Table of Contents

As filed with the Securities and Exchange Commission on March 23, 2018.

Registration No. 333-            

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

SURFACE ONCOLOGY, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   2836   46-5543980

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

50 Hampshire Street, 8th Floor

Cambridge, MA 02139

(617) 714-4096

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

J. Jeffrey Goater

Chief Executive Officer

50 Hampshire Street, 8th Floor

Cambridge, Massachusetts 02139

(617) 714-4096

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Kingsley L. Taft, Esq.

Robert E. Puopolo, Esq.

Seo Salimi, Esq.

Goodwin Procter LLP

100 Northern Avenue

Boston, Massachusetts 02210

(617) 570-1000

 

Divakar Gupta, Esq.

Charles S. Kim, Esq.

Nicole C. Brookshire, Esq.

Richard C. Segal, Esq.

Cooley LLP

500 Boylston Street

Boston, Massachusetts 02116

(617) 937-2300

 

 

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, as amended, 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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer     Accelerated filer    

Non-accelerated filer  

(Do not check if a smaller

reporting company)

 

Smaller reporting company   

Emerging Growth Company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Exchange Act.  

 

 

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, par value $0.0001 per share

  $75,000,000   $9,337.50

 

 

(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
(2) Includes the offering price of shares that the underwriters may purchase pursuant to an option to purchase additional shares.
(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, as amended, or until this registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


Table of Contents

The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

Subject To Completion. Dated March 23, 2018.

             Shares

 

 

LOGO

Common Stock

 

 

This is an initial offering of shares of common stock of Surface Oncology, Inc.

We are offering                  shares of our common stock.

Prior to this offering, there has been no public market for the common stock. It is currently estimated that the initial public offering price per share will be between $        and $        . We have applied to list our common stock on the Nasdaq Global Market under the symbol “SURF.”

We are an “emerging growth company” as that term is used in the Jumpstart Our Business Startups Act of 2012 and, as such, have elected to comply with certain reduced public company reporting requirements.

 

 

See “Risk Factors” beginning on page 12 to read about factors you should consider before buying shares of our common stock.

 

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities nor passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

 

 

     Per share      Total  

Initial public offering price

   $                   $               

Underwriting discounts(1)

   $      $  

Proceeds, before expenses, to Surface Oncology

   $      $  

 

(1) See the section titled “Underwriting” for a description of the compensation payable to the underwriters.

To the extent that the underwriters sell more than                  shares of common stock, the underwriters have the option to purchase up to an additional                  shares from us at the initial price to the public less the underwriting discount.

Novartis Institutes for Biomedical Research, Inc. has agreed to purchase from us, concurrently with this offering in a private placement, $11.5 million of shares of our common stock at a price per share equal to the initial public offering price. The sale of shares in the concurrent private placement will not be registered under the Securities Act of 1933, as amended, and these shares will be subject to a 180-day lock-up agreement with the underwriters for this offering. The closing of this offering is not conditioned upon the closing of the concurrent private placement. The shares of common stock purchased in the concurrent private placement will not be subject to any underwriting discounts or commissions. See “Concurrent Private Placement.”

The underwriters expect to deliver the shares against payment in New York, New York on                     , 2018.

 

Goldman Sachs & Co. LLC   Cowen   Evercore ISI

 

 

Prospectus dated                     , 2018


Table of Contents

TABLE OF CONTENTS

 

Prospectus Summary

     1  

Risk Factors

     12  

Special Note Regarding Forward-Looking Statements

     58  

Use of Proceeds

     60  

Dividend Policy

     62  

Capitalization

     63  

Dilution

     65  

Selected Consolidated Financial Data

     68  

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

     69  

Business

     89  

Management

     129  

Executive Compensation

     138  

Director Compensation

     149  

Certain Relationships and Related Party Transactions

     150  

Principal Stockholders

     154  

Description of Capital Stock

     158  

Shares Eligible for Future Sale

     164  

Certain Material U.S. Federal Income Considerations to Non-U.S. Holders

     166  

Underwriting

     170  

Concurrent Private Placement

     177  

Legal Matters

     178  

Experts

     178  

Where You Can Find More Information

     178  

Index to Consolidated Financial Statements

     F-1  

Neither we nor the underwriters have authorized anyone to provide you with information other than that contained in this prospectus or any free writing prospectus prepared by or on behalf of us or to which we have referred you. We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We and the underwriters are offering to sell, and seeking offers to buy, 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 cover page of this prospectus, or other earlier date stated in this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock.

For investors outside of the United States: Neither we nor the underwriters have done anything that would permit a public offering of our common stock or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about, and to observe any restrictions relating to, this offering and the distribution of this prospectus.

We own various U.S. federal trademark applications and unregistered trademarks, including our company name and logo. All other trademarks or trade names referred to in this prospectus are the property of their respective owners. Solely for convenience, the trademarks and trade names in this prospectus are referred to without the symbols ® and ™, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto.

Unless otherwise indicated or the context otherwise requires, all references in this prospectus to “Surface Oncology,” the “Company,” “we,” “our,” “ours,” “us” or similar terms refer to Surface Oncology, Inc.

 

i


Table of Contents

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus and does not contain all of the information you should consider in making your investment decision. Before deciding to invest in shares of our common stock, you should read this summary together with the more detailed information, including our financial statements and the accompanying notes, provided elsewhere in this prospectus. You should carefully consider, among other things, the matters discussed in “Risk Factors,” our financial statements and the accompanying notes, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in each case included elsewhere in this prospectus.

Overview

We are a clinical-stage immuno-oncology company focused on using our specialized knowledge of the biological pathways critical to the immunosuppressive tumor microenvironment, or the TME, for the development of next-generation cancer therapies. While first-generation immuno-oncology therapies, such as checkpoint inhibitors, are a remarkable therapeutic advancement, we believe most patients do not achieve durable clinical benefit primarily because these therapies focus on only one element of the complex and interconnected immunosuppressive TME. We believe there is a significant opportunity to more broadly engage the body’s immune system in a multi-faceted, coordinated and personalized approach, to meaningfully improve cure rates for patients with a variety of cancers. Our approach is to identify key components within the TME to gain a deep understanding of its biology, leverage this understanding to define optimal therapeutic targets and the patients most likely to benefit and develop novel antibody therapeutics with differentiated biologic activity. By utilizing our specialized knowledge and expertise in immunology, oncology, antibody selection and characterization, and translational research, we have developed a broad pipeline of TME-focused programs that we believe are the next generation of immuno-oncology therapies. In January 2016, we entered into a strategic collaboration with Novartis to leverage our combined expertise and resources to develop novel immunotherapies targeting the TME.

Our lead product candidate, SRF231, targets a protein called cluster of differentiation, or CD, 47. We initiated a Phase 1 clinical trial of SRF231 in February 2018 and expect to report initial clinical results from this trial in the first half of 2019. An Investigational New Drug application, or IND, for our next program, SRF373, which targets CD73, was sponsored and filed by Novartis with the U.S. Food and Drug Administration, or the FDA, in February 2018, and we anticipate SRF373 entering clinical trials in 2018. SRF373 has been exclusively licensed on a worldwide basis to Novartis. The lead product candidates for our CD39 and interleukin 27, or IL-27, programs, SRF617 and SRF388, respectively, are anticipated to begin IND-enabling studies in 2018.

The Tumor Microenvironment

The TME contains a complex interplay of immunosuppressive biological pathways, cells and other components surrounding the tumor. It comprises several key components that often act together to profoundly suppress the body’s anticancer immune response through a variety of different biological mechanisms, allowing the tumor to evade the immune system. Given the complexity of the TME, we believe it is imperative to pursue targets that simultaneously modulate more than one component of this environment in order to provide durable clinical benefit to patients suffering with cancer.

Checkpoint inhibitors are a drug class designed to counteract certain defenses a tumor has against the immune system. Currently approved checkpoint inhibitors were developed for the treatment of cancer because of the initial belief that inactivation of the immune system by checkpoint proteins, one component of the TME, could be reversed to reactivate the immune system to recognize and attack the tumor. These therapies against checkpoint proteins, such as cytotoxic T-lymphocyte



 

1


Table of Contents

antigen 4, or CTLA-4, programmed cell death protein 1, or PD-1, and programmed death-ligand 1, or PD-L1, have produced impressive results in the clinic across an array of cancers and have been approved for a number of malignancies. However, the breadth and durability of clinical benefit achieved has been limited to a subset of patients and tumor types. For example, PD-1 inhibition has doubled three-year survival rates in previously treated non-small cell lung cancer patients, but more than 80% of patients do not achieve a durable clinical benefit. We believe the primary reason only a relatively modest number of patients achieve durable response with checkpoint inhibitors is because only one component of the TME, the effector T lymphocyte, is reactivated while the remaining elements of the TME, including macrophages, suppressive metabolites and cytokines, regulatory T cells, and natural killer, or NK, cells remain unaffected.

Macrophages are a type of immune cell that can recognize and engulf, or phagocytose, other cells that need to be destroyed, including cancer cells. These immune cells are a key component of the immune system that provides a rapid, non-specific response to pathogens. Cells expressing CD47 on their surface are not phagocytosed by macrophages, causing CD47 to be termed a “don’t eat me signal.” Therefore, many tumor cells overexpress CD47, which suppresses macrophage activation and allows tumor cells to evade phagocytosis. Targeting CD47 is an attractive therapeutic strategy for treating cancer because by blocking its interaction with key binding partners, macrophage activity is restored and they can effectively recognize and phagocytose the tumor. We believe targeting CD47 as both a monotherapy and in combination with other cancer therapeutics could provide meaningful clinical benefit to patients.

Adenosine is a key metabolite within the TME that accumulates and inhibits the function of important immune cells, including T cells and NK cells, leading to an environment conducive to tumor growth. CD39 and CD73, two of the enzymes involved in the production of adenosine, are both attractive therapeutic targets because inhibiting either of them will reduce the amount of adenosine in the TME. We believe inhibiting CD39 may promote anti-tumor immunity because this inhibition will maintain the amount of immunostimulatory adenosine triphosphate, or ATP, in the TME.

IL-27 is a cytokine, or protein secreted by cells, that plays an important physiologic role in suppressing the immune system. In preclinical studies, IL-27 has been observed to suppress T cell activation within the TME, which may prevent the immune system from recognizing, attacking and killing cancer cells. Due to its immunosuppressive nature, there is an emerging rationale for inhibiting IL-27 to treat cancer as this approach influences the activity of multiple types of immune cells, including the reactivation of T cells, that are necessary to recognize and attack the tumor.

Our Strategy

Our goal is to build the leading TME company to develop next-generation immunotherapies for patients suffering with cancer. The specific elements of our strategy to achieve this goal are:

 

    Pioneer the translation of TME biology into cancer therapeutics.

 

    Advance our lead product candidate, SRF231, through clinical development.

 

    Efficiently progress our other programs into clinical development.

 

    Maintain significant product rights while appropriately leveraging the commercial capabilities of strategic partners.

Our Pipeline

We believe next-generation immuno-oncology therapies need to encompass a multi-faceted, coordinated and personalized approach to treating cancer in order to achieve meaningful increases in



 

2


Table of Contents

patient cure rates. We have developed a pipeline of multiple therapeutic programs to address the complexity of the TME, as shown in the table below:

 

LOGO

 

(1)  Novartis has worldwide development and commercial rights to this program. See “Business—Collaboration Agreement with Novartis” for additional information.
(2)  Novartis has the right to purchase an option to SRF388. See “Business—Collaboration Agreement with Novartis” for additional information.

Overview of SRF231

SRF231 inhibits CD47, a protein expressed on many cells, but often overexpressed on tumor cells. In our preclinical studies, we observed that inhibiting CD47 with SRF231 had potent anti-tumor activity through increased macrophage infiltration of the tumor and phagocytosis of the tumor cells. This anti-tumor activity was observed when administering SRF231 as both a monotherapy and in combination with other currently approved cancer therapies. Notably, SRF231 was not observed to be associated with hemagglutination, which is an aggregation of red blood cells. We initiated a clinical trial of SRF231 in February 2018 in order to evaluate SRF231 in multiple tumor types, both as a monotherapy and potentially in combination with currently approved cancer therapies, and expect to report initial clinical results from this trial in the first half of 2019. We have exclusive, worldwide rights to SRF231.

Overview of SRF373 and SRF617

Based on our understanding of the adenosine pathway and its role in the TME, we are advancing two programs targeting different metabolic points on the adenosine pathway in order to reduce the immunosuppressive effects of adenosine in the TME.

SRF373 has been observed to inhibit CD73, an enzyme critical to the production of extracellular adenosine. By reducing the amount of adenosine in the TME, we believe the immune system will be able to better recognize and attack tumors. In our preclinical studies, we observed that SRF373 exhibited potent CD73 enzymatic inhibition, resulting in a reduction of adenosine and increased activity of immune cells, particularly T cells. Further, in combination with a PD-1 inhibitor, our antibodies against CD73 have demonstrated potent anti-tumor effects in preclinical animal studies. CD73 is overexpressed in many tumors and can be shed from the cell surface. We therefore believe CD73 overexpression will be a useful biomarker to help identify those patients most likely to benefit from SRF373. We have granted Novartis Institutes for Biomedical Research, Inc., or Novartis, a worldwide exclusive license to develop and commercialize SRF373. We expect SRF373 to enter clinical development in 2018.

SRF617 inhibits CD39, an enzyme critical both to the production of adenosine and the breakdown of ATP. Therefore, we believe targeting CD39 will not only reduce extracellular adenosine, but will also



 

3


Table of Contents

maintain extracellular levels of immunostimulatory ATP, both of which have been observed to promote anti-tumor immunity. CD39 overexpression also counteracts the effects of chemotherapy, which we believe further supports its importance as a therapeutic target. In preclinical studies, SRF617 exhibited potent CD39 enzymatic inhibition. We wholly own SRF617 and it is not part of the Novartis collaboration. We anticipate initiating IND-enabling studies for SRF617 in 2018.

Overview of SRF388

SRF388 inhibits the immunosuppressive cytokine IL-27. In preclinical studies, treatment with SRF388 was observed to block IL-27 signaling and its downstream immunosuppressive signaling effects. Further, combining SRF388 with a PD-1 inhibitor in preclinical studies increased the production of key inflammatory cytokines. We have developed specialized reagents and assays to understand the complex biology associated with IL-27 and its role in cancer. SRF388 is anticipated to begin IND-enabling studies in 2018. We believe SRF388 has the potential to be the first IL-27 inhibitor to enter clinical development. Under our collaboration agreement with Novartis, Novartis has the right to purchase an option to our SRF388 program.

Other Research Programs

We also have several earlier stage programs that target macrophages and other critical components of the TME, including regulatory T cells and NK cells. We expect that the unique insights generated in any one of our product programs will accelerate the development of the other programs in a synergistic fashion due to the interconnection between the pathways of the TME.

Collaboration with Novartis

In January 2016, we entered into a strategic collaboration agreement with Novartis, or the Collaboration Agreement, to develop next-generation cancer therapies. Pursuant to the Collaboration Agreement, we granted Novartis a worldwide exclusive license to research, develop, manufacture and commercialize antibodies that target CD73, along with the right to purchase exclusive option rights to up to four specified targets, each an Option, to obtain certain development, manufacturing and commercialization rights. The Collaboration Agreement initially granted Novartis the right to exercise up to three purchased Options. Each Option is designated as either a regional option or a global option in accordance with a selection mechanism in the Collaboration Agreement. In December 2016, Novartis purchased an Option for antibodies that bind to CD47 for $5.0 million. In January 2018, we notified Novartis of our decision to designate the Option related to SRF231, our CD47 product candidate, as a regional option in order to retain U.S. rights, and in March 2018, Novartis notified us of its decision to not exercise its previously purchased Option for SRF231. Novartis currently has two Options remaining eligible for purchase, both of which can be exercised.

The Collaboration Agreement with Novartis has allowed us to leverage the expertise and resources of Novartis to accelerate the development of our collaboration programs. We received an upfront payment of $70.0 million from Novartis upon entering into the agreement. Under the Collaboration Agreement, we are currently entitled to potential option purchase, option exercise and milestone payments upon the achievement of specified development and sales milestones, which could amount to $1.17 billion, as well as tiered royalties on annual net sales by Novartis ranging from high single-digit to mid-teens percentages upon successful commercialization of any products. Through December 31, 2017, we had received an aggregate of $35.0 million in option purchase and milestone payments from Novartis. In February 2018, we received an additional milestone payment of $45.0 million from Novartis. We are required to pay Novartis tiered royalties ranging from high single-digit to mid-teens percentages



 

4


Table of Contents

on our annual net sales of regional licensed products in the United States. The royalty payments are subject to reduction under specified conditions set forth in the Collaboration Agreement. In January 2016, we also received a $13.5 million equity investment from Novartis.

Our Team

We have assembled an outstanding team, including our world-class scientific advisory board, to execute on our mission to create next-generation immuno-oncology therapies to help patients suffering with cancer. Our scientific founders and members of our management team have extensive experience in drug discovery and development and are leaders in the immuno-oncology field. Members of our leadership team have helped develop over ten commercialized therapies, including cancer and immune disorder treatments, such as Avastin, Istodax, Rebif, Thyrogen and Velcade. Our scientific advisory board is co-chaired by leading immuno-oncology researchers Alexander Y. Rudensky, Ph.D., a world leader in regulatory T cell biology, and Arlene H. Sharpe, M.D., Ph.D., who led pioneering work related to the ligands for PD-1, including the co-discovery of PD-L2, and has defined functions of the PD-1 pathway as well as other costimulatory and immune checkpoint molecules. Collectively, we believe our team, industry-leading capabilities and collaboration with Novartis, position us to build the leading TME company focused on developing next-generation immunotherapies for the tens of millions of cancer patients worldwide.

We are supported by blue chip investors including Amgen Ventures, Atlas Venture, F-Prime, Lilly Ventures and New Enterprise Associates.

Risks Associated With Our Business

Our ability to implement our business strategy is subject to numerous risks, as more fully described in the section entitled “Risk Factors” immediately following this prospectus summary. These risks include, among others, that:

 

    We are a clinical-stage biopharmaceutical company with a limited operating history. We have incurred significant losses since inception. We expect to incur losses for at least the next several years and may never achieve or maintain profitability.

 

    Even if we consummate this offering and the concurrent private placement, we will require substantial additional financing, which may not be available on acceptable terms, or at all. A failure to obtain this necessary capital when needed could force us to delay, limit, reduce or terminate our product development or commercialization efforts.

 

    If we are unable to advance our current or future product candidates through clinical trials, obtain marketing approval and ultimately commercialize any product candidates we develop, or experience significant delays in doing so, our business will be materially harmed.

 

    Preclinical development is uncertain. Our preclinical programs may experience delays or may never advance to clinical trials, which would adversely affect our ability to obtain regulatory approvals or commercialize these programs on a timely basis or at all, which would have an adverse effect on our business.

 

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

 

    Our current or future product candidates may cause undesirable side effects or have other properties when used alone or in combination with other approved products or investigational new drugs that could halt their clinical development, prevent their marketing approval, limit their commercial potential or result in significant negative consequences.


 

5


Table of Contents
    Adverse events in the field of immuno-oncology could damage public perception of the product candidates we develop and negatively affect our business.

 

    We are fully dependent on our collaboration with Novartis for the development of SRF373 and may depend on Novartis or additional third parties for the development and commercialization of our other programs and future product candidates. Our current and future collaborators may control aspects of our clinical trials, which could result in delays or other obstacles in the commercialization of the product candidates we develop. If our collaborations are not successful, we may not be able to capitalize on the market potential of these product candidates.

 

    If we are unable to obtain and maintain patent protection for any products we develop and for our technology, or if the scope of the patent protection obtained is not sufficiently broad, our competitors could develop and commercialize products and technology similar or identical to ours, and our ability to commercialize any product candidates we may develop, and our technology may be adversely affected.

 

    The intellectual property landscape around therapeutic antibodies in oncology, including CD47 antibodies, is crowded, and third parties may initiate legal proceedings alleging that we are infringing, misappropriating, or otherwise violating their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on the success of our business. We are aware of certain third-party patents and third-party patent applications in this landscape that may, if issued as patents, be asserted to encompass our CD47 antibody technology.

Concurrent Private Placement

Novartis has agreed to purchase from us, concurrently with this offering in a private placement, $11.5 million of shares of our common stock at a price per share equal to the initial public offering price. See “Concurrent Private Placement.”

Corporate Information

We were incorporated under the laws of the State of Delaware in April 2014. Our principal executive office is located at 50 Hampshire Street, 8th Floor, Cambridge, Massachusetts 02139, and our telephone number is (617) 714-4096. Our website address is https://www.surfaceoncology.com. We do not incorporate the information on or accessible through our website into this prospectus, and you should not consider any information on, or that can be accessed through, our website as part of this prospectus.

Implications of Being an Emerging Growth Company

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act, or the JOBS Act, enacted in April 2012. For so long as we remain an emerging growth company, we are permitted and intend to rely on certain exemptions from various public company reporting requirements, including not being required to have our internal control over financial reporting audited by our independent registered public accounting firm pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and any golden parachute payments not previously approved. In particular, in this prospectus, we have provided only two years of audited financial statements and have not



 

6


Table of Contents

included all of the executive compensation related information that would be required if we were not an emerging growth company. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock.

We will remain an emerging growth company until the earlier to occur of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual gross revenues of at least $1.07 billion or (c) in which we are deemed to be a “large accelerated filer,” under the rules of the U.S. Securities and Exchange Commission, or SEC, which means the market value of our equity securities that is held by non-affiliates exceeds $700 million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth company to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of delayed adoption of new or revised accounting standards and, therefore, we will be subject to the same requirements to adopt new or revised accounting standards as other public companies that are not emerging growth companies.



 

7


Table of Contents

The Offering

 

Common stock offered by us

                shares.

Option to purchase additional shares

                shares.

Concurrent private placement

   Novartis Institutes for Biomedical Research, Inc., or Novartis, has agreed to purchase from us, concurrently with this offering in a private placement, $11.5 million of shares of our common stock at a price per share equal to the initial public offering price, or              shares, based on an assumed initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover page of this prospectus. We will receive the full proceeds from the sale and will not pay any underwriting discounts or commissions with respect to the shares of common stock that are sold in the private placement. The sale of these shares of common stock to Novartis will not be registered under the Securities Act of 1933, as amended, and these shares will be subject to a 180-day lock-up agreement with the underwriters for this offering. We refer to the private placement of these shares as the concurrent private placement. The closing of this offering is not conditioned upon the closing of the concurrent private placement.

Common stock to be outstanding immediately after this offering and the concurrent private placement

  



             shares (             shares if the underwriters exercise their option to purchase additional shares in full).

Use of proceeds

   We estimate that we will receive net proceeds from the sale of shares of our common stock in this offering and the concurrent private placement of 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, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We anticipate that we will use the net proceeds from this offering and the concurrent private placement, together with our existing cash, cash equivalents and marketable securities, to advance our Phase 1 clinical trial of SRF231, for ongoing research and development activities related to our other product candidates and additional programs, and for working capital and


 

8


Table of Contents
   other general corporate purposes. For a more complete description of our intended use of the net proceeds from this offering and the concurrent private placement, see “Use of Proceeds.”

Risk factors

   You should carefully read the “Risk Factors” section of this prospectus for a discussion of factors that you should consider before deciding to invest in our common stock.

Proposed Nasdaq Global Market symbol

   “SURF”

The number of shares of our common stock to be outstanding after this offering and the concurrent private placement is based on 6,087,499 shares of our common stock outstanding as of March 22, 2018 and 37,100,000 additional shares of our common stock issuable upon the automatic conversion of all outstanding shares of our preferred stock upon the completion of this offering, and excludes:

 

    9,657,940 shares of our common stock issuable upon the exercise of stock options outstanding as of March 22, 2018, at a weighted average exercise price of $2.77 per share;

 

    183,003 shares of our common stock available for future issuance under our 2014 Stock Incentive Plan as of March 22, 2018;

 

                shares of our common stock that will become available for future issuance under our 2018 Stock Option and Incentive Plan, which will become effective in connection with the completion of this offering; and

 

                shares of our common stock that will become available for future issuance under our 2018 Employee Stock Purchase Plan, which will become effective in connection with the completion of this offering.

Unless otherwise indicated, all information in this prospectus reflects or assumes the following:

 

    the automatic conversion of all of our outstanding shares of preferred stock as of March 22, 2018 into 37,100,000 shares of common stock upon the completion of this offering;

 

    no exercise of outstanding options after March 22, 2018;

 

    the filing of our amended and restated certificate of incorporation and the adoption of our amended and restated bylaws, each of which will occur immediately prior to the completion of this offering;

 

    the issuance and sale by us in the concurrent private placement of              shares of common stock to Novartis, based on an assumed initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover page of this prospectus;

 

    a one-for      reverse split of our common stock effected on                 ; and

 

    no exercise by the underwriters of their option to purchase up to             additional shares of common stock in this offering.


