship is at-will. Accordingly, you may terminate your employment with the Company at any time and for any reason whatsoever simply by notifying the Company. Likewise, the Company may terminate your employment at any time, with or without cause or advance notice.
This letter, together with your Confidential Information Agreement, forms the complete and exclusive statement of your agreement with the Company concerning the subject matter hereof. The terms in this letter supersede any other representations or agreements made to you by any party, whether oral or written. The terms of this agreement cannot be changed (except with respect to those changes expressly reserved to the Companys discretion in this letter) without a written agreement signed by you and a duly authorized officer of the Company. This agreement is to be governed by the laws of the state of California without reference to conflicts of law principles. In case any provision contained in this agreement shall, for any reason, be held invalid or unenforceable in any respect, such invalidity or unenforceability shall not affect the other provisions of this agreement, and such provision will be construed and enforced so as to render it valid and enforceable consistent with the general intent of the parties insofar as possible under applicable law. With respect to the enforcement of this agreement, no waiver of any right hereunder shall be effective unless it is in writing. For purposes of construction of this agreement, any ambiguity shall not be construed against either party as the drafter. This agreement may be executed in more than one counterpart, and signatures transmitted via facsimile shall be deemed equivalent to originals. As required by law, this offer is subject to satisfactory proof of your identity and right to work in the United States.
It is understood that employee has other business/consulting activities. Employee is free to provide services to others as long as the provisions of such services does not cause employee to breach any of the terms of this agreement including the provisions regarding Confidential Information, does not impact employees ability to perform role as Director of Regulatory Affairs of Sinexus, and does not involve consultation with competing companies.
Company agrees to reimburse employee for local (e.g. within the Palo Alto or adjacent areas) living expenses for six-months.
If you wish to accept employment at the Company under the terms described above, please sign and date this letter and the Confidential Information Agreement, and return them to me by November 24, 2008. If you accept our offer, we would like you to start work on January 5, 2009 or on another start date mutually agreeable to you and the Company.
We look forward to your favorable reply and to a productive and enjoyable work relationship.
Sincerely, |
SINEXUS, INC. |
/s/ James Stambaugh |
James Stambaugh |
Vice President of Regulatory, Clinical and Quality |
Amy C. Wolbeck
Page 3
Exhibit A Confidential Information Agreement
Understood and Accepted:
/s/ Amy Conuel |
11/24/08 |
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Amy Conuel | Date |
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1555 Adams Drive Menlo Park, CA 94025 T.650.641.2100 F.650.641.2120 |
November 18, 2013
VIA HAND DELIVERY
Amy C. Wolbeck
Intersect ENT, Inc.
1555 Adams Drive
Menlo Park, CA 94025
Re: | New Employment Terms |
Dear Amy:
As we have discussed, this letter agreement confirms an amendment (the Amendment) to the terms of your employment offer letter with Intersect ENT, Inc. (the Company) dated November 24, 2008 (the Offer Letter). The new employment terms contained in this Amendment are effective as of the date that this Amendment is executed.
Your Offer Letter is hereby amended to reflect the following:
1. | Severance Upon Termination in Connection with Change in Control: |
Subject to your obligations below, you will be entitled to the following:
(a) Upon the occurrence of a Change of Control Transaction (as defined below), the vesting of all outstanding stock options held by you shall be accelerated such that 50% unvested shares subject to your outstanding options shall be fully vested.
(b) You shall receive the Severance Benefits (as defined below) if in connection with or within twelve (12) months after a Change of Control Transaction, your employment is either (i) terminated by the Company or a successor entity without Cause (defined below), or (ii) terminated by you due to your resignation for Good Reason (defined below), but only if the event constituting Good Reason upon which your resignation is based occurs in connection with or subsequent to and as a result of such Change of Control Transaction and further provided that such termination constitutes a separation from service (as defined under Treasury Regulation Section 1.409A-1(h), without regard to any alternative definition thereunder, a Separation from Service).
(c) Definitions:
(i) A Change of Control Transaction shall have occurred if the Company consummates a change of control merger or acquisition transaction (not including any initial public offering of the Companys securities) as described in Article 4, Section B(2)(c) subsections (ii) and (iii) of the Companys Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State on February 15, 2013.
Amy C. Wolbeck
Page 2
(ii) Severance Benefits shall mean (i) payment of six (6) months of your base salary, less all applicable withholdings and deductions, paid over such 6-month period immediately following the Separation from Service, on the schedule described below (the Salary Continuation) (ii) a lump sum payment equal to your annual target bonus prorated for the number of days of the then current bonus period worked prior to your Separation from Service and (iii) vesting of all outstanding stock options held by you such that all unvested shares subject to your outstanding options shall be fully vested.
Such Severance Benefits are conditional upon (a) your continuing to comply with your obligations under your Proprietary Information and Inventions Agreement during the period of time in which you are receiving the Severance Benefits; and (b) your delivering to the Company an effective, general release of claims in favor of the Company in a form acceptable to the Company within 60 days following your Separation from Service. The Salary Continuation will be paid in equal installments on the Companys regular payroll schedule and will be subject to applicable tax withholdings over the period outlined above following the date of your Separation from Service; provided, however, that no payments will be made prior to the 60th day following your Separation from Service. On the 60th day following your Separation from Service, the Company will pay you in a lump sum the Salary Continuation and the pro-rated target bonus payment that you would have received on or prior to such date under the original schedule but for the delay while waiting for the 60th day in compliance with Section 409A of the Internal Revenue Code of 1986, as amended (Code Section 409A) and the effectiveness of the release, with the balance of the Salary Continuation being paid as originally scheduled.
For the purposes of the Offer Letter, Cause shall mean any of the following conduct by you: (i) embezzlement, misappropriation of corporate funds, or other material acts of dishonesty; (ii) commission or conviction of any felony, or of any misdemeanor involving moral turpitude, or entry of a plea of guilty or nolo contendere to any felony or misdemeanor; (iii) engagement in any activity that you know or should know could materially harm the business or reputation of the Company; (iv) material failure to adhere to the Companys corporate codes, policies or procedures as in effect from time to time; (v) material violation of any statutory, contractual, or common law duty or obligation to the Company, including, without limitation, the duty of loyalty; (vi) material breach of the Confidentiality Agreement; (vii) repeated failure, in the reasonable judgment of the Board, to substantially perform your assigned duties or responsibilities after written notice from the Board describing the failure(s) in reasonable detail and your failure to cure such failure(s) within thirty (30) days of receiving such written notice; or material breach of the Proprietary Information and Inventions Agreement executed by you.
Amy C. Wolbeck
Page 3
For the purposes of the Offer Letter, Good Reason shall mean any of the following which occurs without your written consent: (i) a relocation of the office where you are required to work to a location more than thirty-five (35) miles from the office where you previously were required to work; (ii) a material decrease in your base salary (except for salary decreases generally applicable to the Companys other executive employees); or (iii) a material reduction in the scope of your duties or responsibilities, provided, however, that to resign for Good Reason, you must (1) provide written notice to the Companys chief Executive Officer within 30 days after the first occurrence of the event giving rise to Good Reason setting forth the basis for your resignation, (2) allow the Company at least 30 days from receipt of such written notice to cure such event, and (3) if such event is not reasonably cured within such period, your resignation from all positions you then hold with the Company is effective not later than 90 days after the expiration of the cure period.
2. | Code Section 409A. |
It is intended that all of the benefits and payments under this letter satisfy, to the greatest extent possible, the exemptions from the application of Code Section 409A provided under Treasury Regulations 1.409A-1(b)(4), 1.409A-1(b)(5) and 1.409A-1(b)(9), and this letter will be construed to the greatest extent possible as consistent with those provisions. If not so exempt, this letter (and any definitions hereunder) will be construed in a manner that complies with Code Section 409A, and incorporates by reference all required definitions and payment terms. For purposes of Code Section 409A (including, without limitation, for purposes of Treasury Regulation Section 1.409A-2(b)(2)(iii)), your right to receive any installment payments under this letter (whether severance payments, reimbursements or otherwise) will be treated as a right to receive a series of separate payments and, accordingly, each installment payment hereunder will at all times be considered a separate and distinct payment. Notwithstanding any provision to the contrary in this letter, if you are deemed by the Company at the time of your Separation from Service to be a specified employee for purposes of Code Section 409A(a)(2)(B)(i), and if any of the payments upon your Termination of Services set forth herein and/or under any other agreement with the Company are deemed to be deferred compensation, then if delayed commencement of any portion of such payments is required to avoid a prohibited distribution under Code Section 409A(a)(2)(B)(i) and the related adverse taxation under Code Section 409A, the timing of the payments upon your Separation from Service will be delayed as follows: on the earlier to occur of (i) the date that is six months and one day after the effective date of your Termination of Services, and (ii) the date of the your death (such earlier date, the Delayed Initial Payment Date), the Company will (A) pay to you a lump sum amount equal to the sum of the payments upon your Separation from Service that you would otherwise have received through the Delayed Initial Payment Date if the commencement of the payments had not been delayed pursuant to this paragraph, and (B) commence paying the balance of the payments in accordance with the applicable payment schedules set forth above.
Except as modified herein, all other terms of the Offer Letter shall remain in full force and effect.
Amy C. Wolbeck
Page 4
This Amendment, together with the Offer Letter and your Proprietary Information and Inventions Agreement, constitutes the entire agreement between you and the Company regarding the terms of your employment. It supersedes any prior statements, representations or promises made to you concerning the subjects contained in this Amendment and the Offer Letter, and only can be modified in a writing signed by you and a duly authorized director or officer of the Company.
Please sign below if these terms are acceptable to you, and return the fully signed Amendment to me within five (5) business days.
Understood and Agreed:
/s/ Amy C. Wolbeck |
/s/ Lisa E. Earnhardt |
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Amy C. Wolbeck | Lisa D. Earnhardt | |||||
Vice President, Regulatory Affairs and Quality | President and Chief Executive Officer | |||||
Intersect ENT, Inc. | Intersect ENT, Inc. | |||||
11/26/13 |
11/20/13 |
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Date | Date |
Exhibit 10.15
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (this Agreement) dated as of August 30, 2013 (the Effective Date) between SILICON VALLEY BANK, a California corporation (Bank), and INTERSECT ENT, INC., a Delaware corporation (Borrower), provides the terms on which Bank shall lend to Borrower and Borrower shall repay Bank. The parties agree as follows:
1. | ACCOUNTING AND OTHER TERMS |
Accounting terms not defined in this Agreement shall be construed following GAAP (except for non-compliance with FASB ASC Topic 718 in the monthly reporting). Calculations and determinations must be made following GAAP (except for non-compliance with FASB ASC Topic 718 in the monthly reporting). Capitalized terms not otherwise defined in this Agreement shall have the meanings set forth in Section 13. All other terms contained in this Agreement, unless otherwise indicated, shall have the meaning provided by the Code to the extent such terms are defined therein.
2. | LOAN AND TERMS OF PAYMENT |
2.1 Promise to Pay. Borrower hereby unconditionally promises to pay Bank the outstanding principal amount of all Credit Extensions and accrued and unpaid interest thereon as and when due in accordance with this Agreement.
2.1.1 Revolving Advances.
(a) Availability. Subject to the terms and conditions of this Agreement and to deduction of Reserves, Bank shall make Advances not exceeding the Availability Amount. Amounts borrowed under the Revolving Line may be repaid and, prior to the Revolving Line Maturity Date, reborrowed, subject to the applicable terms and conditions precedent herein.
(b) Termination; Repayment. The Revolving Line terminates on the Revolving Line Maturity Date, at which time the principal amount of all Advances, the unpaid interest thereon, and all other Obligations relating to the Revolving Line shall be immediately due and payable.
2.1.2 Growth Capital Loan.
(a) Availability. Subject to the terms and conditions of this Agreement, Bank agrees to make advances to Borrower (each a Growth Capital Advance and collectively the Growth Capital Advances), from time to time, prior to the Growth Capital Commitment Termination Date (Second Tranche), in an aggregate amount not to exceed the Growth Capital Loan Commitment; provided that each Growth Capital Advance shall be in an amount equal to or greater than the lower of (x) One Million Dollars ($1,000,000) or (y) the remaining amount available to be drawn.
(i) Up to Four Million Dollars ($4,000,000) of the Growth Capital Loan Commitment (the First Tranche) shall be available through the Growth Capital Commitment Termination Date (First Tranche). After repayment, no Growth Capital Advance under the First Tranche may be reborrowed.
(ii) The remaining Four Million Dollars ($4,000,000) of the Growth Capital Loan Commitment (the Second Tranche) shall be available through the Growth Capital Commitment Termination Date (Second Tranche), provided Borrower achieves trailing three (3) month revenue of at least Seven Million Dollars ($7,000,000) on or prior to March 31, 2015. Funds will be available under the Second Tranche commencing on the date on which Borrower delivers to Bank evidence reasonably satisfactory to Bank that Borrower has achieved trailing three (3) month revenue of at least Seven Million Dollars ($7,000,000) on or prior to March 31, 2015. After repayment, no Growth Capital Advance under the Second Tranche may be reborrowed.
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(b) Repayment of Growth Capital Advances.
(i) Interest-Only Payments. For each Growth Capital Advance, Borrower shall make monthly payments of interest-only commencing on the first (1st) Business Day of the first (1st) month following the month in which the Funding Date occurs with respect to such Growth Capital Advance and continuing thereafter during the Interest-Only Period, on the first (1st) Business Day of each successive month.
(ii) Principal and Interest Payments. For each Growth Capital Advance outstanding as of March 31, 2015, Borrower shall make thirty (30) consecutive equal monthly payments of principal and accrued but unpaid interest commencing on the first (1st) Business Day of the first (1st) month after the Interest-Only Period (the Conversion Date), in amounts that would fully amortize the applicable Growth Capital Advance, as of the Conversion Date, over the Repayment Period. The Final Payment and all unpaid principal and accrued and unpaid interest on each Growth Capital Advance are due and payable in full on the Growth Capital Maturity Date.
(c) Voluntary Prepayment. Borrower shall have the option to prepay all Growth Capital Advances in full, provided Borrower (i) shall provide written notice to Bank of its election to prepay the Growth Capital Advances at least thirty (30) days prior to such prepayment and (ii) pays, on the date of such prepayment, (a) all outstanding principal and accrued but unpaid interest, plus (b) the Prepayment Fee, plus (c) the Final Payment, plus (d) all other sums, including Bank Expenses, if any, that shall have become due and payable.
(d) Mandatory Prepayment Upon an Acceleration. If the Growth Capital Advances are accelerated following the occurrence of an Event of Default, Borrower shall immediately pay to Bank an amount equal to the sum of (i) all outstanding principal and accrued but unpaid interest, plus (ii) the Prepayment Fee, plus (iii) the Final Payment, plus (iv) all other sums, including Bank Expenses, if any, that shall have become due and payable.
2.2 Overadvances. If, at any time, the outstanding principal amount of any Advances exceeds the lesser of either the Revolving Line or the Borrowing Base, Borrower shall immediately pay to Bank in cash the amount of such excess (such excess, the Overadvance). Without limiting Borrowers obligation to repay Bank any Overadvance, Borrower agrees to pay Bank interest on the outstanding amount of any Overadvance, on demand, at the Default Rate.
2.3 Payment of Interest on the Credit Extensions.
(a) Interest Rates.
(i) Advances. Subject to Section 2.3(b), the principal amount outstanding under the Revolving Line shall accrue interest at a floating per annum rate equal to the greater of (A) one-quarter of one percentage point (0.25%) above the Prime Rate or (B) four and one-quarter percent (4.25%), which interest shall be payable monthly in accordance with Section 2.3(d) below.
(ii) Growth Capital Advances. Subject to Section 2.3(b), the principal amount outstanding for each Growth Capital Advance shall accrue interest at a fixed per annum rate equal to the greater of (A) the Basic Rate or (B) three and sixty-five-hundredths percent (3.65%), fixed on the Funding Date for such Growth Capital Advance, which shall be payable monthly.
(b) Default Rate. Immediately upon the occurrence and during the continuance of an Event of Default, Obligations shall bear interest at a rate per annum which is five percentage points (5.00%) above the rate that is otherwise applicable thereto (the Default Rate). Fees and expenses which are required to be paid by Borrower pursuant to the Loan Documents (including, without limitation, Bank Expenses) but are not paid when due shall bear interest until paid at a rate equal to the highest rate applicable to the Obligations. Payment or acceptance of the increased interest rate provided in this Section 2.3(b) is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of Bank.
2.
(c) Adjustment to Interest Rate. Changes to the interest rate of any Credit Extension based on changes to the Prime Rate shall be effective on the effective date of any change to the Prime Rate and to the extent of any such change.
(d) Payment; Interest Computation. Interest is payable monthly on the last calendar day of each month and shall be computed on the basis of a 360-day year for the actual number of days elapsed. In computing interest, (i) all payments received after 12:00 p.m. Pacific time on any day shall be deemed received at the opening of business on the next Business Day, and (ii) the date of the making of any Credit Extension shall be included and the date of payment shall be excluded; provided, however, that if any Credit Extension is repaid on the same day on which it is made, such day shall be included in computing interest on such Credit Extension.
2.4 Fees. Borrower shall pay to Bank:
(a) Commitment Fees. A fully earned, non-refundable commitment fee of Thirty Thousand Dollars ($30,000), on the Effective Date; an additional fully earned, non-refundable commitment fee of Thirty Thousand Dollars ($30,000), on the first (1st) anniversary of the Effective Date; and an additional fully earned, non-refundable commitment fee of Thirty Thousand Dollars ($30,000), on the second (2nd) anniversary of the Effective Date;
(b) Good Faith Deposit. Borrower has paid to Bank a good faith deposit of Thirty Thousand Dollars ($30,000) to initiate Banks due diligence review process, which amount shall be applied to the Commitment Fee on the Effective Date; and
(c) Bank Expenses. All Bank Expenses (including reasonable attorneys fees and expenses for documentation and negotiation of this Agreement) incurred through and after the Effective Date, when due (or, if no stated due date, upon demand by Bank).
(d) Fees Fully Earned. Unless otherwise provided in this Agreement or in a separate writing by Bank, Borrower shall not be entitled to any credit, rebate, or repayment of any fees earned by Bank pursuant to this Agreement notwithstanding any termination of this Agreement or the suspension or termination of Banks obligation to make loans and advances hereunder. Bank may deduct amounts owing by Borrower under the clauses of this Section 2.4 pursuant to the terms of Section 2.5(c). Bank shall provide Borrower written notice of deductions made from the Designated Deposit Account pursuant to the terms of the clauses of this Section 2.4.
2.5 Payments; Application of Payments; Debit of Accounts.
(a) All payments to be made by Borrower under any Loan Document shall be made in immediately available funds in Dollars, without setoff or counterclaim, before 12:00 p.m. Pacific time on the date when due. Payments of principal and/or interest received after 12:00 p.m. Pacific time are considered received at the opening of business on the next Business Day. When a payment is due on a day that is not a Business Day, the payment shall be due the next Business Day, and additional fees or interest, as applicable, shall continue to accrue until paid.
(b) Bank has the right to determine in its good faith business judgment the order and manner in which all payments with respect to the Obligations may be applied and Borrower shall have no right to specify the order or the accounts to which Bank shall allocate or apply any payments required to be made by Borrower to Bank or otherwise received by Bank under this Agreement when any such allocation or application is not specified elsewhere in this Agreement; provided however, that when no Event of Default has occurred and is continuing (and so long as none would occur by such payment allocation), Borrower may designate the allocation of payments in respect of Obligations that are then due and owing and not past due.
(c) Bank may debit any of Borrowers deposit accounts, including the Designated Deposit Account, for principal and interest payments or any other amounts Borrower owes Bank when due. These debits shall not constitute a set-off.
3.
2.6 Collection of Accounts.
(a) Borrower shall have the right to collect all Accounts, unless and until an Event of Default has occurred and is continuing. From and after the earliest to occur of (i) the date on which the aggregate total of Borrowers cash and Cash Equivalents maintained with Bank and Banks Affiliates is less than Five Million Dollars ($5,000,000), (ii) that date which is three (3) weeks prior to the Funding Date of the initial Advance requested hereunder, or (iii) an Event of Default, Borrower direct Account Debtors to deliver or transmit all proceeds of Accounts into a lockbox account, or via electronic deposit capture into a blocked account as specified by Bank (either such account, the Cash Collateral Account), pursuant to a blocked account agreement in form and substance satisfactory to Bank. Whether or not an Event of Default has occurred and is continuing, Borrower shall immediately deliver all payments on and proceeds of Accounts to an account maintained with Bank.
(b) All collections of Accounts into the Cash Collateral Account (Collections) shall be applied by Bank within one (1) Business Day as follows: (i) during any Non-Streamline Period, all Collections shall be applied to the outstanding Obligations owed by Borrower under the Revolving Line, and provided no Event of Default exists or an event that with notice or lapse of time will be an Event of Default, the amount of Collections in excess of the outstanding Obligations owed by Borrower under the Revolving Line shall be deposited in the Designated Deposit Account, and (ii) during any Streamline Period, all Collections shall be deposited in the Designated Deposit Account, provided no Event of Default exists or an event that with notice or lapse of time will be an Event of Default. This Section does not impose any affirmative duty on Bank to perform any act other than as specifically set forth herein. All Accounts and the proceeds thereof are Collateral and if an Event of Default occurs, Bank may apply the proceeds of such Accounts to the Obligations in accordance with Section 9.4 hereof. If Borrower receives any payment on or any proceeds of any Account, whether or not an Event of Default has occurred and is continuing, Borrower shall immediately deliver all such payments and proceeds to Bank in their original form, duly endorsed, to be applied (i) prior to an Event of Default, pursuant to the terms of this Section 2.6(b) hereof, and (ii) after the occurrence and during the continuance of an Event of Default, pursuant to the terms of Section 9.4 hereof.
2.7 Withholding. Payments received by Bank from Borrower under this Agreement will be made free and clear of and without deduction for any and all present or future taxes, levies, imposts, duties, deductions, withholdings, assessments, fees or other charges imposed by any Governmental Authority (including any interest, additions to tax or penalties applicable thereto). Specifically, however, if at any time any Governmental Authority, applicable law, regulation or international agreement requires Borrower to make any withholding or deduction from any such payment or other sum payable hereunder to Bank, Borrower hereby covenants and agrees that the amount due from Borrower with respect to such payment or other sum payable hereunder will be increased to the extent necessary to ensure that, after the making of such required withholding or deduction, Bank receives a net sum equal to the sum which it would have received had no withholding or deduction been required, and Borrower shall pay the full amount withheld or deducted to the relevant Governmental Authority. Borrower will, upon request, furnish Bank with proof reasonably satisfactory to Bank indicating that Borrower has made such withholding payment; provided, however, that Borrower need not make any withholding payment if the amount or validity of such withholding payment is contested in good faith by appropriate and timely proceedings and as to which payment in full is bonded or reserved against by Borrower. The agreements and obligations of Borrower contained in this Section 2.7 shall survive the termination of this Agreement.
3. | CONDITIONS OF LOANS |
3.1 Conditions Precedent to Initial Credit Extension. Banks obligation to make the initial Credit Extension is subject to the condition precedent that Bank shall have received, in form and substance satisfactory to Bank, such documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate, including, without limitation:
(a) duly executed original signatures to the Loan Documents;
(b) duly executed original signatures to the Warrant;
(c) duly executed original signatures to the Control Agreement;
4.
(d) the Operating Documents and long-form good standing certificates of Borrower and its Subsidiaries certified by the Secretary of State (or equivalent agency) of Borrowers and such Subsidiaries jurisdiction of organization or formation and each jurisdiction in which Borrower and each Subsidiary is qualified to conduct business, each as of a date no earlier than thirty (30) days prior to the Effective Date;
(e) duly executed original signatures to the completed Borrowing Resolutions for Borrower;
(f) certified copies, dated as of a recent date, of financing statement searches, as Bank may request, accompanied by written evidence (including any UCC termination statements) that the Liens indicated in any such financing statements either constitute Permitted Liens or have been or, in connection with the initial Credit Extension, will be terminated or released;
(g) the Perfection Certificate of Borrower, together with the duly executed original signature thereto;
(h) a copy of Borrowers Investors Rights Agreement and any amendments thereto;
(i) evidence satisfactory to Bank that the insurance policies and endorsements required by Section 6.7 hereof are in full force and effect, together with appropriate evidence showing lender loss payable and/or additional insured clauses and cancellation notice to Bank (or endorsements reflecting the same) in favor of Bank; and
(j) payment of the fees and Bank Expenses then due as specified in Section 2.4 hereof.
3.2 Conditions Precedent to all Credit Extensions. Banks obligations to make each Credit Extension, including the initial Credit Extension, is subject to the following conditions precedent:
(a) except as otherwise provided in Section 3.4, timely receipt of an executed Transaction Report;
(b) the representations and warranties in this Agreement shall be true, accurate, and complete in all material respects on the date of the Transaction Report and on the Funding Date of each Credit Extension; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date, and no Event of Default shall have occurred and be continuing or result from the Credit Extension. Each Credit Extension is Borrowers representation and warranty on that date that the representations and warranties in this Agreement remain true, accurate, and complete in all material respects; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date; and
(c) Bank determines to its satisfaction that there has not been a Material Adverse Change.
3.3 Covenant to Deliver. Borrower agrees to deliver to Bank each item required to be delivered to Bank under this Agreement as a condition precedent to any Credit Extension. Borrower expressly agrees that a Credit Extension made prior to the receipt by Bank of any such item shall not constitute a waiver by Bank of Borrowers obligation to deliver such item, and the making of any Credit Extension in the absence of a required item shall be in Banks sole discretion.
3.4 Procedures for Borrowing.
(a) Advances. Subject to the prior satisfaction of all other applicable conditions to the making of an Advance set forth in this Agreement, to obtain an Advance, Borrower shall notify Bank (which notice shall be irrevocable) by electronic mail by 12:00 p.m. Pacific time on the Funding Date of the Advance. In
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connection with such notification, Borrower must promptly deliver to Bank by electronic mail a completed Transaction Report executed by an Authorized Signer together with such other reports and information, including without limitation, sales journals, cash receipts journals, accounts receivable aging reports, as Bank may request in its sole discretion. Bank shall credit proceeds of an Advance to the Designated Deposit Account. Bank may make Advances under this Agreement based on instructions from an Authorized Signer or without instructions if the Advances are necessary to meet Obligations which have become due.
(b) Growth Capital Advances. Subject to the prior satisfaction of all other applicable conditions to the making of a Growth Capital Advance set forth in this Agreement, to obtain a Growth Capital Advance, Borrower shall notify Bank (which notice shall be irrevocable) by electronic mail, facsimile, or telephone by 12:00 p.m. Pacific time on the Funding Date of the Growth Capital Advance. Together with any such electronic or facsimile notification, Borrower shall deliver to Bank by electronic mail or facsimile a completed Payment/Advance Form executed by a Responsible Officer or his or her designee. Bank may rely on any telephone notice given by a person who Bank believes is a Responsible Officer or designee. Bank shall credit Growth Capital Advances to the Designated Deposit Account. Bank may make Growth Capital Advances under this Agreement based on instructions from a Responsible Officer or his or her designee or without instructions if the Growth Capital Advances are necessary to meet Obligations that have become due.
4. | CREATION OF SECURITY INTEREST |
4.1 Grant of Security Interest. Borrower hereby grants Bank, to secure the payment and performance in full of all of the Obligations, a continuing security interest in, and pledges to Bank, the Collateral, wherever located, whether now owned or hereafter acquired or arising, and all proceeds and products thereof.
Borrower acknowledges that it previously has entered, and/or may in the future enter, into Bank Services Agreements with Bank. Regardless of the terms of any Bank Services Agreement, Borrower agrees that any amounts Borrower owes Bank thereunder shall be deemed to be Obligations hereunder and that it is the intent of Borrower and Bank to have all such Obligations secured by the first priority perfected security interest in the Collateral granted herein (subject only to Permitted Liens that may have superior priority to Banks Lien in this Agreement).
If this Agreement is terminated, Banks Lien in the Collateral shall continue until the Obligations (other than inchoate indemnity obligations) are satisfied in full, and at such time, Bank shall, at Borrowers sole cost and expense, terminate its security interest in the Collateral and all rights therein shall revert to Borrower. In the event (x) all Obligations (other than inchoate indemnity obligations) except for Bank Services, are satisfied in full, and (y) this Agreement is terminated, Bank shall terminate the security interest granted herein upon Borrower providing cash collateral acceptable to Bank in its good faith business judgment for Bank Services, if any. In the event such Bank Services consist of outstanding Letters of Credit, Borrower shall provide to Bank cash collateral in an amount equal to (x) if such Letters of Credit are denominated in Dollars, then at least one hundred five percent (105.0%); and (y) if such Letters of Credit are denominated in a Foreign Currency, then at least one hundred ten percent (110.0%), of the Dollar Equivalent of the face amount of all such Letters of Credit plus all interest, fees, and costs due or to become due in connection therewith (as estimated by Bank in its good faith business judgment), to secure all of the Obligations relating to such Letters of Credit.
4.2 Priority of Security Interest. Borrower represents, warrants, and covenants that the security interest granted herein is and shall at all times continue to be a first priority perfected security interest in the Collateral (subject only to Permitted Liens that are permitted pursuant to the terms of this Agreement to have superior priority to Banks Lien under this Agreement). If Borrower shall acquire a commercial tort claim, Borrower shall promptly notify Bank in a writing signed by Borrower of the general details thereof and grant to Bank in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance reasonably satisfactory to Bank.
4.3 Authorization to File Financing Statements. Borrower hereby authorizes Bank to file financing statements, without notice to Borrower, with all appropriate jurisdictions to perfect or protect Banks interest or rights hereunder, including a notice that any disposition of the Collateral, by either Borrower or any other Person, shall be deemed to violate the rights of Bank under the Code.
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5. | REPRESENTATIONS AND WARRANTIES |
Borrower represents and warrants as follows:
5.1 Due Organization, Authorization; Power and Authority. Borrower is duly existing and in good standing as a Registered Organization in its jurisdiction of formation and is qualified and licensed to do business and is in good standing in any jurisdiction in which the conduct of its business or its ownership of property requires that it be qualified except where the failure to do so could not reasonably be expected to have a material adverse effect on Borrowers business. In connection with this Agreement, Borrower has delivered to Bank a completed certificate signed by Borrower, entitled Perfection Certificate. Borrower represents and warrants to Bank that (a) Borrowers exact legal name is that indicated on the Perfection Certificate and on the signature page hereof; (b) Borrower is an organization of the type and is organized in the jurisdiction set forth in the Perfection Certificate; (c) the Perfection Certificate accurately sets forth Borrowers organizational identification number or accurately states that Borrower has none; (d) the Perfection Certificate accurately sets forth Borrowers place of business, or, if more than one, its chief executive office as well as Borrowers mailing address (if different than its chief executive office); (e) Borrower (and each of its predecessors) has not, in the past five (5) years, changed its jurisdiction of formation, organizational structure or type, or any organizational number assigned by its jurisdiction; and (f) all other information set forth on the Perfection Certificate pertaining to Borrower and each of its Subsidiaries is accurate and complete in all material respects (it being understood and agreed that Borrower may from time to time update certain information in the Perfection Certificate after the Effective Date to the extent permitted by one or more specific provisions in this Agreement). If Borrower is not now a Registered Organization but later becomes one, Borrower shall promptly notify Bank of such occurrence and provide Bank with Borrowers organizational identification number.
The execution, delivery and performance by Borrower of the Loan Documents to which it is a party have been duly authorized, and do not (i) conflict with any of Borrowers organizational documents, (ii) contravene, conflict with, constitute a default under or violate any material Requirement of Law, (iii) contravene, conflict or violate any applicable order, writ, judgment, injunction, decree, determination or award of any Governmental Authority by which Borrower or any of its Subsidiaries or any of their property or assets may be bound or affected, (iv) require any action by, filing, registration, or qualification with, or Governmental Approval from, any Governmental Authority (except such Governmental Approvals which have already been obtained and are in full force and effect) or (v) conflict with, contravene, constitute a default or breach under, or result in or permit the termination or acceleration of, any material agreement by which Borrower is bound. Borrower is not in default under any agreement to which it is a party or by which it is bound in which the default could reasonably be expected to have a material adverse effect on Borrowers business.
5.2 Collateral. Borrower has good title to, rights in, and the power to transfer each item of the Collateral upon which it purports to grant a Lien hereunder, free and clear of any and all Liens except Permitted Liens. Borrower has no Collateral Accounts at or with any bank or financial institution other than Bank or Banks Affiliates except for the Collateral Accounts described in the Perfection Certificate delivered to Bank in connection herewith and which Borrower has taken such actions as are necessary to give Bank a perfected security interest therein, pursuant to the terms of Section 6.8(b). The Accounts are bona fide, existing obligations of the Account Debtors.
The Collateral is not in the possession of any third party bailee (such as a warehouse) except as otherwise provided in the Perfection Certificate. None of the components of the Collateral shall be maintained at locations other than as provided in the Perfection Certificate or as permitted pursuant to Section 7.2.