 

9


Table of Contents

Summary Consolidated Financial Data

You should read the following summary consolidated financial data together with our consolidated financial statements and the related notes appearing at the end of this prospectus and the “Selected Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of this prospectus. We have derived the consolidated statement of operations data for the years ended December 31, 2016 and 2017 and the consolidated balance sheet data as of December 31, 2017 from our audited consolidated financial statements appearing at the end of this prospectus. Our historical results are not necessarily indicative of results that may be expected in the future.

 

     Year Ended
December 31
 
     2016     2017  
     (in thousands, except
per share data)
 

Consolidated Statement of Operations Data:

  

Collaboration revenue

   $ 6,632     $ 12,826  
  

 

 

   

 

 

 

Operating expenses:

    

Research and development

     20,492       47,783  

General and administrative

     4,144       11,033  
  

 

 

   

 

 

 

Total operating expenses

     24,636       58,816  
  

 

 

   

 

 

 

Loss from operations

     (18,004     (45,990

Interest and other income (expense), net

     551       613  
  

 

 

   

 

 

 

Net loss

     (17,453     (45,377

Accretion of redeemable convertible preferred stock to redemption value

     (41     (40
  

 

 

   

 

 

 

Net loss attributable to common stockholders

   $ (17,494   $ (45,417
  

 

 

   

 

 

 

Net loss per share attributable to common stockholders—basic and diluted(1)

   $ (3.32   $ (8.34
  

 

 

   

 

 

 

Weighted average common shares outstanding—basic and diluted(1)

     5,267       5,445  
  

 

 

   

 

 

 

Pro forma net loss per share attributable to common stockholders—basic and diluted (unaudited)(1)

     $ (1.07
    

 

 

 

Pro forma weighted average common shares outstanding—basic and diluted (unaudited)(1)

       42,545  
    

 

 

 

 

(1) See Note 12 to our consolidated financial statements appearing at the end of this prospectus for further details on the calculation of basic and diluted net loss per share attributable to common stockholders and on the calculation of pro forma basic and diluted net loss per share attributable to common stockholders.


 

10


Table of Contents
     As of December 31, 2017  
     Actual     Pro Forma(2)     Pro Forma
As Adjusted(3)
 
     (in thousands)  

Consolidated Balance Sheet Data:

  

Cash, cash equivalents and marketable securities

   $ 63,309     $ 63,309     $               

Working capital(1)

     47,946       47,946    

Total assets

     81,454       81,454    

Redeemable convertible preferred stock

     48,517         —    

Total stockholders’ equity (deficit)

     (67,314     (18,797  

 

(1) We define working capital as current assets less current liabilities.
(2) The pro forma balance sheet data give effect to the automatic conversion of all outstanding shares of our preferred stock into an aggregate of 37,100,000 shares of common stock upon the completion of this offering.
(3) The pro forma as adjusted balance sheet data give further effect to (i) our issuance and sale of                  shares of our common stock in this offering at an assumed initial public offering price of $        per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us and (ii) the issuance and sale by us in the concurrent private placement of              shares of common stock to Novartis Institutes for Biomedical Research, Inc., based on the assumed initial public offering price.

Each $1.00 increase (decrease) in the assumed initial public offering price of $        per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash, cash equivalents and marketable securities, working capital, total assets and total stockholders’ equity by $        million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Each increase (decrease) of 1,000,000 shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash, cash equivalents and marketable securities, working capital, total assets and total stockholders’ equity by $        million, assuming no change in the assumed initial public offering price per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.



 

11


Table of Contents

RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, as well as the other information in this prospectus, including our financial statements and the related notes and “Management’s Discussion and Analysis of Results of Operations and Financial Condition,” before deciding whether to invest in our common stock. The occurrence of any of the events or developments described below could harm our business, financial condition, results of operations and growth prospects. In such an event, the market price of our common stock could decline, and you may lose all or part of your investment.

Risks Related To Our Financial Position And Need For Additional Capital

We are a clinical-stage biopharmaceutical company with a limited operating history. We have incurred significant losses since inception. We expect to incur losses for at least the next several years and may never achieve or maintain profitability.

Since inception, we have incurred significant net losses. Our net losses were $17.5 million for the year ended December 31, 2016 and $45.4 million for the year ended December 31, 2017. As of December 31, 2017, we had an accumulated deficit of $73.9 million. We have funded our operations to date primarily with proceeds from the sale of preferred stock and upfront fees received in connection with our collaboration with Novartis Institutes for Biomedical Research, Inc., or Novartis. To date, we have devoted substantially all of our resources to organizing and staffing our company, business planning, raising capital, acquiring and discovering development programs, securing related intellectual property rights and conducting discovery, research and development activities for our programs. We have not yet demonstrated our ability to successfully complete any clinical trials, including pivotal clinical trials, obtain marketing approvals, manufacture a commercial-scale product, or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful product commercialization. We expect that it will be several years, if ever, before we have a commercialized product. We expect to continue to incur significant expenses and operating losses for the foreseeable future. The net losses we incur may fluctuate significantly from quarter to quarter. We anticipate that our expenses will increase substantially if, and as, we:

 

    pursue the clinical development of product candidates;

 

    leverage our programs to advance product candidates into preclinical and clinical development;

 

    seek regulatory approvals for any product candidates that successfully complete clinical trials;

 

    hire additional clinical, quality control and scientific personnel;

 

    expand our operational, financial and management systems and increase personnel, including personnel to support our clinical development, manufacturing and commercialization efforts and our operations as a public company;

 

    maintain, expand and protect our intellectual property portfolio;

 

    establish a sales, marketing, medical affairs and distribution infrastructure to commercialize any products for which we may obtain marketing approval and intend to commercialize on our own or jointly; and

 

    acquire or in-license other product candidates and technologies.

To become and remain profitable, we, Novartis or any potential future collaborator must develop and eventually commercialize products with significant market potential. This will require us to be

 

12


Table of Contents

successful in a range of challenging activities, including completing preclinical studies and clinical trials, obtaining marketing approval for product candidates, manufacturing, marketing and selling products for which we may obtain marketing approval and satisfying any post-marketing requirements. We may never succeed in any or all of these activities and, even if we do, we may never generate revenue that is significant or large enough to achieve profitability. If we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would decrease the value of our company and could impair our ability to raise capital, maintain our research and development efforts, expand our business or continue our operations. A decline in the value of our company also could cause you to lose all or part of your investment.

We have never generated revenue from product sales and may never be profitable.

Our ability to generate revenue from product sales and achieve profitability depends on our ability, alone or with our collaborative partners, to successfully complete the development of, and obtain the regulatory approvals necessary to commercialize, our development programs. We do not anticipate generating revenue from product sales for the next several years, if ever. Our ability to generate future revenue from product sales depends heavily on our, Novartis’, or any potential future collaborators’ success in:

 

    completing clinical and preclinical development of product candidates and programs and identifying and developing new product candidates;

 

    seeking and obtaining marketing approvals for any product candidates that we develop;

 

    launching and commercializing product candidates for which we obtain marketing approval by establishing a sales force, marketing, medical affairs and distribution infrastructure or, alternatively, collaborating with a commercialization partner;

 

    achieving adequate coverage and reimbursement by hospitals, government and third-party payors for product candidates that we develop;

 

    establishing and maintaining supply and manufacturing relationships with third parties that can provide adequate, in both amount and quality, products and services to support clinical development and the market demand for product candidates that we develop, if approved;

 

    obtaining market acceptance of product candidates that we develop as viable treatment options;

 

    addressing any competing technological and market developments;

 

    negotiating favorable terms in any collaboration, licensing or other arrangements into which we may enter and performing our obligations in such collaborations;

 

    maintaining, protecting and expanding our portfolio of intellectual property rights, including patents, trade secrets and know-how;

 

    defending against third-party interference or infringement claims, if any; and

 

    attracting, hiring and retaining qualified personnel.

Even if one or more of the product candidates that we develop is approved for commercial sale, we anticipate incurring significant costs associated with commercializing any approved product candidate. Our expenses could increase beyond expectations if we are required by the U.S. Food and Drug Administration, or the FDA, the European Medicines Agency, or the EMA, or other regulatory agencies to perform clinical trials or studies in addition to those that we currently anticipate. Even if we are able to generate revenue from the sale of any approved products, we may not become profitable and may need to obtain additional funding to continue operations.

 

13


Table of Contents

Even if we consummate this offering and the concurrent private placement, we will require substantial additional financing, which may not be available on acceptable terms, or at all. A failure to obtain this necessary capital when needed could force us to delay, limit, reduce or terminate our product development or commercialization efforts.

Our operations have consumed substantial amounts of cash since inception. We expect to continue to spend substantial amounts to continue the preclinical and clinical development of our current and future programs. If we are able to gain marketing approval for product candidates that we develop, including SRF231, we will require significant additional amounts of cash in order to launch and commercialize such product candidates to the extent that such launch and commercialization are not the responsibility of Novartis or another collaborator that we may contract with in the future. In addition, other unanticipated costs may arise. Because the design and outcome of our planned and anticipated clinical trials is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of any product candidate we develop.

Our future capital requirements depend on many factors, including:

 

    the scope, progress, results and costs of researching and developing SRF231 and our other product candidates and programs, and of conducting preclinical studies and clinical trials;

 

    the timing of, and the costs involved in, obtaining marketing approvals for SRF231 and future product candidates we develop if clinical trials are successful;

 

    the success of our collaboration with Novartis;

 

    whether Novartis exercises its licensing and co-development options under its collaboration agreement with us, each of which would trigger additional payments to us;

 

    the cost of commercialization activities for SRF231 and future product candidates we develop, whether alone or with a collaborator, if SRF231 or any product candidate we develop are approved for sale, including marketing, sales and distribution costs;

 

    the cost of manufacturing SRF231 and future product candidates for clinical trials in preparation for marketing approval and in preparation for commercialization;

 

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

 

    the costs involved in preparing, filing, prosecuting, maintaining, expanding, defending and enforcing patent claims, including litigation costs and the outcome of such litigation;

 

    the timing, receipt and amount of sales of, or royalties on, our future products, if any;

 

    the emergence of competing cancer therapies and other adverse market developments; and

 

    the requirement for, and cost of, developing complementary diagnostics and/or companion diagnostics.

We do not have any committed external source of funds or other support for our development efforts. Until we can generate sufficient product and royalty revenue to finance our cash requirements, which we may never do, we expect to finance our future cash needs through a combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing or distribution arrangements. Based on our research and development plans, we expect that the net proceeds from this offering and the concurrent private placement, together with our existing cash, cash equivalents and marketable securities, will enable us to fund our operating expenses and capital expenditure requirements for at least the next          months.

 

14


Table of Contents

If we raise additional capital through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish certain valuable rights to our product candidates, technologies, future revenue streams or research programs or grant licenses on terms that may not be favorable to us. If we raise additional capital through public or private equity offerings, the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights. Further, to the extent that we raise additional capital through the sale of common stock or securities convertible or exchangeable into common stock, your ownership interest will be diluted. If we raise additional capital through debt financing, we would be subject to fixed payment obligations and may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we are unable to obtain additional funding on favorable terms when needed, we may have to delay, reduce the scope of or suspend one or more of our research and development programs or clinical trials.

Our ability to utilize our net operating loss carryforwards and certain other tax attributes has been limited by “ownership changes” and may be further limited.

We have incurred substantial losses during our history. As of December 31, 2017, we had federal and state net operating loss carryforwards of $20.8 million and $19.9 million, respectively. We do not anticipate generating revenue from sales of products for the foreseeable future, if ever, and we may never achieve profitability. To the extent that we continue to generate taxable losses, unused losses will carry forward to offset future taxable income, if any, until such unused losses expire. Under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, and corresponding provisions of state law, if a corporation undergoes an “ownership change” (generally defined as a greater than 50 percentage points change (by value) in its equity ownership over a rolling three-year period), the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes to offset its post-change income may be limited. We have in the past experienced, and we may in the future experience as a result of this offering or otherwise, ownership changes, some of which are outside our control. Use of our federal and state net operating loss carryforwards have been limited and could be further limited if we experience additional ownership changes, which could have an adverse effect on our future results of operations.

Risks Related To Product Development And Regulatory Process

If we are unable to advance our current or future product candidates through clinical trials, obtain marketing approval and ultimately commercialize any product candidates we develop, or experience significant delays in doing so, our business will be materially harmed.

We are early in our development efforts, and we have only recently initiated our first Phase 1 clinical trial for our lead product candidate. We have invested substantially all of our efforts and financial resources in the identification of targets and preclinical development of antibodies.

Our ability to generate product revenues, which we do not expect will occur for several years, if ever, will depend heavily on the successful development and eventual commercialization of the product candidates we develop, which may never occur. Our current product candidates, and any future product candidates we develop, will require additional preclinical and clinical development, management of clinical, preclinical and manufacturing activities, marketing approval in the United States and other markets, demonstrating effectiveness to pricing and reimbursement authorities, obtaining sufficient manufacturing supply for both clinical development and commercial production, building of a commercial organization, and substantial investment and significant marketing efforts

 

15


Table of Contents

before we generate any revenues from product sales. The success of our current and future product candidates will depend on several factors, including the following:

 

    successful completion of clinical trials and preclinical studies;

 

    sufficiency of our financial and other resources to complete the necessary preclinical studies and clinical trials;

 

    acceptance of INDs for our planned clinical trials or future clinical trials;

 

    successful enrollment and completion of clinical trials;

 

    successful data from our clinical program that supports an acceptable risk-benefit profile of our product candidates in the intended populations;

 

    receipt of regulatory and marketing approvals from applicable regulatory authorities;

 

    receipt and maintenance of marketing approvals from applicable regulatory authorities;

 

    establishing agreements with third-party manufacturers for clinical supply for our clinical trials and commercial manufacturing, if our product candidate is approved;

 

    entry into collaborations to further the development of our product candidates;

 

    obtaining and maintaining patent and trade secret protection or regulatory exclusivity for our product candidates;

 

    successfully launching commercial sales of our product candidates, if and when approved;

 

    acceptance of the product candidate’s benefits and uses, if and when approved, by patients, the medical community and third-party payors;

 

    maintaining a continued acceptable safety profile of the product candidates following approval;

 

    effectively competing with other therapies;

 

    obtaining and maintaining healthcare coverage and adequate reimbursement from third-party payors; and

 

    enforcing and defending intellectual property rights and claims.

If we are not successful with respect to one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize the product candidates we develop, which would materially harm our business. If we do not receive marketing approvals for SRF231, or any other product candidate we develop, we may not be able to continue our operations.

Preclinical development is uncertain. Our preclinical programs may experience delays or may never advance to clinical trials, which would adversely affect our ability to obtain regulatory approvals or commercialize these programs on a timely basis or at all, which would have an adverse effect on our business.

In order to obtain FDA approval to market a new biological product we must demonstrate proof of safety, purity and potency or efficacy in humans. To meet these requirements we will have to conduct adequate and well-controlled clinical trials. Before we can commence clinical trials for a product candidate, we must complete extensive preclinical testing and studies that support our planned INDs in the United States. We only have one product candidate in clinical development and one product candidate ready to enter clinical development, and the rest of our programs are in preclinical development. We cannot be certain of the timely completion or outcome of our preclinical testing and studies and cannot predict if the FDA will accept our proposed clinical programs or if the outcome of our preclinical testing and studies will ultimately support the further development of our programs. As a result, we cannot be sure that we will be able to submit INDs or similar applications for our preclinical programs on the timelines we expect, if at all, and we cannot be sure that submission of INDs or similar applications will result in the FDA or other regulatory authorities allowing clinical trials to begin.

 

16


Table of Contents

Conducting preclinical testing is a lengthy, time-consuming and expensive process. The length of time may vary substantially according to the type, complexity and novelty of the program, and often can be several years or more per program. Delays associated with programs for which we are directly conducting preclinical testing and studies may cause us to incur additional operating expenses. Moreover, we may be affected by delays associated with the preclinical testing and studies of certain programs that are the responsibility of Novartis or our potential future partners over which we have no control. The commencement and rate of completion of preclinical studies and clinical trials for a product candidate may be delayed by many factors, including, for example:

 

    inability to generate sufficient preclinical or other in vivo or in vitro data to support the initiation of clinical studies;

 

    delays in reaching a consensus with regulatory agencies on study design; and

 

    the FDA not allowing us to rely on previous findings of safety and efficacy for other similar but approved products and published scientific literature.

Moreover, even if clinical trials do begin for our preclinical programs, our development efforts may not be successful, and clinical trials that we conduct or that third parties conduct on our behalf may not demonstrate sufficient safety, purity and potency or efficacy to obtain the requisite regulatory approvals for any of product candidates we develop. Even if we obtain positive results from preclinical studies or initial clinical trials, we may not achieve the same success in future trials.

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

The time required to obtain approval by the FDA, the EMA and comparable foreign authorities is unpredictable but typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions. We have not obtained regulatory approval for any product candidate and it is possible that none of our current or future product candidates will ever obtain regulatory approval.

Our current and future product candidates could fail to receive regulatory approval for many reasons, including the following:

 

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

 

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

 

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

 

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

 

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

 

    the data collected from clinical trials of our product candidates may not be sufficient to support the submission of a Biologics License Application, or BLA, to the FDA or other submission or to obtain regulatory approval in the United States, the European Union or elsewhere;

 

17


Table of Contents
    the FDA, the EMA or comparable foreign regulatory authorities may find deficiencies with or fail to approve the manufacturing processes or facilities of third-party manufacturers with which we contract for clinical and commercial supplies; and

 

    the approval policies or regulations of the FDA, the EMA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval.

This lengthy approval process as well as the unpredictability of clinical trial results may result in our failing to obtain regulatory approval to market any product candidate we develop, which would significantly harm our business, results of operations and prospects. The FDA, the EMA and other comparable foreign authorities have substantial discretion in the approval process, and determining when or whether regulatory approval will be obtained for any product candidate that we develop. Even if we believe the data collected from future clinical trials of our product candidates are promising, such data may not be sufficient to support approval by the FDA, the EMA or any other regulatory authority.

In addition, even if we were to obtain approval, regulatory authorities may approve any of our product candidates for fewer or more limited indications than we request, may not approve the price we intend to charge for our products, may grant approval contingent on the performance of costly post-marketing clinical trials, or may approve a product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate. Any of the foregoing scenarios could materially harm the commercial prospects for our product candidates.

Further, we have not previously submitted a BLA to the FDA, or a Marketing Authorization Application, or MAA, to the EMA. We cannot be certain that any of our programs will be successful in clinical trials or receive regulatory approval. Further, product candidates we develop may not receive regulatory approval even if they are successful in clinical trials. If we do not receive regulatory approvals for our product candidates, we may not be able to continue our operations.

Clinical product development involves a lengthy and expensive process, with uncertain outcomes. We may experience delays in completing, or ultimately be unable to complete, the development and commercialization of our current and future product candidates.

To obtain the requisite regulatory approvals to commercialize any of our product candidates, we must demonstrate through extensive preclinical studies and clinical trials that our products are safe, pure and potent or effective in humans. Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process and our future clinical trial results may not be successful.

We may experience delays in completing our clinical trials or preclinical studies and initiating or completing additional clinical trials. We may also experience numerous unforeseen events during our clinical trials that could delay or prevent our ability to receive marketing approval or commercialize the product candidates we develop, including:

 

    regulators or Institutional Review Boards, or IRBs, or ethics committees may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;

 

    we may experience delays in reaching, or fail to reach, agreement on acceptable terms with prospective trial sites and prospective contract research organizations, or CROs;

 

    the number of patients required for clinical trials may be larger than we anticipate;

 

18


Table of Contents
    it may be difficult to enroll a sufficient number of patients with a predictive biomarker or enrollment in these clinical trials may be slower than we anticipate or participants may drop out of these clinical trials or fail to return for post-treatment follow-up at a higher rate than we anticipate;

 

    our third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all, or may deviate from the clinical trial protocol or drop out of the trial, which may require that we add new clinical trial sites or investigators; and

 

    the supply or quality of materials for product candidates we develop or other materials necessary to conduct clinical trials may be insufficient or inadequate.

We could encounter delays if a clinical trial is suspended or terminated by us, by the IRBs of the institutions in which such trials are being conducted or ethics committees, by the Data Safety Monitoring Board, or DSMB, for such trial or by the FDA or other regulatory authorities. Such authorities may impose such a suspension or termination due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a product, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. Many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of marketing approval of our product candidates.

If we experience delays in the completion of, or termination of, any clinical trial of our product candidates, the commercial prospects of our product candidates will be harmed, and our ability to generate product revenues from any of these product candidates will be delayed. In addition, any delays in completing our clinical trials will increase our costs, slow down our product candidate development and approval process and jeopardize our ability to commence product sales and generate revenues. Significant clinical trial delays could also allow our competitors to bring products to market before we do or shorten any periods during which we have the exclusive right to commercialize our product candidates and impair our ability to commercialize our product candidates and may harm our business and results of operations.

Any of these occurrences may harm our business, financial condition and prospects significantly. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates or result in the development of our product candidates being stopped early.

The results of early-stage clinical trials and preclinical studies may not be predictive of future results. Initial success in our ongoing clinical trials may not be indicative of results obtained when these trials are completed or in later stage trials.

The results of preclinical studies may not be predictive of the results of clinical trials, and the results of any early-stage clinical trials we commence may not be predictive of the results of the later-stage clinical trials. In addition, initial success in clinical trials may not be indicative of results obtained when such trials are completed. There can be no assurance that any of our current or future clinical trials will ultimately be successful or support further clinical development of any of our product candidates. There is a high failure rate for drugs and biologics proceeding through clinical trials. A number of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in clinical development even after achieving promising results in earlier studies, and any such setbacks in our clinical development could have a material adverse effect on our business and operating results.

 

19


Table of Contents

We expect that we will need to develop, or enter into a collaboration or partnerships to develop, complementary diagnostics and/or companion diagnostics for our current or future product candidates. If we, or our future collaborators, are unable to successfully develop such companion diagnostics or complementary diagnostics, or experience significant delays in doing so, we may not realize the full commercial potential of our future product candidates.

As one of the key elements of our product development strategy, we seek to identify cancer patient populations who may derive meaningful benefit from our current or future product candidates. Because predictive biomarkers may be used to identify the right patients for our programs and our current or future product candidates, we believe that our success may depend, in part, on our ability to develop complementary diagnostics and/or companion diagnostics in collaboration with partners.

We have little experience in the development of diagnostics and, as such, we expect to rely on future collaborators in developing appropriate diagnostics to pair with our current or future product candidates. We have not yet begun discussions with any potential partners with respect to the development of complementary diagnostics and/or companion diagnostics and may be unsuccessful in entering into collaborations for the development of companion diagnostics for our programs and our current or future product candidates.

Complementary diagnostics and/or companion diagnostics are subject to regulation by the FDA and similar regulatory authorities outside the United States as medical devices and require separate regulatory approval or clearance prior to commercialization. If we, our collaborators, or any third parties that we engage to assist us, are unable to successfully develop complementary diagnostics and/or companion diagnostics for our product candidates and any future product candidates, or experience delays in doing so:

 

    the development of our product candidates and any other future product candidates may be adversely affected if we are unable to appropriately select patients for enrollment in our clinical trials; and

 

    we may not realize the full commercial potential of our product candidates and any other future product candidates that receive marketing approval if, among other reasons, we are unable to appropriately identify, or it takes us longer to identify, patients who are likely to benefit from therapy with our products, if approved.

If any of these events were to occur, our business would be harmed, possibly materially.

If we encounter difficulties enrolling patients in our clinical trials, our clinical development activities could be delayed or otherwise be adversely affected.

The timely completion of clinical trials in accordance with their protocols depends, among other things, on our ability to enroll a sufficient number of patients who remain in the trial until its conclusion. We may experience difficulties in patient enrollment in our clinical trials for a variety of reasons. The enrollment of patients depends on many factors, including:

 

    the patient eligibility criteria defined in the protocol;

 

    our ability to enroll a sufficient number of patients with a predictive biomarker, if any;

 

    the size of the patient population required for analysis of the trial’s primary endpoints;

 

    the proximity of patients to study sites;

 

    the design of the trial;

 

    our ability to recruit clinical trial investigators with the appropriate competencies and experience;

 

20


Table of Contents
    clinicians’ and patients’ perceptions as to the potential advantages of the product candidate being studied in relation to other available therapies, including any new products that may be approved for the indications we are investigating;

 

    our ability to obtain and maintain patient consents for participation in our clinical trials and, where appropriate, biopsies for future patient enrichment efforts; and

 

    the risk that patients enrolled in clinical trials will drop out of the trials before completion or, because they are late-stage cancer patients, will not survive the full terms of the clinical trials.