All Inventory is in all material respects of good and marketable quality, free from material defects.
Borrower is the sole owner of the Intellectual Property which it owns or purports to own except for (a) non-exclusive licenses granted to its customers in the ordinary course of business, (b) over-the-counter software that is commercially available to the public, and (c) material Intellectual Property licensed to Borrower and noted on the Perfection Certificate. Each Patent which it owns or purports to own and which is material to Borrowers business is valid and enforceable, and no part of the Intellectual Property which Borrower owns or purports to own and which is material to Borrowers business has been judged invalid or unenforceable, in whole or in part. To the best of
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Borrowers knowledge, no claim has been made that any part of the Intellectual Property violates the rights of any third party except to the extent such claim would not reasonably be expected to have a material adverse effect on Borrowers business.
Except as noted on the Perfection Certificate, Borrower is not a party to, nor is it bound by, any Restricted License.
5.3 Accounts Receivable.
(a) For each Account with respect to which Advances are requested, on the date each Advance is requested and made, such Account shall be an Eligible Account.
(b) All statements made and all unpaid balances appearing in all invoices, instruments and other documents evidencing the Eligible Accounts are and shall be true and correct and all such invoices, instruments and other documents, and all of Borrowers Books are genuine and in all respects what they purport to be. All sales and other transactions underlying or giving rise to each Eligible Account shall comply in all material respects with all applicable laws and governmental rules and regulations. Borrower has no knowledge of any actual or imminent Insolvency Proceeding of any Account Debtor whose accounts are Eligible Accounts in any Transaction Report. To the best of Borrowers knowledge, all signatures and endorsements on all documents, instruments, and agreements relating to all Eligible Accounts are genuine, and all such documents, instruments and agreements are legally enforceable in accordance with their terms.
5.4 Litigation. There are no actions or proceedings pending or, to the knowledge of any Responsible Officer, threatened in writing by or against Borrower or any of its Subsidiaries involving more than, individually or in the aggregate, Two Hundred Fifty Thousand Dollars ($250,000).
5.5 Financial Statements; Financial Condition. All consolidated financial statements for Borrower and any of its Subsidiaries delivered to Bank fairly present (subject to normal fiscal year-end adjustments in the case of monthly financial statements) in all material respects Borrowers consolidated financial condition and Borrowers consolidated results of operations. There has not been any material deterioration in Borrowers consolidated financial condition since the date of the most recent financial statements submitted to Bank.
5.6 Solvency. The fair salable value of Borrowers consolidated assets (including goodwill minus disposition costs) exceeds the fair value of Borrowers liabilities; Borrower is not left with unreasonably small capital after the transactions in this Agreement; and Borrower is able to pay its debts (including trade debts) as they mature.
5.7 Regulatory Compliance. Borrower is not an investment company or a company controlled by an investment company under the Investment Company Act of 1940, as amended. Borrower is not engaged as one of its important activities in extending credit for margin stock (under Regulations X, T and U of the Federal Reserve Board of Governors). Borrower (a) has complied in all material respects with all Requirements of Law, and (b) has not violated any Requirements of Law the violation of which could reasonably be expected to have a material adverse effect on its business. None of Borrowers or any of its Subsidiaries properties or assets has been used by Borrower or any Subsidiary or, to the best of Borrowers knowledge, by previous Persons, in disposing, producing, storing, treating, or transporting any hazardous substance other than legally. Borrower and each of its Subsidiaries have obtained all consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all Governmental Authorities that are necessary to continue their respective businesses as currently conducted.
5.8 Subsidiaries; Investments. Borrower does not own any stock, partnership, or other ownership interest or other equity securities except for Permitted Investments.
5.9 Tax Returns and Payments; Pension Contributions. Borrower has timely filed all required tax returns and reports, and Borrower has timely paid all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower except to the extent such taxes are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted, so long as such reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made therefor.
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To the extent Borrower defers payment of any contested taxes, Borrower shall (i) notify Bank in writing of the commencement of, and any material development in, the proceedings, and (ii) post bonds or take any other steps required to prevent the governmental authority levying such contested taxes from obtaining a Lien upon any of the Collateral that is other than a Permitted Lien. Borrower is unaware of any claims or adjustments proposed for any of Borrowers prior tax years which could result in additional taxes becoming due and payable by Borrower. Borrower has paid all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with their terms, and Borrower has not withdrawn from participation in, and has not permitted partial or complete termination of, or permitted the occurrence of any other event with respect to, any such plan which could reasonably be expected to result in any liability of Borrower, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency.
5.10 Use of Proceeds. Borrower shall use the proceeds of the Credit Extensions solely as working capital and to fund its general business requirements and not for personal, family, household or agricultural purposes.
5.11 Full Disclosure. No written representation, warranty or other statement of Borrower in any certificate or written statement given to Bank, as of the date such representation, warranty, or other statement was made, taken together with all such written certificates and written statements given to Bank, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained in the certificates or statements not misleading (it being recognized by Bank that the projections and forecasts provided by Borrower in good faith and based upon reasonable assumptions are not viewed as facts and that actual results during the period or periods covered by such projections and forecasts may differ from the projected or forecasted results).
5.12 Definition of Knowledge. For purposes of the Loan Documents, whenever a representation or warranty is made to Borrowers knowledge or awareness, to the best of Borrowers knowledge, or with a similar qualification, knowledge or awareness means the actual knowledge, after reasonable investigation, of any Responsible Officer.
6. | AFFIRMATIVE COVENANTS |
Borrower shall do all of the following:
6.1 Government Compliance.
(a) Maintain its and all its Subsidiaries legal existence and good standing in their respective jurisdictions of formation and maintain qualification in each jurisdiction in which the failure to so qualify would reasonably be expected to have a material adverse effect on Borrowers business or operations. Borrower shall comply, and have each Subsidiary comply, in all material respects, with all laws, ordinances and regulations to which it is subject.
(b) Use commercially reasonable efforts to obtain all of the Governmental Approvals necessary for the performance by Borrower of its obligations under the Loan Documents to which it is a party and the grant of a security interest to Bank in all of the Collateral. Borrower shall promptly provide copies of any such obtained Governmental Approvals to Bank.
6.2 Financial Statements, Reports, Certificates. Provide Bank with the following:
(a) a Transaction Report (and any schedules related thereto), including sales and collections journals (provided that sales and collections journals shall only be required while any Obligations are outstanding, at the time of any request for a Credit Extension, and at any time while Borrowers aggregate cash and Cash Equivalents maintained with Bank and Banks Affiliates is less than One Million Dollars ($1,000,000)), (i) with each request for an Advance, (ii) no later than Friday of each week during any Non-Streamline Period, and (iii) within thirty (30) days after the end of each month during any Streamline Period;
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(b) within thirty (30) days after the end of each month, (A) monthly accounts receivable agings, aged by invoice date, and (B) monthly accounts payable agings, aged by invoice date;
(c) as soon as available, but no later than thirty (30) days after the last day of each month, a company prepared consolidated balance sheet, income statement and cash flow statement covering Borrowers consolidated operations for such month certified by a Responsible Officer and in a form acceptable to Bank (the Monthly Financial Statements) (it being recognized by Bank that monthly financial statements may omit substantially all footnotes that would normally be required to be included in GAAP financial statements and shall be subject to typical year-end adjustments);
(d) within thirty (30) days after the last day of each month and together with the Monthly Financial Statements, a duly completed Compliance Certificate signed by a Responsible Officer, certifying that as of the end of such month, Borrower was in full compliance with all of the terms and conditions of this Agreement, and setting forth such other information as Bank may reasonably request, including, without limitation, a statement that at the end of such month there were no held checks;
(e) within thirty (30) days after approval by Borrowers Board of Directors, (A) annual operating budgets (including income statements, balance sheets and cash flow statements, by month) for the upcoming fiscal year of Borrower, and (B) annual financial projections for the following fiscal year (on a quarterly basis) as approved by Borrowers board of directors, together with any related business forecasts used in the preparation of such annual financial projections;
(f) as soon as available, and in any event within two hundred forty (240) days following the end of Borrowers fiscal year, audited consolidated financial statements prepared under GAAP, consistently applied, together with an unqualified opinion (except with respect to going concern) on the financial statements from an independent certified public accounting firm acceptable to Bank in its reasonable discretion.
(g) in the event that Borrower becomes subject to the reporting requirements under the Exchange Act, within five (5) days of filing, copies of all periodic and other reports, proxy statements and other materials filed by Borrower with the SEC, any Governmental Authority succeeding to any or all of the functions of the SEC or with any national securities exchange, or distributed to its shareholders, as the case may be. Documents required to be delivered pursuant to the terms hereof (to the extent any such documents are included in materials otherwise filed with the SEC) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date on which Borrower posts such documents, or provides a link thereto, on Borrowers website on the Internet at Borrowers website address; provided, however, Borrower shall promptly notify Bank in writing (which may be by electronic mail) of the posting of any such documents;
(h) within five (5) days of delivery, copies of all statements, reports and notices made available to Borrowers security holders or to any holders of Subordinated Debt;
(i) prompt report of any legal actions pending or threatened in writing against Borrower or any of its Subsidiaries that could result in damages or costs to Borrower or any of its Subsidiaries of, individually or in the aggregate, Two Hundred Fifty Thousand Dollars ($250,000) or more; and
(j) other financial information reasonably requested by Bank.
6.3 Accounts Receivable.
(a) Schedules and Documents Relating to Accounts. Borrower shall deliver to Bank transaction reports and schedules of collections, as provided in Section 6.2, on Banks standard forms; provided, however, that Borrowers failure to execute and deliver the same shall not affect or limit Banks Lien and other rights in all of Borrowers Accounts, nor shall Banks failure to advance or lend against a specific Account affect or
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limit Banks Lien and other rights therein. While any Obligations are outstanding or any Credit Extension is being requested by Borrower, if requested by Bank, Borrower shall furnish Bank with copies (or, at Banks request, originals) of all contracts, orders, invoices, and other similar documents, and all shipping instructions, delivery receipts, bills of lading, and other evidence of delivery, for any goods the sale or disposition of which gave rise to such Accounts. In addition, While any Obligations are outstanding or any Credit Extension is being requested by Borrower, Borrower shall deliver to Bank, on its request, the originals of all instruments, chattel paper, security agreements, guarantees and other documents and property evidencing or securing any Accounts, in the same form as received, with all necessary endorsements, and copies of all credit memos.
(b) Disputes. Borrower shall promptly notify Bank of all disputes or claims in excess of Ten Thousand Dollars ($10,000) relating to any Account, or in excess of One Hundred Thousand Dollars ($100,000) in the aggregate relating to one or more Accounts. Borrower may forgive (completely or partially), compromise, or settle any Account for less than payment in full, or agree to do any of the foregoing so long as (i) Borrower does so in good faith, in a commercially reasonable manner, in the ordinary course of business, in arms-length transactions, and reports the same to Bank in the regular reports provided to Bank; (ii) no Event of Default has occurred and is continuing; and (iii) after taking into account all such discounts, settlements and forgiveness, the total outstanding Advances will not exceed the lesser of the Revolving Line or the Borrowing Base.
(c) Reserved.
(d) Returns. Provided no Event of Default has occurred and is continuing, if any Account Debtor returns any Inventory to Borrower, Borrower shall promptly (i) determine the reason for such return, (ii) issue a credit memorandum to the Account Debtor in the appropriate amount, and (iii) provide a copy of such credit memorandum to Bank, upon request from Bank. In the event any attempted return occurs after the occurrence and during the continuance of any Event of Default, Borrower shall immediately notify Bank of the return of the Inventory.
(e) Verification. Bank may, from time to time while any Obligations are outstanding and at the time of any request for a Credit Extension, verify directly with the respective Account Debtors the validity, amount and other matters relating to the Accounts, either in the name of Borrower or Bank or such other name as Bank may choose, and notify any Account Debtor of Banks security interest in such Account.
(f) No Liability. Bank shall not be responsible or liable for any shortage or discrepancy in, damage to, or loss or destruction of, any goods, the sale or other disposition of which gives rise to an Account, or for any error, act, omission, or delay of any kind occurring in the settlement, failure to settle, collection or failure to collect any Account, or for settling any Account in good faith for less than the full amount thereof, nor shall Bank be deemed to be responsible for any of Borrowers obligations under any contract or agreement giving rise to an Account. Nothing herein shall, however, relieve Bank from liability for its own gross negligence or willful misconduct.
6.4 Remittance of Proceeds. Except as otherwise provided in Section 2.6, deliver, in kind, all proceeds arising from the disposition of any Collateral to Bank in the original form in which received by Borrower not later than the following Business Day after receipt by Borrower, to be applied to the Obligations (1) prior to an Event of Default, pursuant to the terms of Section 2.5(b) hereof, and (2) after the occurrence and during the continuance of an Event of Default, pursuant to the terms of Section 9.4 hereof; provided that, if no Event of Default has occurred and is continuing, Borrower shall not be obligated to remit to Bank the proceeds of the sale of surplus, worn out or obsolete Equipment disposed of by Borrower in good faith in an arms length transaction for an aggregate purchase price of Two Hundred Thousand Dollars ($200,000) or less (for all such transactions in any fiscal year). Borrower agrees that it will maintain all proceeds of Collateral in an account maintained with Bank. Nothing in this Section limits the restrictions on disposition of Collateral set forth elsewhere in this Agreement.
6.5 Taxes; Pensions. Timely file, and require each of its Subsidiaries to timely file, all required tax returns and reports and timely pay, and require each of its Subsidiaries to timely pay, all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower and each of its Subsidiaries, except for deferred payment of any taxes contested pursuant to the terms of Section 5.9 hereof, and shall deliver to Bank, on demand, appropriate certificates attesting to such payments, and pay all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with their terms.
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6.6 Access to Collateral; Books and Records. At reasonable times, on one (1) Business Days notice (provided no notice is required if an Event of Default has occurred and is continuing), Bank, or its agents, shall have the right to inspect the Collateral and the right to audit and copy Borrowers Books. The foregoing inspections and audits shall be conducted at Borrowers expense and no more often than once every twelve (12) months (or more frequently as conditions may warrant) unless an Event of Default has occurred and is continuing in which case such inspections and audits shall occur as often as Bank shall determine is necessary. The charge therefor shall be $850 per person per day (or such higher amount as shall represent Banks then-current standard charge for the same), plus reasonable out-of-pocket expenses. Borrower hereby acknowledges that the first such audit shall occur at least thirty (30) days prior to the initial Advance. In the event Borrower and Bank schedule an audit more than ten (10) days in advance, and Borrower cancels or seeks to reschedules the audit with less than ten (10) days written notice to Bank, then (without limiting any of Banks rights or remedies), Borrower shall pay Bank a fee of $1,000 plus any out-of-pocket expenses incurred by Bank to compensate Bank for the anticipated costs and expenses of the cancellation or rescheduling.
6.7 Insurance.
(a) Keep its business and the Collateral insured for risks and in amounts standard for companies in Borrowers industry and location and as Bank may reasonably request. Insurance policies shall be in a form, with financially sound and reputable insurance companies that are not Affiliates of Borrower, and in amounts that are satisfactory to Bank. All property policies shall have a lenders loss payable endorsement showing Bank as lender loss payee. All liability policies shall show, or have endorsements showing, Bank as an additional insured. Bank shall be named as lender loss payee and/or additional insured with respect to any such insurance providing coverage in respect of any Collateral.
(b) Ensure that proceeds payable under any property policy are, at Banks option, payable to Bank on account of the Obligations. Notwithstanding the foregoing, (a) so long as no Event of Default has occurred and is continuing, Borrower shall have the option of applying the proceeds of any casualty policy up to Two Hundred Fifty Thousand Dollars ($250,000) in the aggregate for all losses under all casualty policies in any one year, toward the replacement or repair of destroyed or damaged property; provided that any such replaced or repaired property (i) shall be of equal or like value as the replaced or repaired Collateral and (ii) shall be deemed Collateral in which Bank has been granted a first priority security interest, and (b) after the occurrence and during the continuance of an Event of Default, all proceeds payable under such casualty policy shall, at the option of Bank, be payable to Bank on account of the Obligations.
(c) At Banks request, Borrower shall deliver certified copies of insurance policies and evidence of all premium payments. Each provider of any such insurance required under this Section 6.7 shall agree, by endorsement upon the policy or policies issued by it or by independent instruments furnished to Bank, that it will give Bank thirty (30) days prior written notice (ten (10) days prior written notice before cancelling for nonpayment of premium) before any such policy or policies shall be canceled. If Borrower fails to obtain insurance as required under this Section 6.7 or to pay any amount or furnish any required proof of payment to third persons and Bank, Bank may make all or part of such payment or obtain such insurance policies required in this Section 6.7, and take any action under the policies Bank deems prudent.
6.8 Operating Accounts.
(a) Maintain all of its operating and other deposit accounts and securities accounts with Bank and Banks Affiliates, including all cash management, foreign exchange and letter of credit activity.
(b) For each Collateral Account that Borrower at any time maintains with a Bank Affiliate, Borrower shall cause the applicable Bank Affiliate at or with which any Collateral Account is maintained to execute and deliver a Control Agreement or other appropriate instrument with respect to such Collateral Account to perfect Banks Lien in such Collateral Account in accordance with the terms hereunder which Control Agreement may not be terminated without the prior written consent of Bank. The provisions of the previous sentence shall not apply to deposit accounts exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for the benefit of Borrowers employees and identified to Bank by Borrower as such.
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6.9 Reserved.
6.10 Protection of Intellectual Property Rights.
(a) (i) Use commercially reasonable efforts to protect, defend and maintain the validity and enforceability of its Intellectual Property material to its business; (ii) promptly advise Bank in writing of material infringements or any other event that could reasonably be expected to materially and adversely affect the value of its Intellectual Property material to its business; and (iii) not allow any Intellectual Property material to Borrowers business to be abandoned, forfeited or dedicated to the public without Banks written consent.
(b) Provide written notice to Bank within thirty (30) days prior to entering or becoming bound by any Restricted License (other than over-the-counter software that is commercially available to the public). Borrower shall take such steps as Bank reasonably requests to obtain the consent of, or waiver by, any person whose consent or waiver is necessary for (i) any Restricted License to be deemed Collateral and for Bank to have a security interest in it that might otherwise be restricted or prohibited by law or by the terms of any such Restricted License, whether now existing or entered into in the future, and (ii) Bank to have the ability in the event of a liquidation of any Collateral to dispose of such Collateral in accordance with Banks rights and remedies under this Agreement and the other Loan Documents.
6.11 Litigation Cooperation. From the date hereof and continuing through the termination of this Agreement, make available to Bank, without expense to Bank, Borrower and its officers, employees and agents and Borrowers books and records, to the extent that Bank may deem them reasonably necessary to prosecute or defend any third-party suit or proceeding instituted by or against Bank with respect to any Collateral or relating to Borrower, provided, however, that any information provided to Bank shall be subject to confidentiality provisions set forth in Section 12.9 herein, and Borrower shall not be required to disclose any information that is subject to attorney-client privilege.
6.12 Formation or Acquisition of Subsidiaries. Notwithstanding and without limiting the negative covenants contained in Sections 7.3 and 7.7 hereof, at the time that Borrower forms any direct or indirect Subsidiary or acquires any direct or indirect Subsidiary after the Effective Date, Borrower shall (a) cause any such new domestic Subsidiary to provide to Bank a joinder to the Loan Agreement to cause such domestic Subsidiary to become a co-borrower hereunder, together with such appropriate financing statements and/or Control Agreements, all in form and substance satisfactory to Bank (including being sufficient to grant Bank a first priority Lien (subject to Permitted Liens) in and to the assets of such newly formed or acquired Subsidiary), (b) provide to Bank appropriate certificates and powers and financing statements, pledging all of the direct or beneficial ownership interest in any such new domestic Subsidiary and pledging sixty-five percent (65%) of the direct or beneficial ownership interest in any such new foreign Subsidiary, in form and substance satisfactory to Bank, and (c) provide to Bank all other documentation in form and substance satisfactory to Bank which in its opinion is appropriate with respect to the execution and delivery of the applicable documentation referred to above. Any document, agreement, or instrument executed or issued pursuant to this Section 6.12 shall be a Loan Document.
6.13 Further Assurances. Execute any further instruments and take further action as Bank reasonably requests to perfect or continue Banks Lien in the Collateral or to effect the purposes of this Agreement.
7. | NEGATIVE COVENANTS |
Borrower shall not do any of the following without Banks prior written consent:
7.1 Dispositions. Convey, sell, lease, transfer, assign, or otherwise dispose of (collectively, Transfer), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, except for Transfers (a) of Inventory in the ordinary course of business; (b) of worn-out or obsolete Equipment that is, in the reasonable judgment of Borrower, no longer economically practicable to maintain or useful in the ordinary course of
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business of Borrower; (c) consisting of Permitted Liens and Permitted Investments; (d) consisting of the sale or issuance of any stock of Borrower permitted under Section 7.2 of this Agreement; (e) consisting of Borrowers use or transfer of money or Cash Equivalents in the ordinary course of its business for the payment of ordinary course business expenses and payments in respect of Borrowers Indebtedness in a manner that is not prohibited by the terms of this Agreement or the other Loan Documents (including without limitation, any applicable subordination or intercreditor agreements); (f) of non-exclusive licenses for the use of the property of Borrower or its Subsidiaries in the ordinary course of business; and (g) other Transfers not in excess of Two Hundred Fifty Thousand Dollars ($250,000) per fiscal year.
7.2 Changes in Business, Management, Ownership, or Business Locations. (a) Engage in or permit any of its Subsidiaries to engage in any business other than the businesses currently engaged in by Borrower and such Subsidiary, as applicable, or reasonably related thereto; (b) liquidate or dissolve; or (c) (i) have a change in Chief Executive Officer unless a replacement for such Chief Executive Officer is approved by Borrowers Board of Directors and engaged by Borrower within one hundred eighty (180) days; or (ii) enter into any transaction or series of related transactions in which the stockholders of Borrower who were not stockholders immediately prior to the first such transaction own more than 49% of the voting stock of Borrower immediately after giving effect to such transaction or related series of such transactions (other than by the sale of Borrowers equity securities in a public offering or to venture capital or private equity investors so long as Borrower identifies to Bank the venture capital or private equity investors at least seven (7) Business Days prior to the closing of the transaction and provides to Bank a description of the material terms of the transaction).
Borrower shall not, without at least ten (10) days prior written notice to Bank: (1) add any new offices or business locations, including warehouses (unless such new offices or business locations contain less than Seventy-Five Thousand Dollars ($75,000) in Borrowers assets or property) or deliver any portion of the Collateral valued, individually or in the aggregate, in excess of Seventy-Five Thousand Dollars ($75,000) to a bailee at a location other than to a bailee and at a location already disclosed in the Perfection Certificate, (2) change its jurisdiction of organization, (3) change its organizational structure or type, (4) change its legal name, or (5) change any organizational number (if any) assigned by its jurisdiction of organization. If Borrower intends to deliver any portion of the Collateral valued, individually or in the aggregate, in excess of Seventy-Five Thousand Dollars ($75,000) to a bailee, and Bank and such bailee are not already parties to a bailee agreement governing both the Collateral and the location to which Borrower intends to deliver the Collateral, then Borrower will first receive the written consent of Bank, and such bailee shall execute and deliver a bailee agreement in form and substance satisfactory to Bank.
7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with any other Person, or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person (including, without limitation, by the formation of any Subsidiary), except that (a) only prior written notice to Bank is required where: (i) all Obligations are being prepaid in full pursuant to the terms hereof (including, without limitation, Section 2.1.2(c) hereof) as a condition to consummation of such transaction, and (ii) Bank has no further obligation hereunder to make any further Credit Extensions; and (b) a Subsidiary may merge or consolidate into another Subsidiary or into Borrower.
7.4 Indebtedness. Create, incur, assume, or be liable for any Indebtedness, or permit any Subsidiary to do so, other than Permitted Indebtedness.
7.5 Encumbrance. Create, incur, allow, or suffer any Lien on any of its property, or assign or convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries to do so, except for Permitted Liens, permit any Collateral not to be subject to the first priority security interest granted herein (except for Permitted Liens which are permitted to have a priority senior to that of Bank), or enter into any agreement, document, instrument or other arrangement (except with or in favor of Bank) with any Person which directly or indirectly prohibits or has the effect of prohibiting Borrower or any Subsidiary from assigning, mortgaging, pledging, granting a security interest in or upon, or encumbering any of Borrowers or any Subsidiarys Intellectual Property, except as is otherwise permitted in Section 7.1 hereof and the definition of Permitted Liens herein.
7.6 Maintenance of Collateral Accounts. Maintain any Collateral Account except pursuant to the terms of Section 6.8(b) hereof.
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7.7 Distributions; Investments. (a) Pay any dividends or make any distribution or payment or redeem, retire or purchase any capital stock; provided that (i) Borrower may convert any of its convertible securities into other securities pursuant to the terms of such convertible securities or otherwise in exchange thereof, (ii) Borrower may pay dividends solely in common stock; and (iii) Borrower may repurchase the stock of former employees or consultants pursuant to stock repurchase agreements so long as an Event of Default does not exist at the time of such repurchase and would not exist after giving effect to such repurchase, provided that the aggregate amount of all such repurchases does not exceed One Hundred Thousand Dollars ($100,000) per fiscal year; or (b) directly or indirectly make any Investment (including, without limitation, by the formation of any Subsidiary) other than Permitted Investments, or permit any of its Subsidiaries to do so. Notwithstanding anything to the contrary herein, Borrower may forgive amounts owing under that certain note receivable further described on the Perfection Certificate delivered on the Effective Date.
7.8 Transactions with Affiliates. Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Borrower, except for (a) sales of Borrowers equity securities or convertible notes to existing investors of Borrower so long as any such Indebtedness, if any, is unsecured Subordinated Debt, and (b) transactions that are in the ordinary course of Borrowers business, upon fair and reasonable terms that are no less favorable to Borrower than would be obtained in an arms length transaction with a non-affiliated Person.
7.9 Subordinated Debt. (a) Make or permit any payment on any Subordinated Debt, except under the terms of the subordination, intercreditor, or other similar agreement to which such Subordinated Debt is subject, or (b) amend any provision in any document relating to the Subordinated Debt which would increase the amount thereof, provide for earlier or greater principal, interest, or other payments thereon, or adversely affect the subordination thereof to Obligations owed to Bank.
7.10 Compliance. Become an investment company or a company controlled by an investment company, under the Investment Company Act of 1940, as amended, or undertake as one of its important activities extending credit to purchase or carry margin stock (as defined in Regulation U of the Board of Governors of the Federal Reserve System), or use the proceeds of any Credit Extension for that purpose; fail to (a) meet the minimum funding requirements of ERISA, (b) prevent a Reportable Event or Prohibited Transaction, as defined in ERISA, from occurring, or (c) comply with the Federal Fair Labor Standards Act, the failure of any of the conditions described in clauses (a) through (c) which could reasonably be expected to have a material adverse effect on Borrowers business; or violate any other law or regulation, if the violation could reasonably be expected to have a material adverse effect on Borrowers business, or permit any of its Subsidiaries to do so; withdraw or permit any Subsidiary to withdraw from participation in, permit partial or complete termination of, or permit the occurrence of any other event with respect to, any present pension, profit sharing and deferred compensation plan which could reasonably be expected to result in any liability of Borrower, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency.
8. | EVENTS OF DEFAULT |
Any one of the following shall constitute an event of default (an Event of Default) under this Agreement:
8.1 Payment Default. Borrower fails to (a) make any payment of principal or interest on any Credit Extension when due, or (b) pay any other Obligations within three (3) Business Days after such Obligations are due and payable (which three (3) Business Day cure period shall not apply to payments due on the Revolving Line Maturity Date or Growth Capital Maturity Date). During the cure period, the failure to make or pay any payment specified under clause (b) hereunder is not an Event of Default (but no Credit Extension will be made during the cure period);
8.2 Covenant Default.
(a) Borrower fails or neglects to perform any obligation in Sections 2.2, 2.6, 6.2, 6.5, 6.6, 6.7, 6.8, 6.10(b), or 6.12 or violates any covenant in Section 7; or
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(b) Borrower fails or neglects to perform, keep, or observe any other term, provision, condition, covenant or agreement contained in this Agreement or any Loan Documents, and as to any default (other than those specified in this Section 8) under such other term, provision, condition, covenant or agreement that can be cured, has failed to cure the default within ten (10) days after the occurrence thereof; provided, however, that if the default cannot by its nature be cured within the ten (10) day period or cannot after diligent attempts by Borrower be cured within such ten (10) day period, and such default is likely to be cured within a reasonable time, then Borrower shall have an additional period (which shall not in any case exceed thirty (30) days) to attempt to cure such default, and within such reasonable time period the failure to cure the default shall not be deemed an Event of Default (but no Credit Extensions shall be made during such cure period). Cure periods provided under this section shall not apply, among other things, to any other covenants set forth in clause (a) above;
8.3 Investor Abandonment; Priority of Security Interest. Bank determines, in its good faith business judgment, that it is the clear intention of Borrowers investors to not continue to fund Borrower in the amounts and timeframe necessary to enable Borrower to satisfy the Obligations as they become due and payable; or there is a material impairment in the perfection or priority of Banks security interest in the Collateral;
8.4 Attachment; Levy; Restraint on Business.
(a) (i) The service of process seeking to attach, by trustee or similar process, any funds of Borrower or of any entity under the control of Borrower (including a Subsidiary), or (ii) a notice of lien or levy is filed against any of Borrowers assets by any Government Authority, and the same under subclauses (i) and (ii) hereof are not, within ten (10) days after the occurrence thereof, discharged or stayed (whether through the posting of a bond or otherwise); provided, however, no Credit Extensions shall be made during any ten (10) day cure period; or
(b) (i) any material portion of Borrowers assets is attached, seized, levied on, or comes into possession of a trustee or receiver, or (ii) any court order enjoins, restrains, or prevents Borrower from conducting all or any material part of its business;
8.5 Insolvency. (a) Borrower fails to be solvent as described under Section 5.6 hereof; (b) Borrower begins an Insolvency Proceeding; or (c) an Insolvency Proceeding is begun against Borrower and not dismissed or stayed within forty-five (45) days (but no Credit Extensions shall be made while of any of the conditions described in clause (a) exist and/or until any Insolvency Proceeding is dismissed);
8.6 Other Agreements. There is, under any agreement to which Borrower is a party with a third party or parties, (a) any default resulting in a right by such third party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness in an amount individually or in the aggregate in excess of Two Hundred Fifty Thousand Dollars ($250,000); or (b) any breach or default by Borrower, the result of which could reasonably be expected to have a material adverse effect on Borrowers business;
8.7 Judgments; Penalties. One or more fines, penalties or final judgments, orders or decrees for the payment of money in an amount, individually or in the aggregate, of at least Two Hundred Fifty Thousand Dollars ($250,000) (not covered by independent third-party insurance as to which liability has been accepted by such insurance carrier) shall be rendered against Borrower by any Governmental Authority, and the same are not, within ten (10) days after the entry, assessment or issuance thereof, discharged, satisfied, or paid, or after execution thereof, stayed or bonded pending appeal, or such judgments are not discharged prior to the expiration of any such stay (provided that no Credit Extensions will be made prior to the satisfaction, payment, discharge, stay, or bonding of such fine, penalty, judgment, order or decree);
8.8 Misrepresentations. Borrower or any Person acting for Borrower makes any representation, warranty, or other statement now or later in this Agreement, any Loan Document or in any writing delivered to Bank or to induce Bank to enter this Agreement or any Loan Document, and such representation, warranty, or other statement is incorrect in any material respect when made (it has been recognized by Bank that the projections and forecasts provided by Borrower in good faith and based upon reasonable assumptions are not viewed as facts and that actual results during the period or periods covered by such projections and forecasts may differ from the projected or forecasted results);
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8.9 Subordinated Debt. Any document, instrument, or agreement evidencing any Subordinated Debt shall for any reason be revoked or invalidated or otherwise cease to be in full force and effect, any Person shall be in breach thereof or contest in any manner the validity or enforceability thereof or deny that it has any further liability or obligation thereunder, or the Obligations shall for any reason be subordinated or shall not have the priority contemplated by this Agreement; or
8.10 Default Under Equipment Loan Agreement. There is an Event of Default under the Equipment Loan Agreement; provided however, that to the extent that such event that causes Event of Default under the Equipment Loan Agreement would not constitute an Event of Default under this Agreement under the comparable provision in this Agreement that is more favorable to Borrower or provides for a longer cure period than the provision in the Equipment Loan Agreement, then such event shall not constitute an Event of Default hereunder.