In addition, our clinical trials will compete with other clinical trials for product candidates that are in the same therapeutic areas as our current and potential future product candidates. This competition will reduce the number and types of patients available to us, because some patients who might have opted to enroll in our trials may instead opt to enroll in a trial conducted by one of our competitors. Since the number of qualified clinical investigators is limited, we expect to conduct some of our clinical trials at the same clinical trial sites that some of our competitors use, which will reduce the number of patients who are available for our clinical trials at such sites. Moreover, because our current and potential future product candidates may represent a departure from more commonly used methods for cancer treatment, potential patients and their doctors may be inclined to use conventional therapies, such as chemotherapy, rather than enroll patients in our ongoing or any future clinical trial.

Delays in patient enrollment may result in increased costs or may affect the timing or outcome of clinical trials, which could prevent completion of these trials and adversely affect our ability to advance the development of the product candidates we develop.

Our current or future product candidates may cause undesirable side effects or have other properties when used alone or in combination with other approved products or investigational new drugs that could halt their clinical development, prevent their marketing approval, limit their commercial potential or result in significant negative consequences.

Undesirable or clinically unmanageable side effects could occur and cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of marketing approval by the FDA or comparable foreign regulatory authorities. Results of our trials could reveal a high and unacceptable severity and prevalence of side effects or unexpected characteristics.

If unacceptable toxicities or other undesirable side effects arise in the development of any of our current or future product candidates, we or our collaborators could suspend or terminate our trials, or the FDA or comparable foreign regulatory authorities could order us to cease clinical trials or deny approval of the product candidate for any or all targeted indications. Treatment-related side effects could also affect patient recruitment or the ability of enrolled subjects to complete the trial, or result in potential product liability claims. Any of these occurrences may prevent us from achieving or maintaining market acceptance of the affected product candidate and may harm our business, financial condition and prospects significantly.

Although our current and future product candidates have undergone and will undergo safety testing to the extent possible and, where applicable, under such conditions discussed with regulatory authorities, not all adverse effects of drugs can be predicted or anticipated. Immunotherapy, and its method of action of harnessing the body’s immune system, is powerful and could lead to serious side effects that we only discover in clinical trials. Unforeseen side effects could arise either during clinical development or, if such side effects are more rare, after our products have been approved by regulatory authorities and the approved product has been marketed, resulting in the exposure of additional patients. So far, we have not previously demonstrated that SRF231 or any other product candidate is safe in humans, and we cannot predict if ongoing or future clinical trials will do so. If any of

 

21


Table of Contents

our current or future product candidates fail to demonstrate safety and efficacy in clinical trials or do not gain marketing approval, we will not be able to generate revenue and our business will be harmed.

Even if we complete the necessary preclinical studies and clinical trials, the marketing approval process is expensive, time-consuming and uncertain and may prevent us or any of our existing or future collaboration partners from obtaining approvals for the commercialization of SRF231 and any other product candidate we develop.

Any current or future product candidate we may develop and the activities associated with their development and commercialization, including their design, testing, manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale, and distribution, are subject to comprehensive regulation by the FDA and other regulatory authorities in the United States and by comparable authorities in other countries. Failure to obtain marketing approval for a product candidate will prevent us from commercializing the product candidate in a given jurisdiction. We have not received approval to market any product candidates from regulatory authorities in any jurisdiction and it is possible that none of the product candidates we may seek to develop in the future will ever obtain regulatory approval. We have no experience in filing and supporting the applications necessary to gain marketing approvals and expect to rely on third-party CROs or regulatory consultants to assist us in this process. Securing regulatory approval requires the submission of extensive preclinical and clinical data and supporting information to the various regulatory authorities for each therapeutic indication to establish the biologic product candidate’s safety, purity, efficacy and potency. Securing regulatory approval also requires the submission of information about the product manufacturing process to, and inspection of manufacturing facilities by, the relevant regulatory authority. Any product candidates we develop may not be effective, may be only moderately effective, or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude our obtaining marketing approval or prevent or limit commercial use.

The process of obtaining marketing approvals, both in the United States and abroad, is expensive, may take many years if additional clinical trials are required, if approval is obtained at all, and can vary substantially based upon a variety of factors, including the type, complexity, and novelty of the product candidates involved. Changes in marketing approval policies during the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for each submitted product application, may cause delays in the approval or rejection of an application. The FDA and comparable authorities in other countries have substantial discretion in the approval process and may refuse to accept any application or may decide that our data are insufficient for approval and require additional preclinical, clinical or other studies. In addition, varying interpretations of the data obtained from preclinical and clinical testing could delay, limit, or prevent marketing approval of a product candidate. Any marketing approval we ultimately obtain may be limited or subject to restrictions or post-approval commitments that render the approved product not commercially viable.

If we experience delays in obtaining approval or if we fail to obtain approval of any current or future product candidates we may develop, the commercial prospects for those product candidates may be harmed, and our ability to generate revenues will be materially impaired.

Obtaining and maintaining marketing approval of our current and future product candidates in one jurisdiction does not mean that we will be successful in obtaining marketing approval of our current and future product candidates in other jurisdictions.

Obtaining and maintaining marketing approval of our current and future product candidates in one jurisdiction does not guarantee that we will be able to obtain or maintain marketing approval in any other jurisdiction, while a failure or delay in obtaining marketing approval in one jurisdiction may have a

 

22


Table of Contents

negative effect on the marketing approval process in others. For example, even if the FDA grants marketing approval of a product candidate, comparable regulatory authorities in foreign jurisdictions must also approve the manufacturing, marketing and promotion of the product candidate 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 as clinical studies conducted in one jurisdiction may not be accepted by regulatory authorities in other jurisdictions. In many jurisdictions outside the United States, a product candidate must be approved for reimbursement before it can be approved for sale in that jurisdiction. In some cases, the price that we intend to charge for our products is also subject to approval.

We may also submit marketing applications in other countries. Regulatory authorities in jurisdictions outside of the United States have requirements for approval of product candidates with which we must comply prior to marketing in those jurisdictions. Obtaining foreign marketing approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction of our products in certain countries. If we fail to comply with the regulatory requirements in international markets and/or receive applicable marketing approvals, our target market will be reduced and our ability to realize the full market potential of our product candidates will be harmed.

Adverse events in the field of immuno-oncology could damage public perception of our current or future product candidates and negatively affect our business.

The commercial success of our products will depend in part on public acceptance of the use of cancer immunotherapies. While a number of cancer immunotherapies have received regulatory approval and are being commercialized, our approach to targeting different components of the tumor microenvironment is novel and unproven. Adverse events in clinical trials our product candidates or in clinical trials of others developing similar products and the resulting publicity, as well as any other adverse events in the field of immuno-oncology that may occur in the future, could result in a decrease in demand for any product that we may develop. If public perception is influenced by claims that the use of cancer immunotherapies is unsafe, whether related to our therapies or those of our competitors, our products may not be accepted by the general public or the medical community.

Future adverse events in immuno-oncology or the biopharmaceutical industry could also result in greater governmental regulation, stricter labeling requirements and potential regulatory delays in the testing or approvals of our products. Any increased scrutiny could delay or increase the costs of obtaining marketing approval for the product candidates we develop.

Even if we receive marketing approval of a product candidate, we will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our products, if approved.

Any marketing approvals that we receive for any current or future product candidate may be subject to limitations on the approved indicated uses for which the product may be marketed or the conditions of approval, or contain requirements for potentially costly post-market testing and surveillance to monitor the safety and efficacy of the product candidate. The FDA may also require a Risk Evaluation and Mitigation Strategy, or REMS, as a condition of approval of any product candidate, which could include requirements for a medication guide, physician communication plans or additional elements to ensure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. In addition, if the FDA or a comparable foreign regulatory authority approves a product candidate, the manufacturing processes, labeling, packaging, distribution, adverse event

 

23


Table of Contents

reporting, storage, advertising, promotion, import and export and record keeping for the product candidate will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with current Good Manufacturing Practice, or cGMP, and Good Clinical Practice, or GCP, for any clinical trials that we conduct post-approval. Later discovery of previously unknown problems with any approved candidate, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things:

 

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

 

    fines, untitled and warning letters, or holds on clinical trials;

 

    refusal by the FDA to approve pending applications or supplements to approved applications we filed or suspension or revocation of license approvals;

 

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

 

    injunctions or the imposition of civil or criminal penalties.

The FDA’s and other regulatory authorities’ policies may change and additional government regulations may be enacted that could prevent, limit or delay marketing approval of a product. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability.

Even if a current or future product candidate receives marketing approval, it may fail to achieve the degree of market acceptance by physicians, patients, third-party payors and others in the medical community necessary for commercial success.

If any current or future product candidate we develop receives marketing approval, whether as a single agent or in combination with other therapies, it may nonetheless fail to gain sufficient market acceptance by physicians, patients, third-party payors, and others in the medical community. For example, current approved immunotherapies, and other cancer treatments like chemotherapy and radiation therapy, are well established in the medical community, and doctors may continue to rely on these therapies. If the product candidates we develop do not achieve an adequate level of acceptance, we may not generate significant product revenues and we may not become profitable. The degree of market acceptance of any product candidate, if approved for commercial sale, will depend on a number of factors, including:

 

    efficacy and potential advantages compared to alternative treatments;

 

    the ability to offer our products, if approved, for sale at competitive prices;

 

    convenience and ease of administration compared to alternative treatments;

 

    the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;

 

    the strength of marketing and distribution support;

 

    the ability to obtain sufficient third-party coverage and adequate reimbursement, including with respect to the use of the approved product as a combination therapy;

 

    adoption of a companion diagnostic and/or complementary diagnostic; and

 

    the prevalence and severity of any side effects.

 

24


Table of Contents

The market opportunities for any current or future product candidate we develop, if and when approved, may be limited to those patients who are ineligible for established therapies or for whom prior therapies have failed, and may be small.

Cancer therapies are sometimes characterized as first-line, second-line, or third-line, and the FDA often approves new therapies initially only for third-line use. When cancer is detected early enough, first-line therapy, usually chemotherapy, hormone therapy, surgery, radiation therapy or a combination of these, is sometimes adequate to cure the cancer or prolong life without a cure. Second- and third-line therapies are administered to patients when prior therapy is not effective. We expect to initially seek approval of SRF231 and any other product candidates we develop as a therapy for patients who have received one or more prior treatments. Subsequently, for those products that prove to be sufficiently beneficial, if any, we would expect to seek approval potentially as a first-line therapy, but there is no guarantee that product candidates we develop, even if approved, would be approved for first-line therapy, and, prior to any such approvals, we may have to conduct additional clinical trials.

The number of patients who have the cancers we are targeting may turn out to be lower than expected. Additionally, the potentially addressable patient population for our current programs or future product candidates may be limited, if and when approved. Even if we obtain significant market share for any product candidate, if and when approved, if the potential target populations are small, we may never achieve profitability without obtaining marketing approval for additional indications, including to be used as first- or second-line therapy.

We expect to develop SRF231 and, potentially future product candidates, in combination with other therapies, which exposes us to additional risks.

We intend to develop SRF231, and may develop future product candidates, in combination with one or more currently approved cancer therapies. Even if any product candidate we develop were to receive marketing approval or be commercialized for use in combination with other existing therapies, we would continue to be subject to the risks that the FDA or similar regulatory authorities outside of the United States could revoke approval of the therapy used in combination with our product candidate or that safety, efficacy, manufacturing or supply issues could arise with these existing therapies. Combination therapies are commonly used for the treatment of cancer, and we would be subject to similar risks if we develop any of our product candidates for use in combination with other drugs or for indications other than cancer. This could result in our own products being removed from the market or being less successful commercially.

We may also evaluate SRF231 or any other future product candidates in combination with one or more other cancer therapies that have not yet been approved for marketing by the FDA or similar regulatory authorities outside of the United States. We will not be able to market and sell SRF231 or any product candidate we develop in combination with any such unapproved cancer therapies that do not ultimately obtain marketing approval.

If the FDA or similar regulatory authorities outside of the United States do not approve these other drugs or revoke their approval of, or if safety, efficacy, manufacturing, or supply issues arise with, the drugs we choose to evaluate in combination with SRF231 or any product candidate we develop, we may be unable to obtain approval of or market SRF231 or any product candidate we develop.

We face significant competition and if our competitors develop and market products that are more effective, safer or less expensive than the product candidates we develop, our commercial opportunities will be negatively impacted.

The life sciences industry is highly competitive. We are currently developing therapeutics that will compete, if approved, with other products and therapies that currently exist or are being developed.

 

25


Table of Contents

Products we may develop in the future are also likely to face competition from other products and therapies, some of which we may not currently be aware. We have competitors both in the United States and internationally, including major multinational pharmaceutical companies, established biotechnology companies, specialty pharmaceutical companies, universities and other research institutions. Many of our competitors have significantly greater financial, manufacturing, marketing, product development, technical and human resources than we do. Large pharmaceutical companies, in particular, have extensive experience in clinical testing, obtaining marketing approvals, recruiting patients and manufacturing pharmaceutical products. These companies also have significantly greater research and marketing capabilities than we do and may also have products that have been approved or are in late stages of development, and collaborative arrangements in our target markets with leading companies and research institutions. Established pharmaceutical companies may also invest heavily to accelerate discovery and development of novel compounds or to in-license novel compounds that could make the product candidates that we develop obsolete. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. As a result of all of these factors, our competitors may succeed in obtaining patent protection and/or marketing approval or discovering, developing and commercializing products in our field before we do.

There are a large number of companies developing or marketing treatments for cancer, including many major pharmaceutical and biotechnology companies. These treatments consist both of small molecule drug products, such as tradition chemotherapy. There are also several programs in development targeting cluster of differentiation, or CD, 47, SIRPa, including those by Alexo Therapeutics, Inc., Arch Oncology, Aurigene, Inc., Blink Biomedical, Inc., Celgene, Inc., Forty Seven, Inc., Novimmune, S.A., OSE Immunotherapeutics S.A., Sorrento, Inc., Synthon Holding B.V. and Trillium Therapeutics, Inc.

Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe effects, are more convenient, have a broader label, are marketed more effectively, are reimbursed or are less expensive than any products that we may develop. Our competitors also may obtain FDA, EMA or other marketing approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market. Even if the product candidate we develop achieve marketing approval, they may be priced at a significant premium over competitive products if any have been approved by then, resulting in reduced competitiveness.

Smaller and other early stage companies may also prove to be significant competitors. These third parties compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. In addition, the biopharmaceutical industry is characterized by rapid technological change. If we fail to stay at the forefront of technological change, we may be unable to compete effectively. Technological advances or products developed by our competitors may render our product candidates obsolete, less competitive or not economical.

Even if we are able to commercialize any product candidates, such products may become subject to unfavorable pricing regulations or third-party coverage and reimbursement policies, which would harm our business.

The regulations that govern marketing approvals, pricing and reimbursement for new products vary widely from country to country. Some countries require approval of the sale price of a product

 

26


Table of Contents

before it can be marketed. In many countries, the pricing review period begins after marketing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we might obtain marketing approval for a product candidate in a particular country, but then be subject to price regulations that delay our commercial launch of the product candidate, possibly for lengthy time periods, and negatively impact the revenues we are able to generate from the sale of the product candidate in that country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more product candidates, even if our product candidates obtain marketing approval.

Our ability to commercialize any product candidates, whether as a single agent or combination therapy, successfully also will depend in part on the extent to which coverage and reimbursement for these product candidates and related treatments will be available from government authorities, private health insurers and other organizations. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels. It is difficult to predict at this time what government authorities and third-party payors will decide with respect to coverage and reimbursement for our programs.

A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular products and requiring substitutions of generic products and/or biosimilars. Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for drugs. We cannot be sure that coverage will be available for any product candidate that we commercialize and, if coverage is available, the level of reimbursement. These third-party payors are also examining the cost-effectiveness of drugs in addition to their safety and efficacy.

Reimbursement may impact the demand for, or the price of, any product candidate for which we obtain marketing approval. If reimbursement is not available or is available only to limited levels, we may not be able to successfully commercialize any product candidate for which we obtain marketing approval.

There may be significant delays in obtaining coverage and reimbursement for newly approved drugs, as the process is time-consuming and costly, and coverage may be more limited than the purposes for which the drug is approved by the FDA or comparable foreign regulatory authorities. Additionally, no uniform policy requirement for coverage and reimbursement for drug products exists among third-party payors in the United States, which may result in coverage and reimbursement for drug products that can differ significantly from payor to payor. Moreover, eligibility for reimbursement does not imply that any drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. Interim reimbursement levels for new drugs, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for other services. Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies. Our inability to promptly obtain coverage and profitable payment rates from both government-funded and private payors for any approved drugs that we develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize drugs and our overall financial condition.

 

27


Table of Contents

We may not be successful in our efforts to identify or discover other product candidates and may fail to capitalize on programs or product candidates that may present a greater commercial opportunity or for which there is a greater likelihood of success.

The success of our business depends upon our ability to identify, develop and commercialize product candidates. If we do not successfully develop and eventually commercialize products, we will face difficulty in obtaining product revenue in future periods, resulting in significant harm to our financial position and adversely affecting our share price. Research programs to identify new product candidates require substantial technical, financial and human resources, and we may fail to identify potential product candidates for numerous reasons.

Additionally, because we have limited resources, we may forego or delay pursuit of opportunities with certain programs or product candidates or for indications that later prove to have greater commercial potential. For example, we currently intend to focus our capital resources primarily on the development of SRF231. However, the advancement of this product candidate may ultimately prove to be unsuccessful or less successful than another program in our pipeline that we might have chosen to pursue on a less aggressive basis with our capital resources. Our estimates regarding the potential market for our product candidates could be inaccurate, and our spending on current and future research and development programs may not yield any commercially viable products. If we do not accurately evaluate the commercial potential for a particular product candidate, we may relinquish valuable rights to that product candidate through strategic collaboration, licensing or other arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate. For example, we licensed worldwide development and commercialization rights with respect to SRF373 to Novartis and will receive only milestone payments and royalties on sales of SRF373, if approved. Alternatively, we may allocate internal resources to a product candidate in a therapeutic area in which it would have been more advantageous to enter into a partnering arrangement.

If any of these events occur, we may be forced to abandon or delay our development efforts with respect to a particular product candidate or fail to develop a potentially successful product candidate, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

We may seek Breakthrough Therapy Designation by the FDA for a product candidate that we develop, and we may be unsuccessful. If we are successful, the designation may not lead to a faster development or regulatory review or approval process, and it does not increase the likelihood that our product candidates will receive marketing approval.

We may seek Breakthrough Therapy Designation for any product candidate that we develop. A breakthrough therapy is defined as a drug that is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over currently approved therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. For drugs that have been designated as breakthrough therapies, interaction and communication between the FDA and the sponsor of the trial can help to identify the most efficient path for clinical development while minimizing the number of patients placed in ineffective control regimens. Drugs designated as breakthrough therapies by the FDA are also eligible for accelerated approval and priority review.

Designation as a breakthrough therapy is within the discretion of the FDA. Accordingly, even if we believe a product candidate we develop meets the criteria for designation as a breakthrough therapy, the FDA may disagree and instead determine not to make such designation. In any event, the receipt

 

28


Table of Contents

of Breakthrough Therapy Designation for a product candidate may not result in a faster development process, review or approval compared to drugs considered for approval under conventional FDA procedures and does not assure ultimate approval by the FDA. In addition, even if the product candidates we develop qualify as breakthrough therapies, the FDA may later decide that the drugs no longer meet the conditions for qualification and rescind the designation.

We may seek Fast Track Designation by the FDA for a product candidate that we develop, and we may be unsuccessful. If we are successful, the designation may not actually lead to a faster development or regulatory review or approval process.

We may seek Fast Track Designation for the product candidates we develop. If a product is intended for the treatment of a serious or life-threatening condition and preclinical or clinical data demonstrate the potential to address an unmet medical need for this condition, the product sponsor may apply for Fast Track Designation. The FDA has broad discretion whether or not to grant this designation, so even if we believe a particular product candidate is eligible for this designation, we cannot assure you that the FDA would decide to grant it. Even if we do receive Fast Track Designation, we may not experience a faster development process, review or approval compared to conventional FDA procedures. The FDA may rescind the Fast Track Designation if it believes that the designation is no longer supported by data from our clinical development program.

We may seek Orphan Drug Designation for product candidates we develop, and we may be unsuccessful or may be unable to maintain the benefits associated with Orphan Drug Designation, including the potential for market exclusivity.

As part of our business strategy, we may seek Orphan Drug Designation for any product candidates we develop, and we may be unsuccessful. Regulatory authorities in some jurisdictions, including the United States and Europe, may designate drugs for relatively small patient populations as orphan drugs. Under the Orphan Drug Act, the FDA may designate a drug as an orphan drug if it is a drug intended to treat a rare disease or condition, which is generally defined as a patient population of fewer than 200,000 individuals annually in the United States, or a patient population greater than 200,000 in the United States where there is no reasonable expectation that the cost of developing the drug will be recovered from sales in the United States. In the United States, Orphan Drug Designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages and user-fee waivers.

Similarly, in Europe, the European Commission grants Orphan Drug Designation after receiving the opinion of the EMA Committee for Orphan Medicinal Products on an Orphan Drug Designation application. Orphan Drug Designation is intended to promote the development of drugs that are intended for the diagnosis, prevention or treatment of life-threatening or chronically debilitating conditions affecting not more than 5 in 10,000 persons in Europe and for which no satisfactory method of diagnosis, prevention, or treatment has been authorized (or the product would be a significant benefit to those affected). Additionally, designation is granted for drugs intended for the diagnosis, prevention, or treatment of a life-threatening, seriously debilitating or serious and chronic condition and when, without incentives, it is unlikely that sales of the drug in Europe would be sufficient to justify the necessary investment in developing the drug. In Europe, Orphan Drug Designation entitles a party to a number of incentives, such as protocol assistance and scientific advice specifically for designated orphan medicines, and potential fee reductions depending on the status of the sponsor.

Generally, if a drug with an Orphan Drug Designation subsequently receives the first marketing approval for the indication for which it has such designation, the drug is entitled to a period of marketing exclusivity, which precludes the EMA or the FDA from approving another marketing application for the same drug and indication for that time period, except in limited circumstances. The

 

29


Table of Contents

applicable period is seven years in the United States and ten years in Europe. The European exclusivity period can be reduced to six years if a drug no longer meets the criteria for Orphan Drug Designation or if the drug is sufficiently profitable such that market exclusivity is no longer justified.

Even if we obtain orphan drug exclusivity for a product candidate, that exclusivity may not effectively protect the product candidate from competition because different therapies can be approved for the same condition and the same therapies can be approved for different conditions but used off-label. Even after an orphan drug is approved, the FDA can subsequently approve the same drug for the same condition if the FDA concludes that the later drug is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care. In addition, a designated orphan drug may not receive orphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. Moreover, orphan drug exclusive marketing rights in the United States may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the drug to meet the needs of patients with the rare disease or condition. Orphan Drug Designation neither shortens the development time or regulatory review time of a drug nor gives the drug any advantage in the regulatory review or approval process. While we may seek Orphan Drug Designation for applicable indications for our current and any future product candidates, we may never receive such designations. Even if we do receive such designations, there is no guarantee that we will enjoy the benefits of those designations.

If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of any approved products.

We face an inherent risk of product liability as a result of the clinical testing of product candidates and will face an even greater risk if we commercialize any products. For example, we may be sued if any product candidate we develop causes or is perceived to cause injury or are found to be otherwise unsuitable during clinical testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability or a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of any approved products. Even successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:

 

    decreased demand for any approved product;

 

    injury to our reputation;

 

    withdrawal of clinical trial participants;

 

    initiation of investigations by regulators;

 

    costs to defend the related litigation;

 

    a diversion of management’s time and our resources;

 

    substantial monetary awards to trial participants or patients;

 

    product recalls, withdrawals or labeling, marketing or promotional restrictions;

 

    loss of revenue;

 

    exhaustion of any available insurance and our capital resources;

 

    the inability to commercialize any product candidate; and

 

    a decline in our share price.

 

30


Table of Contents

Our inability to obtain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of products we develop, alone or with corporate collaborators.

Insurance coverage is increasingly expensive. We may not be able to maintain insurance at a reasonable cost or in an amount adequate to satisfy any liability that may arise, if at all. Our insurance policy contains various exclusions, and we may be subject to a product liability claim for which we have no coverage. We may have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts. Even if our agreements with Novartis or any future corporate collaborators entitle us to indemnification against losses, such indemnification may not be available or adequate should any claim arise.

Healthcare legislative reform measures may have a material adverse effect on our business and results of operations.