9. | BANKS RIGHTS AND REMEDIES |
9.1 Rights and Remedies. Upon the occurrence and during the continuance of an Event of Default, Bank may, without notice or demand, do any or all of the following:
(a) declare all Obligations immediately due and payable (but if an Event of Default described in Section 8.5 occurs all Obligations are immediately due and payable without any action by Bank);
(b) stop advancing money or extending credit for Borrowers benefit under this Agreement or under any other agreement between Borrower and Bank;
(c) for any Letters of Credit, demand that Borrower (i) deposit cash with Bank in an amount equal to at least 110% of the Dollar Equivalent of the aggregate face amount of all Letters of Credit remaining undrawn (plus all interest, fees, and costs due or to become due in connection therewith (as estimated by Bank in its good faith business judgment)), to secure all of the Obligations relating to such Letters of Credit, as collateral security for the repayment of any future drawings under such Letters of Credit, and Borrower shall forthwith deposit and pay such amounts, and (ii) pay in advance all letter of credit fees scheduled to be paid or payable over the remaining term of any Letters of Credit;
(d) terminate any FX Contracts;
(e) verify the amount of, demand payment of and performance under, and collect any Accounts and General Intangibles, settle or adjust disputes and claims directly with Account Debtors for amounts on terms and in any order that Bank considers advisable, and notify any Person owing Borrower money of Banks security interest in such funds;
(f) make any payments and do any acts it considers necessary or reasonable to protect the Collateral and/or its security interest in the Collateral. Borrower shall assemble the Collateral if Bank requests and make it available as Bank designates. Bank may enter premises where the Collateral is located, take and maintain possession of any part of the Collateral, and pay, purchase, contest, or compromise any Lien which appears to be prior or superior to its security interest and pay all expenses incurred. Borrower grants Bank a license to enter and occupy any of its premises, without charge, to exercise any of Banks rights or remedies;
(g) apply to the Obligations any (i) balances and deposits of Borrower it holds, or (ii) any amount held by Bank owing to or for the credit or the account of Borrower;
(h) ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell the Collateral. Bank is hereby granted a non-exclusive, royalty-free license or other right to use, without charge, Borrowers labels, Patents, Copyrights, mask works, rights of use of any name, trade secrets, trade names, Trademarks, and advertising matter, or any similar property as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral and, in connection with Banks exercise of its rights under this Section, Borrowers rights under all licenses and all franchise agreements inure to Banks benefit;
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(i) place a hold on any account maintained with Bank and/or deliver a notice of exclusive control, any entitlement order, or other directions or instructions pursuant to any Control Agreement or similar agreements providing control of any Collateral;
(j) demand and receive possession of Borrowers Books; and
(k) exercise all rights and remedies available to Bank under the Loan Documents or at law or equity, including all remedies provided under the Code (including disposal of the Collateral pursuant to the terms thereof).
9.2 Power of Attorney. Borrower hereby irrevocably appoints Bank as its lawful attorney-in-fact, exercisable upon the occurrence and during the continuance of an Event of Default, to: (a) endorse Borrowers name on any checks or other forms of payment or security; (b) sign Borrowers name on any invoice or bill of lading for any Account or drafts against Account Debtors; (c) settle and adjust disputes and claims about the Accounts directly with Account Debtors, for amounts and on terms Bank determines reasonable; (d) make, settle, and adjust all claims under Borrowers insurance policies; (e) pay, contest or settle any Lien, charge, encumbrance, security interest, and adverse claim in or to the Collateral, or any judgment based thereon, or otherwise take any action to terminate or discharge the same; and (f) transfer the Collateral into the name of Bank or a third party as the Code permits. Borrower hereby appoints Bank as its lawful attorney-in-fact to sign Borrowers name on any documents necessary to perfect or continue the perfection of Banks security interest in the Collateral regardless of whether an Event of Default has occurred until all Obligations (other than inchoate indemnity obligations) have been satisfied in full and Bank is under no further obligation to make Credit Extensions hereunder. Banks foregoing appointment as Borrowers attorney in fact, and all of Banks rights and powers, coupled with an interest, are irrevocable until all Obligations (other than inchoate indemnity obligations) have been fully repaid and performed and Banks obligation to provide Credit Extensions terminates.
9.3 Protective Payments. If Borrower fails to obtain the insurance called for by Section 6.7 or fails to pay any premium thereon or fails to pay any other amount which Borrower is obligated to pay under this Agreement or any other Loan Document or which may be required to preserve the Collateral, Bank may obtain such insurance or make such payment, and all amounts so paid by Bank are Bank Expenses and immediately due and payable, bearing interest at the then highest rate applicable to the Obligations, and secured by the Collateral. Bank will make reasonable efforts to provide Borrower with notice of Bank obtaining such insurance at the time it is obtained or within a reasonable time thereafter. No payments by Bank are deemed an agreement to make similar payments in the future or Banks waiver of any Event of Default.
9.4 Application of Payments and Proceeds. If an Event of Default has occurred and is continuing, Bank shall have the right to apply in any order any funds in its possession, whether from Borrower account balances, payments, proceeds realized as the result of any collection of Accounts or other disposition of the Collateral, or otherwise, to the Obligations. Bank shall pay any surplus to Borrower by credit to the Designated Deposit Account or to other Persons legally entitled thereto; Borrower shall remain liable to Bank for any deficiency. If Bank, directly or indirectly, enters into a deferred payment or other credit transaction with any purchaser at any sale of Collateral, Bank shall have the option, exercisable at any time, of either reducing the Obligations by the principal amount of the purchase price or deferring the reduction of the Obligations until the actual receipt by Bank of cash therefor.
9.5 Banks Liability for Collateral. So long as Bank complies with reasonable banking practices regarding the safekeeping of the Collateral in the possession or under the control of Bank, Bank shall not be liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral; (c) any diminution in the value of the Collateral; or (d) any act or default of any carrier, warehouseman, bailee, or other Person. Except as provided in the preceding sentence, Borrower bears all risk of loss, damage or destruction of the Collateral.
9.6 No Waiver; Remedies Cumulative. Banks failure, at any time or times, to require strict performance by Borrower of any provision of this Agreement or any other Loan Document shall not waive, affect, or diminish any right of Bank thereafter to demand strict performance and compliance herewith or therewith. No waiver hereunder shall be effective unless signed by the party granting the waiver and then is only effective for the specific instance and purpose for which it is given. Banks rights and remedies under this Agreement and the other Loan Documents are cumulative. Bank has all rights and remedies provided under the Code, by law, or in equity.
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Banks exercise of one right or remedy is not an election and shall not preclude Bank from exercising any other remedy under this Agreement or other remedy available at law or in equity, and Banks waiver of any Event of Default is not a continuing waiver. Banks delay in exercising any remedy is not a waiver, election, or acquiescence.
9.7 Demand Waiver. Borrower waives demand, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees held by Bank on which Borrower is liable.
10. | NOTICES |
All notices, consents, requests, approvals, demands, or other communication by any party to this Agreement or any other Loan Document must be in writing and shall be deemed to have been validly served, given, or delivered: (a) upon the earlier of actual receipt and three (3) Business Days after deposit in the U.S. mail, first class, registered or certified mail return receipt requested, with proper postage prepaid; (b) upon transmission, when sent by electronic mail or facsimile transmission; (c) one (1) Business Day after deposit with a reputable overnight courier with all charges prepaid; or (d) when delivered, if hand-delivered by messenger, all of which shall be addressed to the party to be notified and sent to the address, facsimile number, or email address indicated below. Bank or Borrower may change its mailing or electronic mail address or facsimile number by giving the other party written notice thereof in accordance with the terms of this Section 10.
If to Borrower: | Intersect ENT, Inc. | |
Adams Drive | ||
Menlo Park, CA 94025 | ||
Attn: Monika De Martini, Chief Financial Officer | ||
Fax: (650) 641-2054 | ||
Email: mdemartini@IntersectENT.com | ||
If to Bank: | Silicon Valley Bank | |
Hanover Street | ||
Palo Alto, CA 94304 | ||
Attn: Kevin Longo | ||
Fax: (650) 320-0016 | ||
Email: klongo@svb.com |
11. | CHOICE OF LAW, VENUE, JURY TRIAL WAIVER AND JUDICIAL REFERENCE |
Except as otherwise expressly provided in any of the Loan Documents, California law governs the Loan Documents without regard to principles of conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction of the State and Federal courts in Santa Clara County, California; provided, however, that nothing in this Agreement shall be deemed to operate to preclude Bank from bringing suit or taking other legal action in any other jurisdiction to realize on the Collateral or any other security for the Obligations, or to enforce a judgment or other court order in favor of Bank. Borrower expressly submits and consents in advance to such jurisdiction in any action or suit commenced in any such court, and Borrower hereby waives any objection that it may have based upon lack of personal jurisdiction, improper venue, or forum non conveniens and hereby consents to the granting of such legal or equitable relief as is deemed appropriate by such court. Borrower hereby waives personal service of the summons, complaints, and other process issued in such action or suit and agrees that service of such summons, complaints, and other process may be made by registered or certified mail addressed to Borrower at the address set forth in, or subsequently provided by Borrower in accordance with, Section 10 of this Agreement and that service so made shall be deemed completed upon the earlier to occur of Borrowers actual receipt thereof or three (3) days after deposit in the U.S. mails, proper postage prepaid.
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
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WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES AGREEMENT TO WAIVE THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY, if the above waiver of the right to a trial by jury is not enforceable, the parties hereto agree that any and all disputes or controversies of any nature between them arising at any time shall be decided by a reference to a private judge, mutually selected by the parties (or, if they cannot agree, by the Presiding Judge of the Santa Clara County, California Superior Court) appointed in accordance with California Code of Civil Procedure Section 638 (or pursuant to comparable provisions of federal law if the dispute falls within the exclusive jurisdiction of the federal courts), sitting without a jury, in Santa Clara County, California; and the parties hereby submit to the jurisdiction of such court. The reference proceedings shall be conducted pursuant to and in accordance with the provisions of California Code of Civil Procedure Sections 638 through 645.1, inclusive. The private judge shall have the power, among others, to grant provisional relief, including without limitation, entering temporary restraining orders, issuing preliminary and permanent injunctions and appointing receivers. All such proceedings shall be closed to the public and confidential and all records relating thereto shall be permanently sealed. If during the course of any dispute, a party desires to seek provisional relief, but a judge has not been appointed at that point pursuant to the judicial reference procedures, then such party may apply to the Santa Clara County, California Superior Court for such relief. The proceeding before the private judge shall be conducted in the same manner as it would be before a court under the rules of evidence applicable to judicial proceedings. The parties shall be entitled to discovery which shall be conducted in the same manner as it would be before a court under the rules of discovery applicable to judicial proceedings. The private judge shall oversee discovery and may enforce all discovery rules and orders applicable to judicial proceedings in the same manner as a trial court judge. The parties agree that the selected or appointed private judge shall have the power to decide all issues in the action or proceeding, whether of fact or of law, and shall report a statement of decision thereon pursuant to California Code of Civil Procedure Section 644(a). Nothing in this paragraph shall limit the right of any party at any time to exercise self-help remedies, foreclose against collateral, or obtain provisional remedies. The private judge shall also determine all issues relating to the applicability, interpretation, and enforceability of this paragraph.
This Section 11 shall survive the termination of this Agreement.
12. | GENERAL PROVISIONS |
12.1 Termination Prior to Maturity Date; Survival. All covenants, representations and warranties made in this Agreement continue in full force until this Agreement has terminated pursuant to its terms and all Obligations (other than inchoate indemnity obligations and any Obligations under Bank Services Agreements that are cash collateralized in accordance with Section 4.1 of this Agreement) have been satisfied. So long as Borrower has satisfied the Obligations (other than inchoate indemnity obligations, any other obligations which, by their terms, are to survive the termination of this Agreement, and any Obligations under Bank Services Agreements that are cash collateralized in accordance with Section 4.1 of this Agreement), this Agreement may be terminated prior to the Growth Capital Maturity by Borrower, in accordance with Section 2.1.2(c). Those obligations that are expressly specified in this Agreement as surviving this Agreements termination shall continue to survive notwithstanding this Agreements termination.
12.2 Successors and Assigns. This Agreement binds and is for the benefit of the successors and permitted assigns of each party. Borrower may not assign this Agreement or any rights or obligations under it without Banks prior written consent (which may be granted or withheld in Banks discretion). Bank has the right, without the consent of or notice to Borrower, to sell, transfer, assign, negotiate, or grant participation in all or any part of, or any interest in, Banks obligations, rights, and benefits under this Agreement and the other Loan Documents (other than the Warrant, as to which assignment, transfer and other such actions are governed by the terms thereof).
12.3 Indemnification. Borrower agrees to indemnify, defend and hold Bank and its directors, officers, employees, agents, attorneys, or any other Person affiliated with or representing Bank (each, an Indemnified Person) harmless against: (i) all obligations, demands, claims, and liabilities (collectively, Claims) claimed or asserted by any other party in connection with the transactions contemplated by the Loan Documents; and (ii) all losses or expenses (including Bank Expenses) in any way suffered, incurred, or paid by such Indemnified Person as
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a result of, following from, consequential to, or arising from transactions between Bank and Borrower contemplated by the Loan Documents (including reasonable attorneys fees and expenses), except for Claims and/or losses directly caused by such Indemnified Persons gross negligence or willful misconduct.
This Section 12.3 shall survive until all statutes of limitation with respect to the Claims, losses, and expenses for which indemnity is given shall have run.
12.4 Time of Essence. Time is of the essence for the performance of all Obligations in this Agreement.
12.5 Severability of Provisions. Each provision of this Agreement is severable from every other provision in determining the enforceability of any provision.
12.6 Correction of Loan Documents. Bank may correct patent errors and fill in any blanks in the Loan Documents consistent with the agreement of the parties so long as Bank provides Borrower with written notice of such correction and allows Borrower at least ten (10) days to object to such correction. In the event of such objection, such correction shall not be made except by an amendment signed by both Bank and Borrower.
12.7 Amendments in Writing; Waiver; Integration. No purported amendment or modification of any Loan Document, or waiver, discharge or termination of any obligation under any Loan Document, shall be enforceable or admissible unless, and only to the extent, expressly set forth in a writing signed by the party against which enforcement or admission is sought. Without limiting the generality of the foregoing, no oral promise or statement, nor any action, inaction, delay, failure to require performance or course of conduct shall operate as, or evidence, an amendment, supplement or waiver or have any other effect on any Loan Document. Any waiver granted shall be limited to the specific circumstance expressly described in it, and shall not apply to any subsequent or other circumstance, whether similar or dissimilar, or give rise to, or evidence, any obligation or commitment to grant any further waiver. The Loan Documents represent the entire agreement about this subject matter and supersede prior negotiations or agreements. All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of the Loan Documents merge into the Loan Documents.
12.8 Counterparts. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, is an original, and all taken together, constitute one Agreement.
12.9 Confidentiality. In handling any confidential information, Bank shall exercise the same degree of care that it exercises for its own proprietary information, but disclosure of information may be made: (a) to Banks Subsidiaries or Affiliates (such Subsidiaries and Affiliates, together with Bank, collectively, Bank Entities); (a) to prospective transferees or purchasers of any interest in the Credit Extensions (provided, however, Bank shall use its best efforts to obtain any prospective transferees or purchasers agreement to the terms of this provision); (b) as required by law, regulation, subpoena, or other order; (d) to Banks regulators or as otherwise required in connection with Banks examination or audit; (e) as Bank considers appropriate in exercising remedies under the Loan Documents; and (f) to third-party service providers of Bank so long as such service providers have executed a confidentiality agreement with Bank with terms no less restrictive than those contained herein. Confidential information does not include information that is either: (i) in the public domain or in Banks possession when disclosed to Bank, or becomes part of the public domain (other than as a result of disclosure by Bank in violation of this Agreement) after disclosure to Bank; or (ii) disclosed to Bank by a third party if Bank does not know that the third party is prohibited from disclosing the information.
Bank Entities may use anonymous forms of confidential information for aggregate datasets, for analyses or reporting, and for any other uses not expressly prohibited in writing by Borrower. The provisions of the immediately preceding sentence shall survive termination of this Agreement.
12.10 Attorneys Fees, Costs and Expenses. In any action or proceeding between Borrower and Bank arising out of or relating to the Loan Documents, the prevailing party shall be entitled to recover its reasonable attorneys fees and other costs and expenses incurred, in addition to any other relief to which it may be entitled.
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12.11 Electronic Execution of Documents. The words execution, signed, signature and words of like import in any Loan Document shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity and enforceability as a manually executed signature or the use of a paper-based recordkeeping systems, as the case may be, to the extent and as provided for in any applicable law, including, without limitation, any state law based on the Uniform Electronic Transactions Act.
12.12 Captions. The headings used in this Agreement are for convenience only and shall not affect the interpretation of this Agreement.
12.13 Construction of Agreement. The parties mutually acknowledge that they and their attorneys have participated in the preparation and negotiation of this Agreement. In cases of uncertainty this Agreement shall be construed without regard to which of the parties caused the uncertainty to exist.
12.14 Relationship. The relationship of the parties to this Agreement is determined solely by the provisions of this Agreement. The parties do not intend to create any agency, partnership, joint venture, trust, fiduciary or other relationship with duties or incidents different from those of parties to an arms-length contract.
12.15 Third Parties. Nothing in this Agreement, whether express or implied, is intended to: (a) confer any benefits, rights or remedies under or by reason of this Agreement on any persons other than the express parties to it and their respective permitted successors and assigns; (b) relieve or discharge the obligation or liability of any person not an express party to this Agreement; or (c) give any person not an express party to this Agreement any right of subrogation or action against any party to this Agreement.
13. | DEFINITIONS |
13.1 Definitions. As used in the Loan Documents, the word shall is mandatory, the word may is permissive, the word or is not exclusive, the words includes and including are not limiting, the singular includes the plural, and numbers denoting amounts that are set off in brackets are negative. As used in this Agreement, the following capitalized terms have the following meanings:
Account is any account as defined in the Code with such additions to such term as may hereafter be made, and includes, without limitation, all accounts receivable and other sums owing to Borrower.
Account Debtor is any account debtor as defined in the Code with such additions to such term as may hereafter be made.
Advance or Advances means a revolving credit loan (or revolving credit loans) under the Revolving Line.
Affiliate is, with respect to any Person, each other Person that owns or controls directly or indirectly the Person, any Person that controls or is controlled by or is under common control with the Person, and each of that Persons senior executive officers, directors, partners and, for any Person that is a limited liability company, that Persons managers and members. Notwithstanding the foregoing, any stockholder of Borrower holding less than twenty percent (20%) of Borrowers outstanding voting securities shall not be deemed an Affiliate of Borrower.
Agreement is defined in the preamble hereof.
Authorized Signer is any individual listed in Borrowers Borrowing Resolution who is authorized to execute the Loan Documents, including any Advance request, on behalf of Borrower.
Availability Amount is (a) the lesser of (i) the Revolving Line or (ii) the amount available under the Borrowing Base minus (b) the outstanding principal balance of any Advances.
Bank is defined in the preamble hereof. Bank Entities is defined in Section 12.9.
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Bank Expenses are all audit fees and expenses, costs, and expenses (including reasonable attorneys fees and expenses) for preparing, amending, negotiating, administering, defending and enforcing the Loan Documents (including, without limitation, those incurred in connection with appeals or Insolvency Proceedings) or otherwise incurred with respect to Borrower.
Bank Services are any products, credit services, and/or financial accommodations previously, now, or hereafter provided to Borrower or any of its Subsidiaries by Bank or any Bank Affiliate, including, without limitation, any letters of credit, cash management services (including, without limitation, merchant services, direct deposit of payroll, business credit cards, and check cashing services), interest rate swap arrangements, and foreign exchange services as any such products or services may be identified in Banks various agreements related thereto (each, a Bank Services Agreement).
Basic Rate is the per annum rate of interest (based on a year of 360 days) equal to the sum of (a) U.S. Treasury note yield to maturity for a term equal to the Treasury Note Maturity as reported in the Federal Reserve Statistical Release H.15-Selected Interest Rates under the heading U.S. Government Securities/Treasury Constant Maturities on the Funding Date, plus (b) the Loan Margin. (In the event Release H.15 is no longer published, Bank shall select a comparable publication to determine the U.S. Treasury note yield to maturity.)
Borrower is defined in the preamble hereof
Borrowers Books are all Borrowers books and records including ledgers, federal and state tax returns, records regarding Borrowers assets or liabilities, the Collateral, business operations or financial condition, and all computer programs or storage or any equipment containing such information.
Borrowing Base is eighty percent (80%) of Eligible Accounts, as determined by Bank from Borrowers most recent Transaction Report; provided, however, that Bank has the right to decrease the foregoing percentage in its good faith business judgment to mitigate the impact of events, conditions, contingencies, or risks which may adversely affect the Collateral or its value.
Borrowing Resolutions are, with respect to any Person, those resolutions substantially in the form attached hereto as Exhibit D.
Business Day is any day that is not a Saturday, Sunday or a day on which Bank is closed.
Cash Collateral Account is defined in Section 2.6(a).
Cash Equivalents means (a) marketable direct obligations issued or unconditionally guaranteed by the United States or any agency or any State thereof having maturities of not more than one (1) year from the date of acquisition; (b) commercial paper maturing no more than one (1) year after its creation and having the highest rating from either Standard & Poors Ratings Group or Moodys Investors Service, Inc.; (c) Banks certificates of deposit issued maturing no more than one (1) year after issue; and (d) money market funds at least ninety-five percent (95%) of the assets of which constitute Cash Equivalents of the kinds described in clauses (a) through (c) of this definition.
Claims is defined in Section 12.3.
Code is the Uniform Commercial Code, as the same may, from time to time, be enacted and in effect in the State of California; provided, that, to the extent that the Code is used to define any term herein or in any Loan Document and such term is defined differently in different Articles or Divisions of the Code, the definition of such term contained in Article or Division 9 shall govern; provided further, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection, or priority of, or remedies with respect to, Banks Lien on any Collateral is governed by the Uniform Commercial Code in effect in a jurisdiction other than the State of California, the term Code shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection, priority, or remedies and for purposes of definitions relating to such provisions.
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Collateral is any and all properties, rights and assets of Borrower described on Exhibit A.
Collateral Account is any Deposit Account, Securities Account, or Commodity Account.
Collections is defined in Section 2.6(c).
Commodity Account is any commodity account as defined in the Code with such additions to such term as may hereafter be made.
Compliance Certificate is that certain certificate in the form attached hereto as Exhibit B.
Contingent Obligation is, for any Person, any direct or indirect liability, contingent or not, of that Person for (a) any indebtedness, lease, dividend, letter of credit or other obligation of another such as an obligation, in each case, directly or indirectly guaranteed, endorsed, co-made, discounted or sold with recourse by that Person, or for which that Person is directly or indirectly liable; (b) any obligations for undrawn letters of credit for the account of that Person; and (c) all obligations from any interest rate, currency or commodity swap agreement, interest rate cap or collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; but Contingent Obligation does not include endorsements in the ordinary course of business. The amount of a Contingent Obligation is the stated or determined amount of the primary obligation for which the Contingent Obligation is made or, if not determinable, the maximum reasonably anticipated liability for it determined by the Person in good faith; but the amount may not exceed the maximum of the obligations under any guarantee or other support arrangement.
Control Agreement is any control agreement entered into among the depository institution at which Borrower maintains a Deposit Account or the securities intermediary or commodity intermediary at which Borrower maintains a Securities Account or a Commodity Account, Borrower, and Bank pursuant to which Bank obtains control (within the meaning of the Code) over such Deposit Account, Securities Account, or Commodity Account.
Conversion Date is defined in Section 2.1.2(b)(ii).
Copyrights are any and all copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative work thereof, whether published or unpublished and whether or not the same also constitutes a trade secret.
Credit Extension is any Advance, Overadvance, Growth Capital Advance or any other extension of credit by Bank for Borrowers benefit.
Default Rate is defined in Section 2.3(b).
Deferred Revenue is all amounts received or invoiced in advance of performance under contracts and not yet recognized as revenue.
Deposit Account is any deposit account as defined in the Code with such additions to such term as may hereafter be made.
Designated Deposit Account is the multicurrency account, denominated in Dollars, account number xxxxxxx426, maintained by Borrower with Bank.
Dollars, dollars or use of the sign $ means only lawful money of the United States and not any other currency, regardless of whether that currency uses the $ sign to denote its currency or may be readily converted into lawful money of the United States.
Dollar Equivalent is, at any time, (a) with respect to any amount denominated in Dollars, such amount, and (b) with respect to any amount denominated in a Foreign Currency, the equivalent amount therefor in Dollars as determined by Bank at such time on the basis of the then-prevailing rate of exchange in San Francisco, California, for sales of the Foreign Currency for transfer to the country issuing such Foreign Currency.
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Effective Date is defined in the preamble hereof.
Eligible Accounts means Accounts which arise in the ordinary course of Borrowers business that meet all Borrowers representations and warranties in Section 5.3. Bank reserves the right at any time after the Effective Date to adjust any of the criteria set forth below and to establish new criteria in its good faith business judgment. Unless Bank otherwise agrees in writing, Eligible Accounts shall not include:
(a) Accounts for which the Account Debtor is Borrowers Affiliate, officer, employee, or agent;
(b) Accounts that the Account Debtor has not paid within ninety (90) days of invoice date regardless of invoice payment period terms;
(c) Accounts with credit balances over ninety (90) days from invoice date;
(d) Accounts owing from an Account Debtor, if fifty percent (50%) or more of the Accounts owing from such Account Debtor have not been paid within ninety (90) days of invoice date;
(e) Accounts owing from an Account Debtor which does not have its principal place of business in the United States unless otherwise approved by Bank in writing, in its sole discretion, on a case-by-case basis;
(f) Accounts billed from and/or payable to Borrower outside of the United States (sometimes called foreign invoiced accounts);
(g) Accounts owing from an Account Debtor to the extent that Borrower is indebted or obligated in any manner to the Account Debtor (as creditor, lessor, supplier or otherwise - sometimes called contra accounts, accounts payable, customer deposits or credit accounts).
(h) Accounts owing from an Account Debtor which is a United States government entity or any department, agency, or instrumentality thereof unless Borrower has assigned its payment rights to Bank and the assignment has been acknowledged under the Federal Assignment of Claims Act of 1940, as amended;
(i) Accounts for demonstration or promotional equipment, or in which goods are consigned, or sold on a sale guaranteed, sale or return, sale on approval, or other terms if Account Debtors payment may be conditional;
(j) Accounts owing from an Account Debtor where goods or services have not yet been rendered to the Account Debtor (sometimes called memo billings or pre-billings);
(k) Accounts subject to contractual arrangements between Borrower and an Account Debtor where payments shall be scheduled or due according to completion or fulfillment requirements where the Account Debtor has a right of offset for damages suffered as a result of Borrowers failure to perform in accordance with the contract (sometimes called contracts accounts receivable, progress billings, milestone billings, or fulfillment contracts);
(l) Accounts owing from an Account Debtor the amount of which may be subject to withholding based on the Account Debtors satisfaction of Borrowers complete performance (but only to the extent of the amount withheld; sometimes called retainage billings);
(m) Accounts subject to trust provisions, subrogation rights of a bonding company, or a statutory trust;
(n) Accounts owing from an Account Debtor that has been invoiced for goods that have not been shipped to the Account Debtor unless Bank, Borrower, and the Account Debtor have entered into an agreement acceptable to Bank wherein the Account Debtor acknowledges that (i) it has title to and has ownership of the goods wherever located, (ii) a bona fide sale of the goods has occurred, and (iii) it owes payment for such goods in accordance with invoices from Borrower (sometimes called bill and hold accounts);
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(o) Accounts for which the Account Debtor has not been invoiced;
(p) Accounts that represent non-trade receivables or that are derived by means other than in the ordinary course of Borrowers business;
(q) Accounts for which Borrower has permitted Account Debtors payment to extend beyond 90 days;
(r) Accounts arising from chargebacks, debit memos or other payment deductions taken by an Account Debtor;
(s) Accounts arising from product returns and/or exchanges (sometimes called warranty or RMA accounts);
(t) Accounts in which the Account Debtor disputes liability or makes any claim (but only up to the disputed or claimed amount), or if the Account Debtor is subject to an Insolvency Proceeding, or becomes insolvent, or goes out of business;
(u) Accounts owing from an Account Debtor with respect to which Borrower has received Deferred Revenue (but only to the extent of such Deferred Revenue);
(v) Accounts owing from an Account Debtor, whose total obligations to Borrower exceed twenty-five percent (25%) of all Accounts, for the amounts that exceed that percentage, unless Bank approves in writing; and
(w) Accounts for which Bank in its good faith business judgment determines collection to be doubtful, including, without limitation, accounts represented by refreshed or recycled invoices.
Equipment is all equipment as defined in the Code with such additions to such term as may hereafter be made, and includes without limitation all machinery, fixtures, goods, vehicles (including motor vehicles and trailers), and any interest in any of the foregoing.
Equipment Loan Agreement is that certain Loan and Security Agreement by and between Bank and Borrower dated as of September 10, 2012.
ERISA is the Employee Retirement Income Security Act of 1974, and its regulations.
Event of Default is defined in Section 8.
Exchange Act is the Securities Exchange Act of 1934, as amended.
Final Payment is a payment (in addition to and not a substitution for the regular monthly payments of principal and accrued interest) due in accordance with Section 2.1.2 above, equal to the original principal amount of the applicable Growth Capital Advance multiplied by the Final Payment Percentage.
Final Payment Percentage is three and nine-tenths percent (3.90%).
First Tranche is defined in Section 2.1.2(a)(i).
Foreign Currency means lawful money of a country other than the United States.
Funding Date is any date on which a Credit Extension is made to or for the account of Borrower which shall be a Business Day.
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FX Contract is any foreign exchange contract by and between Borrower and Bank under which Borrower commits to purchase from or sell to Bank a specific amount of Foreign Currency on a specified date.
GAAP is generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other Person as may be approved by a significant segment of the accounting profession, which are applicable to the circumstances as of the date of determination.
General Intangibles is all general intangibles as defined in the Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation, all Intellectual Property, claims, income and other tax refunds, security and other deposits, payment intangibles, contract rights, options to purchase or sell real or personal property, rights in all litigation presently or hereafter pending (whether in contract, tort or otherwise), insurance policies (including without limitation key man, property damage, and business interruption insurance), payments of insurance and rights to payment of any kind.
Governmental Approval is any consent, authorization, approval, order, license, franchise, permit, certificate, accreditation, registration, filing or notice, of, issued by, from or to, or other act by or in respect of, any Governmental Authority.
Governmental Authority is any nation or government, any state or other political subdivision thereof, any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative functions of or pertaining to government, any securities exchange and any self-regulatory organization.
Growth Capital Advance is defined in Section 2.1.2(a).
Growth Capital Commitment Termination Date (First Tranche) is October 31, 2014.
Growth Capital Commitment Termination Date (Second Tranche) is March 31, 2015.
Growth Capital Loan Commitment is Eight Million Dollars ($8,000,000).
Growth Capital Maturity Date is September 1, 2017.
Indebtedness is (a) indebtedness for borrowed money or the deferred price of property or services, such as reimbursement and other obligations for surety bonds and letters of credit, (b) obligations evidenced by notes, bonds, debentures or similar instruments, (c) capital lease obligations, and (d) Contingent Obligations.
Indemnified Person is defined in Section 12.3.
Insolvency Proceeding is any proceeding by or against any Person under the United States Bankruptcy Code, or any other bankruptcy or insolvency law, including assignments for the benefit of creditors, compositions, extensions generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief.
Intellectual Property means, with respect to any Person, all of such Persons right, title, and interest in and to the following:
(a) its Copyrights, Trademarks and Patents;
(b) any and all trade secrets and trade secret rights, including, without limitation, any rights to unpatented inventions, know-how, operating manuals;
(c) any and all source code;
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(d) any and all design rights which may be available to such Person;
(e) any and all claims for damages by way of past, present and future infringement of any of the foregoing, with the right, but not the obligation, to sue for and collect such damages for said use or infringement of the Intellectual Property rights identified above; and
(f) all amendments, renewals and extensions of any of the Copyrights, Trademarks or Patents.
Interest-Only Period means the period commencing on the Effective Date and continuing through March 31, 2015.
Inventory is all inventory as defined in the Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation all merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products, including without limitation such inventory as is temporarily out of Borrowers custody or possession or in transit and including any returned goods and any documents of title representing any of the above.
Investment is any beneficial ownership interest in any Person (including stock, partnership interest or other securities), and any loan, advance or capital contribution to any Person.
Letter of Credit is a standby or commercial letter of credit issued by Bank upon request of Borrower based upon an application, guarantee, indemnity, or similar agreement.
Lien is a claim, mortgage, deed of trust, levy, charge, pledge, security interest or other encumbrance of any kind, whether voluntarily incurred or arising by operation of law or otherwise against any property.
Loan Documents are, collectively, this Agreement and any schedules, exhibits, certificates, notices, and any other documents related to this Agreement, the Warrant, any Bank Services Agreement, any subordination agreement, any note, or notes or guaranties executed by Borrower, and any other present or future agreement by Borrower with or for the benefit of Bank in connection with this Agreement or Bank Services, all as amended, restated, or otherwise modified.
Loan Margin is three percent (3.00%).
Material Adverse Change is (a) a material impairment in the perfection or priority of Banks Lien in the Collateral or in the value of such Collateral; (b) a material adverse change in the business, operations, or condition (financial or otherwise) of Borrower; or (c) a material impairment of the prospect of repayment of any portion of the Obligations.
Monthly Financial Statements is defined in Section .
Net Cash is, on any date, Borrowers unrestricted cash and Cash Equivalents maintained with Bank and Banks Affiliates minus the outstanding principal amount of any Advances.
Non-Streamline Period is any period that is not a Streamline Period.
Obligations are Borrowers obligation to pay when due any debts, principal, interest, fees, Bank Expenses, and other amounts Borrower owes Bank now or later, whether under this Agreement, the other Loan Documents (other than the Warrant), or otherwise, including, without limitation, any interest accruing after Insolvency Proceedings begin and debts, liabilities, or obligations of Borrower assigned to Bank, and the performance of Borrowers duties under the Loan Documents (other than the Warrant).
Operating Documents are, for any Person, such Persons formation documents, as certified by the Secretary of State (or equivalent agency) of such Persons jurisdiction of organization on a date that is no earlier than thirty (30) days prior to the Effective Date, and, (a) if such Person is a corporation, its bylaws in current form,
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(b) if such Person is a limited liability company, its limited liability company agreement (or similar agreement), and (c) if such Person is a partnership, its partnership agreement (or similar agreement), each of the foregoing with all current amendments or modifications thereto.
Overadvance is defined in Section 2.2.
Patents means all patents, patent applications and like protections including without limitation improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same.
Payment/Advance Form is that certain form attached hereto as Exhibit E.
Perfection Certificate is defined in Section 5.1.
Permitted Indebtedness is:
(a) Borrowers Indebtedness to Bank under this Agreement and the other Loan Documents;
(b) Indebtedness existing on the Effective Date and shown on the Perfection Certificate;
(c) Subordinated Debt;
(d) unsecured Indebtedness to trade creditors incurred in the ordinary course of business;
(e) Indebtedness incurred as a result of endorsing negotiable instruments received in the ordinary course of business;
(f) Indebtedness secured by Liens permitted under clauses (a) and (c) of the definition of Permitted Liens hereunder; and
(g) extensions, refinancings, modifications, amendments and restatements of any items of Permitted Indebtedness (a) through (f) above, provided that the principal amount thereof is not increased or the terms thereof are not modified to impose more burdensome terms upon Borrower or its Subsidiary, as the case may be.
Permitted Investments are:
(a) Investments (including, without limitation, Subsidiaries) existing on the Effective Date and shown on the Perfection Certificate;
(b) (i) Investments consisting of Cash Equivalents, and (ii) any Investments permitted by Borrowers investment policy, as amended from time to time, provided that such investment policy (and any such amendment thereto) has been approved in writing by Bank;
(c) Investments consisting of the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of Borrower;
(d) Investments consisting of deposit accounts and securities accounts in which Bank has a perfected security interest;
(e) Investments accepted in connection with Transfers permitted by Section 7.1;
(f) Investments consisting of the creation of a Subsidiary for the purpose of consummating a merger transaction permitted by Section 7.3 of this Agreement, which is otherwise a Permitted Investment;
(g) Investments (i) by Borrower in Subsidiaries not to exceed Five Hundred Thousand Dollars ($500,000) in the aggregate in any fiscal year and (ii) by Subsidiaries in other Subsidiaries or in Borrower;
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(h) Investments consisting of (i) travel advances and employee relocation loans and other employee loans and advances in the ordinary course of business, and (ii) loans to employees, officers or directors relating to the purchase of equity securities of Borrower or its Subsidiaries pursuant to employee stock purchase plans or agreements approved by Borrowers Board of Directors;
(i) Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of business; and
(j) Investments consisting of notes receivable of, or prepaid royalties and other credit extensions, to customers and suppliers who are not Affiliates, in the ordinary course of business; provided that this paragraph (j) shall not apply to Investments of Borrower in any Subsidiary,
Permitted Liens are:
(a) Liens existing on the Effective Date and shown on the Perfection Certificate or arising under this Agreement and the other Loan Documents;
(b) Liens for taxes, fees, assessments or other government charges or levies, either (i) not due and payable or (ii) being contested in good faith and for which Borrower maintains adequate reserves on its Books, provided that no notice of any such Lien has been filed or recorded under the Internal Revenue Code of 1986, as amended, and the Treasury Regulations adopted thereunder;
(c) purchase money or lease Liens (i) on Equipment acquired or held by Borrower incurred for financing the acquisition of the Equipment securing no more than Two Hundred Fifty Thousand Dollars ($250,000) in the aggregate amount outstanding, or (ii) existing on Equipment when acquired, if the Lien is confined to the property and improvements and the proceeds of the Equipment;
(d) Liens of carriers, warehousemen, suppliers, or other Persons that are possessory in nature arising in the ordinary course of business so long as such Liens attach only to Inventory, and which are not delinquent or remain payable without penalty or which are being contested in good faith and by appropriate proceedings which proceedings have the effect of preventing the forfeiture or sale of the property subject thereto;
(e) Liens to secure payment of workers compensation, employment insurance, old-age pensions, social security and other like obligations incurred in the ordinary course of business (other than Liens imposed by ERISA);
(f) Liens incurred in the extension, renewal or refinancing of the indebtedness secured by Liens described in (a) through (c), but any extension, renewal or replacement Lien must be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness may not increase;
(g) leases or subleases of real property granted in the ordinary course of Borrowers business (or, if referring to another Person, in the ordinary course of such Persons business), and leases, subleases, non-exclusive licenses or sublicenses of personal property (other than Intellectual Property) granted in the ordinary course of Borrowers business (or, if referring to another Person, in the ordinary course of such Persons business), if the leases, subleases, licenses and sublicenses do not prohibit granting Bank a security interest therein;
(h) non-exclusive licenses of Intellectual Property granted to third parties in the ordinary course of business; and
(i) Liens arising from attachments or judgments, orders, or decrees in circumstances not constituting an Event of Default under Sections 8.4 and 8.7.
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Person is any individual, sole proprietorship, partnership, limited liability company, joint venture, company, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or government agency.
Prepayment Fee shall be, with respect to each Growth Capital Advance, an amount equal to (i) two percent (2.00%) of the outstanding principal balance of such Growth Capital Advance prepaid if such Growth Capital Advance is outstanding one (1) year or less, and (ii) one percent (1.00%) of the outstanding principal balance of such Growth Capital Advance prepaid if such Growth Capital Advance is outstanding more than one (1) year and less than two (2) years. There shall be no Prepayment Fee in respect of Growth Capital Advances outstanding two (2) years or more, or if the Growth Capital Advances are being repaid through a new credit facility provided by Bank, in its sole and absolute discretion, which is replacing the Growth Capital Advances.
Prime Rate is Banks most recently announced prime rate, even if it is not the lowest rate of interest charged by Bank in connection with extensions of credit to debtors.
Registered Organization is any registered organization as defined in the Code with such additions to such term as may hereafter be made.
Repayment Period means the period commencing on the Conversion Date and continuing through the Growth Capital Maturity Date.
Requirement of Law is as to any Person, the organizational or governing documents of such Person, and any law (statutory or common), treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.
Reserves means, as of any date of determination, such amounts as Bank may from time to time establish and revise in its good faith business judgment, reducing the amount of Advances and other financial accommodations which would otherwise be available to Borrower (a) to reflect events, conditions, contingencies or risks which, as determined by Bank in its good faith business judgment, do or may adversely affect (i) the Collateral or any other property which is security for the Obligations or its value (including without limitation any increase in delinquencies of Accounts), (ii) the assets, business or prospects of Borrower, or (iii) the security interests and other rights of Bank in the Collateral (including the enforceability, perfection and priority thereof); or (b) to reflect Banks reasonable belief that any collateral report or financial information furnished by or on behalf of Borrower to Bank is or may have been incomplete, inaccurate or misleading in any material respect; or (c) in respect of any state of facts which Bank determines constitutes an Event of Default or may, with notice or passage of time or both, constitute an Event of Default.
Responsible Officer is any of the Chief Executive Officer, President and Chief Financial Officer of Borrower.
Restricted License is any material license or other agreement with respect to which Borrower is the licensee (a) that prohibits or otherwise restricts Borrower from granting a security interest in Borrowers interest in such license or agreement or any other property, or (b) for which a default under or termination of could interfere with the Banks right to sell any Collateral.
Revolving Line is an aggregate principal amount equal to Four Million Dollars ($4,000,000).
Revolving Line Maturity Date is the date three (3) years from the Effective Date.
SEC shall mean the Securities and Exchange Commission, any successor thereto, and any analogous Governmental Authority.
Second Tranche is defined in Section 2.1.2(a)(ii).
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Securities Account is any securities account as defined in the Code with such additions to such term as may hereafter be made.
Streamline Period means any period during which Borrowers Net Cash is equal to or greater than One Million Dollars ($1,000,000).
Subordinated Debt is indebtedness incurred by Borrower subordinated to all of Borrowers now or hereafter indebtedness to Bank (pursuant to a subordination, intercreditor, or other similar agreement in form and substance satisfactory to Bank entered into between Bank and the other creditor), on terms acceptable to Bank.
Subsidiary is, as to any Person, a corporation, partnership, limited liability company or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person. Unless the context otherwise requires, each reference to a Subsidiary herein shall be a reference to a Subsidiary of Borrower.
Trademarks means any trademark and servicemark rights, whether registered or not, applications to register and registrations of the same and like protections, and the entire goodwill of the business of Borrower connected with and symbolized by such trademarks.
Transaction Report is that certain report of transactions and schedule of collections in the form attached hereto as Exhibit C.
Transfer is defined in Section 7.1.
Treasury Note Maturity is thirty six (36) months.
Warrant is that certain Warrant to Purchase Stock dated as of the Effective Date executed by Borrower in favor of Bank.
[Signature page follows.]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the Effective Date
BORROWER: | ||
INTERSECT ENT, INC. | ||
By: | /s/ Lisa Earnhardt | |
Name: | Lisa Earnhardt | |
Title: | President & CEO | |
BANK: | ||
SILICON VALLEY BANK | ||
By: | /s/ Kevin Longo | |
Name: | Kevin Longo | |
Title: | Vice President |
[Signature Page to Loan and Security Agreement]
EXHIBIT A
The Collateral consists of all of Borrowers right, title and interest in and to the following personal property:
All goods, Accounts (including health-care receivables), Equipment, Inventory, contract rights or rights to payment of money, leases, license agreements, franchise agreements, General Intangibles (except as provided below), commercial tort claims, documents, instruments (including any promissory notes), chattel paper (whether tangible or electronic), cash, deposit accounts, fixtures, letters of credit rights (whether or not the letter of credit is evidenced by a writing), securities, and all other investment property, supporting obligations, and financial assets, whether now owned or hereafter acquired, wherever located; and
all Borrowers Books relating to the foregoing, and any and all claims, rights and interests in any of the above and all substitutions for, additions, attachments, accessories, accessions and improvements to and replacements, products, proceeds and insurance proceeds of any or all of the foregoing.
Notwithstanding the foregoing, the Collateral does not include (i) more than 65% of the presently existing and hereafter arising issued and outstanding shares of capital stock owned by Borrower of any foreign Subsidiary which shares entitle the holder thereof to vote for directors or any other matter; or (ii) any Intellectual Property; provided, however, the Collateral shall include all Accounts and all proceeds of Intellectual Property. If a judicial authority (including a U.S. Bankruptcy Court) would hold that a security interest in the underlying Intellectual Property is necessary to have a security interest in such Accounts and such property that are proceeds of Intellectual Property, then the Collateral shall automatically, and effective as of the Effective Date, include the Intellectual Property to the extent necessary to permit perfection of Banks security interest in such Accounts and such other property of Borrower that are proceeds of the Intellectual Property.
EXHIBIT B
COMPLIANCE CERTIFICATE
TO: | SILICON VALLEY BANK | Date: | ||||
FROM: | INTERSECT ENT, INC. |
The undersigned authorized officer of Intersect ENT, Inc. (Borrower) certifies that under the terms and conditions of the Loan and Security Agreement between Borrower and Bank (the Agreement), (1) Borrower is in complete compliance for the period ending with all required covenants except as noted below, (2) there are no Events of Default, (3) all representations and warranties in the Agreement are true and correct in all material respects on this date except as noted below; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date, (4) Borrower, and each of its Subsidiaries, has timely filed all required tax returns and reports, and Borrower has timely paid all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower except as otherwise permitted pursuant to the terms of Section 5.9 of the Agreement, and (5) no Liens have been levied or claims made against Borrower relating to unpaid employee payroll or benefits of which Borrower has not previously provided written notification to Bank. Attached are the required documents supporting the certification. The undersigned certifies that these are prepared in accordance with GAAP consistently applied from one period to the next except (a) financial statements (other than those prepared for Borrowers fiscal year end) are subject to footnote disclosure and normal year-end adjustments and (b) as explained in an accompanying letter or footnotes. The undersigned acknowledges that no borrowings may be requested at any time or date of determination that Borrower is not in compliance with any of the terms of the Agreement, and that compliance is determined not just at the date this certificate is delivered. Capitalized terms used but not otherwise defined herein shall have the meanings given them in the Agreement.
Please indicate compliance status by circling Yes/No under Complies column.
Reporting Covenant |
Required |
Complies | ||
Monthly financial statements with Compliance Certificate | Monthly within 30 days | Yes No | ||
Annual financial statement (CPA Audited) + CC | FYE within 240 days | Yes No | ||
10-Q, 10-K and 8-K | Within 5 days after filing with SEC | Yes No | ||
A/R & A/P Agings | Monthly within 30 days | Yes No | ||
Transaction Report | By Friday of each week (during any Non- Streamline Period); Monthly within 30 days (during any Streamline Period); and with each Advance request | Yes No | ||
Annual financial projections | Within 30 days of Board approval | Yes No |
Streamline Period Eligibility |
Required | Actual | Meets Requirement | |||||||
Net Cash |
$ | 1,000,000 | $ | Yes No |
[Continued on following page.]
The following financial analysis and information set forth in Schedule 1 attached hereto are true and accurate as of the date of this Certificate.
The following are the exceptions with respect to the certification above: (If no exceptions exist, state No exceptions to note.)
Intersect ENT, Inc. | BANK USE ONLY | |||||||
Received by: |
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By: |
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AUTHORIZED SIGNER | ||||||
Name: |
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Date: |
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Title: |
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Verified: |
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AUTHORIZED SIGNER | ||||||||
Date: |
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Compliance Status: | Yes No |
Schedule 1 to Compliance Certificate
Financial Calculations of Borrower
In the event of a conflict between this Schedule and the Loan Agreement, the terms of the Loan Agreement shall govern.
Dated: |
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I. | Net Cash (This is not a financial covenant but is used to determine Streamline Period eligibility.) |
Required: | $1,000,000 | |
Actual: | $ |
A. | Aggregate value of the unrestricted cash and Cash Equivalents of Borrower maintained with Bank and Banks Affiliates | $ | ||
B. | Aggregate value of outstanding Advances under the Revolving Line | $ | ||
C. | Net Cash (line A minus line B) | $ |
Is line C equal to or greater than $1,000,000?
No, Non-Streamline Period | Yes, Streamline Period |
EXHIBIT C
Transaction Report
[EXCEL spreadsheet to be provided separately from lending officer.]
EXHIBIT D
Borrowing Resolutions
[see attached]
EXHIBIT E LOAN PAYMENT/ADVANCE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS NOON PACIFIC TIME
Fax To: (650) 320-0016 | Date: |
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LOAN PAYMENT:
INTERSECT ENT, INC. | ||||||||||
From Account # |
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To Account # |
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(Deposit Account #) | (Loan Account #) |
Principal $ |
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and/or Interest $ |
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Authorized Signature: |
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Phone Number: |
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Print Name/Title: |
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LOAN ADVANCE:
Complete Outgoing Wire Request section below if all or a portion of the funds from this loan advance are for an outgoing wire.
From Account # |
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To Account # |
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(Loan Account #) | (Deposit Account #) |
Amount of Advance $ |
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All Borrowers Representations and warranties in the Loan and Security Agreement are true, correct and complete in all material respects on the date of the request for an advance; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof, and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date.
Authorized Signature: |
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Phone Number: |
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Print Name/Title: |
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OUTGOING WIRE REQUEST:
Complete only if all or a portion of funds from the loan advance above is to be wired.
Deadline for same day processing is noon, Pacific Time
Beneficiary Name: |
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Amount of Wire: $ |
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Beneficiary Bank: |
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Account Number: |
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City and State: |
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Beneficiary Bank Transit (ABA) #: |
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Beneficiary Bank Code (Swift, Sort, Chip, etc.): |
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(For International Wire Only) |
Intermediary Bank: |
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Transit (ABA) #: |
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For Further Credit to: |
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Special Instruction: |
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By signing below, I (we) acknowledge and agree that my (our) funds transfer request shall be processed in accordance with and subject to the terms and conditions set forth in the agreements(s) covering funds transfer service(s), which agreements(s) were previously received and executed by me (us).
Authorized Signature: |
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2nd Signature (if required): |
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Print Name/Title: |
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Print Name/Title: |
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Telephone #: |
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Telephone #: |
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Exhibit 10.16
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
SUPPLY AGREEMENT
THIS SUPPLY AGREEMENT (this Agreement) is made this, 14th day of April, 2014 (the Effective Date), by and between HOVIONE INTER LTD., together with its subsidiaries and affiliates, a INTERSECT organized and existing under the laws of Switzerland and having its registered office at Bahnofstrasse 21, CH-600 Lucerne 7, Switzerland (hereafter referred to as HOVIONE), and INTERSECT ENT, together with its subsidiaries and affiliates, a INTERSECT organized and existing under the laws of California and having its registered office at 1555 Adams Drive, Menlo Park, CA 94025 (hereafter referred to as INTERSECT). HOVIONE and INTERSECT are each sometimes referred to herein as a Party and together as the Parties.
WHEREAS, HOVIONE has developed and manufacturers the active pharmaceutical ingredient(s) identified in Exhibit A hereto (the API); and
WHEREAS, INTERSECT developed and markets the Finished Product identified in Exhibit A based on the API, as defined herein; and
WHEREAS, INTERSECT desires to acquire API from HOVIONE to incorporate into the Finished Product; and WHEREAS, HOVIONE is willing to supply such API for INTERSECTs use, on the terms and conditions set forth in this Agreement.
NOW THEREFORE, in consideration of the promises and the mutual covenants set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree and covenant as follows:
1. Definitions.
1.1 Active Pharmaceutical Ingredient or API shall have the meaning given such term in the preamble hereof.
1.2 Affiliate means any entity controlling, controlled by or under common control with either Party hereto. For purpose of this definition control shall mean ownership of over fifty percent (50%) of the equity capital, the outstanding voting securities or other ownership interest of an entity, or the right to receive over fifty percent (50%) of the profits or earnings of an entity. In the case of non-stock organizations, the term control shall mean the power to control the distribution of profits.
1.3 Applicable Law shall mean the laws, regulations, rules and guidelines pertaining to the development, manufacture, packaging, labeling, storage, import, export, distribution, marketing, sale and/or intended use of the API or the Finished Product.
1.
1.4 Batch Record shall mean a batch manufacturing record, prepared according to applicable cGMP guidelines, for every production batch of API.
1.5 Confidential Information shall mean all the technical information, whether tangible or intangible, including (without limitation) any and all data, techniques, discoveries, inventions, processes, know-how, patent applications, inventor certificates, trade secrets, methods of production and other proprietary information, that either Party or its Affiliates have ownership rights to (as either owner, licensee or sub-licensee), or may hereafter obtain rights.
1.6 Current Good Manufacturing Practices or cGMP shall mean current Good Manufacturing Practice as set forth by the US FDA as well as current good manufacturing practices applicable to the API, or the making thereof at HOVJONEs manufacturing facility, set forth by the relevant Regulatory Agency.
1.7 Defect with respect to the API shall mean failure of the API to comply with the Product Specifications.
1.8 FDA shall mean the US Food and Drug Administration, and any successor thereto.
1.9 Finished Product shall mean the finished dosage form combination drug and device product that contains the API ready for commercial sale, as further described in Exhibit A hereto.
1.10 Firm Forecast shall have the meaning given to such term in Section 3.2 hereof.
1.11 Product Specifications shall have the meaning given to such term in Section 2.2 hereof.
1.12 Quality Agreement shall mean that certain Quality Assurance Agreement, dated of even date herewith, by and between INTERSECT and HOVIONE, which sets forth (a) the roles and responsibilities of the Parties with respect to the quality assurance for the API and (b) how the Parties quality operations shall interact with each other in connection with the same.
1.13 Regulatory Agency shall mean national, or other government entities regulating or otherwise exercising authority with respect to the API or the Finished Product in the United States including, without limitation, the US FDA
1.14 Term shall have the meaning assigned to such term in Section 10.
2. Manufacture and Safe.
2.1 Supply. During the term of this Agreement and subject to the terms and conditions set forth herein, INTERSECT shall purchase a minimum of 80% of its annual API
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
2.
requirement, from HOVIONE and HOVIONE shall manufacture and supply API to INTERSECT (or a third party designated by INTERSECT) in such quantities as from time to time may be ordered by INTERSECT.
2.2 Product Specifications. The specifications of the API as set out in in Exhibit B to this Agreement (the Product Specifications); as such Exhibit may be amended according to the terms of the quality agreement between the parties.
3. Costs. HOVIONE shall be responsible for all costs and expenses related to the maintenance of a US DMF or European CEP for the API. Any additional submissions, technical work, documents, data or materials requested by INTERSECT may be chargeable by HOVIONE.
4. Price, Orders and Terms of Payment.
4.1 Pricing. The price for the API shall be as set forth on Exhibit C hereto. All sums shall be expressed in and payable in US Dollars.
4.2 Forecasting. For each calendar year during the term of this Agreement, INTERSECT shall submit a twelve (12) month rolling forecast updated on a quarterly basis, broken down on a quarterly basis covering INTERSECTs anticipated requirements of API, each such forecast to be provided to HOVIONE at least ninety (90) days prior to the start of the relevant twelve (12) month period. The rolling forecast shall be for information purposes only and non-binding so long as the INTERSECT provides a blanket purchase order covering their demand for the next six (6) months. In the case that INTERSECT does not provide a blanket purchase order, the forecast will be considered binding. INTERSECT shall place all purchase orders with HOVIONE at least ninety (90) days in advance of required delivery to INTERSECT. Within five (5) days of receipt of a purchase order, HOVIONE shall notify INTERSECT in writing of its acceptance of the purchase order and confirm the delivery date. If the purchase order exceeds the Firm Forecasted amount, HOVIONE shall use commercially reasonable efforts to fill such order but shall not be in breach of this Agreement if HOVIONE does not supply the excess.
4.3 Delivery Terms. Each purchase order shall specify: (i) an identification of the API ordered; (ii) quantity requested; (iii) the requested delivery date; and (iv) shipping instructions and address. HOVIONE agrees to deliver the API DDP Palo Alto, CA USA (Incoterms 2010).
4.4 Payment Terms. HOVIONE shall invoice INTERSECT upon dispatch of the API. INTERSECT shall pay the price to HOVIONE for API within thirty (30) calendar days of the date of invoice of such API. Payments shall be made to HOVIONE by wire transfer. In case of delays on payment, INTERSECT agrees to pay interest on the outstanding amount at the prevailing Weighted Average Cost of Capital (WACC) for Hovione on a monthly basis.
4.5 Scope of Agreement. In no event shall any terms or conditions included on any purchase order, invoice or acknowledgement thereof or any other document, whether paper, electronic or otherwise, relating thereto, apply to the relationship between the Parties under this Agreement, unless such terms are expressly agreed to by the Parties in writing. If there is a
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
3.
conflict between the terms of any purchase order or other document and this Agreement, the terms of this agreement shall apply. The Parties further agree that no course of dealing between the Parties shall in any way modify, change or supersede the terms and conditions of this Agreement.
5. Manufacture and Delivery of API.
5.1 Manufacture. The API shall be manufactured by HOVIONE at its facilities in accordance with all relevant current Good Manufacturing Practices (cGMPs), the Specifications, and Applicable Laws, , and pursuant to HOVIONEs Drug Master File (DMF), prepared by HOVIONE and filed with the US FDA. HOVIONE shall advise INTERSECT in writing in advance of making any changes to the Product Specifications or any material changes in the methods, processes or procedures in manufacturing the API that could affect the quality, purity and/or physical properties of the API, Any changes will be made according to the terms of the quality agreement between the parties. HOVIONE shall provide sufficient notice of any such change to INTERSECT to allow INTERSECT to make any required notices to and obtain any required approvals from any Regulatory Agency with respect to such change.
5.2 Right of Audit. INTERSECT and its representatives shall have the right to audit HOVIONE for compliance with applicable regulatory requirements, including, but not limited to, cGMPs, at reasonable intervals and upon 30 days written notice. Such audits shall be scheduled at mutually agreeable times and shall not be more frequent than once every three years. INTERSECT will also consider the use of an Rx-360 audit report as a substitute for conducting their own audit.
5.3 Certificate of Analysis; Product Release. The quality control(s) and the release(s) of API (including documentation) shall be done by HOVIONE in accordance with the Quality Agreement. HOVIONE shall provide certificates of analysis to INTERSECT for each batch of API delivered under this Agreement. API shall have at least [*] remaining on the date of delivery.
5.4 Cooperation. During the term of this Agreement, HOVIONE shall assist and cooperate in a timely manner INTERSECT in its preparation of any documents or other materials which may be required by the US FDA to validate sell and/or distribute the API to be supplied by HOVIONE under this Agreement or the Finished Product. HOVIONE shall file with the US FDA and shall maintain at all times as current, a DMF for the API. HOVIONE shall also provide INTERSECT with a referral letter permitting INTERSECT to use HOVIONEs DMF.
5.5 Required Changes. INTERSECT shall deliver to HOVIONE written notice of any required changes to the Product Specifications requested by the Regulatory Authorities, and HOVIONE shall use its commercially reasonable efforts to make such changes to the Product Specifications. If any change to Product Specifications requested by INTERSECT materially affects HOVIONEs costs of producing the API, then HOVIONE shall promptly so inform INTERSECT in writing and the Parties shall negotiate, in good faith, an adjustment to the pricing paid by INTERSECT for API under this Agreement. If the Parties cannot mutually agree, following good faith negotiations, on an equitable adjustment to pricing, then either HOVIONE
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
4.
or INTERSECT may terminate this Agreement for business reasons on not less than ninety (90) days prior written notice, without any further obligation to the other party; provided, however, that INTERSECT shall remain liable for all sums owed to HOVIONE for orders of API that were placed prior to the date of termination
5.6 Inspection of API. Within thirty (30) calendar days of the arrival of each lot of API at the manufacturing facility designated by INTERSECT, INTERSECT shall inspect and test each lot of API at its own cost and expense. If, upon inspecting and testing the API, INTERSECT determines that a lot of API does not conform to the Product Specifications, then INTERSECT shall, within such thirty (30) day period, give HOVIONE written notice of such non-conformity (setting forth the details of such non-conformity): Unless HOVIONE objects, within 20 working days from the notice by INTERSECT, to the non-conformity INTERSECT will return the non-conforming API to HOVIONE. Any API rejected by INTERSECT may not be reshipped to INTERSECT except if the API is reprocessed according to the DMF. HOVIONE [*] replace any non-conforming API within thirty (30) days of receiving the notice of non-conformity. Disputes between the Parties as to whether all or any part of a shipment rejected by INTERSECT materially conforms to the Product Specifications shall be resolved by a mutually acceptable third party testing laboratory located in a neutral country. HOVIONE shall pay all the fees of the third party laboratory, unless the third party testing laboratory determines that the delivered API materially conforms to the Product Specifications, in which case INTERSECT shall pay all the fees of such third party laboratory and also any additional costs that HOVIONE incurred in providing replacement material.
5.7 Regulatory Communications. During the Term, HOVIONE shall notify INTERSECT after receipt of any communication from any Regulatory Agency in connection or that can affect INTERSECT Marketing Authorisation.
5.8 Liability. It is understood that HOVIONE has no control over the ultimate use of the Finished Product once it leaves INTERSECTs manufacturing facility. HOVIONE shall have no liability arising out of or in connection with the sale or use of the API or any product or material made from or incorporating the API, except to the extent that the API was not manufactured in accordance with the Product Specifications, cGMPs or Applicable Law or the liability otherwise arises from a breach of this Agreement by HOVIONE.
5.9 Recall. INTERSECT shall be responsible for conducting any recall of Finished Product, and HOVIONE shall cooperate with and give all reasonable assistance to INTERSECT in conducting any such recall to the extent it relates to the API. HOVIONE shall bear the expense of any recall resulting from a material breach of its obligations hereunder and/or of the Quality Agreement and/or from its gross negligence or willful misconduct subject to the limits set out in 8.4. Otherwise, INTERSECT shall bear such expenses. In the event of such recall or similar action, each Party shall use commercially reasonable efforts to mitigate the costs associated therewith. In the case of a disagreement as to the existence or level of nonconforming API, then the matter shall be referred to an independent third party laboratory. The decision of the laboratory shall be final and binding on the Parties.
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
5.
5.10 Retention of Documentation. All documentation related to the manufacturing of the API shall be archived with HOVIONE after manufacturing in accordance with HOVIONEs document retention policies.
5.11 Safety of API. Each Party shall immediately notify the other Party of any unusual health or environmental occurrence relating to API . Each Party shall advise the other Party immediately of any safety or toxicity problems of which it becomes aware regarding API.
6. Warranties.
6.1 HOVIONEs Warranties. HOVIONE represents and warrants to INTERSECT that:
(a) It has full right and power to enter into this Agreement and perform its obligations hereunder in accordance with its terms;
(b) The API and all components and ingredients thereof shall be manufactured and delivered in strict compliance with: (i) the Product Specifications; (ii) the methods processes and procedures, including the site manufacture, set forth in the DMF, together with all applicable regulatory requirements relating to the manufacture of the API
(c) the plant(s) for manufacture of the API is and shall be in compliance with all applicable cGMPs and that such plant(s) is and shall continue to be available for inspection if and when the Regulatory Authorities so requests;
6.2 INTERSECTs Warranties. INTERSECT represents and warrants to HOVIONE that:
(a) It has the full right and power to enter into this Agreement and perform its obligations hereunder in accordance with its terms; and
(b) That it will purchase the API in strict compliance with the terms of this agreement. as set forth under Section 2.1 and 2.1
6.3 Mutual Warranties. Each party represents and warrants to the other party that it holds all necessary and required permits and authorizations, including, but not limited to, those required by the, and shall undertake throughout the term of this Agreement to maintain the same in full force and effect. Each party further covenants that it shall use commercially reasonable efforts to obtain all such other permits and authorizations as may be reasonably required from time to time in either case to operate their respective facilities and/or businesses in order to manufacture, provide, distribute and/or sell API hereunder.
7. Confidentiality.
7.1 Confidentiality. Each party agrees to retain in confidence all Confidential Information disclosed to it pursuant to this Agreement, whether such disclosure occurred before or after the date hereof. Disclosed information shall not be deemed Confidential Information
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
6.
hereunder if: (a) it is now or later becomes publicly known, other than through the fault of the receiving party; (b) it is lawfully known without restriction to the receiving party at the time of disclosure as evidenced by written documentation; (c) it is rightfully obtained by the receiving party from a third party without restriction and without breach of this Agreement or any similar agreement; and/or (d) it is independently developed by the receiving party without access to the disclosing partys information, as evidenced by written documentation. If either Party is required under Applicable Law to disclose Confidential Information by any court or to any Regulatory Agency, the Party required disclosing the Confidential Information shall, prior to such disclosure, notifying the other Party of such requirement and all particulars related to such requirement. The notified Party shall have the right, at its expense, to object to such disclosure and to seek confidential treatment of any Confidential Information to be so disclosed on such terms as it shall determine, and the other Party shall fully cooperate with the notified Party in this regard. The confidentiality of disclosed Confidential Information and the obligation of confidentiality hereunder shall survive any expiration or termination of this Agreement for a period of ten years. The Parties specifically agree that all terms of this Agreement, all sales and API requirements and costs and all purchase orders shall be deemed to be confidential.
7.2 Separate Confidentiality Agreement. If the Parties entered into one or more separate confidentiality agreements or non-disclosure agreements (each, a Confidentiality Agreement), such Confidentiality Agreement(s) shall be and remain in full force and effect as provided therein. In the event of any conflict between the terms of this Agreement and the terms of any such Confidentiality Agreement, the terms of such Confidentiality Agreement shall control.