In the United States, there have been and continue to be a number of legislative initiatives to contain healthcare costs. For example, in March 2010, the Affordable Care Act, or the ACA, was passed, which substantially changes the way healthcare is financed by both governmental and private insurers, and significantly impacts the U.S. pharmaceutical industry. The ACA, among other things, subjects biological products to potential competition by lower-cost biosimilars, addresses a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected, increases the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extends the rebate program to individuals enrolled in Medicaid managed care organizations, establishes annual fees and taxes on manufacturers of certain branded prescription drugs, and creates a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% (70% commencing January 1, 2019) point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D.

Some of the provisions of the ACA have yet to be fully implemented, while certain provisions have been subject to judicial and Congressional challenges, as well as efforts by the Trump administration to repeal or replace certain aspects of the ACA. Since January 2017, President Trump has signed two Executive Orders designed to delay the implementation of certain provisions of the ACA or otherwise circumvent some of the requirements for health insurance mandated by the ACA. Concurrently, Congress has considered legislation that would repeal or repeal and replace all or part of the ACA. While Congress has not passed comprehensive repeal legislation, two bills affecting the implementation of certain taxes under the ACA have been signed into law. The Tax Cuts and Jobs Act of 2017, or TCJA, includes a provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate.” Additionally, on January 22, 2018, President Trump signed a continuing resolution on appropriations for fiscal year 2018 that delayed the implementation of certain ACA-mandated fees, including the so-called “Cadillac” tax on certain high cost employer-sponsored insurance plans, the annual fee imposed on certain high cost employer-sponsored insurance plans, the annual fee imposed on certain health insurance providers based on market share, and the medical device excise tax on non-exempt medical devices. Further, the Bipartisan Budget Act of 2018, or the BBA, among other things, amends the ACA, effective January 1, 2019, to reduce the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole.” The effect that the ACA and its possible repeal and replacement may have on our business remains unclear.

 

31


Table of Contents

Other legislative changes have been proposed and adopted in the United States since the ACA was enacted. On August 2, 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions of Medicare payments to providers of 2% per fiscal year. These reductions went into effect on April 1, 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2027 unless additional congressional action is taken. On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, further reduced Medicare payments to several types of providers.

Moreover, payment methodologies may be subject to changes in healthcare legislation and regulatory initiatives. For example, the Middle Class Tax Relief and Job Creation Act of 2012 required that the Centers for Medicare & Medicaid Services, or CMS, the agency responsible for administering the Medicare program, reduce the Medicare clinical laboratory fee schedule by 2% in 2013, which served as a base for 2014 and subsequent years. In addition, effective January 1, 2014, CMS also began bundling the Medicare payments for certain laboratory tests ordered while a patient received services in a hospital outpatient setting. 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 any product candidate we develop or complementary diagnostics or companion diagnostics or additional pricing pressures.

Additionally, there has been increasing legislative and enforcement interest in the United States with respect to specialty drug pricing practices. Specifically, there have been several recent U.S. Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drugs.

We are subject to certain U.S. and foreign anti-corruption, anti-money laundering, export control, sanctions, and other trade laws and regulations. We can face serious consequences for violations.

Among other matters, U.S. and foreign anti-corruption, anti-money laundering, export control, sanctions, and other trade laws and regulations, which are collectively referred to as Trade Laws, prohibit companies and their employees, agents, clinical research organizations, legal counsel, accountants, consultants, contractors, and other partners from authorizing, promising, offering, providing, soliciting, or receiving directly or indirectly, corrupt or improper payments or anything else of value to or from recipients in the public or private sector. Violations of Trade Laws can result in substantial criminal fines and civil penalties, imprisonment, the loss of trade privileges, debarment, tax reassessments, breach of contract and fraud litigation, reputational harm, and other consequences. We have direct or indirect interactions with officials and employees of government agencies or government-affiliated hospitals, universities, and other organizations. We also expect our non-U.S. activities to increase in time. We plan to engage third parties for clinical trials and/or to obtain necessary permits, licenses, patent registrations, and other regulatory approvals and we can be held liable for the corrupt or other illegal activities of our personnel, agents, or partners, even if we do not explicitly authorize or have prior knowledge of such activities.

 

32


Table of Contents

Risks Related To Reliance On Third Parties

We are fully dependent on our collaboration with Novartis for the development of SRF373 and may depend on Novartis or additional third parties for the development and commercialization of our other programs and future product candidates. Our current and future collaborators may control aspects of our clinical trials, which could result in delays or other obstacles in the commercialization of the product candidates we develop. If our collaborations are not successful, we may not be able to capitalize on the market potential of these product candidates.

In January 2016, we entered into a strategic collaboration agreement with Novartis, or the Collaboration Agreement, focused on researching, developing and commercializing cancer immunotherapies. Pursuant to the Collaboration Agreement, we granted Novartis a worldwide exclusive license to research, develop, manufacture and commercialize antibodies that target CD73, along with the right to purchase exclusive option rights to up to four specified targets, each an Option, to obtain certain development, manufacturing and commercialization rights. In March 2018, Novartis notified us of its decision to not exercise its previously purchased Option for SRF231. Novartis currently has two Options remaining eligible for purchase, both of which can be exercised. The collaboration involves a complex allocation of rights, provides for milestone payments to us based on the achievement of specified clinical development, regulatory and commercial milestones, provides for additional payments upon Novartis’ election to exercise rights to commercialize additional product candidates, and provides us with royalty-based revenue if certain product candidates are successfully commercialized. Novartis will have substantial ability to control the development and commercialization of the target it chooses to license on a global basis. Our lack of control over the clinical development of certain programs under the Collaboration Agreement could result in delays or other difficulties in the development and commercialization of product candidates, which may prevent completion of intended IND filings in a timely fashion, if at all. In particular, Novartis is solely responsible for the development and commercialization of SRF373 and as such, we are wholly dependent on Novartis for the success of this program. In the event Novartis terminates the Collaboration Agreement, we would be prevented from receiving any milestone payments, royalty payments and other benefits under that agreement, which would have a materially adverse effect on our results of operations. Furthermore, in the event Novartis does not purchase and exercise its remaining Options, we will not be eligible to receive any future milestone payments under the Collaboration Agreement, other than from SRF373, if any, which could require us to seek additional funding in order to avoid delaying, reducing the scope of, or suspending, one or more of our research and development programs or clinical trials. In addition, any decision by Novartis not to purchase or exercise an Option may negatively impact public perception of the applicable program, or all of the programs, covered by the Collaboration Agreement, which could adversely affect the market price of our common stock. We cannot provide any assurance with respect to the success of the Collaboration Agreement.

In the future, we may form or seek other strategic alliances, joint ventures, or collaborations, or enter into additional licensing arrangements with third parties that we believe will complement or augment our development and commercialization efforts with respect to product candidates we develop.

Our current Collaboration Agreement poses, and potential future collaborations involving our product candidates may pose, the following risks to us:

 

    collaborators have significant discretion in determining the efforts and resources that they will apply to these collaborations;

 

    collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our products or product candidates;

 

   

collaborators may not properly enforce, maintain or defend our intellectual property rights or may use our proprietary information in a way that gives rise to actual or threatened litigation

 

33


Table of Contents
 

that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential litigation, or other intellectual property proceedings;

 

    disputes may arise between a collaborator and us that cause the delay or termination of the research, development or commercialization of the product candidate, or that result in costly litigation or arbitration that diverts management attention and resources;

 

    if a present or future collaborator of ours were to be involved in a business combination, the continued pursuit and emphasis on our product development or commercialization program under such collaboration could be delayed, diminished or terminated; and

 

    collaboration agreements may restrict our right to independently pursue new product candidates. For example, under the Collaboration Agreement, for a certain period of time we may not directly or indirectly research or develop, outside of the collaboration, any antibody with specified activity against that program’s collaboration target.

As a result, if we enter into additional collaboration agreements and strategic partnerships or license our intellectual property, products or businesses, we may not be able to realize the benefit of such transactions if we are unable to successfully integrate them with our existing operations, which could delay our timelines or otherwise adversely affect our business. We also cannot be certain that, following a strategic transaction or license, we will achieve the revenue or specific net income that justifies such transaction. Any delays in entering into new collaborations or strategic partnership agreements related to any product candidate we develop could delay the development and commercialization of our product candidates, which would harm our business prospects, financial condition, and results of operations.

We may seek to establish additional collaborations, and, if we are not able to establish them on commercially reasonable terms, we may have to alter our development and commercialization plans.

The advancement of our product candidates and development programs and the potential commercialization of our current and future product candidates will require substantial additional cash to fund expenses. For some of our programs, we may decide to collaborate with additional pharmaceutical and biotechnology companies with respect to development and potential commercialization. Any of these relationships may require us to incur non-recurring and other charges, increase our near and long term expenditures, issue securities that dilute our existing stockholders, or disrupt our management and business.

We face significant competition in seeking appropriate strategic partners and the negotiation process is time-consuming and complex. Whether we reach a definitive agreement for other collaborations will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors may include the design or results of clinical trials, the progress of our clinical trials, the likelihood of approval by the FDA or similar regulatory authorities outside the United States, the potential market for the subject product candidate, the costs and complexities of manufacturing and delivering such product candidate to patients, the potential of competing products, the existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to such ownership without regard to the merits of the challenge and industry and market conditions generally. The collaborator may also consider alternative product candidates or technologies for similar indications that may be available to collaborate on and whether such a collaboration could be more attractive than the one with us for our product candidate. Further, we may not be successful in our efforts to establish a strategic partnership or other alternative arrangements for future product candidates because they may be deemed to be at too early of a stage

 

34


Table of Contents

of development for collaborative effort and third parties may not view them as having the requisite potential to demonstrate safety and efficacy.

We may also be restricted under existing collaboration agreements from entering into future agreements on certain terms with potential collaborators. For example, under the Collaboration Agreement, we have granted worldwide exclusive rights to Novartis for antibodies targeting CD73, and during the term of the agreement we will be restricted from granting similar rights to other parties. This exclusivity could limit our ability to enter into strategic collaborations with future collaborators.

In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators.

We may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. If we are unable to do so, we may have to curtail the development of the product candidate for which we are seeking to collaborate, reduce or delay its development program or one or more of our other development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to increase our expenditures to fund development or commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms or at all. If we do not have sufficient funds, we may not be able to further develop our product candidates or bring them to market and generate product revenue.

If conflicts arise between us and our collaborators or strategic partners, these parties may act in a manner adverse to us and could limit our ability to implement our strategies.

If conflicts arise between our corporate or academic collaborators or strategic partners and us, the other party may act in a manner adverse to us and could limit our ability to implement our strategies. Novartis or future collaborators or strategic partners, may develop, either alone or with others, products in related fields that are competitive with the products or potential products that are the subject of these collaborations. Competing products, either developed by the collaborators or strategic partners or to which the collaborators or strategic partners have rights, may result in the withdrawal of partner support for our product candidates. Our current or future collaborators or strategic partners may preclude us from entering into collaborations with their competitors, fail to obtain timely regulatory approvals, terminate their agreements with us prematurely, or fail to devote sufficient resources to the development and commercialization of products. Any of these developments could harm our product development efforts.

We will rely on third parties to conduct our planned clinical trials for SRF231 and any product candidates we develop. If these third parties do not successfully carry out their contractual duties, comply with regulatory requirements or meet expected deadlines, we may not be able to obtain marketing approval for or commercialize SRF231 and any product candidates we develop and our business could be substantially harmed.

We do not have the ability to independently conduct clinical trials. We will rely on medical institutions, clinical investigators, contract laboratories, and other third parties, such as CROs, to conduct or otherwise support clinical trials for SRF231 and other product candidates. We will rely heavily on these parties for execution of clinical trials for SRF231 and other product candidates and control only certain aspects of their activities. Nevertheless, we are responsible for ensuring that each of our clinical trials is conducted in accordance with the applicable protocol, legal and regulatory requirements and scientific standards, and our reliance on CROs will not relieve us of our regulatory responsibilities. For any violations of laws and regulations during the conduct of our clinical trials, we could be subject to untitled and warning letters or enforcement action that may include civil penalties up to and including criminal prosecution.

 

35


Table of Contents

We and our CROs are required to comply with regulations and requirements, including GCP, for conducting, monitoring, recording and reporting the results of clinical trials to ensure that the data and results are scientifically credible and accurate, and that the trial patients are adequately informed of the potential risks of participating in clinical trials and their rights are protected. These regulations are enforced by the FDA, the Competent Authorities of the Member States of the EEA and comparable foreign regulatory authorities for any drugs in clinical development. The FDA enforces GCP requirements through periodic inspections of clinical trial sponsors, principal investigators and trial sites. If we or our CROs fail to comply with applicable GCP, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that, upon inspection, the FDA will determine that any of our future clinical trials will comply with GCP. In addition, our clinical trials must be conducted with product candidates produced under cGMP regulations. Our failure or the failure of our CROs to comply with these regulations may require us to repeat clinical trials, which would delay the marketing approval process and could also subject us to enforcement action. We also are required to register certain ongoing clinical trials and provide certain information, including information relating to the trial’s protocol, on a government-sponsored database, ClinicalTrials.gov, within specific timeframes. Failure to do so can result in fines, adverse publicity and civil and criminal sanctions.

Although we intend to design the clinical trials for our product candidates, CROs will conduct all of the clinical trials. As a result, many important aspects of our clinical development, including their conduct and timing, will be outside of our direct control. Our reliance on third parties to conduct future clinical trials will also result in less direct control over the management of data developed through clinical trials than would be the case if we were relying entirely upon our own staff. Communicating with outside parties can also be challenging, potentially leading to mistakes as well as difficulties in coordinating activities. Outside parties may:

 

    have staffing difficulties;

 

    fail to comply with contractual obligations;

 

    experience regulatory compliance issues;

 

    undergo changes in priorities or become financially distressed; or

 

    form relationships with other entities, some of which may be our competitors.

These factors may materially adversely affect the willingness or ability of third parties to conduct our clinical trials and may subject us to unexpected cost increases that are beyond our control. If the CROs do not perform clinical trials in a satisfactory manner, breach their obligations to us or fail to comply with regulatory requirements, the development, marketing approval and commercialization of our product candidates may be delayed, we may not be able to obtain marketing approval and commercialize our product candidates, or our development program may be materially and irreversibly harmed. If we are unable to rely on clinical data collected by our CROs, we could be required to repeat, extend the duration of, or increase the size of any clinical trials we conduct and this could significantly delay commercialization and require significantly greater expenditures.

If any of our relationships with these third-party CROs terminate, we may not be able to enter into arrangements with alternative CROs on commercially reasonable terms, or at all. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain are compromised due to the failure to adhere to our clinical protocols, regulatory requirements or for other reasons, any clinical trials such CROs are associated with may be extended, delayed or terminated, and we may not be able to obtain marketing approval for or successfully commercialize our product candidates. As a

 

36


Table of Contents

result, we believe that our financial results and the commercial prospects for our product candidates in the subject indication would be harmed, our costs could increase and our ability to generate revenue could be delayed.

We intend to rely on third parties to manufacture product candidates, which increases the risk that we will not have sufficient quantities of such product candidates or products or such quantities at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts.

We do not own or operate manufacturing facilities for the production of clinical or commercial supplies of the product candidates that we are developing or evaluating in our development programs. We have limited personnel with experience in drug manufacturing and lack the resources and the capabilities to manufacture any of our product candidates on a clinical or commercial scale. We rely on third parties for supply of our product candidates, and our strategy is to outsource all manufacturing of our product candidates and products to third parties.

In order to conduct clinical trials of product candidates, we will need to have them manufactured in potentially large quantities. Our third-party manufacturers may be unable to successfully increase the manufacturing capacity for any of our product candidates in a timely or cost-effective manner, or at all. In addition, quality issues may arise during scale-up activities and at any other time. For example, ongoing data on the stability of our product candidates may shorten the expiry of our product candidates and lead to clinical trial material supply shortages, and potentially clinical trial delays. If these third-party manufacturers are unable to successfully scale up the manufacture of our product candidates in sufficient quality and quantity, the development, testing and clinical trials of that product candidate may be delayed or infeasible, and regulatory approval or commercial launch of that product candidate may be delayed or not obtained, which could significantly harm our business.

Our use of new third-party manufacturers increases the risk of delays in production or insufficient supplies of our product candidates as we transfer our manufacturing technology to these manufacturers and as they gain experience manufacturing our product candidates.

Even after a third-party manufacturer has gained significant experience in manufacturing our product candidates or even if we believe we have succeeded in optimizing the manufacturing process, there can be no assurance that such manufacturer will produce sufficient quantities of our product candidates in a timely manner or continuously over time, or at all.

We may be delayed if we need to change the manufacturing process used by a third party. Further, if we change an approved manufacturing process, then we may be delayed if the FDA or a comparable foreign authority needs to review the new manufacturing process before it may be used.

We do not currently have any agreements with third-party manufacturers for the long-term commercial supply. In the future, we may be unable to enter into agreements with third-party manufacturers for commercial supplies of any product candidate that we develop, or may be unable to do so on acceptable terms. Even if we are able to establish and maintain arrangements with third-party manufacturers, reliance on third-party manufacturers entails risks, including:

 

    reliance on the third party for regulatory compliance and quality assurance;

 

    the possible breach of the manufacturing agreement by the third party;

 

    the possible misappropriation of our proprietary information, including our trade secrets and know-how; and

 

    the possible termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for us.

 

37


Table of Contents

Third-party manufacturers may not be able to comply with cGMP requirements or similar regulatory requirements outside the United States. Our failure, or the failure of our third-party manufacturers, to comply with applicable requirements could result in sanctions being imposed on us, including fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of product candidates or products, operating restrictions and/or criminal prosecutions, any of which could significantly and adversely affect supplies of our product candidates.

Our future product candidates and any products that we may develop may compete with other product candidates and products for access to manufacturing facilities. There are a limited number of manufacturers that operate under cGMP requirements particularly for the development of monoclonal antibodies, and that might be capable of manufacturing for us.

If the third parties that we engage to supply any materials or manufacture product for our preclinical tests and clinical trials should cease to continue to do so for any reason, we likely would experience delays in advancing these tests and trials while we identify and qualify replacement suppliers or manufacturers and we may be unable to obtain replacement supplies on terms that are favorable to us. In addition, if we are not able to obtain adequate supplies of our product candidates or the substances used to manufacture them, it will be more difficult for us to develop our product candidates and compete effectively.

Our current and anticipated future dependence upon others for the manufacture of our product candidates may adversely affect our future profit margins and our ability to develop product candidates and commercialize any products that receive marketing approval on a timely and competitive basis.

Our future relationships with customers and third-party payors in the United States and elsewhere may be subject, directly or indirectly, to applicable anti-kickback, fraud and abuse, false claims, transparency, health information privacy and security and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm, administrative burdens and diminished profits and future earnings.

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

 

   

the federal Anti-Kickback Statute, which prohibits, among other things, knowingly and willfully soliciting, receiving, offering or paying any remuneration (including any kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce, or in return for, either the referral of an individual, 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 the Medicare and Medicaid programs or other federal healthcare programs. A person or entity can be found guilty of violating the statute without actual knowledge of the statute or specific intent to violate it. In addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the FCA. The Anti-Kickback Statute has been interpreted to apply to

 

38


Table of Contents
 

arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers, and formulary managers on the other. There are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution;

 

    the federal civil and criminal false claims laws and civil monetary penalty laws, including the FCA, which prohibit any person or entity from, among other things, knowingly presenting, or causing to be presented, a false, fictitious or fraudulent claim for payment to, or approval by, 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;

 

    the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created federal criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor (e.g., public or private) and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false statements in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters. Similar to the federal Anti-Kickback Statute, a person or entity can be found guilty of violating HIPAA without actual knowledge of the statutes or specific intent to violate them;

 

    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, among other things, specified requirements relating to the privacy, security and transmission of individually identifiable health information held by covered entities and their business associates. HITECH also created new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions;

 

    the federal legislation commonly referred to as the Physician Payments Sunshine Act, created under the ACA, and its implementing regulations, which requires manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to CMS information related to payments or other transfers of value made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members;

 

    federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers; and

 

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

 

39


Table of Contents

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 could be subject to challenge under one or more of such laws. The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare reform, especially in light of the lack of applicable precedent and regulations. 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. Ensuring that our business arrangements with third parties comply with applicable healthcare laws, as well as responding to investigations by government authorities, can be time- and resource-consuming and can divert management’s attention from the business.

If our operations are found to be in violation of any of the laws described above or any other government regulations that apply to us, we may be subject to penalties, including civil, criminal and administrative penalties, damages, fines, disgorgement, individual imprisonment, possible exclusion from participation in federal and state funded healthcare programs, contractual damages and the curtailment or restricting of our operations, as well as additional reporting obligations and oversight if we become subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws, any of which could harm our ability to operate our business and our financial results. Further, if the physicians or other providers or entities with whom we expect to do business are found not to be in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs. In addition, the approval and commercialization of any product candidate we develop outside the United States will also likely subject us to foreign equivalents of the healthcare laws mentioned above, among other foreign laws.

Risks Related To Intellectual Property

Intellectual property is critical to our business and our success in part depends on our ability to maintain, protect, and expand our portfolio of intellectual property rights.

Biotechnology and pharmaceutical companies generally, and we in particular, compete in a crowded competitive space characterized by rapidly evolving technologies and aggressive defense of intellectual property.

Our patents and patent applications are directed to our antibodies and accompanying technologies. We seek patent protection for our development programs, product candidates and related alternatives by filing and prosecuting patent applications in the U.S. and other countries as appropriate. For example, we co-own patents and pending applications relating to our therapeutic CD47 antibody candidate, SRF231, which are expected to expire in 2036, absent any adjustment or extension. With respect to SRF231, as of March 22, 2018, we co-own two pending U.S. non-provisional applications and one pending PCT patent application, and we own one pending provisional patent application, for which any resulting patent from these applications would be expected to expire in 2036 or 2038, absent any adjustment or extension. Based on this PCT application, in March 2018 we intend to file national patent applications in at least Australia, Brazil, Canada, China, Japan, New Zealand and a regional patent application in Europe. Any patents that may eventually issue to these applications are expected to expire in 2036, absent any adjustment or extension. We co-own and have exclusively licensed to Novartis our rights in a U.S. provisional patent application that covers compositions of matter and methods of use for our CD73 therapeutic antibody candidate, SRF373, and we do not yet own any non-provisional applications or issued patents for this candidate. Any patent issuing from these applications would be expected to expire in 2038, not including any applicable patent term adjustment or extension.

 

40


Table of Contents

If we are unable to obtain and maintain patent protection for any products we develop and for our technology, or if the scope of the patent protection obtained is not sufficiently broad, our competitors could develop and commercialize products and technology similar or identical to ours, and our ability to commercialize any product candidates we may develop, and our technology may be adversely affected.

Our success depends in large part on our ability to obtain and maintain patent protection in the United States and other countries with respect to our antibodies and the accompanying technologies we develop that are important to our business. If we are unable to secure or maintain patent protection with respect to our antibody technology and any proprietary products and technology we develop, our business, financial condition, results of operations, and prospects could be materially harmed.

Patent positions of life sciences companies can be uncertain and involve complex factual and legal questions. No consistent policy governing the scope of claims allowable in the field of antibodies has emerged in the United States. The scope of patent protection in jurisdictions outside of the United States is also uncertain. Changes in either the patent laws or their interpretation in any jurisdiction that we seek patent protection may diminish our ability to protect our inventions, maintain and enforce our intellectual property rights; and, more generally, may affect the value of our intellectual property, including the narrowing of the scope of our patents and any that we may license.

The patent prosecution process is complex, expensive, time-consuming, and inconsistent across jurisdictions. We may not be able to file, prosecute, maintain, enforce, or license all necessary or desirable patent rights at a commercially reasonable cost or in a timely manner. It is possible that we will fail to identify important patentable aspects of our research and development efforts in time to obtain appropriate or any patent protection. While we enter into non-disclosure and confidentiality agreements with parties who have access to confidential or patentable aspects of our research and development efforts, including for example, our employees, corporate collaborators, external academic scientific collaborators, CROs, contract manufacturers, consultants, advisors and other third parties, any of these parties may breach the agreements and disclose such output before a patent application is filed, thereby endangering our ability to seek patent protection. In addition, publications of discoveries in the scientific and scholarly literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Consequently, we cannot be certain that we were the first to file for patent protection on the inventions claimed in our patents or pending patent applications.

The issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain. Further, the scope of the invention claimed in a patent application can be significantly reduced before the patent is issued, and this scope can be reinterpreted after issuance. Even where patent applications we currently own or that we may license in the future issue as patents, they may not issue in a form that will provide us with adequate protection to prevent competitors or other third parties from competing with us, or otherwise provide us with a competitive advantage. Any patents that eventually issue may be challenged, narrowed or invalidated by third parties. Consequently, we do not know whether any of our product candidates will be protectable or remain protected by valid and enforceable patent rights. Our competitors or other third parties may be able to evade our patent rights by developing new antibodies, biosimilar antibodies, or alternative technologies or products in a non-infringing manner.