7.3 Public Announcements. During the term of this Agreement, no party hereto shall issue or release, directly or indirectly, any press release, marketing material or other communication to or for the media or the public that pertains to this Agreement, the API, the Finished Product or the transactions contemplated hereby (collectively, a Press Release) unless the content of such Press Release has been approved by the other party hereto, such approval not to be unreasonably withheld or delayed; provided, however, that nothing contained in this Agreement shall prevent or preclude any party from making such disclosures as may be required by applicable law, including, but not limited to, any disclosures required applicable securities laws.
8. Indemnification.
8.1 INTERSECT shall indemnify, defend and hold HOVIONE and its officers, directors, affiliates, agents and employees harmless from and against any and all claims, demands, costs, expenses, losses, liabilities and/or damages (including, but not limited to, reasonable attorneys fees) of every kind and nature caused by, arising out of or resulting from INTERSECTs negligence relating to, or breach of, this Agreement, and any claim for personal or bodily injury arising from the use of the Finished Product or any substance, dosage composition or compound manufactured therefrom; provided, however, that in no event shall this Section apply to any claim covered by Section 8.2 below.
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
7.
8.2 HOVIONE shall indemnify, defend and hold INTERSECT and its officers, directors, affiliates, agents and employees harmless from and against any and all claims, demands, costs, expenses, losses, liabilities and/or damages (including, but not limited to, reasonable attorneys fees and court costs) of every kind and nature caused by, arising out of or resulting from HOVIONEs negligence relating to, or breach of, this Agreement and any claim for personal or bodily injury arising from the manufacture and/or distribution of API by HOVIONE. This indemnification obligation does not apply to any claim for personal or bodily injury arising from the use or administration of the API except to the extent such injury is attributable to a Defect in the API arising out of HOVIONEs gross negligence, willful misconduct, or failure to manufacture and deliver the API in accordance with the Product Specifications and all Applicable Law.
8.3 Each party will promptly notify the other of any actual or threatened judicial or other proceedings which could involve either or both parties. Each party reserves the right to defend itself in any such proceedings; provided, however, that, if indemnity is sought, then the party from whom indemnity is sought shall have the right to control the defense of the claim, and the indemnified party may participate with counsel of its choice at its own expense. The Parties shall cooperate with each other to the extent reasonably necessary in the defense of all actual or potential liability claims and in any other litigation relating to the API supplied pursuant to this Agreement. Each party will supply information to the other relevant to any product liability claims and litigation affecting the API and/or the Finished Product, as the case may be.
8.4 NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, IN NO EVENT WILL EITHER PARTY BE LIABLE FOR ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL OR INDIRECT DAMAGES ARISING OUT OF THIS AGREEMENT, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY. THIS LIMITATION WILL APPLY EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE; PROVIDED, HOWEVER, THAT THIS LIMITATION WILL NOT APPLY TO DAMAGES RESULTING FROM BREACHES BY A PARTY OF ITS DUTY OF CONFIDENTIALITY AND NON-USE IMPOSED UNDER THIS AGREEMENT OR THE CONFIDENTIALITY AGREEMENT OR SUCH PARTYS INDEMNIFICATION OBLIGATIONS STATED ABOVE. FURTHER AND NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, THE [*] SHALL BE [*] OF THE [*].
9. Insurance. Unless the Parties otherwise agree in writing, the following terms shall apply:
9.1 During the term of this Agreement and for a period [*] after any expiration or termination of this Agreement, each of INTERSECT and HOVIONE shall maintain in full force and effect a comprehensive general liability insurance policy, including Products Liability coverage, with minimum limits of [*] for bodily injury including death.
10. Term and Termination.
10.1 Term.
Unless terminated in accordance with the provisions of Section 10.2 below, the term of this Agreement shall commence on the Effective Date and shall continue in effect for a FIVE (5) year period.
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
8.
10.2 Grounds for Termination.
(a) Either party shall have the right to terminate this Agreement upon the occurrence of any of the following events: (i) the failure of the other party to comply with any of the terms of this Agreement or otherwise discharge its duties hereunder in any material respect, or the breach by the other party of any of its representations or warranties herein in any material respect, if such failure or breach is not cured within ninety (90) days of such breaching partys receipt of written notice specifying the nature of such failure or breach with particularity; or (ii) the making by the other party of an assignment for the benefit of its creditors, or the filing by or against such other party of any petition under any federal, state or local bankruptcy, insolvency or similar laws, if such filing has not been stayed or dismissed within sixty (60) days after the date thereof.
10.3 INTERSECT shall also have the right to suspend further performance under this Agreement and/or terminate this Agreement in its entirety, without liability except for unpaid previously delivered API that conforms with the terms hereof, if: (i) HOVIONE loses any approval(s) from the US FDA required to perform its obligations under this Agreement or if HOVIONE is involved in felonious or fraudulent activities; Continuing Obligations; Survival. In no event shall any termination or expiration of this Agreement excuse either party from any breach or violation of this Agreement and full legal and equitable remedies shall remain available therefore, nor shall it excuse either party from making any payment due under this Agreement with respect to any period prior to the date of expiration or termination.
11. Agreement to Consummate: Further Assurances. Subject to the terms and conditions of this Agreement, each of the Parties hereto agrees to use commercially reasonable efforts to do all things necessary, proper or advisable under this Agreement, applicable laws and regulations to consummate and make effective the transactions contemplated hereby. If, at any time after the date hereof, any further action is necessary, proper or advisable to carry out the purposes of this Agreement, then, as soon as is reasonably practicable, each party to this Agreement shall take, or cause its proper officers to take, such action.
12. Force Majeure. Any delay in the performance of any of the duties or obligations of either party hereto (except for the payment of money) caused by an event outside the affected partys reasonable control shall not be considered a breach of this Agreement and the time required for performance shall be extended for a period equal to the period of such delay. Such events shall include, but will not be limited to, acts of God, acts of a public enemy, acts of terrorism, insurrections, riots, injunctions, embargoes, fires, explosions, floods, or other unforeseeable causes beyond the reasonable control and without the fault or negligence of the Party so affected. The Party so affected shall give prompt written notice to the other party of such event. The suspension of performance shall be of no greater scope and no longer duration than is reasonably required and the nonperforming Party shall use its commercially reasonable efforts to remedy its inability to perform; provided, however, that in the event the suspension of performance continues for sixty (60) days after the date of the occurrence, and such failure to perform would constitute a material breach of this Agreement in the absence of such force majeure event, the no affected Party may terminate this Agreement immediately by written notice to the affected Party.
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
9.
13. General Provisions.
13.1 Assignment. Neither this Agreement nor any interest herein may be assigned, in whole or in part, by either party without the prior written consent of the other, which consent shall not be unreasonably withheld or delayed, except that either party may assign its rights and obligations under this Agreement: (a) to an affiliate, division or subsidiary of such party; and/or (b) to any third party that acquires all or substantially all of the stock or assets of such party, whether by asset sale, stock sale, merger or otherwise, and, in any such event such assignee shall assume the transferring partys obligations hereunder. However, notwithstanding any such assignment, in the case of an assignment to an affiliate, division or subsidiary, the transferring party shall remain liable under this Agreement (in addition to the transferee) unless such liability is specifically waived in writing by the other party hereto. Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of the Parties hereto, and their respective successors and permitted assigns.
(a) Buyout. In the case that either company is acquired by, or merges with, another company which has reason to not wish to continue the relationship, that company may make a contract buyout payment [*] for the [*], with a [*] buyout payment amount of [*].
13.2 Notice. Any notice or request required or permitted to be given under or in connection with this Agreement shall be deemed to have been sufficiently given if in writing and sent by: (a) personal delivery against a signed receipt therefore, (b) certified mail, return receipt requested, first class postage prepaid, (c) nationally recognized overnight delivery service (signature required), (d) confirmed facsimile transmission, or (e) electronic mail (with any notices to sent by facsimile transmission or electronic mail to also be sent by one of the other methods set forth in this Section), addressed as follows:
If to HOVIONE, then to: |
| |
Attention: | ||
Facsimile: ( ) - | ||
With a copy, sent as provided herein, to: |
| |
Attention: | ||
Facsimile: ( ) - | ||
If to INTERSECT, then to: | 1555 Adams Dr., Menlo Park, CA 94025 | |
Attention: Felicia Mercado | ||
Facsimile: (650) 641-2137 | ||
With a copy, sent as provided herein, to: | 1555 Adams Dr., Menlo Park, CA 94025 | |
Attention: Dan Castro | ||
Facsimile: (650) 641-2117 |
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
10.
Any party may alter the address to which communications are to be sent by giving notice of such change of address in conformity with the provisions of this Section providing for the giving of notice. Notice shall be deemed to be effective, if personally delivered, when delivered; if mailed, at midnight on the third business day after being sent by certified mail; if sent by nationally recognized overnight delivery service, on the next business day following delivery to such delivery service; and if sent by confirmed facsimile transmission or electronic mail, on the next business day following transmission (so long as any notices sent by facsimile transmission or electronic mail are also sent by one of the other methods set forth in this Section).
13.3 Entire Agreement. This Agreement sets forth the entire agreement and understanding between the Parties as to the subject matter hereof and merges all prior discussions and negotiations between them, and neither party shall be bound by any conditions, definitions, warranties, understandings or representations with respect to such subject matter other than as expressly provided herein or as duly set forth on or subsequent to the date hereof in writing and signed by a proper and duly authorized officer or representative of the Parties to be bound thereby, except that this Agreement shall not supersede any separate confidentiality or non-disclosure agreement that may have been, or that may be, entered into by the Parties. To the extent that any conflict arises among the documents that comprise this Agreement (including any schedules or exhibits), the terms and conditions of this Agreement shall govern. The terms and conditions of this Agreement shall control over and supersede any contrary term in any purchase order.
13.4 Amendment and Modification. This Agreement may be amended, modified and supplemented only by written agreement duly executed and delivered by each of the Parties hereto.
13.5 Waiver. The failure of any party to exercise any right or to demand the performance by the other party of duties required hereunder shall not constitute a waiver of any rights or obligations of the Parties under this Agreement. A waiver by any party of a breach of any of the terms of this Agreement by any other party shall not be deemed a waiver of any subsequent breach of the terms of this Agreement.
13.6 Governing Law. This Agreement is to be governed by and construed in accordance with the laws of the State of New York, United States, notwithstanding any conflict of law provisions to the contrary. The United Nations Convention on Contracts for the International Sale of Goods shall not apply to this Agreement. Any action which in any way involves the rights, duties and obligations of either party hereto under this Agreement shall be brought in the courts of Geneva and the Parties to this Agreement hereby submit to the personal jurisdiction of any such court. The Parties waive any and all rights to have any dispute, claim or controversy arising out of or relating to this Agreement tried before a jury.
13.7 Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement or any action in any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had not been contained herein.
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
11.
13.8 Construction. The Parties have participated jointly in the negotiation and drafting of this Agreement. In the event of any ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement. As used in this Agreement, the singular shall include the plural and vice versa, and the terms include and including shall be deemed to be immediately followed by the phrase but not limited to. The terms herein and hereunder and similar terms shall be interpreted to refer to this entire Agreement, including any schedules attached hereto.
13.9 Parties/Relationship. Neither party shall hold itself out to third parties as possessing any power or authority to enter into any contract or commitment on behalf of any other party. This Agreement is not intended to, and shall not; create any agency, partnership or joint venture relationship between or among the Parties. Each Party is an independent contractor with respect to the others. No Party is granted any right or authority to assume or create any obligation or responsibility, express or implied, on behalf of, or in the name of any other Party hereto, or to bind any other party hereto in any manner or with respect to anything, whatsoever.
13.10 Captions. The captions and headings in this Agreement are inserted for convenience and reference only and in no way define or limit the scope or content of this Agreement and shall not affect the interpretation of its provisions.
13.11 Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument.
13.12 Subcontractors. Any work that is to be done by any Party under this Agreement may be subcontracted to a third party in accordance with the approved Marketing Authorisation, cGMPs and any applicable PMDA guidelines which relate to the work to be performed under the direction and supervision of such party, as the case may be; provided, however, that the subcontracting party exercises reasonable diligence in selecting such subcontractor and, as between the parties hereto, the subcontracting party shall be and remain responsible for all acts and omissions of any such subcontractor.
13.13 Schedules and Exhibits. All Schedules and Exhibits referenced in this Agreement, if any, are hereby incorporated by reference into, and made a part of, this Agreement.
13.14 Currency. All sums set forth in this Agreement and ay appendices, exhibits or schedules hereto are, and are intended to be, expressed in US dollars.
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
12.
IN WITNESS WHEREOF, the parties have executed the Agreement as of the date first above written.
HOVIONE Inter Ltd: | INTERSECT: | |||||||
|
||||||||
By: | /s/ David Hoffman |
By: | /s/ NK |
Name: | David Hoffman | Name: | Richard Kaufman | |||||
(Print/Type) |
Its: VP Sales and Business Development | Its: Chief Operating Officer | |||||||
Date: 14th April 2014 | Date: 4/14/14 |
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
13.
EXHIBIT A
API
Mometasone Furoate Anhydrous, Micronized
Finished Products
Propel®Propel Mini ®
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
1
EXHIBIT B
Product Specifications
Reference Intersect ENT part specification: 00002 MOMETASONE FUROATE. Most recent copy of specification shall be submitted with applicable purchase order.
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
1
EXHIBIT C
Pricing
(a) | Current API pricing is established at $[*]/gram. | |
(b) | The following tiered pricing applies to future annual demand volumes: | |
(i) | [*] grams: $[*]/gram | |
(ii) | [*] grams: $[*]/gram | |
(iii) | [*] grams: $[*]/gram | |
(iv) | [*] grams: $[*]/gram |
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
1
Exhibit 10.17
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
SUPPLY AGREEMENT
THIS SUPPLY AGREEMENT (the Agreement) is made and entered into as of [January 28, 2014] (the Effective Date) by and between Intersect ENT, Inc., a Delaware corporation having offices at 1555 Adams Drive, Menlo Park, CA 94025 (Customer), and [AIM Plastics], a Michigan corporation having offices at 22264 Starks Drive Clintontownship, MI 48036 (Supplier). Each of Customer and Supplier may be referred to herein individually as a Party and collectively as the Parties.
RECITALS
WHEREAS, Customer wishes to engage Supplier to manufacture and supply to Customer certain products, in accordance with all applicable laws and regulations; and
WHEREAS, Supplier is willing to supply Customer such products pursuant to the terms and conditions as set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the covenants and promises contained in this Agreement, Customer and Supplier hereby agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Affiliate means, with respect to a Party, any corporation or other business entity controlling, controlled by or under common control with such Party. The term controlling (with correlative meanings for the terms controlled by and under common control with) as used in this definition means either (a) possession of the direct or indirect ownership of more than fifty percent (50%) of the voting or income interest of the applicable corporation or other business entity, or (b) the ability, by contract or otherwise, to control the management of the applicable corporation or other business entity.
1.2 Certificate of Analysis has the meaning set forth in Section 3.4.
1.3 Certificate of Compliance has the meaning set forth in Section 3.4.
1.4 Change of Control means, with respect to a Party: (a) the sale of all or substantially all of such Partys assets; (b) a merger or consolidation involving such Party in which the voting securities of such Party outstanding immediately prior thereto cease to represent at least fifty percent (50%) of the combined voting power of the surviving entity immediately after such merger or consolidation; or (c) a person or entity, or group of persons or entities, acting in concert (other than a trustee or other fiduciary holding securities under an employee benefit plan) acquire more than fifty percent (50%) of the voting equity securities or management control of such Party. Notwithstanding the foregoing, a financing transaction in which fifty percent (50%) or more of the voting control of a Party is transferred to one or more Third Parties in connection with the financing or refinancing of the business of such Party does not constitute a Change of Control.
1.5 Confidential Information means each Partys confidential information, inventions, know-how or data disclosed pursuant to this Agreement, which may include, without limitation, manufacturing, marketing, financial, personnel and other business information and plans, whether in oral, written, graphic or electronic form.
1.6 Customer Change Order has the meaning set forth in Section 4.2(b).
1.7 Defective Product has the meaning set forth in Section 3.6(a).
1.8 FDA means the United States Food and Drug Administration, or any successor thereto.
1.9 FD&C Act means the United States Federal Food, Drug and Cosmetic Act, as amended, and any regulations promulgated thereunder.
1.10 Forecast has the meaning set forth in Section 2.2.
1.11 GMP means the then-current good manufacturing practice and standards, as set forth in the FD&C Act, as amended, and applicable regulations and guidances promulgated thereunder, including without limitation 21 CFR §§210-211.
1.12 Inventions has the meaning set forth in Section 9.3.
1.13 Lead Time means eight (8) weeks, or such other period of time that the Parties mutually agree in writing is the minimum period required by Supplier to deliver a given type of Product hereunder, measured from the date of Suppliers receipt of a purchase order. Initial kanban delivery shall be within the Lead Time. All subsequent releases shall be delivered within forty-eight (48) hours of request by Customer.
1.14 Product means any of the products listed on Exhibit A attached hereto, as such list may be amended from time to time by mutual written agreement of the Parties.
1.15 Quality Control Procedures has the meaning set forth in Section 3.1.
1.16 Regulatory Standards has the meaning set forth in Section 3.1.
1.17 Specifications shall mean the formula(s), stability, and other product characteristics, and the manufacturing, processing, labeling, storage, and packaging requirements and standards, in each case pertaining to a particular Product, as such are set forth in Exhibit B, as the same may be amended or supplemented from time to time pursuant to Section 4.2 or by mutual written agreement of the Parties.
1.18 Third Party means any entity or individual other than the Parties and their respective Affiliates.
ARTICLE 2
SUPPLY OBLIGATIONS
2.1 Manufacture and Supply. Supplier agrees to manufacture and supply to Customer the quantities of each Product set forth on purchase orders submitted from time to time by Customer in accordance with the provisions of Section 2.3. Any purchase orders for Product submitted by Customer shall reference this Agreement and shall be governed exclusively by the terms contained herein. Any
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
term or condition in any purchase order, confirmation, or other document furnished by Customer or Supplier that is in any way inconsistent with the terms and conditions set forth in this Agreement is hereby expressly rejected.
2.2 Forecasts. On or before the first day of each calendar quarter, Customer will provide Supplier with a rolling forecast based on its best current understanding of its expected orders of each of the Products for each of the following twelve (12) months (each, a Forecast). The first three (3) months of each such Forecast will constitute a binding commitment by Customer to place Purchase Orders, during such three (3) month period, ordering at least the total amount of each Product as set forth in such Forecast, and Supplier will be obligated to supply to Customer one hundred percent (100%) of the quantities of such binding commitments as ordered; the remaining nine (9) months will be non-binding and solely for planning purposes.
2.3 Orders. From time to time during the term of this Agreement, Customer may provide to Supplier a written purchase order for one or more Products, which shall specify: (a) the name, part number, and quantity of each Product ordered; (b) the unit price of each Product ordered and the total purchase price; (c) the required delivery date(s); (d) the billing and shipping address(es); and (e) any special instructions or other pertinent requirements. Customer may submit purchase orders by mail, facsimile or email. Within three (3) business days after its receipt of a purchase order placed pursuant to this Section 2.3, Supplier shall notify Customer of its acceptance or rejection (including reasons for rejection). If within such time period Supplier does not provide notice of acceptance or rejection to Customer, then the purchase order shall be deemed to be accepted. Supplier shall not be permitted to reject any purchase order unless such purchase order specifies a delivery date for a Product that is not consistent with the applicable Lead Time for such Product or is for quantities of Product in excess of [*] of amount in the binding portion of the most recent Forecast.
2.4 Cancellation. Customer may cancel any purchase order by providing written notice to Supplier no later than ten (10) days prior to the delivery date specified therein. Customer shall be required to pay for any costs incurred by Supplier with respect to a purchased raw material specific to the cancelled PO plus any parts in WIP and finished goods at the time of order cancellation.
2.5 Inventory. Supplier shall maintain at all times an inventory of each Product equal to Customers three (3) month requirements of such Product, where such requirements shall be determined based on the current Forecast described in Section 2.2. Supplier will fulfill purchase orders for Products submitted by Customer out of such inventory on a first in, first out basis (and will accordingly replace the consumed inventory on a timely basis). Supplier will be responsible for such inventory of Products until ownership of particular quantity of Product is transferred to Customer based on fulfillment of a purchase order in accordance with the delivery terms of this Agreement. Supplier will maintain adequate inventories of all starting materials needed to fulfill its obligations to manufacture and supply Products under this Agreement during the binding and non-binding Forecast periods.
2.6 Delivery. Supplier shall deliver to Customer or its designee, at the delivery destination and by the delivery date specified in the applicable purchase order, the specified quantity of each Product conforming with the Specifications and that has been manufactured in accordance with the Quality Control Procedures and the other requirements set forth in this Agreement. Time is of the essence with respect to delivery of Products by Supplier under this Agreement. Supplier shall promptly notify Customer of any actual or prospective delay in delivery and shall obtain Customers approval prior to making any partial deliveries. If the delivery of any Product under a purchase order is delayed through no fault of Customer, then Customer may, at its option, in addition to its other available remedies, cancel or reschedule the order in whole or in part, without liability to Supplier. If necessary for Supplier to meet its delivery requirements, Supplier, at its expense, will use expedited delivery methods to complete and
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
deliver the ordered Products. All Products delivered hereunder will be accompanied by the following documentation: (a) the batch number and order number of the delivered Products; (b) the applicable batch manufacturing records and a summary of deviations; (c) a Certificate of Analysis and Certificate of Compliance, as described in Section 3.3; and (d) any other documentation that Supplier customarily includes in shipments of such Products or that Supplier is required to include by applicable laws or regulations.
2.7 Shipping. All shipments will be made FCA (Incoterms 2010) Suppliers facility. All Products manufactured by Supplier shall be packaged in accordance with the Specifications.
2.8 Shortfalls in Supply.
(a) Should either Party perceive that a shortfall in delivery of Products by Supplier is likely to occur for any reason, such Party shall promptly notify the other Party, and the Parties shall discuss in good faith appropriate steps to alleviate such a shortfall.
(b) If Supplier fails to deliver any Products at the time and place set forth in the applicable purchase order submitted under Section 2.3, Supplier shall use best efforts to cure such failure, and Customer shall have the right, at its sole option, to take any or all of the following actions: (i) require Supplier to use expedited delivery methods to complete and deliver some or all of the relevant Products; (ii) allocate or redirect some or all of the relevant Products to one or more destinations specified by Customer; (iii) cancel all or any part of the corresponding purchase order. Supplier will review pricing annually and extend all price reductions available.
2.9 Product Discontinuance. Supplier shall not discontinue any Product during the Initial Term (as defined in Section 10.1). Thereafter, Supplier may discontinue a Product upon twelve (12) months written notice to Customer. Customer shall have the right to place a last time buy order for the discontinued Product in accordance with Section 10.6, and Supplier shall accept such order at the price in effect as of its notice of discontinuation, except that Supplier shall also pass on to Customer any savings in connection with increased volumes ordered.
ARTICLE 3
QUALITY CONTROL; ACCEPTANCE AND REJECTION
3.1 Quality Control. Supplier shall maintain and follow, and shall ensure that any Third Parties responsible for the manufacture and/or supply of raw materials or components for Products maintain and follow, a quality control and testing program consistent with GMP and prevailing industry standards (the Quality Control Procedures). All Products supplied hereunder shall be manufactured in accordance with the Quality Control Procedures and all applicable requirements of regulatory authorities, including GMP (collectively, Regulatory Standards). Supplier shall maintain all quality control documentation for each lot of Products for a period of three (3) years after Supplier delivers such Product to Customer or its designee. During the term of this Agreement, Customer may periodically review such documentation and results, and shall have the right to audit, survey, or verify the adherence of Supplier to the Quality Control Procedures, Regulatory Standards and this Agreement. Upon written request to Supplier, Customer shall have the right to have its representatives or representatives of regulatory authorities visit the manufacturing facilities of Supplier during normal business hours to review Suppliers manufacturing operations and records, to assess its compliance with the Quality Control Procedures, Regulatory Standards and this Agreement, and to discuss any related issues with Suppliers manufacturing and management personnel.
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
3.2 Quality Agreement. The responsibilities of the quality units of each Party related to the manufacture of Products are described in that certain Quality Agreement between the Parties dated [October 2013] (the Quality Agreement). Supplier will comply with the terms of the Quality Agreement in conducting its activities under this Agreement.
3.3 Regulatory Inspection. Supplier shall notify Customer within twenty-four (24) hours of any written or oral inquiries, notifications or inspection activity by any regulatory authority or other governmental agency or authority of competent jurisdiction in regard to Products to be supplied to Customer hereunder (including inspection with respect to International Standards Organization standards). Supplier will permit a representative of Customer to be present during such an inspection. Supplier will provide a reasonable description of any such governmental inquiries, notifications or inspections promptly, but in no event later than two (2) business days, after such notification, inquiry or inspection. Supplier will furnish to Customer (i) within two (2) business days after receipt, any report or correspondence issued by any regulatory authority in connection with such notification, inquiry or inspection to the extent relevant to any Product, and (ii) copies of proposed responses or explanations. Prior to responding, Supplier will discuss the proposed response with Customer and will implement in good faith any comments provided by Customer relating to a Product.
3.4 Certificates. Each batch of any Product delivered to Customer shall be accompanied by (i) a written certificate of analysis confirming that each unit of such Product in such batch has been tested in accordance with the mutual agreed acceptance tests and conforms to the Specifications (Certificate of Analysis) and (ii) a written certificate of compliance confirming that the Product was manufactured in accordance with Regulatory Standards (Certificate of Compliance). Customer may then retest the batch of Product to confirm that it meets the Specifications.
3.5 Notifications. Supplier shall notify Customer immediately upon becoming aware of: (a) any defect or condition that renders or may render any Product ineffective or dangerous; (b) any Product that is not in compliance with the Specification or any Regulatory Standards; (c) any breach by Supplier of this Agreement; or (d) infringement by any Third Party of any intellectual property rights related to any Product.
3.6 Acceptance and Rejection.
(a) Customer may reject any Product delivered under this Agreement that does not comply with the warranties set forth in Section 6.3 (a Defective Product) by giving written notice of such Defective Product to Supplier within forty-five (45) days after receipt thereof. Customer shall be entitled to reject all or a portion of an entire lot or shipment of a Product if a tested sample of that lot or shipment contains any Defective Products. Acceptance of Products by Customer shall not limit Customers rights under Section 7.1.
(b) If, after Customers initial acceptance, Customer discovers that such Product is a Defective Product and that the nature of such defect likely could not have been discovered through the exercise of reasonable diligence within forty-five (45) days of Customers receipt of such product, Customer may revoke its acceptance of such Defective Product by providing written notice to Supplier of such revocation.
(c) Customer shall return Defective Products to Supplier at Suppliers expense. With respect to Defective Products that have been properly rejected pursuant to Section 3.6(a) or 3.6(b), Customer shall not be required to pay for such Defective Products under Section 5.1. Supplier shall replace such Defective Products as quickly as possible, and Customer shall pay Supplier for such replacement Product in accordance with Section 5.1, or in the event that Customer has already paid for the Defective Products, Supplier shall replace such Defective Products at its own expense.
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
(d) If, after Customer rejects any Defective Product, Supplier fails to promptly replace such Defective Product, then Customer shall have the right, upon notice to Supplier, to cancel the applicable purchase order relative to the rejected Products without penalty and require refund of any payments made relative to the rejected Products.
(e) If Supplier disagrees with Customers determination that certain units of Product are Defective Product, the Parties will first use good faith efforts to settle such dispute within forty-five (45) days of Customers notice of such alleged defects. If the Parties are unable to resolve such dispute within this forty-five (45) day period, such Product shall be submitted to a mutually acceptable Third Party testing service. Such Third Party testing service shall determine whether such Product meets the Specifications, and the Parties agree that such testing services determination shall be final and binding on the Parties. The Party against whom the Third Party laboratory rules shall bear all costs of the Third Party testing.
ARTICLE 4
OTHER AGREEMENTS OF THE PARTIES
4.1 Regulatory Assistance. Supplier shall provide all regulatory and technical information relating to the manufacture and supply of the Products as reasonably requested by Customer, and shall otherwise use commercially reasonable efforts to assist Customer, in each case in connection with obtaining any regulatory approvals with respect to Customer products incorporating Products. Supplier shall notify Customer promptly in writing in the event any action is taken or threatened by a regulatory authority relating to the manufacture or storage of Product, or relating to the Supplier facility in which such manufacture or storage occurs, or which may impair the ability of Supplier to supply Product in accordance with this Agreement.
4.2 Changes.
(a) Supplier shall not change the Specifications for a Product or change the materials, equipment, process or procedures used to manufacture or test Product in a manner that (i) would be inconsistent with the Specifications, (ii) would affect the form, fit, function, performance, or stability of a Product, or (iii) would require regulatory approval.
(b) If Customer finds it necessary or desirable to change Specifications for any Product, Customer may deliver a request for such change to Supplier (Customer Change Order). Within fifteen (15) days of Customers delivery of a Customer Change Order, Supplier shall provide Customer with a written quotation containing the proposed increase or decrease in the unit price of the Products as a result of implementing such Customer Change Order, if any. The Parties shall make a good faith effort to agree upon any such increase or decrease as soon as reasonably practicable. Once the Parties have agreed upon any resulting unit price change, Supplier shall incorporate the proposed engineering change into the Products on a schedule to be agreed to by the Parties. Supplier shall not proceed to implement any Customer Change Order without Customers written authorization.
4.3 Raw Materials and Components. During the term of this Agreement, Supplier shall be solely responsible for obtaining, and shall store at no cost to Customer, any and all raw materials or components required for the manufacture of the Products, in reasonable quantities consistent with Customers Forecasts and purchase orders. Supplier will ensure that all Third Parties responsible for the
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
manufacture and/or supply of raw materials or components for Products have entered into an agreement with Supplier obligating such Third Parties to comply with all applicable Specifications, quality standards, and other technical requirements that may be necessary in order for the such Third Parties to timely deliver conforming Product, or any portion thereof, to Supplier for the benefit of Customer. Supplier may not change Third Party sources without written consent of Customer.
4.4 Compliance with Laws. All Product supplied to Customer hereunder shall be manufactured in compliance with all applicable present and future orders, regulations, requirements and laws of any and all federal, state, provincial and local authorities and agencies, including without limitation all laws and regulations of such territories applicable to the transportation, storage, use, handling and disposal of hazardous materials. Supplier represents and warrants to Customer that Supplier shall obtain and maintain all site licenses and government permits, including without limitation health, safety and environmental permits, necessary for the conduct of the actions and procedures undertaken to supply Product during the term of this Agreement. Upon Customers request, Supplier shall promptly provide a copy of such licenses and permits.
4.5 Records. Supplier shall keep, or cause to be kept, complete, accurate and authentic accounts, notes, data and records pertaining to the manufacture, processing, testing, labeling, storage, and distribution of Products sold to Customer, including without limitation master production and control records, in accordance with applicable laws and regulations. Supplier shall retain, or cause to be retained, such records for a period of three (3) years following the date of manufacture, or longer if required by law, and upon request, shall make available to Customer copies of such records. After such time period, Supplier shall notify Customer prior to the destruction of any records retained under this Section 4.5 and, at Customers request, shall provide such records to Customer.
4.6 Rework. Supplier shall not rework any batch of any Product without Customers prior written consent, which consent shall not be unreasonably withheld.
ARTICLE 5
PRICES AND PAYMENT
5.1 Price. The purchase prices for Products ordered during the term of this Agreement are set forth in Exhibit A; provided, however, that Supplier may reduce the purchase price of any Product at any time. Supplier agrees, upon request by Customer, to negotiate in good faith reductions in the purchase prices as necessary to respond to market and competitive conditions. In addition, Supplier shall use commercially reasonable efforts to reduce its costs for each Product and shall decrease the prices for Products so that Customer receives the benefit of any such cost reduction. Such price reduction shall take effect no later than thirty (30) days after the corresponding reduction in Suppliers costs and will not be retroactive. Reductions in the purchase price of any Product shall apply to any purchase orders for which delivery of Products has not yet occurred. Cost reduction efforts shall not compromise the quality or reliability of any Product, and Supplier shall comply with the Quality Agreement with respect to design and process changes.
5.2 Invoice and Payment. Supplier shall provide to Customer a written invoice for each shipment of Product delivered to Customer or its designee. Unless otherwise stated in Exhibit A, all payments due hereunder to Supplier shall be made not later than forty-five (45) days following the later of (a) Customers receipt of the applicable invoice or (b) Customers receipt and acceptance of the relevant batch of Product at its destination. All payments hereunder shall be in United States dollars.
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
5.3 Offset. Customer may offset and deduct from amounts due from Customer to Supplier any amounts due from Supplier to Customer.
5.4 Taxes. Customer will pay any applicable sales, use or similar tax imposed in connection with the sale of Products to Customer hereunder; provided, that Supplier shall not charge or collect, and Customer shall have no liability for, taxes on any sale of Products for which Customer has provided Supplier with an appropriate resale certificate or other documentation evidencing an exemption from such taxes. For all sales of Products upon which tax reimbursement to Supplier is applicable, Supplier shall separately identify and itemize all applicable taxes on invoices submitted to Customer.
5.5 Most Favored Customer. The purchase prices for the Products are and will continue to be the lowest prices charged by Supplier for the same or substantially similar products. If at any time during the term of this Agreement, Supplier offers or sells the same or substantially similar products to a Third Party at a lower price than the prices set forth herein, Supplier will immediately notify Customer and reduce the purchase prices for the applicable Products to such lower price on any pending and future purchase orders for the Products hereunder.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES
6.1 Mutual Representations and Warranties. Each Party hereby represents and warrants to the other Party as follows, as of the Effective Date:
(a) Corporate Existence and Power. It is a corporation or other entity duly organized, validly existing, and in good standing under the laws of the jurisdiction in which it is incorporated or established, and has full corporate power and authority and the legal right to own and operate its property and assets and to carry on its business as it is now being conducted and as contemplated in this Agreement.
(b) Authority and Binding Agreement. It has the corporate power and authority and the legal right to enter into this Agreement and perform its obligations hereunder; it has taken all necessary corporate action on its part required to authorize the execution and delivery of the Agreement and the performance of its obligations hereunder; and the Agreement has been duly executed and delivered on behalf of such Party, and constitutes a legal, valid, and binding obligation of such Party that is enforceable against it in accordance with its terms.
(c) No Conflict. The execution and delivery of this Agreement and the performance of its obligations hereunder (i) do not conflict with or violate any requirement of applicable laws or regulations and (ii) do not conflict with, or constitute a default or require any consent under, any of its contractual obligations.
6.2 Representations and Warranties of Supplier. Supplier represents and warrants to Customer that:
(a) Supplier has not been debarred by the FDA or other regulatory authority, and has not been convicted of a crime that could lead to such debarment, and no person or entity that has been debarred by the FDA or other regulatory authority, or, to the best of Suppliers knowledge, is the subject of debarment proceedings by the FDA or other regulatory authority, will be involved in the performance of Suppliers obligations under this Agreement.
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
(b) Supplier is in full compliance with (i) any and all quality control standards that are referenced in the Specifications and (ii) any and all Customer standard operating procedures that have been provided to Supplier, and Supplier agrees to inform Customer immediately regarding any change in this status.
(c) Supplier shall not enter into any agreement or arrangement with any other entity that would prevent or in any way interfere with Suppliers ability to perform its obligations pursuant to this Agreement.
6.3 Product Warranty. Supplier warrants that all Products manufactured hereunder will (i) conform to the applicable Specifications; (ii) be manufactured and released in compliance with the Quality Control Procedures and Regulatory Standards; (iii) not be adulterated or misbranded within the meaning of the FD&C Act; (iv) be free and clear of any and all encumbrances, liens, or other Third Party claims; and (v) not infringe or misappropriate the intellectual property rights of any Third Party.
ARTICLE 7
INDEMNIFICATION
7.1 Supplier Indemnity. Supplier shall indemnify, hold harmless, and defend Customer and its Affiliates and licensees, and their respective directors, officers, employees, and agents (the Customer Indemnitees) from and against any claims, suits, actions, or proceedings brought by a Third Party (collectively, Claims) against any Customer Indemnitee, as well as any liabilities, damages, or recoveries payable to a Third Party claimant and any reasonable attorneys fees and costs of litigation incurred by a Customer Indemnitee in connection therewith, to the extent resulting from or arising out of (a) Suppliers breach of any warranty or other provision of the Agreement; (b) the negligence or intentional misconduct of Supplier, its employees, officers, agents or representatives; or (c) any claim that alleges that any process or machinery utilized by Supplier in manufacturing and/or supplying Product hereunder infringes upon, misappropriates or violates any laws or any intellectual property rights of any Third Party, except in each case to the extent resulting from the negligence or willful misconduct of any Customer Indemnitee or Customers breach of this Agreement.
7.2 Customer Indemnity. Customer shall indemnify, hold harmless, and defend Supplier and its Affiliates, and their respective directors, officers, employees, and agents (the Supplier Indemnitees) from and against any Claims against any Supplier Indemnitee, as well as any liabilities, damages, or recoveries payable to a Third Party claimant and any reasonable attorneys fees and costs of litigation incurred by a Customer Indemnitee in connection therewith, to the extent resulting from or arising out of (a) Customers breach of any warranty or other provision of the Agreement; or (b) the negligence or intentional misconduct of Customer, its employees, officers, agents or representatives, except in each case to the extent caused by the negligence or willful misconduct of any Supplier Indemnitee or Suppliers breach of this Agreement.
7.3 Indemnification Procedures. In the event of any Claim that may be subject to indemnification under this Article 7, the indemnified Party shall: (a) promptly notify the indemnifying Party of such Claim; (b) at the indemnifying Partys expense, reasonably cooperate with the indemnifying Party in the defense of such Claim; and (c) not settle any such Claim without the indemnifying Partys
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
written consent, which shall not be unreasonably withheld or delayed. The indemnifying Party shall keep the indemnified Party informed at all times as to the status of the indemnifying Partys efforts and consult with the indemnified Party and/or its counsel regarding such efforts. The indemnifying Party shall not settle any such Claim in any manner that negatively impacts the rights of the indemnified Party or any other indemnitee without the prior written consent of the indemnified Party. The indemnified Party may participate in proceedings relating to any indemnified Claim with counsel of its own choosing at its own expense.
7.4 Insurance. Reference Exhibit C, Certificate of Liability Insurance.
ARTICLE 8
CONFIDENTIALITY
8.1 Confidentiality Obligation. During the term of this Agreement, and for seven (7) years thereafter, each Party shall maintain in confidence any and all Confidential Information of the other Party, except as set forth in Section 8.2 below. Each Party further agrees that it shall not use for any purpose other than the purposes expressly permitted or contemplated under this Agreement, and shall not disclose to any Third Party, the Confidential Information of the other Party, except that either Party may disclose Confidential Information on a need-to-know basis to its directors, officers, employees, consultants, or agents who are subject to written obligations of confidentiality and non-use that are no less restrictive than those set forth herein. Upon termination or expiration of the Agreement, or upon written request of the other Party, a Party will promptly return to the other Party, or destroy, all documents, notes and other tangible materials representing the Confidential Information of such other Party and all copies thereof; provided, however, that such other Party may retain a single archival copy of the Confidential Information for the sole purpose of facilitating compliance with the surviving provisions of this Agreement.
8.2 Exceptions. The obligations of confidentiality and non-use contained in Section 8.1 shall not apply to any information to the extent that it can be established by the Party receiving the information (the Receiving Party) that such information: (a) was already known to the Receiving Party, other than under an obligation of confidentiality, at the time of disclosure by the other Party; (b) was part of the public domain at the time of its disclosure to the Receiving Party or became part of the public domain after its disclosure to the Receiving Party through no fault of the Receiving Party; (c) was disclosed to the Receiving Party, other than under an obligation of confidentiality, by a Third Party who had no obligation to the disclosing Party not to disclose such information to others; or (d) was independently discovered or developed by the Receiving Party without the use of or access to Confidential Information of the disclosing Party.
8.3 Authorized Disclosure. Each Party may disclose Confidential Information of the other Party to the extent such disclosure is reasonably necessary in complying with applicable laws, including securities laws, governmental regulations or court orders, and obtaining regulatory or other government approvals, provided that a Party making any such disclosure uses its reasonable efforts to secure confidential treatment of such Confidential Information required to be disclosed and to minimize the extent of such disclosure.
8.4 Publicity. Supplier shall not make any announcement or other public statement concerning the existence or terms of this Agreement, or the activities conducted under this Agreement, without the prior written consent of Customer, except as required by applicable law.
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
8.5 Injunctive Relief. The Parties expressly acknowledge and agree that any breach or threatened breach of this Article 8 by the Receiving Party may cause immediate and irreparable harm to the other Party which may not be adequately compensated by damages. Each Party therefore agrees that in the event of such breach or threatened breach and in addition to any remedies available at law, each Party shall have the right to secure equitable and injunctive relief, without bond, in connection with such a breach or threatened breach.
ARTICLE 9
INTELLECTUAL PROPERTY
9.1 Existing Intellectual Property. Subject to Sections 9.2 and 9.3, each Party shall retain all rights in all intellectual property rights owned or controlled by such Party prior to the Effective Date or developed or acquired by such Party during the term of this Agreement.
9.2 License. The purchase of the Products shall confer on Customer and its Affiliates, and their respective subcontractors, distributors and agents, an irrevocable, world-wide, royalty-free, non-exclusive, non transferable license under Suppliers patent applications, patents, copyrights, trade secrets, trademarks or other intellectual property rights it owns or controls, to use, test, market, sell, lease, distribute or otherwise dispose of such Products and to incorporate such Products into Customers products, as well as to convey to their respective customers a right to use any such Products that are sold to such customers under such license.
9.3 Inventions. Customer shall own all right, title, and interest in and to any and all ideas, inventions, processes, methods, or improvements (whether patentable or unpatentable) that are developed solely or jointly by Supplier at Customers request or specifically for use by Customer and not for general use by Supplier with its other customers relating to the Products and that arise out of the work performed under this Agreement, along with all intellectual property rights with respect thereto (collectively, the Inventions). Supplier agrees to communicate all Inventions promptly to Customer. Supplier hereby assigns and transfers to Customer all right, title and interest in and to the Inventions and agrees to take all further acts reasonably required to evidence such assignment and transfer to Customer, at Customers expense. Supplier shall enter into an agreement with each employee or agent of Supplier performing work in connection with the manufacture and supply of Product hereunder, pursuant to which such person assigns all rights in the Inventions to Supplier such that Supplier may assign and transfer such rights to Customer in accordance with this Section 9.3. Supplier hereby appoints Customer as its attorney-in-fact to sign such documents as Customer deems necessary for Customer to obtain ownership and to apply for, secure, and maintain patent or other proprietary protection of Inventions if Customer is unable, after reasonable inquiry, to obtain Suppliers (or its employees or agents) signature on such a document. All Inventions and any information with respect thereto shall be Customers Confidential Information subject to the confidentiality provisions of Article 8.
ARTICLE 10
TERM AND TERMINATION
10.1 Term. This Agreement shall commence on the Effective Date and shall continue in effect for one (1) year thereafter, unless earlier terminated as permitted under this Article 10 (the Initial Term). This Agreement will automatically renew for successive one (1) year terms, unless a Party provided written notice of non-renewal to the other Party not less than thirty (30) days prior to the end of the then-current term.
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
10.2 Material Breach. Either Party shall have the right to terminate this Agreement upon written notice to the other Party if the other Party commits any material breach of this Agreement that such breaching Party fails to cure within thirty (30) days following written notice from the nonbreaching Party specifying such breach.
10.3 Change of Control of Supplier. Supplier shall notify Customer promptly upon the earlier of (a) public announcement of the entry into an agreement providing for a Change of Control of Supplier or (b) Change of Control of Supplier. Thereafter, Customer may terminate this Agreement upon twelve (12) months written notice to Supplier. During such notice period, Supplier shall provide assistance as reasonably requested by Customer to adopt an alternative supplier until such time as Customer receives FDA approval to implement any applicable changes.
10.4 Surviving Obligations. Except for any purchase orders submitted pursuant to Section 10.6, all purchase orders for Product that are outstanding on the date this Agreement terminates or expires, for any reason, shall be deemed automatically terminated as of the effective date of such termination or expiration. Termination or expiration of this Agreement shall not affect any other rights or liabilities of either Party which may have accrued up to the date of such termination or expiration. The provisions of Sections 3.1, 3.2, 4.1, 4.5, 10.5, 10.6, 11.2, 11.3, 11.5, 11.9 and 11.12 and Articles 1, 7, 8 and 9 shall survive the termination or expiration of this Agreement.
10.5 Customers Last-Time Buy Rights. During the thirty (30) days immediately prior to the expiration of this Agreement pursuant to Section 10.1, or in the event that the Parties mutually agree to terminate the Agreement, or in the event of Product discontinuance, Customer may in its sole discretion submit a single order for Products, which order shall be deemed accepted by Supplier to the extent the number of units of Products so ordered does not exceed, [*]. Supplier shall satisfy any such order as soon as reasonably practicable, and in any event Supplier shall deliver [*] of the number of units of Products ordered pursuant to this Section 10.6 over a period no longer than [*] after the date of such order and shall deliver all Products ordered pursuant to this Section 10.6 over a period no longer than [*] after the date of such order.
ARTICLE 11
GENERAL TERMS
11.1 Use of Name. No right, express or implied, is granted by this Agreement to either Party to use in any manner the name of the other or any other trade name or trademark of the other in connection with the performance of this Agreement.
11.2 Recall. In the event that Customer decides or is required to recall any Product, to take any corrective action with respect to any Product, or to disseminate safety information regarding any Product, Customer shall so notify Supplier. Promptly, but in no event later than may be required to permit Customer to meet applicable legal or regulatory requirements, Supplier shall provide Customer with such assistance in connection with such recall, corrective action, or dissemination of information as may reasonably be requested by Customer. If Customer effects any such recall, corrective action, or dissemination of information involving a Product purchased hereunder, and such recall, corrective action, or dissemination of information was caused by a Defective Product provided by Supplier, or otherwise was related to matters that constitute a breach of Suppliers warranty covering such Product under Section 6.3, then Supplier shall [*]. Reference such products identified in Exhibit A.
11.3 LIMITATION OF LIABILITY. NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL, PUNITIVE, OR INDIRECT
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
DAMAGES ARISING FROM OR RELATING TO ANY BREACH OF THIS AGREEMENT OR ANY TORT CLAIMS ARISING HEREUNDER, REGARDLESS OF ANY NOTICE OF THE POSSIBILITY OF SUCH DAMAGES. NOTWITHSTANDING THE FOREGOING, NOTHING IN THIS PARAGRAPH IS INTENDED TO LIMIT OR RESTRICT THE INDEMNIFICATION RIGHTS OR OBLIGATIONS OF ANY PARTY UNDER ARTICLE 7 OR DAMAGES AVAILABLE FOR BREACHES OF ARTICLE 8.
11.4 Independent Parties. The Parties are not employees or legal representatives of each other for any purpose. Neither Party shall have the authority to enter into any contracts in the name of or on behalf of the other Party.
11.5 Notice. All notices, including notices of address change, required or permitted to be given under this Agreement shall be in writing and deemed to have been received (a) when received if hand delivered, (b) four (4) days after being sent by first class U.S. mail, postage prepaid, or (c) one (1) business day after being sent by an internationally recognized overnight delivery service, in each case addressed to, in the case of Customer, Felicia Mercado, and in the case of Supplier, Debi Metcalf, in each case at the address of the relevant Party first set forth above.
11.6 Severability. In the event any provision of this Agreement is held to be invalid or unenforceable, the valid or enforceable portion thereof and the remaining provisions of this Agreement will remain in full force and effect.
11.7 Waiver. Any waiver (express or implied) by either Party of any breach of this Agreement shall not constitute a waiver of any other or subsequent breach.
11.8 Entire Agreement; Amendment. This Agreement, the Quality Agreement and the exhibits attached hereto constitute the entire, final, complete and exclusive agreement between the Parties and supersede all previous agreements or representations, written or oral, with respect to the subject matter of this Agreement, including without limitation the [Confidential Disclosure Agreement between the Parties dated 1/28/14.] All information to be kept confidential under such earlier confidentiality agreement as of the Effective Date shall be maintained as Confidential Information by the receiving Party under the obligations set forth in Article 8 of this Agreement. This Agreement may not be modified or amended except in a writing signed by a duly authorized representative of each Party.
11.9 Nonassignability; Binding on Successors. Any attempted assignment of the rights or delegation of the obligations under this Agreement shall be void without the prior written consent of the nonassigning or nondelegating Party; provided, however, that Customer may assign its rights or delegate its obligations under this Agreement without such consent (i) to an Affiliate of Customer or (ii) to its successor in interest in connection with any merger, consolidation, or sale of all or substantially all of the assets of Customer to which this Agreement relates. This Agreement shall be binding upon, and inure to the benefit of, the successors, executors, heirs, representatives, administrators and permitted assigns of the Parties hereto, and any successor to Supplier shall agree in writing to be so bound and to supply Customers requirements of Products under the terms of this Agreement.
11.10 Force Majeure. Neither Party shall be liable to the other for its failure to perform any of its obligations under this Agreement during any period in which such performance is delayed because rendered impracticable or impossible due to circumstances beyond its reasonable control, including earthquakes, governmental regulation, fire, flood, labor difficulties, civil disorder, and acts of God, provided that the Party experiencing the delay promptly notifies the other Party of the delay and uses commercially reasonable efforts to overcome such circumstances.
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
11.11 Conflict of Terms. In the event of a conflict between the terms of this Agreement and the terms of the Exhibits attached hereto, the terms of this Agreement shall govern.
11.12 Governing Law. Any claim, dispute, or controversy of whatever nature arising out of or relating to this Agreement shall be governed by and construed under the laws of the State of California, without giving effect to any choice of law principles that would require the application of the laws of a different state or country.
11.13 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which shall constitute together the same instrument.
IN WITNESS WHEREOF, the Parties hereto have duly executed this Agreement on the Effective Date.
INTERSECT ENT, INC. | AIM PLASTICS | |||||||
By: | /s/ Rich Kaufman |
By: | /s/ Craig Fisher |
Name: | Rich Kaufman | Name: | Craig Fisher | |||||
Title: | Chief Operating Officer | Title: | President |
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
EXHIBIT A
PRODUCTS/ PRICE LIST
Part number & Description |
Price per Unit Quote #41-31.R |
2014 Annual Forecast | ||
[*] |
[*] | [*] | ||
[*] |
[*] | [*] | ||
[*] |
[*] | [*] | ||
[*] |
[*] | [*] | ||
[*] |
[*] | [*] | ||
[*] |
[*] | [*] | ||
[*] |
[*] | [*] | ||
[*] |
[*] | [*] | ||
[*] |
[*] | [*] | ||
[*] |
[*] | [*] | ||
[*] |
[*] | [*] |
NEW PRICING EFFECTIVE UPON IMPLEMENTATION OF NEW TOOLING
Part number and Name |
Price per Unit |
Tooling PO | ||
[*] |
[*] | [*] | ||
[*] |
[*] | [*] | ||
[*] |
[*] | [*] |
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
EXHIBIT B
SPECIFICATIONS
Relevant component specifications shall be attached to applicable purchase order at time issuance.
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
EXHIBIT C
Certificate of Liability Insurance
[*]
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
Exhibit 10.18
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
SUPPLY AGREEMENT
THIS SUPPLY AGREEMENT (the Agreement) is made and entered into as of [11/14], 2013 (the Effective Date) by and between Intersect ENT, Inc., a Delaware corporation having offices at 1555 Adams Drive, Menlo Park, CA 94025 (Customer), and Stephen Gould Corporation, a New Jersey corporation having offices at 45541 Northport Loop West, Fremont, CA 94538 (Supplier). Each of Customer and Supplier may be referred to herein individually as a Party and collectively as the Parties.
RECITALS
WHEREAS, Customer wishes to engage Supplier to manufacture and supply to Customer certain products, in accordance with all applicable laws and regulations; and
WHEREAS, Supplier is willing to supply Customer such products pursuant to the terms and conditions as set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the covenants and promises contained in this Agreement, Customer and Supplier hereby agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Affiliate means, with respect to a Party, any corporation or other business entity controlling, controlled by or under common control with such Party. The term controlling (with correlative meanings for the terms controlled by and under common control with) as used in this definition means either (a) possession of the direct or indirect ownership of more than fifty percent (50%) of the voting or income interest of the applicable corporation or other business entity, or (b) the ability, by contract or otherwise, to control the management of the applicable corporation or other business entity.
1.2 Certificate of Analysis has the meaning set forth in Section 3.4.
1.3 Certificate of Compliance has the meaning set forth in Section 3.4.
1.4 Change of Control means, with respect to a Party: (a) the sale of all or substantially all of such Partys assets; (b) a merger or consolidation involving such Party in which the voting securities of such Party outstanding immediately prior thereto cease to represent at least fifty percent (50%) of the combined voting power of the surviving entity immediately after such merger or consolidation; or (c) a person or entity, or group of persons or entities, acting in concert (other than a trustee or other fiduciary holding securities under an employee benefit plan) acquire more than fifty percent (50%) of the voting equity securities or management control of such Party. Notwithstanding the foregoing, a financing transaction in which fifty percent (50%) or more of the voting control of a Party is transferred to one or more Third Parties in connection with the financing or refinancing of the business of such Party does not constitute a Change of Control.
1.5 Confidential Information means each Partys confidential information, inventions, know-how or data disclosed pursuant to this Agreement, which may include, without limitation, manufacturing, marketing, financial, personnel and other business information and plans, whether in oral, written, graphic or electronic form.
1.6 Customer Change Order has the meaning set forth in Section 4.2(b).
1.7 Defective Product has the meaning set forth in Section 3.6(a).
1.8 FDA means the United States Food and Drug Administration, or any successor thereto.
1.9 FD&C Act means the United States Federal Food, Drug and Cosmetic Act, as amended, and any regulations promulgated thereunder.
1.10 Forecast has the meaning set forth in Section 2.2.
1.11 GMP means the then-current good manufacturing practice and standards, as set forth in the FD&C Act, as amended, and applicable regulations and guidances promulgated thereunder, including without limitation 21 CFR §§210-211.
1.12 Inventions has the meaning set forth in Section 9.3.
1.13 Lead Time means four (4) weeks, or such other period of time that the Parties mutually agree in writing is the minimum period required by Supplier to deliver a given type of Product hereunder, measured from the date of Suppliers receipt of a purchase order. Initial kanban delivery shall be within the Lead Time. All subsequent releases shall be delivered within twenty-four 24 hours of request by Customer.
1.14 Product means any of the products listed on Exhibit A attached hereto, as such list may be amended from time to time by mutual written agreement of the Parties.
1.15 Quality Control Procedures has the meaning set forth in Section 3.1.
1.16 Regulatory Standards has the meaning set forth in Section 3.1.
1.17 Specifications shall mean the formula(s), stability, and other product characteristics, and the manufacturing, processing, labeling, storage, and packaging requirements and standards, in each case pertaining to a particular Product, as such are set forth in Exhibit B, as the same may be amended or supplemented from time to time pursuant to Section 4.2 or by mutual written agreement of the Parties.
1.18 Third Party means any entity or individual other than the Parties and their respective Affiliates.
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
ARTICLE 2
SUPPLY OBLIGATIONS
2.1 Manufacture and Supply. Supplier agrees to manufacture and supply to Customer the quantities of each Product set forth on purchase orders submitted from time to time by Customer in accordance with the provisions of Section 2.3. Any purchase orders for Product submitted by Customer shall reference this Agreement and shall be governed exclusively by the terms contained herein. Any term or condition in any purchase order, confirmation, or other document furnished by Customer or Supplier that is in any way inconsistent with the terms and conditions set forth in this Agreement is hereby expressly rejected.
2.2 Forecasts. On or before the first day of each calendar quarter, Customer will provide Supplier with a rolling forecast based on its best current understanding of its expected orders of each of the Products for each of the following twelve (12) months (each, a Forecast). The first three (3) months of each such Forecast will constitute a binding commitment by Customer to place Purchase Orders, during such three (3) month period, ordering at least the total amount of each Product as set forth in such Forecast, and Supplier will be obligated to supply to Customer one hundred percent (100%) of the quantities of such binding commitments as ordered; the remaining nine (9) months will be non-binding and solely for planning purposes.
2.3 Orders. From time to time during the term of this Agreement, Customer may provide to Supplier a written purchase order for one or more Products, which shall specify: (a) the name, part number, and quantity of each Product ordered; (b) the unit price of each Product ordered and the total purchase price; (c) the required delivery date(s); (d) the billing and shipping address(es); and (e) any special instructions or other pertinent requirements. Customer may submit purchase orders by mail, facsimile or email. Within three (3) business days after its receipt of a purchase order placed pursuant to this Section 2.3, Supplier shall notify Customer of its acceptance or rejection (including reasons for rejection). If within such time period Supplier does not provide notice of acceptance or rejection to Customer, then the purchase order shall be deemed to be accepted. Supplier shall not be permitted to reject any purchase order unless such purchase order specifies a delivery date for a Product that is not consistent with the applicable Lead Time for such Product or is for quantities of Product in excess of [*] of amount in the binding portion of the most recent Forecast.
2.4 Cancellation. Customer may cancel any purchase order by providing written notice to Supplier no later than ten (10) days prior to the delivery date specified therein. Customer shall not be required to pay for any costs incurred by Supplier with respect to a purchase order so cancelled or to pay any fees or penalties as a result of such cancellation.
2.5 No Minimum Orders. Customer shall have no minimum order commitments under this Agreement. Nothing herein is intended to restrict Customers ability to manufacture itself and/or purchase from Third Parties goods that are identical or similar to the Products.
2.6 Inventory. Supplier shall maintain at all times an inventory of each Product equal to Customers three (3) month requirements of such Product, where such requirements shall be determined based on the current Forecast described in Section 2.2. Supplier will fulfill purchase orders for Products submitted by Customer out of such inventory on a first in, first out basis (and will accordingly replace the consumed inventory on a timely basis). Supplier will be responsible for such inventory of Products until ownership of particular quantity of Product is transferred to Customer based on fulfillment of a purchase order in accordance with the delivery terms of this Agreement. Supplier will maintain adequate inventories of all starting materials needed to fulfill its obligations to manufacture and supply Products under this Agreement during the binding and non-binding Forecast periods.
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
2.7 Delivery. Supplier shall deliver to Customer or its designee, at the delivery destination and by the delivery date specified in the applicable purchase order, the specified quantity of each Product conforming with the Specifications and that has been manufactured in accordance with the Quality Control Procedures and the other requirements set forth in this Agreement. Time is of the essence with respect to delivery of Products by Supplier under this Agreement. Supplier shall promptly notify Customer of any actual or prospective delay in delivery and shall obtain Customers approval prior to making any partial deliveries. If the delivery of any Product under a purchase order is delayed through no fault of Customer, then Customer may, at its option, in addition to its other available remedies, cancel or reschedule the order in whole or in part, without liability to Supplier. If necessary for Supplier to meet its delivery requirements, Supplier, at its expense, will use expedited delivery methods to complete and deliver the ordered Products. All Products delivered hereunder will be accompanied by the following documentation: (a) the batch number and order number of the delivered Products; (b) the applicable batch manufacturing records and a summary of deviations; (c) a Certificate of Analysis and Certificate of Compliance, as described in Section 3.3; and (d) any other documentation that Supplier customarily includes in shipments of such Products or that Supplier is required to include by applicable laws or regulations.
2.8 Shipping. All shipments will be made FCA (Incoterms 2010) Suppliers facility. All Products manufactured by Supplier shall be packaged in accordance with the Specifications.
2.9 Shortfalls in Supply.
(a) Should either Party perceive that a shortfall in delivery of Products by Supplier is likely to occur for any reason, such Party shall promptly notify the other Party, and the Parties shall discuss in good faith appropriate steps to alleviate such a shortfall.
(b) If Supplier fails to deliver any Products at the time and place set forth in the applicable purchase order submitted under Section 2.3, Supplier shall use best efforts to cure such failure, and Customer shall have the right, at its sole option, to take any or all of the following actions: (i) require Supplier to use expedited delivery methods to complete and deliver some or all of the relevant Products; (ii) allocate or redirect some or all of the relevant Products to one or more destinations specified by Customer; (iii) cancel all or any part of the corresponding purchase order; or (iv) purchase products comparable to the relevant Products in the open market or from other suppliers and [*] and [*] or [*]. For each complete calendar day by which delivery of Product is more than [*] days late (measured by comparing the actual delivery date of Product that is not Defective Product to the delivery date for such Product proposed by Customer in a purchase order accepted by Supplier pursuant to Section 2.3), Customer shall be entitled to [*].
(c) In the event that, over any [*] period, less than [*] of the Products ordered by Customer under this Agreement are delivered by the specified delivery date and in full compliance with the other terms and conditions of this Agreement, Supplier shall [*].
2.10 Product Discontinuance. Supplier shall not discontinue any Product during the Initial Term (as defined in Section 10.1). Thereafter, Supplier may discontinue a Product upon twelve (12) months written notice to Customer. Customer shall have the right to place a last time buy order for the discontinued Product in accordance with Section 10.6, and Supplier shall accept such order at the price in effect as of its notice of discontinuation, except that Supplier shall also pass on to Customer any savings in connection with increased volumes ordered.
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
ARTICLE 3
QUALITY CONTROL; ACCEPTANCE AND REJECTION
3.1 Quality Control. Supplier shall maintain and follow, and shall ensure that any Third Parties responsible for the manufacture and/or supply of raw materials or components for Products maintain and follow, a quality control and testing program consistent with GMP and prevailing industry standards (the Quality Control Procedures). All Products supplied hereunder shall be manufactured in accordance with the Quality Control Procedures and all applicable requirements of regulatory authorities, including GMP (collectively, Regulatory Standards). Supplier shall maintain all quality control documentation for each lot of Products for a period of three (3) years after Supplier delivers such Product to Customer or its designee. During the term of this Agreement, Customer may periodically review such documentation and results, and shall have the right to audit, survey, or verify the adherence of Supplier to the Quality Control Procedures, Regulatory Standards and this Agreement. Upon written request to Supplier, Customer shall have the right to have its representatives or representatives of regulatory authorities visit the manufacturing facilities of Supplier during normal business hours to review Suppliers manufacturing operations and records, to assess its compliance with the Quality Control Procedures, Regulatory Standards and this Agreement, and to discuss any related issues with Suppliers manufacturing and management personnel.
3.2 Quality Agreement. The responsibilities of the quality units of each Party related to the manufacture of Products are described in that certain Quality Agreement between the Parties October 2013 (the Quality Agreement). Supplier will comply with the terms of the Quality Agreement in conducting its activities under this Agreement.
3.3 Regulatory Inspection. Supplier shall notify Customer within twenty-four (24) hours of any written or oral inquiries, notifications or inspection activity by any regulatory authority or other governmental agency or authority of competent jurisdiction in regard to Products to be supplied to Customer hereunder (including inspection with respect to International Standards Organization standards). Supplier will permit a representative of Customer to be present during such an inspection. Supplier will provide a reasonable description of any such governmental inquiries, notifications or inspections promptly, but in no event later than two (2) business days, after such notification, inquiry or inspection. Supplier will furnish to Customer (i) within two (2) business days after receipt, any report or correspondence issued by any regulatory authority in connection with such notification, inquiry or inspection to the extent relevant to any Product, and (ii) copies of proposed responses or explanations. Prior to responding, Supplier will discuss the proposed response with Customer and will implement in good faith any comments provided by Customer relating to a Product.
3.4 Certificates. Each batch of any Product delivered to Customer shall be accompanied by (i) a written certificate of analysis confirming that each unit of such Product in such batch has been tested in accordance with the mutual agreed acceptance tests and conforms to the Specifications (Certificate of Analysis) and (ii) a written certificate of compliance confirming that the Product was manufactured in accordance with Regulatory Standards (Certificate of Compliance). Customer may then retest the batch of Product to confirm that it meets the Specifications.
3.5 Notifications. Supplier shall notify Customer immediately upon becoming aware of: (a) any defect or condition that renders or may render any Product ineffective or dangerous; (b) any Product that is not in compliance with the Specification or any Regulatory Standards; (c) any breach by Supplier of this Agreement; or (d) infringement by any Third Party of any intellectual property rights related to any Product.
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
3.6 Acceptance and Rejection.
(a) Customer may reject any Product delivered under this Agreement that does not comply with the warranties set forth in Section 6.3 (a Defective Product) by giving written notice of such Defective Product to Supplier within forty-five (45) days after receipt thereof. Customer shall be entitled to reject all or a portion of an entire lot or shipment of a Product if a tested sample of that lot or shipment contains any Defective Products. Acceptance of Products by Customer shall not limit Customers rights under Section 7.1.
(b) If, after Customers initial acceptance, Customer discovers that such Product is a Defective Product and that the nature of such defect likely could not have been discovered through the exercise of reasonable diligence within forty-five (45) days of Customers receipt of such product, Customer may revoke its acceptance of such Defective Product by providing written notice to Supplier of such revocation.
(c) Customer shall return Defective Products to Supplier at Suppliers expense. With respect to Defective Products that have been properly rejected pursuant to Section 3.6(a) or 3.6(b), Customer shall not be required to pay for such Defective Products under Section 5.1. Supplier shall replace such Defective Products as quickly as possible, and Customer shall pay Supplier for such replacement Product in accordance with Section 5.1, or in the event that Customer has already paid for the Defective Products, Supplier shall replace such Defective Products at its own expense.
(d) If, after Customer rejects any Defective Product, Supplier fails to promptly replace such Defective Product, then Customer shall have the right, upon notice to Supplier, to cancel the applicable purchase order relative to the rejected Products without penalty and require refund of any payments made relative to the rejected Products.