The issuance or grant of a patent is not irrefutable as to its inventorship, scope, validity or enforceability, and our patents may be challenged in the courts or patent offices in the United States and abroad. There may be prior art of which we are not aware that may affect the validity or enforceability of a patent claim. There also may be prior art of which we are aware, but which we do not believe affects the validity or enforceability of a claim, which may, nonetheless, ultimately be found

 

41


Table of Contents

to affect the validity or enforceability of a claim. We may in the future, become subject to a third-party pre-issuance submission of prior art or opposition, derivation, revocation, re-examination, post-grant and inter partes review, or interference proceeding and other similar proceedings challenging our patent rights or the patent rights of others in the United States Patent and Trademark Office, or USPTO, or other foreign patent office. An unfavorable 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 extinguish our ability to manufacture or commercialize products without infringing third-party patent rights.

In addition, given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our intellectual property may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours. Moreover, some of our owned and in-licensed patents and patent applications are, and may in the future be, co-owned with third parties. If we are unable to obtain an exclusive license to any such third-party co-owners’ interest in such patents or patent applications, such co-owners may be able to license their rights to other third parties, including our competitors, and our competitors could market competing products and technology. In addition, we or our licensors may need the cooperation of any such co-owners of our owned and in-licensed patents in order to enforce such patents against third parties, and such cooperation may not be provided to us or our licensors. Any of the foregoing could have a material adverse effect on our competitive position, business, financial conditions, results of operations and prospects.

The intellectual property landscape around therapeutic antibodies in oncology, including CD47 antibodies, is crowded, and third parties may initiate legal proceedings alleging that we are infringing, misappropriating, or otherwise violating their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on the success of our business. We are aware of certain third-party patents and third-party patent applications in this landscape that may, if issued as patents, be asserted to encompass our CD47 antibody technology.

The field of therapeutic antibodies, including CD47 antibodies for use in oncology, is crowded, and no such products have reached the market. Due to the intense research and development undertaken by academic institutions and multiple companies, including us and our competitors, in this field, the intellectual property landscape is in flux, and it may remain uncertain for the coming years. There may be significant intellectual property-related litigation and proceedings relating to our own and other third-party intellectual property and proprietary rights in the future.

We are subject to and may in the future become party to, or threatened with, adversarial proceedings or litigation regarding intellectual property rights with respect to our technology and any product candidates we may develop, including interference proceedings, post-grant review, inter partes review, and derivation proceedings before the USPTO and similar proceedings in foreign jurisdictions such as oppositions before the European Patent Office, or EPO. Third parties may assert infringement claims against us based on existing patents or patents that may be granted in the future, regardless of their merit.

We are aware of certain third-party patents and third-party patent applications in this landscape that may, if issued as patents, be asserted to encompass our CD47 antibody technology. For example, we are aware of several separate families of U.S. patents, patent applications, and foreign counterparts that relate to CD47 antibodies and methods of treatment, where the earliest priority dates of each family pre-date the priority dates of our patents and patent applications, including PCT

 

42


Table of Contents

Publication No. WO 2009/091601 (and related U.S. Patent Nos. 8,562,997, 9,493,575, 9,399,682, 9,611,329 and other related U.S. patent applications and foreign counterparts) filed by Stanford University, which is reported to have exclusively licensed its rights to Forty Seven, Inc.

Stanford University also has rights to European Patent No. EP 2242512. In January 2017, we opposed this patent in the Opposition Division of the EPO, or the Opposition Division. Six third parties have also filed oppositions against European Patent No. EP 2242512. Stanford has filed a response to the seven oppositions and oral proceedings are scheduled to commence on August 28, 2018. We cannot predict the outcome of the opposition proceeding and any party may appeal the opposition decision to the Technical Boards of Appeal at the EPO.

Pending final resolution of this matter, Stanford, or other parties that may have rights to EP 2242512 may allege that the manufacture, use or sale of SRF231 infringes the patent in Europe. If, as part of any opposition proceeding before the Opposition Division, we are unsuccessful in invalidating or narrowing Stanford’s claims, or if claims successfully invalidated by the Opposition Division are restored on appeal, our ability to commercialize SRF231 in Europe could be materially impaired. Moreover, we are aware of two pending divisional applications relating to EP 2242512 that are being pursued by Stanford. If either of these applications matures into a granted European patent or if any other related patent application matures into a granted European patent, our ability to commercialize SRF231 could be materially impaired. Similarly, related patents in the U.S. or other countries could materially impair our ability to commercialize SRF231 in those countries.

We are also aware of another family of third-party patents and patent applications that may be asserted to encompass certain combination therapies using our CD47 antibodies. This family of U.S. and foreign patents and patent applications relate to combination therapy using CD47 antibodies, and includes U.S. Patent No. 9,352,037 and related European Patent No. EP 2282772. This family was filed by Stichting Sanquin Bloedvoorziening of the Netherlands, or Sanquin, which is reported to have licensed its rights to Synthon Biopharmaceuticals B.V., also of the Netherlands. Sanquin or other parties that may have rights in the patents may allege that we are not entitled to market combination therapies involving SRF231 without a license, which could materially impair our ability to commercialize SRF231 combination therapies.

In order to avoid infringing third-party patents, or patents that issue from these third-party patent applications, we may find it necessary or prudent to obtain licenses from such third-party intellectual property holders. We may be forced to obtain or maintain a license on commercially unreasonable terms to any third-party patents that cover our product candidates or activities, and such third parties could potentially assert infringement claims against us, which could have a material adverse effect on the conduct of our business.

If we are found to infringe a third party’s intellectual property rights, and we are unsuccessful in demonstrating that such patents are invalid or unenforceable, we could be required to obtain a license from such third party to continue developing, manufacturing, and marketing any product candidates we may develop and our technology. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors and other third parties access to the same technologies licensed to us, and it could require us to make substantial licensing and royalty payments. We also could be forced, including by court order, to cease developing, manufacturing, and commercializing the infringing technology or product candidates. In addition, we could be found liable for significant monetary damages, including treble damages and attorneys’ fees, if we are found to have willfully infringed a patent or other intellectual property right. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar material adverse effect on our business, financial condition, results of operations, and prospects.

 

43


Table of Contents

Our development and commercialization rights to our therapeutic antibodies, current and future product candidates and technology are subject, in part, to the terms and conditions of licenses granted to us by others.

We are reliant upon licenses to certain patent rights and proprietary technology from third parties that are important or necessary to the engineering and development of our therapeutic antibodies, and our current and future product candidates. These and other licenses may not provide exclusive rights to use such intellectual property and technology in all relevant fields of use and in all territories in which we choose to develop or commercialize our technology and products in the future. As a result, we may not be able to prevent competitors from developing and commercializing competitive products in territories included in all of our licenses.

We engage in collaborations with scientists at academic and non-profit institutions to access technologies and materials that are not otherwise available to us. The agreements that govern these collaborations may include an option to negotiate an exclusive license to the institution’s rights in any inventions that are created in the course of these collaborations, but we may not be able to come to a final agreement with an institution holding rights in an invention that is relevant to the development and commercialization of our technology.

In addition, we may not have the right to control the preparation, filing, prosecution, maintenance, enforcement, and defense of patents and patent applications covering the technology that we license from third parties. Therefore, we cannot be certain that these patents and patent applications will be prepared, filed, prosecuted, maintained, enforced, and defended in a manner consistent with the best interests of our business. If our licensors fail to prosecute, maintain, enforce, and defend such patents, or lose rights to those patents or patent applications, the rights we have licensed may be reduced or eliminated, and our right to develop and commercialize any of our products that are the subject of such licensed rights could be adversely affected. Additionally, we may be required to reimburse our licensors for all of their expenses related to the prosecution, maintenance, enforcement and defense of patents and patent applications that we in-license from them.

Our licensors may have relied on third-party consultants or collaborators or on funds from third parties such that our licensors are not the sole and exclusive owners of the patents we in-licensed. If other third parties have ownership rights to our in-licensed patents, they may be able to license such patents to our competitors, and our competitors could market competing products and technology. This could have a material adverse effect on our competitive position, business, financial conditions, results of operations, and prospects.

Our licensors might conclude that we have materially breached our license agreements and might therefore terminate the license agreements, thereby removing our ability to develop and commercialize products and technology covered by these license agreements. If these in-licenses are terminated, or if the underlying patents fail to provide the intended exclusivity, competitors would have the freedom to seek regulatory approval of, and to market, products identical to ours. In addition, we may seek to obtain additional licenses from our licensors and, in connection with obtaining such licenses, we may agree to amend our existing licenses in a manner that may be more favorable to the licensors, including by agreeing to terms that could enable third parties (potentially including our competitors) to receive licenses to a portion of the intellectual property that is subject to our existing licenses. Any of these events could have a material adverse effect on our competitive position, business, financial conditions, results of operations, and prospects.

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

Competitors may infringe our patents or the patents of our licensing partners, or we may be required to defend against claims of infringement. In addition, our patents or the patents of our

 

44


Table of Contents

licensing partners also are, and may become, involved in inventorship, priority, or validity disputes. To counter or defend against such claims can be expensive and time-consuming, and our licensors’ adversaries may have the ability to dedicate substantially greater resources to prosecuting these legal actions than we or our licensors can. In an infringement proceeding, a court may decide that a patent owned or in-licensed by us is invalid or unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our owned and in-licensed patents do not cover the technology in question. Accordingly, despite our or our licensors’ efforts, we or our licensors may not be able to prevent third parties from infringing upon or misappropriating intellectual property rights we own or control. An adverse result in any litigation proceeding could put one or more of our owned or in-licensed patents at risk of being invalidated or interpreted narrowly. Further, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation.

Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses and could distract our personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions, or other interim proceedings or developments, and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing, or distribution activities. We may not have sufficient financial or other resources to conduct such litigation or proceedings adequately. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources and more mature and developed intellectual property portfolios. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.

Intellectual property rights do not necessarily address all potential threats.

The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations and may not adequately protect our business or permit us to maintain our competitive advantage. For example, others may develop biosimiliar or competing antibodies to any product candidates that we have or may develop, but that are not covered by the claims of the patents that we own or may own or license in the future.

We may be subject to claims that our employees, consultants, or advisors have wrongfully used or disclosed alleged trade secrets of their current or former employers or claims asserting ownership of what we regard as our own intellectual property.

Many of our employees, consultants, and advisors are currently or were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees, consultants, and advisors do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these individuals have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such individual’s current or former employer. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.

In addition, while it is our policy to require our employees and contractors who may be involved in the conception or development of intellectual property to execute agreements assigning such

 

45


Table of Contents

intellectual property to us, we may be unsuccessful in executing such an agreement with each party who, in fact, conceives or develops intellectual property that we regard as our own. The assignment of intellectual property rights may not be self-executing, or the assignment agreements may be breached, and we may be forced to bring claims against third parties, or defend claims that they may bring against us, to determine the ownership of what we regard as our intellectual property. Such claims could have a material adverse effect on our business, financial condition, results of operations, and prospects.

If we do not obtain patent term extension and data exclusivity for any of our current or future product candidates, our business may be materially harmed.

Depending upon the timing, duration and specifics of any FDA marketing approval of any of our current or future product candidates, one or more of our U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent extension term of up to five years as compensation for patent term lost during the FDA regulatory review process. A patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, only one patent may be extended and only those claims covering the approved drug, a method for using it, or a method for manufacturing it may be extended. However, we may not be granted an extension because of, for example, failing to exercise due diligence during the testing phase or regulatory review process, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents, or otherwise failing to satisfy applicable requirements. Moreover, the applicable time period or the scope of patent protection afforded could be less than we request. If we are unable to obtain patent term extension or term of any such extension is less than we request, our competitors may obtain approval of competing products following our patent expiration, and our business, financial condition, results of operations, and prospects could be materially harmed.

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

Filing, prosecuting, and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and the laws of foreign countries may not protect our rights to the same extent as the laws of the United States. In addition, our intellectual property license agreements may not always include worldwide rights. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we have patent protection or licenses but enforcement is not as strong as that in the United States. These products may compete with our products, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets, and other intellectual property protection, particularly those relating to biotechnology products, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our intellectual property and proprietary rights generally. Proceedings to enforce our intellectual property and proprietary rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly, could put our patent applications at risk of not issuing, and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate, and the

 

46


Table of Contents

damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property and proprietary rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.

Many countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition, many countries limit the enforceability of patents against government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of such patent. If we or any of our licensors is forced to grant a license to third parties with respect to any patents relevant to our business, our competitive position may be impaired, and our business, financial condition, results of operations, and prospects may be adversely affected.

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

Periodic maintenance fees, renewal fees, annuity fees, and various other government fees on patents and applications will be due to be paid to the USPTO and various government patent agencies outside of the United States over the lifetime of our owned or licensed patents and applications. In certain circumstances, we rely on our licensing partners to pay these fees due to U.S. and non-U.S. patent agencies. The USPTO and various non-U.S. government agencies require compliance with several procedural, documentary, fee payment, and other similar provisions during the patent application process. We are also dependent on our licensors to take the necessary action to comply with these requirements with respect to our licensed intellectual property. In some cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. There are situations, however, in which non-compliance can result in abandonment or lapse of the patent or patent application, resulting in a partial or complete loss of patent rights in the relevant jurisdiction. In such an event, potential competitors might be able to enter the market with similar or identical products or technology, which could have a material adverse effect on our business, financial condition, results of operations, and prospects.

We may not be successful in obtaining necessary rights to our current and future product candidates through acquisitions and in-licenses.

We currently have rights to intellectual property, through licenses from third parties, to identify and develop product candidates. Many pharmaceutical companies, biotechnology companies, and academic institutions are competing with us in the field of therapeutic antibodies and filing patent applications potentially relevant to our business. For example, we are aware of third-party patents and patent applications that may be construed to cover our CD47 antibody product candidates or their uses.

In order to avoid infringing these third-party patents, or patents that issue from these third-party patent applications, we may find it necessary or prudent to obtain licenses from such third-party intellectual property holders. In addition, with respect to any patents we co-own with third parties, we may require licenses to such co-owners’ interest to such patents. However, we may be unable to secure such licenses or otherwise acquire or in-license any compositions, methods of use, processes, or other intellectual property rights from third parties that we identify as necessary for product candidates we may develop. The licensing or acquisition of third-party intellectual property rights is a competitive area, and other companies may pursue strategies to license or acquire third-party intellectual property rights that we may consider attractive or necessary. These companies may have a competitive advantage over us due to their size, capital resources and greater clinical development

 

47


Table of Contents

and commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to license or acquire third-party intellectual property rights on terms that would allow us to make an appropriate return on our investment or at all.

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

Changes in either the patent laws or interpretation of the patent laws in the United States could increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of issued patents. Assuming that other requirements for patentability are met, prior to March 2013, in the United States, the first to invent the claimed invention was entitled to the patent, while outside the United States, the first to file a patent application was entitled to the patent. After March 2013, under the Leahy-Smith America Invents Act, or the America Invents Act, enacted in September 2011, the United States transitioned to a first inventor to file system in which, assuming that other requirements for patentability are met, the first inventor to file a patent application will be entitled to the patent on an invention regardless of whether a third party was the first to invent the claimed invention. The America Invents Act also includes a number of significant changes that affect the way patent applications are prosecuted and also may affect patent litigation. These include allowing third- party submission of prior art to the USPTO during patent prosecution and additional procedures to attack the validity of a patent by USPTO administered post-grant proceedings, including post-grant review, inter partes review, and derivation proceedings. The America Invents 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, financial condition, results of operations, and prospects.

In addition, the patent positions of companies in the development and commercialization of biologics and pharmaceuticals are particularly uncertain. Recent rulings from the U.S. Court of Appeals for the Federal Circuit and the U.S. Supreme Court have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations. This combination of events has created uncertainty with respect to the validity and enforceability of patents, once obtained. Depending on future actions by the U.S. Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that could have a material adverse effect on our existing patent portfolio and our ability to protect and enforce our intellectual property in the future.

The U.S. government may exercise its march-in rights with regards to certain in-licensed patents.

Pursuant to the Bayh-Dole Act, the U.S. government has march-in rights with regards to government-funded technology. The U.S. government can exercise its march-in rights if it determines that action is necessary because we fail to achieve practical application of the government-funded technology, because action is necessary to alleviate health or safety needs, to meet requirements of federal regulations, or to give preference to U.S. industry. In addition, our rights in such inventions may be subject to certain requirements to manufacture products embodying such inventions in the United States. Any exercise by the government of any of the foregoing rights could harm our competitive position, business, financial condition, results of operations, and prospects.

Our inability to protect our confidential information and trade secrets would harm our business and competitive position.

In addition to seeking patents for some of our technology and products, we also rely on trade secrets, including unpatented know-how, technology and other proprietary information, to maintain our

 

48


Table of Contents

competitive position. We seek to protect these trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as our employees, corporate collaborators, outside scientific collaborators, contract manufacturers, consultants, advisors and other third parties. We also enter into confidentiality and invention or patent assignment agreements with our employees and consultants. Despite these efforts, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts both within and outside the United States may be less willing or unwilling to protect trade secrets. If a competitor lawfully obtained or independently developed any of our trade secrets, we would have no right to prevent such competitor from using that technology or information to compete with us, which could harm our competitive position.

Risks Related To Employee Matters, Managing Our Growth And Other Risks

Related To Our Business

We are highly dependent on our key personnel, and if we are not successful in attracting, motivating and retaining highly qualified personnel, we may not be able to successfully implement our business strategy.

We are highly dependent on members of our executive team. The loss of the services of any of them may adversely impact the achievement of our objectives. Any of our executive officers could leave our employment at any time, as all of our employees are “at-will” employees. We currently do not have “key person” insurance on any of our employees. The loss of the services of one or more of our current employees might impede the achievement of our research, development and commercialization objectives.

Recruiting and retaining qualified employees, consultants and advisors for our business, including scientific and technical personnel, also will be critical to our success. Competition for skilled personnel is intense and the turnover rate can be high. We may not be able to attract and retain personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies and academic institutions for skilled individuals. In addition, failure to succeed in preclinical studies, clinical trials or applications for marketing approval may make it more challenging to recruit and retain qualified personnel. The inability to recruit, or the loss of services of certain executives, key employees, consultants or advisors, may impede the progress of our research, development and commercialization objectives and have a material adverse effect on our business, financial condition, results of operations and prospects.

We will need to grow the size of our organization, and we may experience difficulties in managing this growth.

As of March 22, 2018, we had 56 full-time employees, including 42 employees engaged in research and development. As our development and commercialization plans and strategies develop, and as we transition into operating as a public company, we expect to need additional managerial, operational, sales, marketing, financial and other personnel. Future growth would impose significant added responsibilities on members of management, including:

 

    identifying, recruiting, integrating, maintaining and motivating additional employees;

 

    managing our internal development efforts effectively, including the clinical and FDA review process for SRF231 and any product candidate we develop, while complying with our contractual obligations to contractors and other third parties; and

 

49


Table of Contents
    improving our operational, financial and management controls, reporting systems and procedures.

Our future financial performance and our ability to advance development of and, if approved, commercialize SRF231 and any product candidate we develop will depend, in part, on our ability to effectively manage any future growth, and our management may also have to divert a disproportionate amount of its attention away from day-to-day activities in order to devote a substantial amount of time to managing these growth activities.

We currently rely, and for the foreseeable future will continue to rely, in substantial part on certain independent organizations, advisors and consultants to provide certain services, including substantially all aspects of marketing approval, clinical management, and manufacturing. We cannot assure you that the services of independent organizations, advisors and consultants will continue to be available to us on a timely basis when needed, or that we can find qualified replacements. In addition, if we are unable to effectively manage our outsourced activities or if the quality or accuracy of the services provided by consultants is compromised for any reason, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain marketing approval of any current or future product candidates or otherwise advance our business. We cannot assure you that we will be able to manage our existing consultants or find other competent outside contractors and consultants on economically reasonable terms, or at all.

If we are not able to effectively expand our organization by hiring new employees and expanding our groups of consultants and contractors, we may not be able to successfully implement the tasks necessary to further develop and commercialize SRF231 and any future product candidates we develop and, accordingly, may not achieve our research, development and commercialization goals.

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

We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable materials, including chemicals and biological and radioactive materials. Our operations also produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties.

Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us in connection with our storage or disposal of biological, hazardous or radioactive materials.

Our internal computer systems, or those used by our CROs or other contractors or consultants, may fail or suffer security breaches.

Despite the implementation of security measures, our internal computer systems and those of our future CROs and other contractors and consultants are vulnerable to damage from computer viruses and unauthorized access. While we have not to our knowledge experienced any such material system

 

50


Table of Contents

failure or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our development programs and our business operations. For example, the loss of clinical trial data from completed or future clinical trials could result in delays in our marketing approval efforts and significantly increase our costs to recover or reproduce the data. Likewise, we rely on third parties for the manufacture of our product candidates and to conduct clinical trials, and similar events relating to their computer systems could also have a material adverse effect on our business. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development and commercialization of our future product candidates could be delayed.

Our employees, independent contractors, vendors, principal investigators, CROs and consultants may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements and insider trading.

We are exposed to the risk that our employees, independent contractors, vendors, principal investigators, CROs and consultants may engage in fraudulent conduct or other illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent conduct or disclosure of unauthorized activities to us that violate the regulations of the FDA and comparable foreign regulatory authorities, including those laws requiring the reporting of true, complete and accurate information to such authorities; healthcare fraud and abuse laws and regulations in the United States and abroad; or laws that require the reporting of financial information or data accurately. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Activities subject to these laws also involve the improper use of information obtained in the course of clinical trials or creating fraudulent data in our preclinical studies or clinical trials, which could result in regulatory sanctions and cause serious harm to our reputation. We intend to adopt, prior to the completion of this offering, a code of conduct applicable to all of our employees, but it is not always possible to identify and deter misconduct by employees and other third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. Additionally, we are subject to the risk that a person could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of civil, criminal and administrative penalties, damages, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations, any of which could adversely affect our ability to operate our business and our results of operations.

Risks Related To Our Common Stock And This Offering

If you purchase our common stock in this offering, you will incur immediate and substantial dilution in the book value of your shares.

The initial public offering price of our common stock will be substantially higher than the pro forma as adjusted net tangible book value per share of our common stock. Therefore, if you purchase our common stock in this offering, you will pay a price per share that substantially exceeds the pro forma as adjusted net tangible book value per share after the completion of this offering and the concurrent private placement. Based on an assumed initial public offering price of $        per share, which is the

 

51


Table of Contents

midpoint of the price range set forth on the cover page of this prospectus, you will experience immediate dilution of $        per share, representing the difference between our pro forma as adjusted net tangible book value per share after giving effect to this offering and the concurrent private placement at the assumed initial public offering price. In addition, investors purchasing common stock in this offering will contribute     % of the total amount invested by stockholders since inception, but will own only     % of our common stock outstanding after this offering and the concurrent private placement. In the past, we issued options and other securities to acquire common stock at prices significantly below the initial public offering price. To the extent these outstanding securities are ultimately exercised, investors purchasing common stock in this offering will incur further dilution. See “Dilution” for a more detailed description of the dilution to new investors in the offering.

The price of our common stock may be volatile and fluctuate substantially, which could result in substantial losses for purchasers of our common stock in this offering.

Our stock price is likely to be volatile. The stock market in general and the market for biopharmaceutical companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, you may not be able to sell your common stock at or above the initial public offering price. The market price for our common stock may be influenced by many factors, including:

 

    the success of competitive products or technologies;

 

    results of clinical trials and preclinical studies or those of our competitors;

 

    regulatory or legal developments in the United States and other countries;

 

    developments or disputes concerning patent applications, issued patents or other proprietary rights;

 

    the recruitment or departure of key personnel;

 

    the level of expenses related to our product candidates or clinical development programs;

 

    the results of our efforts to discover, develop, acquire or in-license product candidates or companion diagnostics;

 

    actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts;

 

    variations in our financial results or those of companies that are perceived to be similar to us;

 

    changes in the structure of healthcare payment systems;

 

    market conditions in the pharmaceutical and biotechnology sectors; and

 

    general economic, industry and market conditions.

An active trading market for our common stock may not develop, and you may not be able to resell your shares at or above the initial public offering price.

Prior to this offering, there has been no public market for shares of our common stock and an active trading market for our shares may never develop or be sustained following this offering. The initial public offering price of our common stock was determined through negotiations between us and the underwriters. This initial public offering price may not be indicative of the market price of our common stock after this offering. In the absence of an active trading market for our common stock, investors may not be able to sell their common stock at or above the initial public offering price or at the time that they would like to sell.