(e) If Supplier disagrees with Customers determination that certain units of Product are Defective Product, the Parties will first use good faith efforts to settle such dispute within forty-five (45) days of Customers notice of such alleged defects. If the Parties are unable to resolve such dispute within this forty-five (45) day period, such Product shall be submitted to a mutually acceptable Third Party testing service. Such Third Party testing service shall determine whether such Product meets the Specifications, and the Parties agree that such testing services determination shall be final and binding on the Parties. The Party against whom the Third Party laboratory rules shall bear all costs of the Third Party testing.
ARTICLE 4
OTHER AGREEMENTS OF THE PARTIES
4.1 Regulatory Assistance. Supplier shall provide all regulatory and technical information relating to the manufacture and supply of the Products as reasonably requested by Customer, and shall otherwise use commercially reasonable efforts to assist Customer, in each case in connection with obtaining any regulatory approvals with respect to Customer products incorporating Products. Supplier shall notify Customer promptly in writing in the event any action is taken or threatened by a regulatory authority relating to the manufacture or storage of Product, or relating to the Supplier facility in which such manufacture or storage occurs, or which may impair the ability of Supplier to supply Product in accordance with this Agreement.
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
4.2 Changes.
(a) Supplier shall not change the Specifications for a Product or change the materials, equipment, process or procedures used to manufacture or test Product in a manner that (i) would be inconsistent with the Specifications, (ii) would affect the form, fit, function, performance, or stability of a Product, or (iii) would require regulatory approval.
(b) If Customer finds it necessary or desirable to change Specifications for any Product, Customer may deliver a request for such change to Supplier (Customer Change Order). Within fifteen (15) days of Customers delivery of a Customer Change Order, Supplier shall provide Customer with a written quotation containing the proposed increase or decrease in the unit price of the Products as a result of implementing such Customer Change Order, if any. The Parties shall make a good faith effort to agree upon any such increase or decrease as soon as reasonably practicable. Once the Parties have agreed upon any resulting unit price change, Supplier shall incorporate the proposed engineering change into the Products on a schedule to be agreed to by the Parties. Supplier shall not proceed to implement any Customer Change Order without Customers written authorization.
4.3 Raw Materials and Components. During the term of this Agreement, Supplier shall be solely responsible for obtaining, and shall store at no cost to Customer, any and all raw materials or components required for the manufacture of the Products, in reasonable quantities consistent with Customers Forecasts and purchase orders. Supplier will ensure that all Third Parties responsible for the manufacture and/or supply of raw materials or components for Products have entered into an agreement with Supplier obligating such Third Parties to comply with all applicable Specifications, quality standards, and other technical requirements that may be necessary in order for the such Third Parties to timely deliver conforming Product, or any portion thereof, to Supplier for the benefit of Customer. Supplier may not change Third Party sources without written consent of Customer.
4.4 Compliance with Laws. All Product supplied to Customer hereunder shall be manufactured in compliance with all applicable present and future orders, regulations, requirements and laws of any and all federal, state, provincial and local authorities and agencies, including without limitation all laws and regulations of such territories applicable to the transportation, storage, use, handling and disposal of hazardous materials. Supplier represents and warrants to Customer that Supplier shall obtain and maintain all site licenses and government permits, including without limitation health, safety and environmental permits, necessary for the conduct of the actions and procedures undertaken to supply Product during the term of this Agreement. Upon Customers request, Supplier shall promptly provide a copy of such licenses and permits.
4.5 Records. Supplier shall keep, or cause to be kept, complete, accurate and authentic accounts, notes, data and records pertaining to the manufacture, processing, testing, labeling, storage, and distribution of Products sold to Customer, including without limitation master production and control records, in accordance with applicable laws and regulations. Supplier shall retain, or cause to be retained, such records for a period of three (3) years following the date of manufacture, or longer if required by law, and upon request, shall make available to Customer copies of such records. After such time period, Supplier shall notify Customer prior to the destruction of any records retained under this Section 4.5 and, at Customers request, shall provide such records to Customer.
4.6 Rework. Supplier shall not rework any batch of any Product without Customers prior written consent, which consent shall not be unreasonably withheld.
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
ARTICLE 5
PRICES AND PAYMENT
5.1 Price. The purchase prices for Products ordered during the term of this Agreement are set forth in Exhibit A; provided, however, that Supplier may reduce the purchase price of any Product at any time. Supplier agrees, upon request by Customer, to negotiate in good faith reductions in the purchase prices as necessary to respond to market and competitive conditions. In addition, Supplier shall use commercially reasonable efforts to reduce its costs for each Product and shall decrease the prices for Products so that Customer receives the benefit of any such cost reduction. Such price reduction shall take effect no later than thirty (30) days after the corresponding reduction in Suppliers costs and will not be retroactive. Reductions in the purchase price of any Product shall apply to any purchase orders for which delivery of Products has not yet occurred. Cost reduction efforts shall not compromise the quality or reliability of any Product, and Supplier shall comply with the Quality Agreement with respect to design and process changes. If the term of this Agreement is renewed past the Initial Term in accordance with Section 10.1, the then-current prices for Products will remain in effect until [*] after the date of first delivery of Products. The price for each Product [*] will be [*] lower than the price in effect as of [*], provided that Customer orders, over a [*] period, at least the quantity per run for such Product set forth on Exhibit A.
5.2 Invoice and Payment. Supplier shall provide to Customer a written invoice for each shipment of Product delivered to Customer or its designee. Unless otherwise stated in Exhibit A, all payments due hereunder to Supplier shall be made not later than forty-five (45) days following the later of (a) Customers receipt of the applicable invoice or (b) Customers receipt and acceptance of the relevant batch of Product at its destination. All payments hereunder shall be in United States dollars.
5.3 Offset. Customer may offset and deduct from amounts due from Customer to Supplier any amounts due from Supplier to Customer.
5.4 Taxes. Customer will pay any applicable sales, use or similar tax imposed in connection with the sale of Products to Customer hereunder; provided, that Supplier shall not charge or collect, and Customer shall have no liability for, taxes on any sale of Products for which Customer has provided Supplier with an appropriate resale certificate or other documentation evidencing an exemption from such taxes. For all sales of Products upon which tax reimbursement to Supplier is applicable, Supplier shall separately identify and itemize all applicable taxes on invoices submitted to Customer.
5.5 Most Favored Customer. The purchase prices for the Products are and will continue to be the lowest prices charged by Supplier for the same or substantially similar products. If at any time during the term of this Agreement, Supplier offers or sells the same or substantially similar products to a Third Party at a lower price than the prices set forth herein, Supplier will immediately notify Customer and reduce the purchase prices for the applicable Products to such lower price on any pending and future purchase orders for the Products hereunder.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES
6.1 Mutual Representations and Warranties. Each Party hereby represents and warrants to the other Party as follows, as of the Effective Date:
(a) Corporate Existence and Power. It is a corporation or other entity duly
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
organized, validly existing, and in good standing under the laws of the jurisdiction in which it is incorporated or established, and has full corporate power and authority and the legal right to own and operate its property and assets and to carry on its business as it is now being conducted and as contemplated in this Agreement.
(b) Authority and Binding Agreement. It has the corporate power and authority and the legal right to enter into this Agreement and perform its obligations hereunder; it has taken all necessary corporate action on its part required to authorize the execution and delivery of the Agreement and the performance of its obligations hereunder; and the Agreement has been duly executed and delivered on behalf of such Party, and constitutes a legal, valid, and binding obligation of such Party that is enforceable against it in accordance with its terms.
(c) No Conflict. The execution and delivery of this Agreement and the performance of its obligations hereunder (i) do not conflict with or violate any requirement of applicable laws or regulations and (ii) do not conflict with, or constitute a default or require any consent under, any of its contractual obligations.
6.2 Representations and Warranties of Supplier. Supplier represents and warrants to Customer that:
(a) Supplier has not been debarred by the FDA or other regulatory authority, and has not been convicted of a crime that could lead to such debarment, and no person or entity that has been debarred by the FDA or other regulatory authority, or, to the best of Suppliers knowledge, is the subject of debarment proceedings by the FDA or other regulatory authority, will be involved in the performance of Suppliers obligations under this Agreement.
(b) Supplier is in full compliance with (i) any and all quality control standards that are referenced in the Specifications and (ii) any and all Customer standard operating procedures that have been provided to Supplier, and Supplier agrees to inform Customer immediately regarding any change in this status.
(c) Supplier shall not enter into any agreement or arrangement with any other entity that would prevent or in any way interfere with Suppliers ability to perform its obligations pursuant to this Agreement.
6.3 Product Warranty. Supplier warrants that all Products manufactured hereunder will (i) conform to the applicable Specifications; (ii) be manufactured and released in compliance with the Quality Control Procedures and Regulatory Standards; (iii) not be adulterated or misbranded within the meaning of the FD&C Act; (iv) be free and clear of any and all encumbrances, liens, or other Third Party claims; and (v) not infringe or misappropriate the intellectual property rights of any Third Party.
ARTICLE 7
INDEMNIFICATION
7.1 Supplier Indemnity. Supplier shall indemnify, hold harmless, and defend Customer and its Affiliates and licensees, and their respective directors, officers, employees, and agents (the Customer Indemnitees) from and against any claims, suits, actions, or proceedings brought by a Third Party (collectively, Claims) against any Customer Indemnitee, as well as any liabilities,
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
damages, or recoveries payable to a Third Party claimant and any reasonable attorneys fees and costs of litigation incurred by a Customer Indemnitee in connection therewith, to the extent resulting from or arising out of (a) Suppliers breach of any warranty or other provision of the Agreement; (b) the negligence or intentional misconduct of Supplier, its employees, officers, agents or representatives; or (c) any claim that alleges that any process or machinery utilized by Supplier in manufacturing and/or supplying Product hereunder infringes upon, misappropriates or violates any laws or any intellectual property rights of any Third Party, except in each case to the extent resulting from the negligence or willful misconduct of any Customer Indemnitee or Customers breach of this Agreement.
7.2 Customer Indemnity. Customer shall indemnify, hold harmless, and defend Supplier and its Affiliates, and their respective directors, officers, employees, and agents (the Supplier Indemnitees) from and against any Claims against any Supplier Indemnitee, as well as any liabilities, damages, or recoveries payable to a Third Party claimant and any reasonable attorneys fees and costs of litigation incurred by a Customer Indemnitee in connection therewith, to the extent resulting from or arising out of (a) Customers breach of any warranty or other provision of the Agreement; or (b) the negligence or intentional misconduct of Customer, its employees, officers, agents or representatives, except in each case to the extent caused by the negligence or willful misconduct of any Supplier Indemnitee or Suppliers breach of this Agreement.
7.3 Indemnification Procedures. In the event of any Claim that may be subject to indemnification under this Article 7, the indemnified Party shall: (a) promptly notify the indemnifying Party of such Claim; (b) at the indemnifying Partys expense, reasonably cooperate with the indemnifying Party in the defense of such Claim; and (c) not settle any such Claim without the indemnifying Partys written consent, which shall not be unreasonably withheld or delayed. The indemnifying Party shall keep the indemnified Party informed at all times as to the status of the indemnifying Partys efforts and consult with the indemnified Party and/or its counsel regarding such efforts. The indemnifying Party shall not settle any such Claim in any manner that negatively impacts the rights of the indemnified Party or any other indemnitee without the prior written consent of the indemnified Party. The indemnified Party may participate in proceedings relating to any indemnified Claim with counsel of its own choosing at its own expense.
7.4 Insurance. During the term of this Agreement and for [*] thereafter, Supplier shall maintain in effect and good standing a liability insurance policy issued by a reputable insurance company in the amount of at least US$[*] per claim, and US$[*] for claims in the aggregate. Such policy shall cover, at minimum, product liability claims relating to Products manufactured by Supplier, and such policy shall name Customer as an additional insured. At Customers request, Supplier shall provide Customer with all details regarding such policy, including copies of the applicable liability insurance contracts.
ARTICLE 8
CONFIDENTIALITY
8.1 Confidentiality Obligation. During the term of this Agreement, and for seven (7) years thereafter, each Party shall maintain in confidence any and all Confidential Information of the other Party, except as set forth in Section 8.2 below. Each Party further agrees that it shall not use for any purpose other than the purposes expressly permitted or contemplated under this Agreement, and shall not disclose to any Third Party, the Confidential Information of the other Party, except that either Party may disclose Confidential Information on a need-to-know basis to its directors, officers, employees, consultants, or agents who are subject to written obligations of confidentiality and non-use that are no less restrictive than those set forth herein. Upon termination or expiration of the
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
Agreement, or upon written request of the other Party, a Party will promptly return to the other Party, or destroy, all documents, notes and other tangible materials representing the Confidential Information of such other Party and all copies thereof; provided, however, that such other Party may retain a single archival copy of the Confidential Information for the sole purpose of facilitating compliance with the surviving provisions of this Agreement.
8.2 Exceptions. The obligations of confidentiality and non-use contained in Section 8.1 shall not apply to any information to the extent that it can be established by the Party receiving the information (the Receiving Party) that such information: (a) was already known to the Receiving Party, other than under an obligation of confidentiality, at the time of disclosure by the other Party; (b) was part of the public domain at the time of its disclosure to the Receiving Party or became part of the public domain after its disclosure to the Receiving Party through no fault of the Receiving Party; (c) was disclosed to the Receiving Party, other than under an obligation of confidentiality, by a Third Party who had no obligation to the disclosing Party not to disclose such information to others; or (d) was independently discovered or developed by the Receiving Party without the use of or access to Confidential Information of the disclosing Party.
8.3 Authorized Disclosure. Each Party may disclose Confidential Information of the other Party to the extent such disclosure is reasonably necessary in complying with applicable laws, including securities laws, governmental regulations or court orders, and obtaining regulatory or other government approvals, provided that a Party making any such disclosure uses its reasonable efforts to secure confidential treatment of such Confidential Information required to be disclosed and to minimize the extent of such disclosure.
8.4 Publicity. Supplier shall not make any announcement or other public statement concerning the existence or terms of this Agreement, or the activities conducted under this Agreement, without the prior written consent of Customer, except as required by applicable law.
8.5 Injunctive Relief. The Parties expressly acknowledge and agree that any breach or threatened breach of this Article 8 by the Receiving Party may cause immediate and irreparable harm to the other Party which may not be adequately compensated by damages. Each Party therefore agrees that in the event of such breach or threatened breach and in addition to any remedies available at law, each Party shall have the right to secure equitable and injunctive relief, without bond, in connection with such a breach or threatened breach.
ARTICLE 9
INTELLECTUAL PROPERTY
9.1 Existing Intellectual Property. Subject to Sections 9.2 and 9.3, each Party shall retain all rights in all intellectual property rights owned or controlled by such Party prior to the Effective Date or developed or acquired by such Party during the term of this Agreement.
9.2 License. The purchase of the Products shall confer on Customer and its Affiliates, and their respective subcontractors, distributors and agents, an irrevocable, world-wide, royalty-free, non-exclusive, non transferable license under Suppliers patent applications, patents, copyrights, trade secrets, trademarks or other intellectual property rights it owns or controls, to use, test, market, sell, lease, distribute or otherwise dispose of such Products and to incorporate such Products into Customers products, as well as to convey to their respective customers a right to use any such Products that are sold to such customers under such license.
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
9.3 Inventions. Customer shall own all right, title, and interest in and to any and all ideas, inventions, processes, methods, or improvements (whether patentable or unpatentable) that are developed solely or jointly by Supplier at Customers request or specifically for use by Customer and not for general use by Supplier with its other customers relating to the Products and that arise out of the work performed under this Agreement, along with all intellectual property rights with respect thereto (collectively, the Inventions). Supplier agrees to communicate all Inventions promptly to Customer. Supplier hereby assigns and transfers to Customer all right, title and interest in and to the Inventions and agrees to take all further acts reasonably required to evidence such assignment and transfer to Customer, at Customers expense. Supplier shall enter into an agreement with each employee or agent of Supplier performing work in connection with the manufacture and supply of Product hereunder, pursuant to which such person assigns all rights in the Inventions to Supplier such that Supplier may assign and transfer such rights to Customer in accordance with this Section 9.3. Supplier hereby appoints Customer as its attorney-in-fact to sign such documents as Customer deems necessary for Customer to obtain ownership and to apply for, secure, and maintain patent or other proprietary protection of Inventions if Customer is unable, after reasonable inquiry, to obtain Suppliers (or its employees or agents) signature on such a document. All Inventions and any information with respect thereto shall be Customers Confidential Information subject to the confidentiality provisions of Article 8.
ARTICLE 10
TERM AND TERMINATION
10.1 Term. This Agreement shall commence on the Effective Date and shall continue in effect for two (2) years thereafter, unless earlier terminated as permitted under this Article 10 (the Initial Term). This Agreement will automatically renew for successive one (1) year terms, unless a Party provided written notice of non-renewal to the other Party not less thirty (30) days prior to the end of the then-current term.
10.2 Material Breach. Either Party shall have the right to terminate this Agreement upon written notice to the other Party if the other Party commits any material breach of this Agreement that such breaching Party fails to cure within thirty (30) days following written notice from the nonbreaching Party specifying such breach.
10.3 Termination by Customer. Customer may terminate this Agreement at will upon at least [ninety (90)] days written notice to Supplier.
10.4 Change of Control of Supplier: Supplier shall notify Customer promptly upon the earlier of (a) public announcement of the entry into an agreement providing for a Change of Control of Supplier or (b) Change of Control of Supplier. Thereafter, Customer may terminate this Agreement upon twelve (12) months written notice to Supplier. During such notice period, Supplier shall provide assistance as reasonably requested by Customer to adopt an alternative supplier until such time as Customer receives FDA approval to implement any applicable changes.
10.5 Surviving Obligations. All purchase orders for Product that have been accepted prior to the date this Agreement terminates or expires, for any reason other than material breach by Supplier, shall remain in effect, and all applicable rights and obligations under this Agreement with respect to such purchase orders shall survive such expiration or termination. Termination or expiration of this Agreement shall not affect any other rights or liabilities of either Party which may have accrued up to the date of such termination or expiration. The provisions of Sections 3.1, 3.2, 4.1, 4.5, 10.5, 10.6, 11.2, 11.3, 11.5, 11.9 and 11.12 and Articles 1, 7, 8 and 9 shall survive the termination or expiration of this Agreement.
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
10.6 Customers Last-Time Buy Rights. During the thirty (30) days immediately prior to the expiration of this Agreement pursuant to Section 10.1, or in the event that the Parties mutually agree to terminate the Agreement, or in the event of Product discontinuance, Customer may in its sole discretion submit a single order for Products, which order shall be deemed accepted by Supplier to the extent the number of units of Products so ordered does not exceed, [*]. Supplier shall satisfy any such order as soon as reasonably practicable, and in any event Supplier shall deliver [*] of the number of units of Products ordered pursuant to this Section 10.6 over a period no longer than [*] after the date of such order and shall deliver all Products ordered pursuant to this Section 10.6 over a period no longer than [*] after the date of such order.
ARTICLE 11
GENERAL TERMS
11.1 Use of Name. No right, express or implied, is granted by this Agreement to either Party to use in any manner the name of the other or any other trade name or trademark of the other in connection with the performance of this Agreement.
11.2 Recall. In the event that Customer decides or is required to recall any Product, to take any corrective action with respect to any Product, or to disseminate safety information regarding any Product, Customer shall so notify Supplier. Promptly, but in no event later than may be required to permit Customer to meet applicable legal or regulatory requirements, Supplier shall provide Customer with such assistance in connection with such recall, corrective action, or dissemination of information as may reasonably be requested by Customer. If Customer effects any such recall, corrective action, or dissemination of information involving a Product purchased hereunder, and such recall, corrective action, or dissemination of information was caused by a Defective Product, or otherwise was related to matters that constitute a breach of Suppliers warranty covering such Product under Section 6.3, then Supplier shall bear (or reimburse Customer for, as applicable) all the costs and expenses of any such recall or dissemination or corrective action, including: (a) the cost of notifying customers and (b) costs associated with the collection and shipment of recalled Product from the field to Customer or Customers designee, and (c) costs of replacing such Product subject to the recall and shipping the replacement Products.
11.3 LIMITATION OF LIABILITY. NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL, PUNITIVE, OR INDIRECT DAMAGES ARISING FROM OR RELATING TO ANY BREACH OF THIS AGREEMENT OR ANY TORT CLAIMS ARISING HEREUNDER, REGARDLESS OF ANY NOTICE OF THE POSSIBILITY OF SUCH DAMAGES. NOTWITHSTANDING THE FOREGOING, NOTHING IN THIS PARAGRAPH IS INTENDED TO LIMIT OR RESTRICT THE INDEMNIFICATION RIGHTS OR OBLIGATIONS OF ANY PARTY UNDER ARTICLE 7 OR DAMAGES AVAILABLE FOR BREACHES OF ARTICLE 8.
11.4 Independent Parties. The Parties are not employees or legal representatives of each other for any purpose. Neither Party shall have the authority to enter into any contracts in the name of or on behalf of the other Party.
11.5 Notice. All notices, including notices of address change, required or permitted to be given under this Agreement shall be in writing and deemed to have been received (a) when received if hand delivered, (b) four (4) days after being sent by first class U.S. mail, postage prepaid, or (c) one
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
(1) business day after being sent by an internationally recognized overnight delivery service, in each case addressed to, in the case of Customer, Intersect Ent., and in the case of Supplier, Stephen Gould, in each case at the address of the relevant Party first set forth above.
11.6 Severability. In the event any provision of this Agreement is held to be invalid or unenforceable, the valid or enforceable portion thereof and the remaining provisions of this Agreement will remain in full force and effect.
11.7 Waiver. Any waiver (express or implied) by either Party of any breach of this Agreement shall not constitute a waiver of any other or subsequent breach.
11.8 Entire Agreement; Amendment. This Agreement, the Quality Agreement and the exhibits attached hereto constitute the entire, final, complete and exclusive agreement between the Parties and supersede all previous agreements or representations, written or oral, with respect to the subject matter of this Agreement, including without limitation the [Confidential Disclosure Agreement between the Parties dated 11/14/13.] All information to be kept confidential under such earlier confidentiality agreement as of the Effective Date shall be maintained as Confidential Information by the receiving Party under the obligations set forth in Article 8 of this Agreement. This Agreement may not be modified or amended except in a writing signed by a duly authorized representative of each Party.
11.9 Nonassignability; Binding on Successors. Any attempted assignment of the rights or delegation of the obligations under this Agreement shall be void without the prior written consent of the nonassigning or nondelegating Party; provided, however, that Customer may assign its rights or delegate its obligations under this Agreement without such consent (i) to an Affiliate of Customer or (ii) to its successor in interest in connection with any merger, consolidation, or sale of all or substantially all of the assets of Customer to which this Agreement relates. This Agreement shall be binding upon, and inure to the benefit of, the successors, executors, heirs, representatives, administrators and permitted assigns of the Parties hereto, and any successor to Supplier shall agree in writing to be so bound and to supply Customers requirements of Products under the terms of this Agreement.
11.10 Force Majeure. Neither Party shall be liable to the other for its failure to perform any of its obligations under this Agreement during any period in which such performance is delayed because rendered impracticable or impossible due to circumstances beyond its reasonable control, including earthquakes, governmental regulation, fire, flood, labor difficulties, civil disorder, and acts of God, provided that the Party experiencing the delay promptly notifies the other Party of the delay and uses commercially reasonable efforts to overcome such circumstances.
11.11 Conflict of Terms. In the event of a conflict between the terms of this Agreement and the terms of the Exhibits attached hereto, the terms of this Agreement shall govern.
11.12 Governing Law. Any claim, dispute, or controversy of whatever nature arising out of or relating to this Agreement shall be governed by and construed under the laws of the State of California, without giving effect to any choice of law principles that would require the application of the laws of a different state or country.
11.13 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which shall constitute together the same instrument.
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
IN WITNESS WHEREOF, the Parties hereto have duly executed this Agreement on the Effective Date.
INTERSECT ENT, INC. | [SUPPLIER] | |||||||
By: | /s/ Rich Kaufman |
By: | /s/ Vance Garland | |||||
Name: | Richard Kaufman | Name: | Vance Garland | |||||
Title: | Chief Operating Officer | Title: | Sales |
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
EXHIBIT A
PRODUCTS/ PRICE LIST
Part number and Name |
Price per Unit |
3 mos. Forecast |
Annual Forecast | |||
[*] |
[*] | [*] | [*] | |||
[*] |
[*] | [*] | [*] | |||
[*] |
[*] | [*] | [*] | |||
[*] |
[*] | [*] | [*] | |||
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[*] | [*] | [*] |
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
EXHIBIT B
SPECIFICATIONS
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
Exhibit 10.19
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
Testing. Advising. Assuring.
Analytical Testing Partnership Program 2014 - 2015
Quotation to: | Intersect ENT 1049 Elwell Court Palo Alto CA 94303 USA | |
Attention: | Rich Kaufman Chief Operating Officer | |
Telephone: E-mail: |
(650) 641 2107 rkaufman@intersectENT.com | |
Quotation Number: | 13-011-00262 (Revision 7) 6 Pages | |
Date: | December 06, 2013 |
Analytical Testing Partnership Program 2014-2015 |
Page 2 of 5 | |
For Intersect ENT | Quotation No.: 13-011-00262 (Revision 7) |
EXECUTIVE SUMMARY
Exovas Health Sciences group has developed a strong relationship with intersectENT during the past decade. Over this period services provided have included method development, method and process validation, contaminant and unknown investigation, characterization of impurities, raw material and finished product testing and stability program services.
lntersectENT has had major success in product development, clinical efficacy and approval of its novel stent products. The company is experiencing rapid growth in moving from a purely research organization, to a manufacturing firm with a continuing R&D pipeline.
Exova has made investments to increase our capacity in tandem, so that intersectENT can continue to rely on Exova as the vendor of choice for analytical support and development. We appreciate your regular feedback and this has been very valuable in making changes and improvements so that our final product meets your expectations.
Exova is committed to working with intersectENT to manage costs during this period of rapid expansion, and to arrive at a mutually beneficial and cost effective long term partnership. In this light, for the next 24 months Exova is pleased to offer reduced prices for [*] services.
We are looking forward to continuing to support intersectENT for analytical testing development and stability needs.
/s/ April Gamache |
/s/ John McNeil | |||
April Gamache, Chief Operating Officer, for Eric Lindsay |
John McNeil General Manager | |||
General Manager | Health Sciences Mississauga | |||
Health Sciences, Santa Fe Springs |
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
Analytical Testing Partnership Program 2014-2015 |
Page 3 of 5 | |
For Intersect ENT | Quotation No.: 13-011-00262 (Revision 7) |
PRICING PROPOSAL
Table 1. Custom Analyses
Test Method |
Price Structure 2014-2015 [*] |
Price Structure 2014-2015 [*] | ||
[*] |
[*] | [*] | ||
[*] |
[*] | [*] | ||
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[*] |
[*] | [*] | ||
[*] |
[*] | [*] |
(1) | Raw Data packages are [*] of the total analytical cost, $[*] minimum and $[*] maximum. |
(2) | The pricing indicated in the above table is quoted for [*] (please note; turnaround time is defined as delivery of the final C of A by 5PM on the day promised). 24 and 72 hour priority service will be accompanied by a surcharge of [*] and [*], respectively. Exovas pricing for intersectENT has not increased in five years, and with growing volumes in 2013 we are pleased to provide discounted pricing that passed along savings realized with volume efficiencies. |
(3) | To assist Exova in making compressed timing commitments, intersectENT will work to provide pre-notification whenever possible of upcoming sample submission schedules. |
(4) | Due to the lengthy nature of this procedure, to ensure that [*] turnaround commitments are consistently met, intersectENT will provide five to ten days forewarning of upcoming sample submissions and batch samples shipments whenever possible. |
(5) | Note: when [*] analysis is requested for [*], additional samples will be requested by Exova and the results available in less than five working days from sample receipt. |
(6) | This test includes [*] as part of the listed fee (the data will be gathered/acquired [*]). No additional fee will be charged for [*]. |
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
Analytical Testing Partnership Program 2014-2015 |
Page 4 of 5 | |
For Intersect ENT | Quotation No.: 13-011-00262 (Revision 7) |
Table 2. USP Monograph Testing
Test Method |
Price Structure 2014-2015 [*] | |
[*] |
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(1) | Raw Data packages are [*] of the total analytical cost, $[*] minimum and $[*] maximum. |
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
Analytical Testing Partnership Program 2014-2015 |
Page 5 of 5 | |
For Intersect ENT | Quotation No.: 13-011-00262 (Revision 7) |
(2) | The pricing Indicated in the above table is quoted for [*] standard turnaround (please note: turnaround time is defined as delivery of the final C of A by SPM on the day promised). 24 and 72 hour priority service will be accompanied by a surcharge of [*] and [*], respectively. Exovas pricing for intersectENT has not increased in five years, and with growing volumes in 2013 we are pleased to provide discounted pricing that passed along savings realized with volume efficiencies. |
(3) | Pricing for [*] turnaround is offered at a [*]. To assist Exova in making compressed timing commitments, intersectENT will work to provide pre-notification whenever possible of upcoming sample submission schedules. |
(4) | To ensure that turnaround commitments are consistently met, intersectENT will provide five to ten days forewarning of upcoming sample submissions and batch samples shipments whenever possible. |
The pricing in the above tables is quoted for [*] day turnaround options. It is understood that [*].
TERMS AND CONDITIONS
This quotation is open for acceptance until December 15, 2013, and these prices will be in effect until December 31, 2015. It can be accepted on or before this date by signing and returning to Exova. After the validity date, Exova reserves the right to revise and/or withdraw the quotation as appropriate. This quotation has been prepared exclusively on behalf of Exova and is provided in confidence. The contents of this quotation including pricing Information is for the sole consideration of lntersectENT and cannot be divulged to a third party without the expressed written consent of Exova.
This quotation and the services are governed by the terms and conditions (the Conditions) as attached. This quotation may be accepted by signing the enclosed copy in the space provided below and returning it, for receipt by Exova within the time for acceptance given above. It will then constitute an agreement between us (the Contract). Please be advised that a purchase order is acceptable for billing purposes only, and the work is governed by the attached terms and conditions.
ACCEPTED BY
/s/ R K |
IntersectENT |
12/13/13 | ||
Signature | Company Name | Date |
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
Exhibit 10.20
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
MASTER SERVICES AGREEMENT
This Master Services Agreement (the Agreement) is entered into as of April 9, 2014 (the Effective Date) by and between Intersect ENT, Inc., having a place of business at 1555 Adams Drive, Menlo Park, CA 94025 (Company) and Polymer Solutions Corporation having its principal place of business at 2903-C Commerce Street Blacksburg, Virginia (Contractor). Company and Contractor may be referred to herein individually as a Party and collectively as the Parties.
1. DEFINITIONS. As used in this Agreement:
1.1 Applicable Laws means all relevant federal, state and local laws, statutes, rules, and regulations that are applicable to a Partys activities hereunder.
1.2 Company Contact means the Company contact person for a particular Statement of Work as identified in the Statement of Work.
1.3 Confidentiality Agreement means that certain [Confidential Disclosure Agreement] by and between the Parties dated April 2, 2014.
1.4 Deliverables means the items to be provided or actually provided by Contractor to Company under this Agreement, including items specifically designated or characterized as deliverables in a Statement of Work.
1.5 FDA means the United States Food and Drug Administration or any successor entity thereto.
1.6 Intellectual Property or IP means ideas, concepts, discoveries, inventions, developments, know-how, trade secrets, techniques, methodologies, modifications, innovations, improvements, writings, documentation, electronic code, data and rights (whether or not protectable under state, federal or foreign patent, trademark, copyright or similar laws) or the like, whether or not written or otherwise fixed in any form or medium, regardless of the media on which contained and whether or not patentable or copyrightable.
1.7 Materials means those materials supplied by Company for use in connection with the Services.
1.8 Services means the services specifically set forth in the Analytical Test Request form also referred to as Statement of work. Both used interchangeably within the scope or this agreement.
1.
1.9 Specifications means any procedures, process parameters, analytical tests and other attributes and written specifications for the Services and Deliverables included in a Statement of Work.
2. SERVICES
2.1 Statements of Work. Company shall submit to Contractor written analytical test requests substantially in the form of Exhibit A that specify the Services to be performed and any Deliverables to be provided by the Contractor under such work orders, as well as the terms and conditions (including Specifications (if applicable), delivery and performance schedules, and fees) under which Contractors will perform such Services. Upon acceptance of a work order by Contractor (in writing or by performance as set forth below), such work order shall become a Statement of Work. If Contractor begins to perform services under a work order, Contractor shall be deemed to have accepted such work order in the form submitted by Company. Contractor is not authorized to perform any services on behalf of Company, other than pursuant to a Statement of Work established as set forth above. Company hereby consents to Contractors use of certain Intellectual Property of Company or its licensors, as specified in a Statement of Work, solely as necessary to perform the Services under that Statement of Work. Such consent shall automatically terminate upon the completion of the applicable Statement of Work and is limited by the terms of this Agreement. In the event of any conflict between this Agreement and a Statement of Work, this Agreement shall control unless the Statement of Work expressly refers to the Parties intent to alter the terms of this Agreement with respect to that Statement of Work. For clarity, Company shall have the right at all times to retain third parties other than Contractor to provide services similar or identical to the Services provided under this Agreement.
2.2 Performance of Services. Contractor shall perform the Services in accordance with the terms of this Agreement, the applicable Statement of Work, and all Applicable Laws. Contractor shall provide, at its own expense, a place of work (unless the Statement of Work requires the Contractor to perform the Services on Companys premises), and all equipment, tools, and other materials necessary to complete the Statement of Work.
2.3 Change Proposals. Upon the receipt of a proposal from Company to change the terms of a Statement of Work (a Change Proposal), Contractor shall promptly provide: (a) any information requested in such proposal; and (b) its written acceptance or rejection of the proposal. Contractor may not reject any Change Proposal that does not materially shorten the delivery or performance schedule or materially alter the Services or Deliverables, and may not unreasonably reject any other Change Proposal. If Contractor begins to adhere to a Change Proposal or does not reject the Change Proposal in writing within two (2) days after its receipt thereof: Contractor shall be deemed to have accepted such Change Proposal. The submission or reasonable rejection of a Change Proposal shall not constitute a breach of this Agreement. A Change Proposal may, but need not, include an increase in fees payable under the Statement of Work.
2.4 Project Manager. Contractor shall appoint one of its employees as the Project Manager for each Statement of Work. The Project Manager shall be responsible for all aspects of the Services under such Statement of Work through completion of such Services. Such
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
2.
Project Manager shall regularly report progress on such Statement of Work to the Company Contact for such Statement of Work, and coordinate with such Company Contact for the performance of the Services. Unless otherwise agreed, all communications between Company and Contractor regarding the conduct of the Services pursuant to a Statement of Work shall be addressed between such Project Manager and Company Contact. The Project Manager shall use their best efforts to respond to any communication from Company within two (2) business days of receipt of such communication.
2.5 Timelines. Contractor shall use all reasonable efforts to comply with any timelines, milestones, schedules or target dates for completing the Services or any portion thereof as set forth in such Statement of Work. If at any time Contractor anticipates a delay in meeting such timelines for a given Statement of Work, Contractor shall promptly notify Company in writing of such anticipated delay and the estimated duration of such delay.
2.6 Records. Contractor shall create and maintain written records of the data and other information generated or recorded in the performance of the Services (the Project Records) and other information related to the performance of the Services in a timely, accurate, complete, and legible manner. Contractor shall maintain the Project Records in compliance with the terms and conditions of this Agreement, all applicable Statements of Work, and Applicable Laws. Contractor shall maintain the Project Records in a professional manner so as to permit Company to review the Project Records in full without disclosing to Company any third party confidential or proprietary information in any review that Company may perform hereunder. Contractor shall not destroy any Project Records without Companys written consent. Contractor shall make the Project Records available for Companys inspection and copying during regular business hours and upon reasonable advance notice. During the course of conducting the Services, Contractor shall, at Companys request and expense, provide Company with copies of the Project Records. Promptly upon expiration or termination of a Statement of Work, Contractor shall transfer to Company all Project Records related to such Statement of Work or, at Companys request, shall maintain the Project Records for a period not to exceed seven (7) year. Notwithstanding any of the foregoing, Contractor shall be permitted to retain all Project Records to the extent necessary to comply with its obligations under Applicable Laws.
2.7 Additional Agreements. Contractor shall ensure that each of its employees who will have access to any Confidential Information or perform any Services has entered into a binding written agreement that protects Companys rights and interests to at least the same degree as Sections 2.10, 2.11, 5, 6 and 7 of this Agreement.
2.8 Employees. Subject to Section 2.8. Contractor shall conduct the Services solely through its employees and not through any consultants, temporary workers, agents or the like. In addition, Company reserves the right to refuse or limit Contractors use of any employee or to require Contractor to remove any employee already engaged in the performance of the Services. Companys exercise of such right shall in no way be construed as relieving Contractor from its obligations under this Agreement.
2.9 Materials. To the extent specified in a particular Statement of Work, Company shall provide Contractor with sufficient amounts of the Materials for the Contractor to perform
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
3.
the Services. Title to the Materials shall remain with Company. Contractor shall use the Materials solely to perform the Services under such Statement of Work and for no other purpose, and in compliance with Companys instructions and Applicable Laws. Contractor shall not sell, transfer, disclose or otherwise provide access to the Materials to any person or entity without the prior written consent of Company, and Contractor shall not reverse engineer or otherwise attempt to determine the structure, composition or individual components of the Materials. Upon completion of the applicable Services or earlier upon Companys request, Contractor shall, according to Companys instructions, return the Materials to Company or destroy the Materials and certify such destruction in writing.
2.10 Reports. Upon completion of all Services under a Statement of Work, or at such other times as set forth in the applicable Statement of Work, Contractor shall provide Company with a written report summarizing all Project Records and Services completed to date for such Statement of Work, in both electronic and hard copy. All such reports shall be deemed Confidential Information of Company.
3. INDEPENDENT CONTRACTOR RELATIONSHIP. Contractors relation to Company under this Agreement is that of an independent contractor. Nothing in this Agreement is intended or should be construed to create a partnership, joint venture, or employer-employee relationship between Company and any of Contractors employees or agents. Contractor is not the agent of Company and is not authorized, and must not represent to any third party that it is authorized, to make any commitment or otherwise act on behalf of Company. Without limiting the generality of the foregoing:
3.1 Benefits and Contributions. Neither Contractor nor any of its employees or agents is entitled to or eligible for any benefits that Company may make available to its employees, such as group insurance, profit-sharing, or retirement benefits. Because Contractor is an independent contractor, Company will not withhold or make payments for social security, make unemployment insurance or disability insurance contributions, or obtain workers compensation insurance on behalf of Contractor or any of its employees or agents.
3.2 Taxes. Contractor is solely responsible for filing all tax returns and submitting all payments as required by any federal, state, local, or foreign tax authority arising from the payment of fees to Contractor under this Agreement, and agrees to do so in a timely manner. If applicable, Company will report the fees paid to Contractor under this Agreement by filing Form 1099-MISC with the Internal Revenue Service as required by law.
4. COMPENSATION
4.1 Fees. Subject to the terms and conditions of this Agreement, Company shall pay Contractor the fees specified in each Statement of Work (Fees) as Contractors sole and complete compensation for all Services, Deliverables, and Intellectual Property rights provided by Contractor under this Agreement. No other fees shall be owed by Company under this Agreement. Contractor shall provide Company with written, itemized invoices in accordance with the payment schedule set forth in the applicable Statement of Work, with each such invoice specifying the Services performed for which payment is being requested. In no event shall the
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
4.
total amount invoiced under a particular Statement of Work exceed the budget set forth in such Statement of Work, unless as amended by an executed Change Proposal. Contractor shall not submit for payment any invoice for services not previously authorized by Company pursuant to an executed Statement of Work or Change Proposal. In no event shall Company be liable for fees and/or expenses incurred by Contractor in connection with any services or other work performed by Contractor without Companys previous written authorization.
4.2 Payments. Unless otherwise expressly provided in the applicable Statement of Work payment to Contractor of undisputed Fees and Expenses shall be due thirty (30) days following Companys receipt of the invoice for such fees submitted by Contractor pursuant to Section 4.1 above. Payments shall be addressed to:
Polymer Solutions Incorporated
P.O. Box 726 Christiansburg, VA 24068
Attention: Rylee@polymersoluitions.com
Contractor Tax Identification Number: 54-1400931
4.3 Acceptance of Services. Company shall have the right to accept or reject the Service and/or Deliverable, or any portion thereof, in writing within five (5) business days from receipt thereof. Such acceptance or rejection shall be consistent with the criteria set forth in the Statement of Work, if any. If Company does not reject in writing within five (5) business days, the Service and/or Deliverable shall be considered accepted by Company. Company shall clearly state in writing the reasons for any rejection. Within five (5) business days of any notice of rejection, Contractor shall present a corrective plan of action to Company. Upon approval by Company of the corrective plan, Contractor, at no additional expense to Company, shall then make the corrections and, where applicable, Contractor shall resubmit the corrected Service or Deliverable to Company.
4.4 Disputed Amounts. For disputed invoices or the disputed portion of an invoice, Company shall use reasonable efforts to provide to Contractor, in writing, within ten (10) business days, a description of the disputed amounts. Company and Contractor shall negotiate in a timely, good faith manner to resolve billing queries.
5. AUDITS
5.1 Audit. Contractor shall maintain accurate and complete records and accounts relating to Services provided hereunder, and, in accordance with generally-accepted accounting principals, complete and accurate records of expenses incurred sufficient to document the Fees and Expenses invoiced to Company for at least three (3) years following the date of the invoice (Records and Accounts). Upon request by Company provided with reasonable prior notice, Contractor shall allow Company or Companys authorized representatives to visit Contractors facilities during normal business hours to observe and verity Contractors compliance with this Agreement, review the Records and Accounts, inspect those facilities of Contractor which are being utilized in the Services, and/or to make copies of relevant records. Records and Accounts shall be maintained for a period of seven (7) years after the creation of the applicable Record or Account. In order to assure the quality of Contractors performance of the Services hereunder,
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
5.
Company will be entitled to perform such audits no more than two (2) times in any twelve (12) month period; provided, however, Company may also visit Contractors offices with reasonable frequency during normal business hours to discuss the progress of the Services. In the event said audits exceed two (2) times in any twelve (12) month period, Company shall reimburse Contractor for costs and expenses actually incurred by Contractor in connection with the additional audits, provided, however, that if Company discovers that Contractor has been overcharging Company as a result of such audit, Contractor will refund the amount of any overcharging that is not disputed in good faith by Contractor. In addition, if the amount of any such undisputed overcharge exceeds [*] of the amounts actually due during the period being audited, Contractor shall reimburse Company for the costs of any said additional audit. All Records and Accounts shall be deemed Confidential Information under the Confidentiality Agreement.
5.2 Monitoring. Contractor shall cooperate with any requests by Company to monitor the Services in order to verify that the Services are being performed in accordance with this Agreement and in a timely and satisfactory manner. Contractor shall use its best efforts to facilitate any such monitoring, including providing access to Contractors employees, agents, equipment, and facilities.
5.3 Regulatory Inspections. Contractor shall promptly notify Company of any regulatory inspections relating to the Services by a duly authorized representative (Inspector) of any government agency or other regulatory entity, including, without limitation, the FDA, of which it becomes aware. Contractor shall provide Company with the following data as soon as practicable: (a) the purpose of the inspection, (b) the name and credential number of the inspector, and (c) a copy of the form(s) issued by the Inspector, if any. Unless otherwise required by law, Contractor shall not permit any inspections relating to the Services or Companys Confidential Information until further instructions are received from Company. Unless otherwise required by law, Contractor shall not provide any copies of the Statement of Work or other Confidential Information of Company to the Inspector and shall forward any requests for such materials by an Inspector to Company. Company shall have the primary responsibility for preparing any responses relating to the Materials that may be required by the government agency or regulatory entity, and Contractor shall have the primary responsibility for preparing any responses relating to the method of performing the Services and Contractors operations and procedures; provided, however, that Contractor shall provide any proposed correspondence with government agencies related to the Services to Company for review and approval before submission. Contractor shall take all reasonable actions requested by Company to cure deficiencies as noted during any such inspection.
6. INTELLECTUAL PROPERTY
6.1 Company Intellectual Property. Subject to the rights granted in Section 2.1, Company shall retain all right, title and interest in and to all Intellectual Property and know-how owned or known by Company prior to the Effective Date or made or acquired by Company during the Term.
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
6.
6.2 Contractor Intellectual Property. Subject to the licenses set forth in Section 6.4, Contractor shall retain all right, title and interest in and to all Intellectual Property owned by Contractor prior to the Effective Date or made by Contractor during the Term independently of this Agreement. All such Intellectual Property, and all Intellectual Property otherwise controlled by Contractor as of the Effective Date, or independently of this Agreement during the Term, shall be the Contractor Background IP. As used in this Section 6.2, control means, with respect to any Intellectual Property, that Contractor owns or has a license to such Intellectual Property and has the ability to grant to Company access, a license, or a sublicense (as applicable) to such Intellectual Property on the terms and conditions set forth herein without violating the terms of any agreement or other arrangement with any third party existing at the time Contractor would be first required hereunder to grant to Company such access, license, or sublicense.
6.3 Project Intellectual Property.
6.3.1 Ownership. Company shall own all right, title and interest in and to the Deliverables and all intellectual property rights and know-how therein, as well as all Intellectual Property or know-how made or developed solely or jointly by Contractor in the course of performing the Services or otherwise under this Agreement (collectively, the Project IP).
6.3.2 Disclosure and Assignment. Contractor shall notify Company in writing of any and all Project IP promptly after its conception, development or reduction to practice. Contractor hereby assigns and transfers to Company all of its right, title and interest in and to the Project IP and agrees to take, and to cause its employees, agents, and consultants to take, all further acts reasonably required to evidence such assignment and transfer to Company, at Companys reasonable expense. Contractor hereby appoints Company as its attorney-in-fact to sign such documents as Company deems necessary for Company to obtain ownership and to apply for, secure, and maintain patent or other proprietary protection of such Project IP if Company is unable, after reasonable inquiry, to obtain Contractors (or its employees or agents) signature on such a document. Company shall have the sole right and discretion, al its expense, to prepare, file, prosecute and maintain any patent applications and patents claiming the Project IP.
6.4 License Grants to Company.
6.4.1 Contractor hereby grants to Company a non-exclusive, perpetual, irrevocable, worldwide, royalty-free, sublicenseable (through multiple tiers) license under all Contractor Background IP pertaining to or embodied within the Deliverables: (a) to fully exploit any product or service based on, embodying, incorporating, or derived from the Deliverables; and (b) to exercise any and all other present or future rights in the Deliverables for any and all purposes.
6.4.2 Contractor acknowledges that Contractor may incorporate into the Deliverables, or disclose to Company in the process of transferring the Deliverables to Company, certain know-how of Contractor within the Contractor Background IP (the Contractor Know-How). To the extent that such Contractor Know-How is retained in the unaided memory of any personnel of Company, Contractor agrees that Company may use such retained information in its development, manufacture, or commercialization of any pharmaceutical products of Company; provided, however, that [*].
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
7.
6.5 Technology Transfer. Contractor agrees to provide reasonable technical assistance and make its technical personnel reasonably available to Company, as necessary for Company to implement any processes developed by Contractor during its conduct of the Services or conduct development and commercialization of any Deliverable provided by Contractor. Company shall compensate Contractor for its reasonable out-of-pocket and personnel costs for providing such technical assistance.
7. CONFIDENTIALITY
7.1 Confidential Information. All information that is disclosed or provided by Company to Contractor pursuant to this Agreement or pursuant to the Confidentiality Agreement shall be Confidential Information of Company. Confidential Information may be disclosed by Company in oral, written or other tangible form or otherwise learned by Contractor under this Agreement, and may including but not limited to Companys research, development, preclinical and clinical programs, data and results; pharmaceutical or biologic candidates and products; inventions, works of authorship, trade secrets, processes, conceptions, formulas, patents, patent applications, and licenses; business, product, marketing, sales, scientific and technical strategies, programs and results, including costs and prices; suppliers, manufacturers, customers, market data, personnel, and consultants; and other confidential or proprietary matters related to the Services. In addition, all Project IP, Project Records and reports delivered under Section 2.10 shall be deemed Confidential Information. Except to the extent expressly authorized by this Agreement or by Company in writing, during the Term and for seven (7) years thereafter, Contractor shall maintain in strict trust and confidence and shall not disclose to any third party or use for any purpose other than as provided for in this Agreement any Confidential Information. Contractor may use the Confidential Information only to the extent required to perform the Services and for no other purpose. Contractor shall not use the Confidential Information for any purpose or in any manner that would constitute a violation of Applicable Laws.
7.2 Exceptions. The obligations of confidentiality and nonuse set forth in Section 7.1 shall not apply to any specific portion of information that Contractor can demonstrate by competent written proof: (a) is in the public domain or comes into the public domain through no fault of Contractor; (b) is furnished to Contractor by a third party rightfully in possession of such information not subject to a duty of confidentiality with respect thereto, as shown by Contractors written records contemporaneous with such third party disclosure; (c) is already known by Contractor at the time of receiving such Confidential Information and as evidenced by the Contractors prior written records; or (d) is independently developed by Contractor without access to the Confidential Information, as demonstrated by Contractors independent written records contemporaneous with such development.
7.3 Authorized Disclosure. Notwithstanding the foregoing in this Section 7, Contractor may disclose certain Confidential Information to the extent such disclosure is required by law or regulation, or pursuant to a valid order of a court or other governmental body having jurisdiction, provided that the Contractor provides Company with reasonable prior
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
8.
written notice of such disclosure and reasonable assistance in obtaining a protective order or confidential treatment preventing or limiting the disclosure and/or requiring that the Confidential Information so disclosed be used only for the purposes for which the law or regulation required, or for which the order was issued.
7.4 Publication; Use of Names. Under no circumstances may either Party use the name of the other Party or any of its personnel in any publication or any form of advertising without such other Partys prior written consent. For the avoidance of doubt, Contractor shall not disclose, present, disseminate or produce any publication that contains information regarding the Services, Deliverables or any Confidential Information of Company without Companys prior written consent.
7.5 Third Party Confidential Information. Contractor shall not disclose to Company any confidential or proprietary information that belongs to any third party unless Contractor first obtains the consent of such third party and enters into a separate confidentiality agreement with Company covering that disclosure. Contractor shall not represent to Company as being unrestricted any designs, plans, models, samples, or other writings or products that Contractor knows are covered by valid patent, copyright, or other form of intellectual property protection belonging to a third party.
7.6 Return of Confidential Information. Upon termination or expiration of the Agreement, or upon written request of Company, Contractor shall promptly return or destroy all documents, notes and other tangible materials representing Companys Confidential information and all copies thereof; provided, however, that Contractor may retain a single archival copy of the Confidential Information for the sole purpose of facilitating compliance with the surviving provisions of this Agreement.
7.7 Injunctive Relief. The Parties expressly acknowledge and agree that any breach or threatened breach of this Section 7 by Contractor may cause immediate and irreparable harm to Company that may not be adequately compensated by damages. Each Party therefore agrees that in the event of such breach or threatened breach by Contractor, and in addition to any remedies available at law, Company shall have the right to secure equitable and injunctive relief, without bond, in connection with such a breach or threatened breach.
8. REPRESENTATIONS AND WARRANTIES
8.1 Due Authorization. Each Party represents and warrants that (a) it has the full power and authority to enter into this Agreement, (b) this Agreement has been duly authorized, and (c) this Agreement is binding upon it.
8.2 No Inconsistent Obligations or Constraints upon Contractor. Contractor represents and warrants that (a) it is qualified and permitted to enter into this Agreement; (b) the terms of the Agreement are not inconsistent with its other contractual arrangements; (c) it has the right to grant all licenses granted to Company in this Agreement; (d) Company may freely use, practice, reproduce, distribute, make and sell all advice, data, information, inventions, works of authorship or know-how that Contractor conveys or provides to Company hereunder, in the form
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
9.
of a Deliverable or otherwise, without restriction and without infringing or misappropriating any third party Intellectual Property or other rights; and (e) it shall perform the Services in accordance with the highest standards of care and diligence practiced by recognized firms in providing services of a similar nature.
8.3 No Pending Litigation. Contractor represents and warrants that it is not currently involved in any litigation, and is unaware of any pending litigation proceedings, relating to Contractors performance of services for any third party.
8.4 No Debarred Person. Contractor represents and warrants that it will not employ, contract with, or retain any person directly or indirectly to perform the Services under this Agreement if such person is under investigation by the FDA for debarment or is presently debarred by the FDA pursuant to the Generic Drug Enforcement Act of 1992, as amended (21 U.S.C. § 301, et seq.). In addition, Contractor represents and warrants that it has not engaged in any conduct or activity that could lead to any such debarment actions. If during the Term, Contractor or any person employed or retained by it to perform the Services (i) comes under investigation by the FDA for a debarment action, (ii) is debarred, or (iii) engages in any conduct or activity that could lead to debarment, Contractor shall immediately notify Company of same.
8.5 No Infringement. Contractor represents and warrants that it will not, in the course of conducting the Services, infringe or misappropriate, and that neither the Deliverables nor any element thereof will infringe or misappropriate, any intellectual property right of any third party.
8.6 Deliverables. Contractor warrants that the Services performed and the Deliverables will fully conform to the Specifications, requirements, and other terms in the applicable Statement of Work and this Agreement. In the event of a breach of this warranty, without limiting any other rights or remedies Company may have, Contractor will promptly re-perform the nonconforming Services at no additional charge to Company. If the breach has not been fully cured within thirty (30) days after Contractor received notice thereof (or such longer period of time as Company may, in its discretion, give Contractor to cure the breach, by written notice to Contractor), Contractor will refund all fees previously paid to Contractor under the applicable Statement of Work, which will automatically terminate upon the expiration of such thirty (30)-day period.
8.7 Warranty Disclaimer. EXCEPT AS EXPLICITLY SET FORTH IN THIS SECTION 8, EACH PARTY HEREBY DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, THE WARRANTIES OF MERCHANTABIUTY AND FITNESS FOR A PARTICULAR PURPOSE.
9. INSURANCE. Contractor, at its sole cost and expense, shall secure and maintain in full force and effect throughout the performance of the Services and for five (5) years thereafter, (i) Workers Compensation insurance with coverage in accordance with statutory limits, and (ii) Commercial General Liability insurance, including blanket contractual liability with limits of not less than [*]. Certificates evidencing such insurance shall be made available for examination upon request by Company.
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
10.
10. INDEMNIFICATION; LIMITATION OF LIABILITY
10.1 By Contractor. Contractor shall indemnify, defend and hold harmless Company and its affiliates and their respective directors, officers, employees, and agents (the Company Indemnitees) from and against any and all costs, expenses, liabilities, damages, losses and harm (including reasonable legal expenses and attorneys fees) arising out of or resulting from any third party suits, claims, actions, or demands (collectively, Claims) to the extent resulting from or caused by: (a) Contractors performance of the Services; (b) the infringement or misappropriation by any Deliverable of any third party Intellectual Property (except to the extent caused solely by the Materials); (c) the negligence, recklessness or willful misconduct of Contractor or its officers, directors, employees, or agents; or (d) Contractors breach of its obligations, warranties, or representations under this Agreement, except in each case to the extent that a Claim arises out of or results from the negligence, recklessness or willful misconduct of any Company Indemnitee or Companys breach of its obligations, warranties, or representations under this Agreement.
10.2 By Company. Company shall indemnify, defend and hold harmless Contractor and its directors, officers, employees, and agents (the Contractor Indemnitees) from and against any and all Claims to the extent resulting from or caused by: (a) the negligence, recklessness or willful misconduct of any Company Indemnitee; or (b) Companys breach of its obligations, warranties or representations under this Agreement, except in each case to the extent that a Claim arises out of or results from the negligence, recklessness or willful misconduct of any Contractor Indemnitee or Contractors breach of its obligations, warranties, or representations under this Agreement.
10.3 Indemnification Conditions and Procedures. Each Partys agreement to indemnify, defend and hold harmless the other Party is conditioned on the indemnified Party: (i) providing written notice to the indemnifying Party of any claim or demand for which is it seeking indemnification hereunder promptly after the indemnified Party has knowledge of such claim; (ii) permitting the indemnifying party to assume full responsibility to investigate, prepare for and defend against any such claim or demand, except that the indemnified Party may cooperate in the defense at its expense using its own counsel; (iii) assisting the indemnifying Party, at the indemnifying Partys reasonable expense, in the investigation of, preparing for and defense of any such claim or demand; and (iv) not compromising or settling such claim or demand without the indemnifying Pattys written consent.
10.4 Limitation of Liability. EXCEPT FOR DAMAGES AVAILABLE FOR BREACHES OF CONFIDENTIALITY OBLIGATIONS UNDER SECTION 7 AND THE INDEMNIFICATION RIGHTS AND OBLIGATIONS UNDER SECTION 10, NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY FOR ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL, PUNITIVE OR INDIRECT DAMAGES ARISING FROM OR RELATING TO ANY BREACII OF THIS AGREEMENT, REGARDLESS OF ANY NOTICE OF THE POSSIBILITY OF SUCH DAMAGES.
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
11.
11. TERM AND TERMINATION
11.1 Term. The term of this Agreement (the Term) shall commence on the Effective Date and continue thereafter until terminated in accordance with this Section 11.
11.2 Termination by Company. Company may terminate this Agreement or any Statement of Work at any time with or without cause for its convenience, effective upon thirty (30) days notice to Contractor. In addition, Company may terminate this Agreement or any Statement of Work immediately upon written notice to Contractor if Contractor breaches this Agreement or the Statement of Work, as the case may be, and does not fully cure the breach to Companys satisfaction within thirty (30) days after Company gives notice of the breach to Contractor.
11.3 Effects of Termination
11.3.1 Survival. Sections 1, 2.10, 3, 5.1, 6, 7, 9, 10 (solely to the extent the Claims can be attributed to action or omission during the Term), 11.3 and 12 shall survive any termination or expiration of this Agreement. Termination or expiration of this Agreement shall not affect either Partys liability for any breach of this Agreement it may have committed before such expiration or termination.
11.3.2 Return of Company Property. Upon termination of this Agreement, Contractor shall return or destroy the Materials, and return to Company the Confidential information, as set forth in Sections 2.10 and 7.6. In addition, Contractor shall deliver to Company, or destroy at Companys request, the Deliverables (in whatever stage of development or completion).
11.3.3 Compensation. Upon termination of this Agreement or a Statement of Work by Company without cause for its convenience, unless the applicable Statement of Work expressly provides otherwise, Company will pay Contractor fees on a proportional basis as set forth in the applicable Statement of Work for Services that are in progress as of the effective date of such termination and reimburse Contractor for related Expenses incurred by Contractor before the effective date of such termination.
12. GENERAL PROVISIONS
12.1 Governing Law; Venue. This Agreement is governed by the laws of the State of California without reference to any conflict of laws principles that would require the application of the laws of any other jurisdiction. The United Nations Convention on Contracts for the International Sale of Goods does not apply to this Agreement. Contractor irrevocably consents to the personal jurisdiction of the state and federal courts located in San Mateo County, California for any suit or action arising from or related to this Agreement, and waives any right Contractor may have to object to the venue of such courts. Contractor further agrees that these courts will have exclusive jurisdiction over any such suit or action initiated by Contractor against Company.
12.2 Severability. If any provision of this Agreement is, for any reason, held to be invalid or unenforceable, the other provisions of this Agreement will be unimpaired and the invalid or unenforceable provision will be deemed modified so that it is valid and enforceable to the maximum extent permitted by law.
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
12.
12.3 No Assignment. This Agreement and Contractors rights and obligations under this Agreement may not be assigned, delegated, or otherwise transferred, in whole or in part, by operation of law or otherwise, by Contractor without Companys express prior written consent; provided, however, that Contractor may assign its rights or delegate its obligations under this Agreement without such consent to (i) its affiliate or subsidiary or (ii) its successor in interest in connection with any merger, consolidation, or sale of all or substantially all of the assets of Contractor. Company may assign this Agreement or any of its rights under this Agreement to any third party without Contractors consent. In the case of any permitted assignment or transfer of or under this Agreement, this Agreement shall be binding upon, and inure to the benefit of, the successors, executors, heirs, representatives, administrators and assigns of the Parties hereto. Any attempted assignment, delegation, or transfer in violation of the foregoing will be null and void.
12.4 Notices. Each Party must deliver all notices, consents, and approvals required or permitted under this Agreement in writing to the other Party at the address specified below, by personal delivery, by certified or registered mail (postage prepaid and return receipt requested), by a nationally-recognized overnight carrier, or by facsimile transmission with electronic confirmation of transmission. Notice will be effective upon receipt or refusal of delivery. Each Party may change its address for receipt of notice by giving notice of such change to the other Party.
If to Company: | Intersect ENT, Inc. l555 Adams Drive Menlo Park, CA 94025 Attention: Xiaoyi Hu Email: xhu@intersectent.com | |
If to Contractor: | Polymer Solutions, Inc. 2903-C Commerce Street Blacksburg, Virginia 24060 George Cheynet George.cheynet@polymersolutions.com |
12.5 Remedies. The rights and remedies provided to each Party in this Agreement are cumulative and in addition to any other rights and remedies available to such Party at law or in equity.
12.6 No Insider Trading. Contractor acknowledges that Company is a publicly traded company and that, in the course of performance under this Agreement, Contactor may learn of material, non-public information regarding Company. Contractor understands that federal and state securities laws prohibit employees of Contractor from purchasing or selling Company securities while in possession of any such information and from disclosing such information to others.
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
13.
12.7 Construction. Section headings are included in this Agreement merely for convenience of reference; they are not to be considered part of this Agreement or used in the interpretation of this Agreement. No rule of strict construction will be applied in the interpretation or construction of this Agreement.
12.8 Waiver. All waivers must be in writing and signed by the Party to be charged. Any waiver or failure to enforce any provision of this Agreement on one occasion will not be deemed a waiver of any other provision or of such provision on any other occasion.
12.9 Time Is of the Essence. Time is of the essence in the performance of the Services and Contractors other obligations under this Agreement.
12.10 Entire Agreement; Amendments. This Agreement, including the Statements of Work hereunder, is the final, complete, and exclusive agreement of the Parties with respect to the subject matter hereof and supersedes and merges all prior or contemporaneous communications and understandings between the Parties. No modification of or amendment to this Agreement will be effective unless in writing and signed by the Party to be charged.
12.11 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which shall constitute together the same instrument.
Signature Page to Follow
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
14.
IN WITNESS WHEREOF, the Parties have executed this Master Services Agreement as of the Effective Date.
INTERSECT ENT, INC. | POLYMER SOLUTIONS, INC. | |||||||
(CONTRACTOR) | ||||||||
Signed: | /s/ R. K. |
Signed: | /s/ George Cheynet | |||||
Name: | Richard Kaufman | Name: | George Cheynet | |||||
Title: | Chief Operating Officer | Title: | Director of Sales |
Signature Page to Master Services Agreement
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
EXHIBIT A
ANALYTICAL TESTING SERVICES
Standard pricing for common tests performed for Intersect ENT are shown below. Prices for less common tests are not listed due to the number of test methods available, but will be those listed on the Polymer Solutions Incorporated Internal Price List.
Standard Prices for Common Tests | ||
[*] | ||
[*] |
[*] | |
[*] |
[*] | |
[*] | [*] | |
[*] | [*] |
Turnaround times are based on the date of receipt of payment information and samples. This will be based on project complexity and are as follows:
| [*] Testing: [*] |
| [*] Testing: [*] |
| Turnaround time for product development testing will target [*]; however, more complex testing and validation projects will depend on the scope of the project. |
Points of Contact
For Company:
Xiaoyi Hu
1555 Adams Drive
Menlo Park Ca 94025
650-641-2111
xhu@intersectent.com
For Contractor:
George Cheynet
2903-C Commerce Street
Blacks burg, Virginia 24060
540-961-4300
George.cheynet@polymersolutions.com
Discount Schedule:
Contractor will invoice Company only for the Services actually rendered and the expenses actually incurred. Payments shall be due thirty (30) days following Companys receipt of invoice.
Quarterly Purchases |
Discount for following Quarter | |
>$[*] |
[*]% | |
>$[*] |
[*]% | |
>$[*] |
[*]% | |
>$[*] |
[*]% |
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
EXHIBIT A CONTINUED ANALYTICAL
TESTING SERVICES CONTINUED
Discounts would be applied to standard pricing in the following quarter. The first quarter of this agreement would be initiated on [*] at a discounted rate of [*]%. Implementation of the discount for new quarters would occur on the following dates:
| [*] |
Term
The term of this Statement of Work will begin on April 9, 2014 and shall terminate on April 2, 2016.
ALL ITEMS ARE PROVIDED AS IS, AND COMPANY EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES, WHETHER IMPLIED, EXPRESS, OR STATUTORY, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE, NONINFRINGEMENT, ACCURACY AND QUIET ENJOYMENT.
Intersect Ent, Inc. | Polymer Solutions (Contractor) | |||||||
Signed: | /s/ R. K. |
Signed: | /s/ George Cheynet | |||||
Name: | Richard Kaufman | Name: | George Cheynet | |||||
Title: | Chief Operating Officer | Title: | Director of Sales | |||||
Dated: | 4/11/14 | Dated: | 4/09/2014 |
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
A-2
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the reference to our firm under the caption Experts and to the use of our report dated May 1, 2014, in the Registration Statement (Form S-1) and related Prospectus of IntersectENT, Inc. dated June 23, 2014.
/s/ Ernst & Young LLP
Redwood City, California
June 23, 2014
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