 

52


Table of Contents

We do not intend to pay dividends on our common stock so any returns will be limited to the value of our stock.

We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. Any return to stockholders will therefore be limited to the appreciation of their stock.

We are an emerging growth company, and we cannot be certain if the reduced reporting 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. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements, that are applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in this prospectus and our periodic reports and proxy statements and exemptions from the requirements of holding nonbinding advisory votes on executive compensation and stockholder approval of any golden parachute payments not previously approved. We could be an emerging growth company for up to five years following the year in which we complete this offering, although circumstances could cause us to lose that status earlier. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual gross revenue of at least $1.07 billion or (c) in which we are deemed to be a large accelerated filer, which requires the market value of our common stock that is held by non-affiliates to exceed $700.0 million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. As a result, changes in rules of U.S. generally accepted accounting principles or their interpretation, the adoption of new guidance or the application of existing guidance to changes in our business could significantly affect our financial position and results of operations.

Our executive officers, directors and their affiliates will continue to exercise significant influence over our company after this offering and the concurrent private placement, which will limit your ability to influence corporate matters and could delay or prevent a change in corporate control.

Immediately following the completion of this offering and the concurrent private placement, our executive officers, directors and their affiliates will beneficially own, in the aggregate, approximately     % of our outstanding common stock, assuming the sale by us of              shares of common stock in this offering and              shares of common stock in the concurrent private placement, based on an assumed initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus. As a result, these stockholders, if they act together, will be able to influence our management and affairs and the outcome of matters submitted to our stockholders for approval, including the election of directors and any sale, merger, consolidation or

 

53


Table of Contents

sale of all or substantially all of our assets. These stockholders acquired their shares of common stock for substantially less than the price of the shares of common stock being acquired in this offering and the concurrent private placement, and these stockholders may have interests, with respect to their common stock, that are different from those of investors in this offering, and the concentration of voting power among these stockholders may have an adverse effect on the price of our common stock. In addition, this concentration of ownership might adversely affect the market price of our common stock by:

 

    delaying, deferring or preventing a change of control of us;

 

    impeding a merger, consolidation, takeover or other business combination involving us; or

 

    discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us.

See “Principal Stockholders” in this prospectus for more information regarding the ownership of our outstanding common stock by our executive officers, directors and their affiliates.

We have broad discretion in how we use the proceeds of this offering and the concurrent private placement and may not use these proceeds effectively, which could affect our results of operations and cause our stock price to decline.

We will have considerable discretion in the application of the net proceeds from this offering and the concurrent private placement. As a result, investors will be relying upon management’s judgment with only limited information about our specific intentions for the use of the net proceeds from this offering and the concurrent private placement. We may use the net proceeds from this offering and the concurrent private placement for purposes that do not yield a significant return or any return at all for our stockholders. In addition, pending their use, we may invest the net proceeds from this offering and the concurrent private placement in a manner that does not produce income or that loses value.

We will incur significantly increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives.

As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. We will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which will require, among other things, that we file with the U.S. Securities and Exchange Commission, or the SEC, annual, quarterly and current reports with respect to our business and financial condition. In addition, the Sarbanes-Oxley Act, as well as rules subsequently adopted by the SEC and Nasdaq to implement provisions of the Sarbanes-Oxley Act, impose significant requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. Further, in July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, was enacted. There are significant corporate governance and executive compensation-related provisions in the Dodd-Frank Act that require the SEC to adopt additional rules and regulations in these areas such as “say on pay” and proxy access. Recent legislation permits emerging growth companies to implement many of these requirements over a longer period and up to five years from the pricing of this offering. We intend to take advantage of this new legislation, but cannot guarantee that we will not be required to implement these requirements sooner than budgeted or planned and thereby incur unexpected expenses. Stockholder activism, the current political environment and the current high level of government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact the manner in which we operate our business in ways we cannot currently anticipate.

 

54


Table of Contents

We expect the rules and regulations applicable to public companies to substantially increase our legal and financial compliance costs and to make some activities more time-consuming and costly. If these requirements divert the attention of our management and personnel from other business concerns, they could have a material adverse effect on our business, financial condition and results of operations. The increased costs will decrease our net income or increase our net loss, and may require us to reduce costs in other areas of our business or increase the prices of our products or services. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to incur substantial costs to maintain the same or similar coverage. We cannot predict or estimate the amount or timing of additional costs we may incur to respond to these requirements. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers.

Sales of a substantial number of shares of our common stock in the public market could cause our stock price to fall.

If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market after the lock-up and other legal restrictions on resale discussed in this prospectus lapse, the market price of our common stock could decline. Based upon the number of shares of common stock, on an as-converted basis, outstanding as of March 22, 2018, upon the completion of this offering and the concurrent private placement, we will have outstanding a total of                  shares of common stock, assuming no exercise of the underwriters’ option to purchase an additional                  shares. Of these shares, as of the date of this prospectus, approximately                  shares of our common stock, or     % of shares of our common stock, plus any shares sold upon exercise of the underwriters’ option to purchase additional shares, will be freely tradable, without restriction, in the public market immediately following this offering, assuming that current stockholders do not purchase shares in this offering.

The lock-up agreements pertaining to this offering will expire 180 days from the date of this prospectus, subject to earlier release of all or a portion of the shares subject to such agreements by Goldman Sachs & Co. LLC and Cowen and Company, LLC in their sole discretion. After the lock-up agreements expire, based upon the number of shares of common stock, on an as-converted basis, outstanding as of March 22, 2018, up to an additional                  shares of common stock will be eligible for sale in the public market. Approximately     % of these additional shares are held by directors, executive officers and other affiliates and will be subject to certain limitations of Rule 144 under the Securities Act of 1933, as amended, or the Securities Act.

Upon completion of this offering and the concurrent private placement,                  shares of common stock that are either subject to outstanding options or reserved for future issuance under our equity incentive plans will become eligible for sale in the public market to the extent permitted by the provisions of various vesting schedules, the lock-up agreements and Rule 144 and Rule 701 under the Securities Act. If these additional shares of common stock are sold, or if it is perceived that they will be sold, in the public market, the market price of our common stock could decline.

After this offering and the concurrent private placement, the holders of approximately                  shares of our common stock, including those issuable upon the conversion of our preferred stock, will be entitled to rights with respect to the registration of their shares under the Securities Act, subject to the lock-up agreements described above. Registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act, except for shares purchased by affiliates. Any sales of securities by these stockholders could have a material adverse effect on the market price of our common stock.

 

55


Table of Contents

If securities analysts do not publish research or reports about our business or if they publish negative evaluations of our stock, the price of our stock could decline.

The trading market for our common stock will rely, in part, on the research and reports that industry or financial analysts publish about us or our business. We may never obtain research coverage by industry or financial analysts. If no or few analysts commence coverage of us, the trading price of our stock would likely decrease. Even if we do obtain analyst coverage, if one or more of the analysts covering our business downgrade their evaluations of our stock, the price of our stock could decline. If one or more of these analysts cease to cover our stock, we could lose visibility in the market for our stock, which, in turn, could cause our stock price to decline.

If we fail to maintain proper and effective internal control over financial reporting, our ability to produce accurate and timely financial statements could be impaired, investors may lose confidence in our financial reporting and the trading price of our common stock may decline.

Pursuant to Section 404 of Sarbanes-Oxley, our management will be required to report upon the effectiveness of our internal control over financial reporting beginning with the annual report for our fiscal year ending December 31, 2019. When we lose our status as an “emerging growth company,” our independent registered public accounting firm will be required to attest to the effectiveness of our internal control over financial reporting. The rules governing the standards that must be met for management to assess our internal control over financial reporting are complex and require significant documentation, testing and possible remediation. To comply with the requirements of being a reporting company under the Exchange Act, we will need to implement additional financial and management controls, reporting systems and procedures and hire additional accounting and finance staff.

We cannot assure you that there will not be material weaknesses or significant deficiencies in our internal control over financial reporting in the future. Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition, results of operations or cash flows. If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness or significant deficiency in our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports, the market price of our common stock could decline, and we could be subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets.

Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders, 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 amended and restated bylaws may delay or prevent an acquisition of us or a change in our management. These provisions include a classified board of directors, a prohibition on actions by written consent of our stockholders and the ability of our board of directors to issue preferred stock without stockholder approval. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which limits the ability of stockholders owning in excess of 15% of our outstanding voting stock to merge or combine with us. Although we believe these provisions collectively provide for an opportunity to obtain greater value for stockholders by requiring potential acquirors to negotiate with our board of directors, they would apply even if an offer rejected by our board were considered beneficial by some stockholders. 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, which is responsible for appointing the members of our management.

 

56


Table of Contents

Our bylaws designate the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our bylaws, to be in effect upon the completion of this offering, provide that, unless we consent in writing to an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers and employees to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, our certificate of incorporation or our bylaws, or (iv) any action asserting a claim that is governed by the internal affairs doctrine, in each case subject to the Court of Chancery having personal jurisdiction over the indispensable parties named as defendants therein. Any person purchasing or otherwise acquiring any interest in any shares of our capital stock shall be deemed to have notice of and to have consented to this provision of our bylaws. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or employees, which may discourage such lawsuits against us and our directors, officers and employees even though an action, if successful, might benefit our stockholders. Stockholders who do bring a claim in the Court of Chancery could face additional litigation costs in pursuing any such claim, particularly if they do not reside in or near the State of Delaware. The Court of Chancery may also reach different judgments or results than would other courts, including courts where a stockholder considering an action may be located or would otherwise choose to bring the action, and such judgments or results may be more favorable to us than to our stockholders. Alternatively, if a court were to find this provision of our amended and restated certificate of incorporation inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs, which could have a material adverse effect on our business, financial condition or results of operations.

Comprehensive tax reform legislation could adversely affect our business and financial condition.

On December 22, 2017, the U.S. government enacted the TCJA, which significantly reforms the Internal Revenue Code of 1986, as amended. The TCJA, among other things, contains significant changes to corporate taxation, including reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, effective January 1, 2018; limitation of the tax deduction for interest expense; limitation of the deduction for net operating losses and elimination of net operating loss carrybacks, in each case, for losses arising in taxable years beginning after December 31, 2017 (though any such tax losses may be carried forward indefinitely); and modifying or repealing many business deductions and credits, including reducing the business tax credit for certain clinical testing expenses incurred in the testing of certain drugs for rare diseases or conditions generally referred to as “orphan drugs”. The tax rate change resulted in (i) a reduction in the gross amount of our deferred tax assets recorded as of December 31, 2017, without an impact on the net amount of our deferred tax assets, which are recorded with a full valuation allowance, and (ii) no income tax expense or benefit being recognized as of the enactment date of the TCJA. We continue to examine the impact this tax reform legislation may have on our business. However, the effect of the TCJA on us and our affiliates, whether adverse or favorable, is uncertain and may not become evident for some period of time. We urge investors to consult with their legal and tax advisers regarding the implications of the TCJA on an investment in our common stock.

 

57


Table of Contents

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus, including the sections entitled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” contains express or implied forward-looking statements that are based on our management’s belief and assumptions and on information currently available to our management. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statements relate to future events or our future operational or financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements in this prospectus include, but are not limited to, statements about:

 

    the timing, progress and results of preclinical studies and clinical trials for SRF231 and other product candidates we may develop, including statements regarding the timing of initiation and completion of studies or trials and related preparatory work, the period during which the results of the trials will become available, and our research and development programs;

 

    the timing, scope or likelihood of regulatory filings and approvals, including timing of Investigational New Drug application and Biological Licensing Application filings for, and final U.S. Food and Drug Administration approval of SRF231 and any other future product candidates;

 

    the timing, scope or likelihood of foreign regulatory filings and approvals;

 

    our ability to use our understanding of the tumor microenvironment to identify product candidates and to match immunotherapies to select patient subsets;

 

    our ability to develop and advance our current product candidates and programs into, and successfully complete, clinical studies;

 

    our ability to develop combination therapies, whether on our own or in collaboration with Novartis and other third parties;

 

    our manufacturing, commercialization and marketing capabilities and strategy;

 

    the pricing and reimbursement of SRF231 and other product candidates we may develop, if approved;

 

    the rate and degree of market acceptance and clinical utility of SRF231 and other product candidates we may develop;

 

    the potential benefits of and our ability to maintain our collaboration with Novartis, and establish or maintain future collaborations or strategic relationships or obtain additional funding;

 

    our ability to retain the continued service of our key professionals and to identify, hire and retain additional qualified professionals;

 

    our intellectual property position, including the scope of protection we are able to establish and maintain for intellectual property rights covering SRF231 and other product candidates we may develop, the validity of intellectual property rights held by third parties, and our ability not to infringe, misappropriate or otherwise violate any third-party intellectual property rights;

 

    our competitive position, and developments and projections relating to our competitors and our industry;

 

    our expectations related to the use of our existing cash, cash equivalents and marketable securities and the proceeds from this offering and the concurrent private placement;

 

58


Table of Contents
    our estimates regarding expenses, future revenue, capital requirements and needs for additional financing; and

 

    the impact of laws and regulations.

In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which are, in some cases, beyond our control and which could materially affect results. 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. If one or more of these risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the forward-looking statements. No forward-looking statement is a guarantee of future performance. You should read this prospectus and the documents that we reference in this prospectus and have filed with the Securities and Exchange Commission as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from any future results expressed or implied by these forward-looking statements. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this prospectus, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

The forward-looking statements in this prospectus represent our views as of the date of this prospectus. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this prospectus.

 

59


Table of Contents

USE OF PROCEEDS

We estimate that our net proceeds from the sale of shares of our common stock in this offering will be approximately $        million, or $        million if the underwriters exercise in full their option to purchase additional shares, assuming an initial public offering price of $        per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. The net proceeds from the concurrent private placement will be $11.5 million. See “Concurrent Private Placement.”

Each $1.00 increase (decrease) in the assumed initial public offering price of $        per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) our net proceeds from this offering by $        million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Each 1,000,000 share increase (decrease) in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase (decrease) our net proceeds from this offering by $        million, assuming no change in the assumed initial public offering price per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We do not expect that a change in the offering price or the number of shares by these amounts would have a material effect on our intended uses of the net proceeds from this offering, although it may impact the amount of time prior to which we may need to seek additional capital.

Novartis Institutes for Biomedical Research, Inc. has agreed to purchase from us, concurrently with this offering in a private placement, $11.5 million of shares of our common stock at a price per share equal to the initial public offering price. See “Concurrent Private Placement.”

We are undertaking this offering in order to access the public capital markets and to increase our liquidity. We anticipate that we will use the net proceeds received by us in this offering and the concurrent private placement, together with our existing cash, cash equivalents and marketable securities, as follows:

 

    approximately $        million to advance our Phase 1 clinical trial of SRF231;

 

    approximately $        million for ongoing research and development activities related to our other programs; and

 

    use the remainder for working capital and other general corporate purposes, which will include hiring of additional personnel, capital expenditures and the costs of operating as a public company.

Based on our current plans, we believe that the anticipated net proceeds from this offering and the concurrent private placement, together with our existing cash, cash equivalents and marketable securities, will be sufficient to fund our operating expenses and capital expenditure requirements for at least              months.

This expected use of the net proceeds from this offering and the concurrent private placement represents our intentions based upon our current plans and business conditions. As of the date of this prospectus, we cannot predict with certainty all of the particular uses for the net proceeds to be received upon the completion of this offering and the concurrent private placement or the amounts that we will actually spend on the uses set forth above. The amounts and timing of our actual expenditures and the extent of clinical development may vary significantly depending on numerous factors, including the progress of our development efforts, the status of and results from preclinical studies or clinical trials we may commence in the future, as well as our existing collaboration with Novartis and any other

 

60


Table of Contents

collaborations that we may enter into with third parties for our current or future product candidates or business development opportunities we may engage in for our programs and any unforeseen cash needs. As a result, our management will retain broad discretion over the allocation of the net proceeds from this offering and the concurrent private placement.

Pending these uses, we intend to invest the net proceeds in high-quality, investment-grade, short-term fixed income instruments, which include corporate, financial institution, federal agency or U.S. government obligations.

 

61


Table of Contents

DIVIDEND POLICY

We have never declared or paid cash dividends on our capital stock. We currently intend to retain all available funds and any future earnings, if any, to fund the development and expansion of our business and we do not anticipate paying any cash dividends in the foreseeable future. Any future determination to pay dividends will be made at the discretion of our board of directors and will depend on various factors, including applicable laws, our results of operations, financial condition, future prospects, then applicable contractual restrictions and any other factors deemed relevant by our board of directors. Investors should not purchase our common stock with the expectation of receiving cash dividends.

 

62


Table of Contents

CAPITALIZATION

The following table sets forth our cash, cash equivalents and marketable securities and our capitalization as of December 31, 2017:

 

    on an actual basis;

 

    on a pro forma basis to give effect to:

 

    the automatic conversion of all outstanding shares of our preferred stock into an aggregate of 37,100,000 shares of common stock upon the completion of this offering; and

 

    the filing and effectiveness of our amended and restated certificate of incorporation; and

 

    on a pro forma as adjusted basis to give further effect to (i) our issuance and sale of              shares of our common stock in this offering at an assumed initial public offering price of $        per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us and (ii) the issuance and sale by us in the concurrent private placement of              shares of common stock to Novartis Institutes for Biomedical Research, Inc., based on the assumed initial public offering price.

The pro forma as adjusted information below is illustrative only, and our capitalization following the completion of this offering will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing. You should read the following table together with our consolidated financial statements and the related notes appearing at the end of this prospectus and the “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Description of Capital Stock” sections of this prospectus.

 

     As of December 31, 2017  
     Actual     Pro Forma     Pro Forma
As Adjusted
 
     (in thousands, except share and per
share data)
 

Cash, cash equivalents and marketable securities

   $ 63,309     $ 63,309     $               
  

 

 

   

 

 

   

 

 

 

Redeemable convertible preferred stock (Series A and, A-1), $0.0001 par value per share; 37,100,000 shares authorized, issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted

   $ 48,517     $     $  
  

 

 

   

 

 

   

 

 

 

Stockholders’ equity (deficit):

      

Preferred stock, $0.0001 par value per share; no shares authorized, issued or outstanding, actual; 5,000,000 shares authorized, no shares issued or outstanding, pro forma and pro forma as adjusted

              

Common stock, $0.0001 par value per share; 53,000,000 shares authorized, 5,909,996 shares issued and outstanding, actual; 150,000,000 shares authorized, 43,009,996 shares issued and outstanding, pro forma; 150,000,000 shares authorized,              shares issued and outstanding, pro forma as adjusted

     1       4    

Additional paid-in capital

     6,876       55,390    

Accumulated other comprehensive loss

     (246     (246  

Accumulated deficit

     (73,945     (73,945  
  

 

 

   

 

 

   

 

 

 

Total stockholders’ equity (deficit)

     (67,314     (18,797  
  

 

 

   

 

 

   

 

 

 

Total capitalization

   $ (18,797   $ (18,797   $  
  

 

 

   

 

 

   

 

 

 

 

63


Table of Contents

Each $1.00 increase (decrease) in the assumed initial public offering price of $        per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash, cash equivalents and marketable securities, additional paid-in capital, total stockholders’ equity and total capitalization by $        million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Each increase (decrease) of 1,000,000 shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash, cash equivalents and marketable securities, additional paid-in capital, total stockholders’ equity and total capitalization by $        million, assuming no change in the assumed initial public offering price per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The information presented in the table above does not include:

 

    6,835,286 shares of our common stock issuable upon the exercise of stock options outstanding as of December 31, 2017, at a weighted average exercise price of $1.67 per share (which excludes options to purchase an aggregate of 3,097,500 shares of common stock, at a weighted average exercise price of $5.01 per share, that were issued subsequent to December 31, 2017);

 

    1,612,599 shares of our common stock available for future issuance under our 2014 Stock Incentive Plan as of December 31, 2017 (of which 183,003 shares remained available for future issuance as of March 22, 2018);

 

                shares of our common stock that will become available for future issuance under our 2018 Stock Option and Incentive Plan, which will become effective in connection with the completion of this offering; and

 

                shares of our common stock that will become available for future issuance under our 2018 Employee Stock Purchase Plan, which will become effective in connection with the completion of this offering.

 

64


Table of Contents

DILUTION

If you invest in our common stock in this offering, your ownership interest will be diluted immediately to the extent of the difference between the initial public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock immediately after this offering and the concurrent private placement.

Our historical net tangible book value (deficit) as of December 31, 2017 was $(69.1) million, or $(11.69) per share of our common stock. Our historical net tangible book value (deficit) is the amount of our total tangible assets less our total liabilities and the carrying value of our preferred stock, which is not included within stockholders’ equity (deficit). Historical net tangible book value (deficit) per share represents historical net tangible book value (deficit) divided by the 5,909,996 shares of our common stock outstanding as of December 31, 2017.

Our pro forma net tangible book value (deficit) as of December 31, 2017 was $(20.6) million, or $(0.48) per share of our common stock. Pro forma net tangible book value (deficit) represents the amount of our total tangible assets less our total liabilities, after giving effect to the automatic conversion of all outstanding shares of our preferred stock into an aggregate of 37,100,000 shares of common stock upon the completion of this offering. Pro forma net tangible book value (deficit) per share represents pro forma net tangible book value (deficit) divided by the total number of shares outstanding as of December 31, 2017, after giving effect to the automatic conversion of all outstanding shares of our preferred stock into common stock upon the completion of this offering.

After giving further effect to (i) our issuance and sale of              shares of our common stock in this offering at an assumed initial public offering price of $        per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, and (ii) the issuance and sale by us in the concurrent private placement of              shares common stock to Novartis Institutes for Biomedical Research, Inc., based on the assumed initial public offering price, our pro forma as adjusted net tangible book value as of December 31, 2017 would have been $        million, or $        per share. This represents an immediate increase in pro forma as adjusted net tangible book value per share of $        to our existing stockholders and immediate dilution in pro forma as adjusted net tangible book value per share of $        to new investors purchasing common stock in this offering. Dilution per share to new investors purchasing common stock in this offering is determined by subtracting pro forma as adjusted net tangible book value per share after this offering and the concurrent private placement from the assumed initial public offering price per share paid by new investors. The following table illustrates this dilution on a per share basis:

 

Assumed initial public offering price per share

     $               

Historical net tangible book value (deficit) per share as of December 31, 2017

   $ (11.69  

Increase per share attributable to the automatic conversion of preferred stock upon the completion of this offering

     11.21    
  

 

 

   

Pro forma net tangible book value (deficit) per share as of December 31, 2017

     (0.48)    

Increase in pro forma net tangible book value (deficit) per share attributable to new investors purchasing common stock in this offering and the concurrent private placement

    
  

 

 

   

Pro forma as adjusted net tangible book value per share after this offering and the concurrent private placement

    
    

 

 

 

Dilution per share to new investors purchasing common stock in this offering

     $               
    

 

 

 

 

65


Table of Contents

Each $1.00 increase (decrease) in the assumed initial public offering price of $        per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) our pro forma as adjusted net tangible book value per share after this offering and the concurrent private placement by $        and dilution per share to new investors purchasing common stock in this offering by $        , 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 estimated underwriting discounts and commissions and estimated offering expenses payable by us. An increase of 1,000,000 shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase our pro forma as adjusted net tangible book value per share after this offering and the concurrent private placement by $        and decrease dilution per share to new investors purchasing common stock in this offering by $        , assuming no change in the assumed initial public offering price per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. A decrease of 1,000,000 shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would decrease our pro forma as adjusted net tangible book value per share after this offering and the concurrent private placement by $        and increase dilution per share to new investors purchasing common stock in this offering by $         , assuming no change in the assumed initial public offering price and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

If the underwriters exercise their option to purchase additional shares of common stock in this offering in full, our pro forma as adjusted net tangible book value per share after this offering and the concurrent private placement would be $        and dilution per share to new investors purchasing common stock in this offering would be $        , assuming an initial public offering price of $        per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The following table summarizes, as of December 31, 2017, on a pro forma as adjusted basis, the total number of shares of common stock purchased from us on an as converted to common stock basis, the total consideration paid or to be paid, and the average price per share paid or to be paid by existing stockholders and by new investors in this offering and the concurrent private placement, based on an assumed initial public offering price of $        per share, which is the midpoint of the price range set forth on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. As the table shows, new investors purchasing common stock in this offering will pay an average price per share substantially higher than our existing stockholders paid.

 

     Shares Purchased     Total Consideration     Average
Price Per
Share
 
     Number      Percent     Amount      Percent    

Existing stockholders

    
43,009,996
 
            $ 48,829,210               $
1.14
 

Concurrent private placement investor

             $  

New investors

             $  
  

 

 

    

 

 

   

 

 

    

 

 

   

Total

        100.0   $        100.0  
  

 

 

    

 

 

   

 

 

    

 

 

   

The table above assumes no exercise of the underwriters’ option to purchase additional shares in this offering. If the underwriters’ option to purchase additional shares is exercised in full, the number of shares of our common stock held by existing stockholders would be reduced to     % of the total number of shares of our common stock outstanding after this offering and the concurrent private placement, and the number of shares of common stock held by new investors purchasing common stock in this offering would be increased to     % of the total number of shares outstanding after this offering and the concurrent private placement.

 

66


Table of Contents

The information presented in the tables above do not include:

 

    6,835,286 shares of our common stock issuable upon the exercise of stock options outstanding as of December 31, 2017, at a weighted average exercise price of $1.67 per share (which excludes options to purchase an aggregate of 3,097,500 shares of common stock, at a weighted average exercise price of $5.01 per share, that were issued subsequent to December 31, 2017);

 

    1,612,599 shares of our common stock available for future issuance under our 2014 Stock Incentive Plan as of December 31, 2017 (of which 183,003 shares remained available for future issuance as of March 22, 2018);

 

                shares of our common stock that will become available for future issuance under our 2018 Stock Option and Incentive Plan, which will become effective in connection with the completion of this offering; and

 

                shares of our common stock that will become available for future issuance under our 2018 Employee Stock Purchase Plan, which will become effective in connection with the completion of this offering.

To the extent that stock options are exercised or new stock options are issued under our equity incentive plans, there will be further dilution to investors purchasing common stock in this offering. In addition, we may choose to raise additional capital 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 additional capital is raised through the sale of equity or convertible debt securities, the issuance of these securities may result in further dilution to our stockholders.

 

67


Table of Contents

SELECTED CONSOLIDATED FINANCIAL DATA

You should read the following selected consolidated financial data together with our consolidated financial statements and the related notes appearing at the end of this prospectus and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this prospectus. We have derived the consolidated statement of operations data for the years ended December 31, 2016 and 2017 and the consolidated balance sheet data as of December 31, 2016 and 2017 from our audited consolidated financial statements appearing at the end of this prospectus. Our historical results are not necessarily indicative of results that may be expected in the future.

 

     Year Ended
December 31,
 
     2016     2017  
     (in thousands, except
per share data)
 

Consolidated Statement of Operations Data:

    

Collaboration revenue

   $ 6,632     $ 12,826  
  

 

 

   

 

 

 

Operating expenses:

    

Research and development

     20,492       47,783  

General and administrative

     4,144       11,033  
  

 

 

   

 

 

 

Total operating expenses

     24,636       58,816  
  

 

 

   

 

 

 

Loss from operations

     (18,004     (45,990

Interest and other income (expense), net

     551       613  
  

 

 

   

 

 

 

Net loss

     (17,453     (45,377

Accretion of redeemable convertible preferred stock to redemption value

     (41     (40
  

 

 

   

 

 

 

Net loss attributable to common stockholders

   $ (17,494   $ (45,417
  

 

 

   

 

 

 

Net loss per share attributable to common stockholders—basic and diluted

   $ (3.32   $ (8.34
  

 

 

   

 

 

 

Weighted average common shares outstanding—basic and diluted

     5,267       5,445  
  

 

 

   

 

 

 

Pro forma net loss per share attributable to common stockholders—basic and diluted (unaudited)(1)

     $ (1.07
    

 

 

 

Pro forma weighted average common shares outstanding—basic and diluted (unaudited)(1)

       42,545  
    

 

 

 

 

(1) See Note 12 to our consolidated financial statements appearing at the end of this prospectus for further details on the calculation of basic and diluted net loss per share attributable to common stockholders and on the calculation of pro forma basic and diluted net loss per share attributable to common stockholders.

 

     As of December 31,  
     2016     2017  
     (in thousands)  

Consolidated Balance Sheet Data:

    

Cash, cash equivalents and marketable securities

   $ 79,151     $ 63,309  

Working capital(1)

     76,968       47,946  

Total assets

     98,139       81,454  

Redeemable convertible preferred stock

     48,477       48,517  

Total stockholders’ deficit

     (26,912     (67,314

 

(1) We define working capital as current assets less current liabilities.

 

68


Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

You should read the following discussion and analysis of financial condition and operating results together with the section captioned “Selected Consolidated Financial Data” and our consolidated financial statements and the related notes appearing at the end of this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. As a result of many factors, such as those set forth in the section of the prospectus captioned “Risk Factors” and elsewhere in this prospectus, our actual results may differ materially from those anticipated in these forward-looking statements.

Overview

We are a clinical-stage immuno-oncology company focused on using our specialized knowledge of the biological pathways critical to the immunosuppressive tumor microenvironment, or the TME, for the development of next-generation cancer therapies. While first-generation immuno-oncology therapies, such as checkpoint inhibitors, are a remarkable therapeutic advancement, we believe most patients do not achieve durable clinical benefit primarily because these therapies focus on only one element of the complex and interconnected immunosuppressive TME. We believe there is a significant opportunity to more broadly engage the body’s immune system in a multi-faceted, coordinated and personalized approach, to meaningfully improve cure rates for patients with a variety of cancers. Our approach is to identify key components within the TME to gain a deep understanding of its biology, leverage this understanding to define optimal therapeutic targets and the patients most likely to benefit and develop novel antibody therapeutics with differentiated biologic activity. By utilizing our specialized knowledge and expertise in immunology, oncology, antibody selection and characterization, and translational research, we have developed a broad pipeline of TME-focused programs that we believe are the next generation of immuno-oncology therapies. In January 2016, we entered into a strategic collaboration with Novartis to leverage our combined expertise and resources to develop novel immunotherapies targeting the TME.

Our lead product candidate, SRF231, targets a protein called cluster of differentiation, or CD, 47. We initiated a Phase 1 clinical trial of SRF231 in February 2018 and expect to report initial clinical results from this trial in the first half of 2019. An Investigational New Drug application, or IND, for our next program, SRF373, which targets CD73, was sponsored and filed by Novartis with the U.S. Food and Drug Administration in February 2018, and we anticipate SRF373 entering clinical trials in 2018. SRF373 has been exclusively licensed on a worldwide basis to Novartis. The lead product candidates for our CD39 and interleukin 27, or IL-27, programs, SRF617 and SRF388, respectively, are anticipated to begin IND-enabling studies in 2018.

We were incorporated and commenced principal operations in 2014. We have devoted substantially all of our resources to developing our programs, including SRF231 and SRF373, building our intellectual property portfolio, business planning, raising capital and providing general and administrative support for these operations. To date, we have financed our operations with proceeds from the sales of preferred stock and payments received under a collaboration agreement, or the Collaboration Agreement, with Novartis Institutes for BioMedical Research, Inc., or Novartis. Through December 31, 2017, we had received gross proceeds of $48.6 million from our sales of preferred stock and $105.0 million from the Collaboration Agreement. In February 2018, we received an additional milestone payment of $45.0 million under the Collaboration Agreement upon the achievement of a specified milestone. As of December 31, 2017, we had cash, cash equivalents and marketable securities of $63.3 million.

Since our inception, we have incurred significant losses. Our ability to generate product revenue sufficient to achieve profitability will depend on the successful development and eventual

 

69


Table of Contents

commercialization of one or more of the product candidates we develop. Our net losses were $17.5 million for the year ended December 31, 2016 and $45.4 million for the year ended December 31, 2017. As of December 31, 2017, we had an accumulated deficit of $73.9 million. We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. We anticipate that our expenses will increase substantially, particularly as we:

 

    pursue the clinical development of product candidates;

 

    leverage our programs to advance product candidates into preclinical and clinical development;

 

    seek regulatory approvals for any product candidates that successfully complete clinical trials;

 

    hire additional clinical, quality control and scientific personnel;

 

    expand our operational, financial and management systems and increase personnel, including personnel to support our clinical development, manufacturing and commercialization efforts and our operations as a public company;

 

    maintain, expand and protect our intellectual property portfolio;

 

    establish a sales, marketing, medical affairs and distribution infrastructure to commercialize any products for which we may obtain marketing approval and intend to commercialize on our own or jointly;

 

    acquire or in-license other product candidates and technologies; and

 

    incur additional costs associated with operating as a public company.

As a result, we will need additional financing to support our continuing operations. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of public or private equity or debt financings or other sources, which may include collaborations with third parties. We may be unable to raise additional funds or enter into other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as and when needed, we may have to significantly delay, scale back or discontinue the development or commercialization of one or more of our product candidates.

Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate revenue from product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.

We believe that the anticipated net proceeds from this offering and the concurrent private placement, together with our existing cash, cash equivalents and marketable securities, will enable us to fund our operating expenses and capital expenditure requirements for at least              months. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. See “—Liquidity and Capital Resources” and “Concurrent Private Placement.”

Components of Our Results of Operations

Revenue

To date, we have not generated any revenue from product sales and do not expect to do so in the near future. All of our revenue to date has been derived from the Collaboration Agreement. If our development efforts for our programs are successful and result in regulatory approval or additional

 

70


Table of Contents

license or collaboration agreements with third parties, we may generate revenue in the future from a combination of product sales or payments from additional collaboration or license agreements that we may enter into with third parties. We expect that our revenue for the next several years will be derived primarily from the Collaboration Agreement as well as any additional collaborations that we may enter into in the future.

Collaboration Agreement with Novartis

In January 2016, we entered into the Collaboration Agreement to develop next-generation cancer therapies. Under the Collaboration Agreement, as amended, we are responsible for performing research on antibodies that bind to CD73 and four other specified targets. We are responsible for all costs and expenses incurred by or on behalf of us in connection with the research. Novartis also has the right, but not the obligation, to conduct research at its own cost on antibodies that bind to CD73 in accordance with the agreement.

Pursuant to the Collaboration Agreement, we granted Novartis a worldwide exclusive license to research, develop, manufacture and commercialize antibodies that target CD73, along with the right to purchase exclusive option rights, each an Option, for up to four specified targets, each an Option Target, to obtain certain development, manufacturing and commercialization rights. If Novartis purchases an Option, following receipt of the IND acceptance for a candidate with respect to the applicable Option Target, Novartis will be entitled to exercise the Option for such Option Target. Pursuant to the Collaboration Agreement, Novartis initially had the right to exercise up to three purchased Options. In March 2018, Novartis notified us of its decision to not exercise its previously purchased Option for SRF231, our CD47 product candidate. In March 2018, we and Novartis also mutually agreed to cease development of one of the undisclosed programs subject to the Collaboration Agreement. As a result, Novartis has two Options remaining eligible for purchase, both of which can be exercised.

At the time we entered into the Collaboration Agreement in January 2016, Novartis made an upfront payment to us of $70.0 million. Under the Collaboration Agreement, Novartis will also pay us a fee to purchase each Option for each Option Target and another fee to exercise an Option. As of December 31, 2017, we had received $5.0 million in option purchase payments and we are currently entitled to an aggregate of up to $67.5 million of potential option purchase and option exercise payments. We are also eligible to receive payments on a target-by-target basis upon the achievement of specified development and sales milestones and tiered royalties on annual net sales by Novartis of licensed products ranging from high single-digit to mid-teens percentages upon successful commercialization of any products. Under the Collaboration Agreement, we are currently entitled to potential option purchase, option exercise and milestone payments aggregating up to $1.17 billion, of which $35.0 million had been received as of December 31, 2017. Such amount of potential option purchase, option exercise and milestone payments assumes that Novartis purchases, and exercises both of the remaining Options available to it pursuant to the Collaboration Agreement as well as the successful clinical development of and achievement of all sales milestones for all targets covered by the Collaboration Agreement. In February 2018, we received an additional milestone payment of $45.0 million from Novartis. In addition, we are required to pay Novartis tiered royalties on annual net sales by us of regional licensed products in the United States ranging from high single-digit to mid-teens percentages. The royalty payments are subject to reduction under specified conditions set forth in the Collaboration Agreement. In January 2016, Novartis also purchased $13.5 million of our Series A-1 preferred stock. The equity investment was made at fair value, and we determined it to be distinct from the Collaboration Agreement.

We determined that the deliverables under the Collaboration Agreement included (i) the worldwide exclusive license to CD73 antibody candidates, which was delivered to Novartis in January 2016 upon entering into the agreement, and (ii) our research and development and joint steering

 

71


Table of Contents

committee participation obligations under the agreement. We also determined that none of these deliverables have standalone value due to the specialized nature of the services to be provided by us in connection with the Collaboration Agreement. Therefore, at the inception of the arrangement, we concluded that the deliverables were not separable and, accordingly, we treat the license and undelivered services as a single unit of accounting and recognize revenue on a straight-line basis over the period that we expect to complete our performance obligations under the agreement, which we estimated to be ten years. Accordingly, we are recognizing the upfront payment of $70.0 million we received from Novartis, net of our estimate of aggregate payments of $3.4 million to be made to Novartis for the reimbursement of manufacturing costs incurred during the CD73 research period as required by the Collaboration Agreement, over the estimated ten-year period of performance.

In December 2016, Novartis purchased an exclusive option right to antibodies that bind to CD47, for $5.0 million. At that time, we concluded that license and other obligations underlying the exclusive option right held by Novartis represented separate and additional deliverables that Novartis may receive from us in future periods. Accordingly, in December 2016, we recorded $5.0 million of deferred revenue for the option purchase payment and will not commence recognizing any revenue related to the payment until either (i) Novartis elects not to exercise its option or (ii) Novartis exercises its option and we commence our performance obligations with respect CD47 under the arrangement. In March 2018, Novartis notified us of its decision to not exercise this option.

In May 2017, we received a milestone payment of $30.0 million from Novartis upon initiation of the first Good Laboratory Practice, or GLP, toxicology study for SRF373, our program that targets CD73. Upon achieving the milestone, we recognized as revenue $4.0 million, which represented the percentage of the performance period completed when the milestone was achieved, multiplied by the amount of the payment. The remaining $26.0 million is being recognized as revenue on a straight-line basis over the remaining period that we expect to complete our performance obligations under the Collaboration Agreement, as described above.

Through December 31, 2017, we had received an aggregate of $105.0 million from Novartis in upfront payments, milestone payments and option purchase payments.

During the years ended December 31, 2016 and 2017, we recognized revenue of $6.6 million and $12.8 million, respectively, related to the Collaboration Agreement.

Effective January 1, 2018, we will be required to adopt a new revenue recognition standard, which will change the manner in which we recognize revenue from the Collaboration Agreement. Under the new standard, we will recognize revenue from the Collaboration Agreement earlier during the performance period as a result of applying the cost-to-cost method, in contrast to recognizing revenue on a straight-line basis over the estimated ten-year performance period under the existing standard. For additional information, see “—Critical Accounting Policies and Significant Judgments and Estimates—Revenue Recognition.”

In February 2018, we received an additional milestone payment of $45.0 million from Novartis upon Novartis’ receipt of the first final audited GLP toxicology study report for SRF373. We expect that we will recognize as revenue a significant portion of the $45.0 million payment in the first quarter of 2018, based on the ratio of our actual costs incurred as of the milestone achievement date to our total estimated costs with respect to performing research on antibodies that bind to CD73 and other specified targets under the Collaboration Agreement. The remaining unrecognized amount will initially be recorded as deferred revenue and will subsequently be recognized as revenue over the performance period in proportion to the costs incurred by us under the Collaboration Agreement.

 

72


Table of Contents

Operating Expenses

Research and Development Expenses

Research and development expenses are expensed as incurred and consist of costs incurred for our research activities, including our discovery efforts, and the development of our programs. These expenses include:

 

    salaries, benefits and other related costs, including stock-based compensation, for personnel engaged in research and development functions;

 

    expenses incurred in connection with the preclinical development of our programs and clinical trials of our product candidates, including under agreements with third parties, such as consultants and contractors and contract research organizations, or CROs;

 

    the cost of manufacturing drug products for use in our preclinical studies and future clinical trials, including under agreements with third parties, such as consultants and contractors and contract manufacturing organizations, or CMOs;

 

    laboratory supplies;

 

    facilities, depreciation and other expenses, which include direct and allocated expenses for depreciation and amortization, rent and maintenance of facilities, insurance and supplies; and

 

    third-party license fees.

We do not track our internal research and development expenses on a program-by-program basis as they primarily relate to personnel, early research and consumable costs, which are deployed across multiple projects under development. These costs are included in unallocated research and development expenses in the table below. A portion of our research and development costs are external costs, which we do track on a program-by-program basis.

The following table summarizes our research and development expenses by program:

 

     Year Ended
December 31,
        
     2016      2017      Change  
     (in thousands)  

SRF231

   $ 7,724      $ 22,072      $ 14,348  

SRF373

     1,281        2,295        1,014  

SRF388

     1,067        2,767        1,700  

Other early-stage programs

     1,845        4,737        2,892  

Unallocated research and discovery expenses

     8,575        15,912        7,337  
  

 

 

    

 

 

    

 

 

 

Total research and development expenses

   $ 20,492      $ 47,783      $ 27,291  
  

 

 

    

 

 

    

 

 

 

Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. As a result, we expect our research and development expenses to increase over the next several years as we initiate clinical trials and pursue later stages of development of SRF231 and SRF388, initiate clinical trials for the product candidates we develop and continue to discover and develop additional product candidates.

At this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the development of our any product candidates that we develop from our programs. We are also unable to predict when, if ever, material net cash inflows will

 

73


Table of Contents

commence from sales of product candidates we develop. This is due to the numerous risks and uncertainties associated with developing product candidates, including the uncertainty of:

 

    successful completion of clinical trials and preclinical studies;

 

    sufficiency of our financial and other resources to complete the necessary clinical trials and preclinical studies;

 

    acceptance of INDs for our planned clinical trials or future clinical trials;

 

    successful enrollment and completion of clinical trials;

 

    successful data from our clinical program that supports an acceptable risk-benefit profile of our product candidates in the intended populations;

 

    receipt of regulatory and marketing approvals from applicable regulatory authorities;

 

    receipt and maintenance of marketing approvals from applicable regulatory authorities;

 

    establishing agreements with third-party manufacturers for clinical supply for our clinical trials and commercial manufacturing, if our product candidate is approved;

 

    entry into collaborations to further the development of our product candidates;

 

    obtaining and maintaining patent and trade secret protection or regulatory exclusivity for our product candidates;

 

    successfully launching commercial sales of our product candidates, if and when approved;

 

    acceptance of the product candidate’s benefits and uses, if and when approved, by patients, the medical community and third-party payors;

 

    maintaining a continued acceptable safety profile of the product candidates following approval;

 

    effectively competing with other therapies; and

 

    obtaining and maintaining healthcare coverage and adequate reimbursement from third-party payors.

A change in the outcome of any of these variables with respect to the development of any of our programs or any product candidate we develop would significantly change the costs, timing and viability associated with the development of such program or product candidate.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and personnel-related costs, including stock-based compensation, for our personnel in executive, legal, finance and accounting, human resources and other administrative functions. General and administrative expenses also include legal fees relating to patent and corporate matters; professional fees paid for accounting, auditing, consulting and tax services; insurance costs; travel expenses; and facility costs not otherwise included in research and development expenses.

We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research activities and development of our programs. We also anticipate that we will incur increased accounting, audit, legal, regulatory, compliance, director and officer insurance costs as well as investor and public relations expenses associated with operating as a public company.

 

74


Table of Contents

Interest and Other Income (Expense), Net

Interest and other income consists primarily of interest earned on our cash, cash equivalents and marketable securities. We expect our interest income to increase slightly in the future due to investing the anticipated net cash proceeds from this offering.

Income Taxes

We have not recorded any income tax benefits for the net losses we incurred or for the research and development tax credits we generated during the years ended December 31, 2016 and 2017 as we believed, based upon the weight of available evidence, that it was more likely than not that all of the net operating loss carryforwards and tax credits will not be realized. As of December 31, 2017, we had federal and state net operating loss carryforwards of $20.8 million and $19.9 million, respectively, which may be available to offset future income tax liabilities and begin to expire in 2034. As of December 31, 2017, we also had federal and state research and development tax credit carryforwards of $0.7 million and $0.2 million, respectively, which begin to expire in 2034 and 2030, respectively. Through December 31, 2017, we had recorded a full valuation allowance against our net deferred tax assets at each balance sheet date.

Results of Operations

Comparison of Years Ended December 31, 2016 and 2017

The following table summarizes our results of operations for the years ended December 31, 2016 and 2017, along with the changes in those items:

 

     Year Ended
December 31,
       
     2016     2017     Change  
     (in thousands)  

Collaboration revenue

   $ 6,632     $ 12,826     $ 6,194  
  

 

 

   

 

 

   

 

 

 

Operating expenses:

      

Research and development

     20,492       47,783       27,291  

General and administrative

     4,144       11,033       6,889  
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     24,636       58,816       34,180  
  

 

 

   

 

 

   

 

 

 

Loss from operations

     (18,004     (45,990     (27,986

Interest and other income (expense), net

     551       613       62  
  

 

 

   

 

 

   

 

 

 

Net loss

   $ (17,453   $ (45,377   $ (27,924
  

 

 

   

 

 

   

 

 

 

Collaboration Revenue

Collaboration revenue was $6.6 million and $12.8 million for the years ended December 31, 2016 and 2017, respectively, all of which was derived from the Collaboration Agreement. The increase in collaboration revenue during the year ended December 31, 2017 was primarily due to the partial recognition of revenue related to a milestone payment of $30.0 million that we received in May 2017 from Novartis upon initiation of the first GLP toxicology study for SRF373.

 

75


Table of Contents

Research and Development Expenses

 

     Year Ended
December 31,
        
     2016      2017      Change  
     (in thousands)  

Direct research and development expenses by program:

        

SRF231

   $ 7,724      $ 22,072      $ 14,348  

SRF373

     1,281        2,295        1,014  

SRF388

     1,067        2,767        1,700  

Other early-stage programs

     1,845        4,737        2,892  

Research and discovery and unallocated expenses:

        

Personnel related (including stock-based compensation)

     5,342        10,212        4,870  

Facility related and other

     3,233        5,700        2,467  
  

 

 

    

 

 

    

 

 

 

Total research and development expenses

   $ 20,492      $ 47,783      $ 27,291  
  

 

 

    

 

 

    

 

 

 

Research and development expenses were $20.5 million for the year ended December 31, 2016, compared to $47.8 million for the year ended December 31, 2017. The increase of $27.3 million was primarily due to increases of $14.3 million in external costs for our SRF231 program, $1.0 million in external costs for our SRF373 program, $1.7 million in external costs for our SRF388 program, $2.9 million in external costs for our other early-stage programs and $7.3 million for research and discovery and unallocated costs.

The increase in research and development expenses for our SRF231 program was primarily related to advancing the program through IND-enabling activities and clinical material production costs.

The increases in research and development expenses for our SRF373 and SRF388 programs were primarily due to commencement of IND-enabling activities for each program.

The increase in research and development expenses for our other early-stage programs was primarily due to advancement and initiation of new early discovery programs.

The increase in research and discovery and unallocated expenses was primarily due to increases of $4.9 million in personnel-related costs (including an increase in stock-based compensation expense of $1.1 million) due to increased headcount and $2.5 million in increased facility and laboratory costs related to our new corporate headquarters.

General and Administrative Expenses

General and administrative expenses were $4.1 million for the year ended December 31, 2016, compared to $11.0 million for the year ended December 31, 2017. The increase of $6.9 million was primarily due to an increase of $5.5 million in personnel-related costs as a result of both an increase in headcount as well as a one-time charge of $2.3 million related to separation costs for our former chief executive officer; an increase of $0.9 million for professional fees related to legal and audit services; and an increase of $0.5 million in facility costs related to our new corporate headquarters.

Interest and Other Income (Expense), Net

Interest and other income was $0.6 million during the years ended December 31, 2016 and 2017 due primarily to interest income on invested balances of our cash, cash equivalents and marketable securities.

 

76


Table of Contents

Liquidity and Capital Resources

Since our inception, we have incurred significant operating losses. We have generated limited revenue to date from the Collaboration Agreement. We have not yet commercialized any product and we do not expect to generate revenue from sales of any products for several years, if at all. To date, we have financed our operations with proceeds from the sales of preferred stock and payments received under the Collaboration Agreement. Through December 31, 2017, we had received gross proceeds of $48.6 million from our sales of preferred stock and $105.0 million from the Collaboration Agreement. In February 2018, we received an additional milestone payment of $45.0 million under the Collaboration Agreement. As of December 31, 2017, we had cash, cash equivalents and marketable securities of $63.3 million.

Future Funding Requirements

We expect our expenses to increase substantially in connection with our ongoing activities, in particular as we continue to advance our product candidates and our discovery programs and conduct research under the Collaboration Agreement. In addition, upon the completion of this offering, we expect to incur additional costs associated with operating as a public company.

We believe that the anticipated net proceeds from this offering and the concurrent private placement, together with our existing cash, cash equivalents and marketable securities, will enable us to fund our operating expenses and capital expenditure requirements for at least              months. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our capital resources sooner than we expect.

Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical product candidates, we are unable to estimate the exact amount of our working capital requirements. Our future funding requirements will depend on and could increase significantly as a result of many factors, including:

 

    completing clinical and preclinical development of product candidates and programs, identifying product candidates, completing clinical development of such product candidates and identifying and developing new product candidates;

 

    seeking and obtaining marketing approvals for any of product candidates that we develop;

 

    launching and commercializing product candidates for which we obtain marketing approval by establishing a sales force, marketing, medical affairs and distribution infrastructure or, alternatively, collaborating with a commercialization partner;

 

    achieving adequate coverage and reimbursement by hospitals, government and third-party payors for product candidates that we develop;

 

    establishing and maintaining supply and manufacturing relationships with third parties that can provide adequate, in both amount and quality, products and services to support clinical development and the market demand for product candidates that we develop, if approved;

 

    obtaining market acceptance of product candidates that we develop as viable treatment options;

 

    addressing any competing technological and market developments;

 

    negotiating favorable terms in any collaboration, licensing or other arrangements into which we may enter and performing our obligations in such collaborations;

 

    maintaining, protecting and expanding our portfolio of intellectual property rights, including patents, trade secrets and know-how;

 

77


Table of Contents
    defending against third-party interference or infringement claims, if any; and

 

    attracting, hiring and retaining qualified personnel.

A change in the outcome of any of these or other variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate. Further, our operating plans may change in the future, and we may need additional funds to meet operational needs and capital requirements associated with such operating plans.

In addition to the variables described above, if and when any product candidate we develop successfully completes development, we will incur substantial additional costs associated with regulatory filings, marketing approval, post-marketing requirements, maintaining our intellectual property rights, and regulatory protection, in addition to other costs. We cannot reasonably estimate these costs at this time.

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity or debt financings and collaboration arrangements, including the Collaboration Agreement. We currently have no credit facility or committed sources of capital. To the extent that we raise additional capital through the future sale of equity or debt, the ownership interests of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing common stockholders. If we raise additional funds through the issuance of debt securities, these securities could contain covenants that would restrict our operations. We may require additional capital beyond our currently anticipated amounts. Additional capital may not be available on reasonable terms, or at all. If we raise additional funds through collaboration arrangements in the future, we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates, or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or terminate development or future commercialization efforts.

Cash Flows

The following table summarizes information regarding our cash flows for each of the periods presented:

 

     Year Ended
December 31,
 
     2016     2017  
     (in thousands)  

Net cash provided by (used in):

    

Operating activities

   $ 41,413     $ (12,422

Investing activities

     (69,968     25,918  

Financing activities

     25,942       (1,036
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

   $ (2,613   $ 12,460  
  

 

 

   

 

 

 

Operating Activities

During the year ended December 31, 2017, net cash used by operating activities was $12.4 million, primarily due to our net loss of $45.4 million partially offset by net cash provided by changes in our operating assets and liabilities of $26.7 million and non-cash charges of $6.2 million. Net cash provided by changes in our operating assets and liabilities for the year ended December 31, 2017 consisted primarily of a $17.2 million increase in deferred revenue, a $5.0 million decrease in

 

78


Table of Contents

amounts due from Novartis, a related party, a $2.9 million increase in accrued expenses and other current liabilities and a $1.1 million decrease in prepaid expenses and other current assets. The increase in deferred revenue was due to the $35.0 million of aggregate milestone and option purchase payments received from Novartis during the year ended December 31, 2017, which were not fully recognized as revenue at that time. The increase in accrued expenses and other current liabilities was primarily due to increased manufacturing costs incurred to support ongoing clinical trial activities and payroll related accruals. The decrease in prepaid expenses and other current assets was primarily due to a reduction in prepaid taxes.

During the year ended December 31, 2016, net cash provided by operating activities was $41.4 million, primarily resulting from net cash provided by changes in our operating assets and liabilities of $58.6 million and net non-cash charges of $0.3 million, partially offset by our net loss of $17.5 million. Net cash provided by changes in our operating assets and liabilities for the year ended December 31, 2016 consisted primarily of a $64.9 million increase in deferred revenue, a $5.4 million increase in accrued expenses and other current liabilities and a $1.8 million increase in accounts payable, partially offset by an $8.5 million increase in prepaid expenses and other current assets and a $5.0 million increase in amounts due from Novartis, a related party. The increase in deferred revenue was due to the $70.0 million upfront payment received from Novartis during the year ended December 31, 2016, which was not fully recognized as revenue at that time. The increase in accrued expenses and other current liabilities was due to accruals related to manufacturing costs. The increase in accounts payable was due to timing of invoices for clinical manufacturing costs. The increase in prepaid expenses and other current assets was due to prepayments for estimated taxes. The increase in amounts due from Novartis were the result of our achievement in December 2016 of a specified milestone under the Collaboration Agreement.

Investing Activities

During the year ended December 31, 2017, net cash provided by investing activities was $25.9 million, consisting primarily of $27.9 million of proceeds from sales or maturities of marketable securities, partially offset by $2.0 million of purchases of property and equipment, primarily related to leasehold improvements in our corporate headquarters facility.

During the year ended December 31, 2016, net cash used in investing activities was $70.0 million, consisting primarily of $97.0 million for purchases of marketable securities, an increase in restricted cash of $1.0 million and $0.8 million of purchases of property and equipment, all partially offset by $28.9 million of proceeds from sales or maturities of marketable securities.

Financing Activities

During the year ended December 31, 2017, net cash used by financing activities was $1.0 million, consisting primarily of payments of initial public offering costs of $1.2 million, partially offset by $0.1 million of proceeds received from the exercise of stock options.

During the year ended December 31, 2016, net cash provided by financing activities was $25.9 million, consisting primarily of net proceeds from the sales of our Series A and Series A-1 preferred stock.

 

79


Table of Contents

Contractual Obligations and Commitments

The following table summarizes our contractual obligations as of December 31, 2017 and the effects that such obligations are expected to have on our liquidity and cash flow in future periods:

 

     Payments Due by Period  
     Total      Less Than
1 Year
     1 to 3
Years
     4 to 5
Years
     More Than
5 Years
 
     (in thousands)  

Operating lease commitments(1)

   $ 24,800      $ 2,497      $ 5,018      $ 5,323      $ 11,962  

Research and manufacturing commitments(2)

     14,511        13,320        1,191                
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 39,311      $ 15,817      $ 6,209      $ 5,323      $ 11,962  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

 

(1) Reflects payments due for leases of office and laboratory space that expire between March 2018 and February 2027.
(2) Reflects commitments for costs associated with external CMOs and CROs engaged to manufacture clinical trial materials as well as to conduct discovery research and preclinical development activities.

Under various license and collaboration agreements to which we are a party, we may be required to make milestone payments and pay royalties and other amounts to third parties. We have not included any such contingent payment obligations in the table above as the amount, timing and likelihood of such payments are not known.

Under our Collaboration Agreement, if Novartis obtains a regional license from us for a product under the agreement, we will be required to pay to Novartis tiered royalties of a high single-digit to mid-teens percentage on annual net sales in the United States by us or our sublicensees of regional licensed products under the agreement.

Under our license agreement with Harbour Antibodies H2L2 BV, or H2L2, we are obligated to pay to H2L2 a low five-digit upfront license fee for each antibody program that we initiate using the H2L2 mice. In addition, we may be obligated to pay up to an aggregate of $1.04 million in milestone payments to H2L2 for each antibody product we develop through Phase 3 clinical trials and regulatory approval. We are required to pay H2L2 a one-time sales performance payment of a low seven-digit dollar amount for each antibody product that is commercialized and achieves worldwide gross sales in excess of a low eight-digit dollar amount. If we enter into an agreement with a third party to further research or commercialize an antibody product developed under the H2L2 agreement, then we are obligated to pay H2L2 a one-time payment of the lesser of (i) a low double-digit percentage of the upfront fee paid to us by the third party or (ii) a low six-digit dollar amount.

Under our license agreement with Harbour Antibodies B.V., or Harbour, we are required to pay a nominal annual maintenance fee during the term of the agreement. In addition, we are obligated to pay up to an aggregate of $4.75 million upon the achievement of specified development and commercial milestones for each product licensed under the agreement. We are also obligated to pay Harbour royalties of a low single-digit percentage on the worldwide net sales of any licensed product on a country-by-country basis.

Under our development and option agreement with Adimab LLC, or Adimab, we are obligated to make milestone payments and to pay specified fees upon the exercise of the research or commercialization options under the agreement. During the discovery term, we may be obligated to pay Adimab up to $250,000 for technical milestones achieved against each biological target. Upon exercise of a research option, we are obligated to pay a nominal research maintenance fee on each of

 

80


Table of Contents

the next four anniversaries of the exercise. Upon the exercise of each commercialization option, we will be required to pay an option exercise fee of a low seven-digit dollar amount, and we may be responsible for milestone payments of up to an aggregate of $13.0 million for each licensed product that receives marketing approval. For any licensed product that is commercialized, we are obligated to pay Adimab tiered royalties of a low to mid single-digit percentage on worldwide net sales of such product. We may also partially exercise a commercialization option with respect to ten antibodies against a biological target by paying 65% of the option fee and later either (i) paying the balance and choosing up to 20 antibodies for commercialization or (ii) foregoing the commercialization option entirely.

Critical Accounting Policies and Significant Judgments and Estimates

Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses in our consolidated financial statements. We base our estimates on our historical experience, known trends and events and 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. We evaluate our estimates and assumptions on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in Note 2 to our consolidated financial statements appearing at the end of this prospectus, we believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

Revenue Recognition

We recognize revenue from license and collaboration agreements in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 605, Revenue Recognition, or ASC 605. Accordingly, revenue is recognized when all of the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the seller’s price to the buyer is fixed or determinable, and collectibility is reasonably assured.

When evaluating multiple-element arrangements, we consider whether the deliverables under the arrangement represent separate units of accounting. This evaluation requires subjective determinations and requires us to make judgments about the individual deliverables and whether such deliverables are separable from the other aspects of the contractual relationship. In determining the units of accounting, we evaluate certain criteria, including whether the deliverables have standalone value, based on the consideration of the relevant facts and circumstances for each arrangement. The consideration to be received under each arrangement is allocated to the separate units of accounting using the relative selling price method, and the applicable revenue recognition criteria are applied to each of the separate units. Deliverables are considered separate units of accounting provided that (i) the delivered item has value to the customer on a standalone basis and (ii) if the arrangement includes a general right of return with respect to the delivered item, delivery or performance of the undelivered items is considered probable and substantially within our control. In assessing whether an item has standalone value, we consider factors such as the research, manufacturing and commercialization capabilities of the collaboration partner and the availability of the associated expertise in the general marketplace. In addition, we consider whether our collaboration partner can

 

81


Table of Contents

use the deliverable for its intended purpose without the receipt of the remaining deliverables, whether the value of the deliverable is dependent on the undelivered items and whether there are other vendors that can provide the undelivered items.

Arrangement consideration that is fixed or determinable is allocated among the separate units of accounting using the relative selling price method. Then, the applicable revenue recognition criteria in ASC 605-25 are applied to each of the separate units of accounting in determining the appropriate period and pattern of recognition. We determine the selling price of a unit of accounting following the hierarchy of evidence prescribed by ASC 605-25. Accordingly, we determine the estimated selling price for units of accounting within each arrangement using vendor specific objective evidence, or VSOE, of selling price, if available; third party evidence, or TPE of selling price, if VSOE is not available; or best estimate of selling price, or BESP, if neither VSOE nor TPE is available. We typically use BESP to estimate the selling price since it generally does not have VSOE or TPE of selling price for its units of accounting. Determining the BESP for a unit of accounting requires significant judgment. In developing the BESP for a unit of accounting, we consider applicable market conditions and relevant entity specific factors, including factors that were contemplated in negotiating the agreement with the customer and estimated costs. We validate the BESP for units of accounting by evaluating whether changes in the key assumptions used to determine the BESP will have a significant effect on the allocation of arrangement consideration between multiple units of accounting.

We recognize arrangement consideration allocated to each unit of accounting when all of the revenue recognition criteria in ASC 605 are satisfied for that particular unit of accounting. In the event that a deliverable does not represent a separate unit of accounting, we recognize revenue from the combined unit of accounting over the contractual or estimated performance period for the undelivered items. If there is no discernable pattern of performance or objectively measurable performance measures do not exist, then we recognize revenue under the arrangement on a straight-line basis over the period that we expect to complete its performance obligations. Conversely, if the pattern of performance over which the service is provided to the customer can be determined and if objectively measurable performance measures exist, then we recognize revenue under the arrangement using the proportional performance method. Revenue recognized is limited to the lesser of the cumulative amount of payments received or the cumulative amount of revenue earned, as determined using the straight-line method or proportional performance method, as applicable, as of the end of each reporting period.

Significant management judgment is required in determining the level of effort required under an arrangement and the period over which we expect to complete our performance obligations under an arrangement. Steering committee services that are not inconsequential or perfunctory and that are determined to be performance obligations are combined with other research services or performance obligations required under an arrangement, if any, in determining the level of effort required in an arrangement and the period over which we expect to complete our aggregate performance obligations.

At the inception of an arrangement that includes options for a customer to purchase additional services or products at agreed upon prices in the future, we evaluate whether each option is substantive. Factors that we consider in evaluating whether an option is substantive include the overall objective of the arrangement, if the exercise of that option represents a separate buying decision, and if the services or products subject to the option are essential to the functionality of the current deliverables. When a license option is considered substantive, we do not consider the option or item underlying the option to be a deliverable at the inception of the arrangement, and the associated option fees are not included in the allocable arrangement consideration, assuming the option is not priced at a significant and incremental discount. When an option is not considered substantive, we would consider the option, including other deliverables contingent upon the exercise of the option, to be a deliverable at the inception of the arrangement and a corresponding amount would be included in the allocable

 

82


Table of Contents

arrangement consideration. In addition, if the price of the license option includes a significant incremental discount, the discount inherent in the option price would be included as a deliverable at the inception of the arrangement.

Payments received or due for our achievement of milestones are deferred and recognized as revenue over the estimated period of performance applicable to the collaborative arrangement. As any milestones are achieved, we will recognize as revenue a portion of the milestone payment that is equal to the percentage of the performance period completed when the milestone is achieved, multiplied by the amount of the milestone payment, upon achievement of such milestone. We will recognize the remaining portion of the milestone payment over the remaining performance period under either the proportional performance method, if a pattern of performance is discernable, or on a straight-line basis.

Royalty revenue, if any, is recognized based on contractual terms when reported sales are reliably measurable and collectibility is reasonably assured, provided that there are no performance obligations then remaining. To date, none of our product candidates have been approved and, therefore, we have not earned any royalty revenue from product sales.

In the event that a collaboration agreement were to be terminated and we had no further performance obligations at that time, we would recognize as revenue any portion of the upfront payment and other payments that had not previously been recorded as revenue and were classified as deferred revenue at the date of such termination.

Amounts received prior to satisfying the revenue recognition criteria listed above are recorded as deferred revenue in our consolidated balance sheet. Amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as current deferred revenue. Amounts not expected to be recognized as revenue within 12 months of the balance sheet date are classified as non-current deferred revenue.

Effective January 1, 2018, we will be required to adopt Accounting Standard Codification Topic 606, Revenue from Contracts with Customers, or ASC 606. The core principle of ASC 606 is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. We have substantially completed our assessment of the impact that this new standard will have on our consolidated financial statements. While our assessment is preliminary, we expect the adoption will have a material impact on our consolidated financial statements, in particular, related to the pattern and timing of our revenue recognition of amounts from the Collaboration Agreement. Under ASC 606, we will recognize revenue using the cost-to-cost method, which we believe best depicts the transfer of control to the customer. In contrast, under the existing revenue recognition standard, we are recognizing revenue on a straight-line basis over the estimated period of performance. Under the cost-to-cost method, the extent of progress towards completion is measured based on the ratio of actual costs incurred to the total estimated costs expected upon satisfying the identified performance obligation. Under this method, revenue will be recorded as a percentage of the estimated transaction price based on the extent of progress towards completion. In addition, under ASC 606, the estimated transaction price will include variable consideration for payments expected to be earned, including for milestone or royalty payments, which, under the existing standard, we were precluded from including in the estimated transaction price until such payments were determinable and due. The estimate of our measure of progress and estimate of variable consideration to be included in the transaction price will be updated at each reporting date as a change in estimate. The amount of transaction price allocated to the satisfied portion of the performance obligation, based on our measure of progress, will be recognized immediately on a cumulative catch-up basis, resulting in an adjustment to revenue in the period of change. The amount related to the unsatisfied portion will be recognized as that portion is satisfied over time.

 

83


Table of Contents

We plan to adopt ASC 606 using the modified retrospective transition method, which will result in an adjustment to accumulated deficit in our consolidated balance sheet as of the January 1, 2018 effective date for the cumulative effect of applying the standard and will not result in a recast of our prior year consolidated financial statements. We currently expect that the adoption of ASC 606 will result in a reduction in deferred revenue of approximately $14.0 million and a corresponding decrease in accumulated deficit, each recorded as of January 1, 2018. This cumulative-effect adjustment primarily reflects the fact that we will recognize revenue earlier during the performance period as a result of applying the cost-to-cost method under the new standard, in contrast to recognizing revenue on a straight-line basis over the estimated ten-year performance period under the existing standard.

We are in the process of finalizing our assessment of the impact of the new revenue recognition standard on our consolidated financial statements, and our preliminary assessment is subject to change. See Note 2 to our consolidated financial statements appearing at the end of this prospectus for additional information.

Accrued Research and Development Expenses

As part of the process of preparing our financial statements, we are required to estimate our accrued expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met; however, some require advanced payments. We make estimates of our accrued expenses as of each balance sheet date based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary. The significant estimates in our accrued research and development expenses include the costs incurred for services performed by our vendors in connection with research and development activities for which we have not yet been invoiced.

There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust the accrual or the amount of prepaid expenses accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, if our estimates of the status and timing of services performed differ from the actual status and timing of services performed, it could result in us reporting amounts that are too high or too low in any particular period. To date, there have been no material differences between our estimates of such expenses and the amounts actually incurred.

Income Taxes

We account for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the financial statements or in our tax returns. Deferred taxes are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. We assess the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent we believe, based upon the weight of available evidence, that it is more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax

 

84


Table of Contents

expense. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies.

We account for uncertainty in income taxes recognized in the financial statements by applying a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed more-likely-than-not to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties.

On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act, or TCJA, that significantly reforms the Internal Revenue Code of 1986, as amended. The TCJA, among other things, contains significant changes to corporate taxation, including reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, effective as of January 1, 2018; limitation of the tax deduction for interest expense; limitation of the deduction for net operating losses to 80% of annual taxable income and elimination of net operating loss carrybacks, in each case, for losses arising in taxable years beginning after December 31, 2017 (though any such tax losses may be carried forward indefinitely); and modifying or repealing many business deductions and credits, including reducing the business tax credit for certain clinical testing expenses incurred in the testing of certain drugs for rare diseases or conditions generally referred to as “orphan drugs”.

The staff of the Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the TCJA. We have recognized the provisional tax impacts as a result of the TCJA, including the revaluation of the deferred tax assets and liabilities in our consolidated financial statements for the year ended December 31, 2017, based on the tax rates at which they are expected to reverse in the future, which is generally 21% for federal tax purposes. The ultimate impact to our consolidated financial statements of the TCJA may differ from these provisional amounts due to, among other things, additional analysis, changes in interpretations and assumptions we have made, additional regulatory guidance that may be issued, and actions we may take as a result of the TCJA. The accounting is expected to be complete when our 2017 U.S. corporate income tax return is filed in 2018.

Stock-Based Compensation

We measure stock options and other stock-based awards granted to employees and directors based on the fair value on the date of the grant and recognize the corresponding compensation expense of those awards over the requisite service period, which is generally the vesting period of the respective award. Generally, we issue stock options and restricted stock awards with only service-based vesting conditions and record the expense for these awards using the straight-line method.

For stock-based awards granted to non-employee consultants, we recognize compensation expense over the period during which services are rendered by such non-employees until completed. At the end of each financial reporting period prior to completion of the service, the fair value of these awards is remeasured using the then-current fair value of our common stock and updated assumption inputs in the Black-Scholes option-pricing model referenced below.

We estimate the fair value of each stock option grant using the Black-Scholes option-pricing model, which uses as inputs the fair value of our common stock and assumptions we make for the

 

85


Table of Contents

volatility of our common stock, the expected term of our stock options, the risk-free interest rate for a period that approximates the expected term of our stock options and our expected dividend yield.

Determination of the Fair Value of Common Stock

As there has been no public market for our common stock to date, the estimated fair value of our common stock has been determined by our board of directors as of the date of each option grant, with input from management, considering third-party valuations of our common stock as well as our board of directors’ assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the most recent third-party valuation through the date of the grant, including:

 

    the prices at which we sold preferred stock and the superior rights and preferences of the preferred stock relative to our common stock at the time of each grant;

 

    the progress of our research and development programs, including the status of preclinical studies and planned clinical trials for our product candidates;

 

    our stage of development and our business strategy;

 

    external market conditions affecting the biotechnology industry, and trends within the biotechnology industry;

 

    our financial position, including cash on hand, and our historical and forecasted performance and operating results;

 

    the lack of an active public market for our common stock and our preferred stock;

 

    the likelihood of achieving a liquidity event, such as an initial public offering, or IPO, or a sale of our company in light of prevailing market conditions; and

 

    the analysis of IPOs and the market performance of similar companies in the biopharmaceutical industry.

The third-party valuations of our common stock were performed at various dates, which resulted in valuations of our common stock of $1.88 per share as of October 31, 2016, $2.10 per share as of April 30, 2017, $2.46 per share as of June 15, 2017, $3.53 per share as of September 30, 2017, $3.77 per share as of November 30, 2017, $4.06 per share as of January 18, 2018, $4.37 per share as of February 2, 2018 and $5.86 as of February 26, 2018. These third-party valuations were performed in accordance with the guidance outlined in the American Institute of Certified Public Accountants’ Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. Our board of directors determined that the amounts reflected in these valuations were equal to the fair market value of our common stock on each applicable date.

Our third-party valuations of common stock performed since September 30, 2017 were prepared using the hybrid method, which used market approaches to estimate our equity value. The hybrid method is a probability-weighed expected return method, or PWERM, where the equity value in one or more of the scenarios is calculated using an option-pricing method, or OPM. The OPM treats common stock and preferred stock as call options on the total equity value of a company, with exercise prices based on the value thresholds at which the allocation among the various holders of a company’s securities changes. Under this method, the common stock has value only if the funds available for distribution to stockholders exceeded the value of the preferred stock liquidation preferences at the time of the liquidity event, such as a strategic sale or a merger. The PWERM is a scenario-based methodology that estimates the fair value of common stock based upon an analysis of future values for the company, assuming various outcomes. The common stock value is based on the probability-weighted present value of expected future investment returns considering each of the possible

 

86


Table of Contents

outcomes available as well as the rights of each class of stock. The future value of the common stock under each outcome is discounted back to the valuation date at an appropriate risk-adjusted discount rate and probability weighted to arrive at an indication of value for the common stock. Our third-party valuations of common stock performed prior to September 30, 2017 were prepared using the OPM, which used a market approaches and a cost approach to estimate our equity value.

The assumptions underlying these valuations represented management’s best estimate, which involved inherent uncertainties and the application of management’s judgment. As a result, if we had used significantly different assumptions or estimates, the fair value of our common stock and our stock-based compensation expense could have been materially different.

Once a public trading market for our common stock has been established in connection with the completion of this offering, it will no longer be necessary for our board of directors to estimate the fair value of our common stock in connection with our accounting for granted stock options and other such awards we may grant, as the fair value of our common stock will be determined based on the quoted market price of our common stock.

Options Granted

The following table sets forth by grant date the number of shares subject to options granted between January 1, 2017 and March 22, 2018, the per share exercise price of the options, the fair value of common stock per share on each grant date, and the per share estimated fair value of the options on each grant date:

 

Grant Date                          

   Number of
Shares Subject
to Options
Granted
     Per Share
Exercise
Price of
Options
     Fair Value per
Common
Share on
Grant Date
     Per Share
Estimated
Fair Value
of Option on
Grant Date
 

March 2, 2017

     830,147      $ 1.88      $ 1.88      $ 1.27  

March 30, 2017

     30,000      $ 1.88      $ 1.88      $ 1.27  

April 5, 2017

     50,000      $ 1.88      $ 1.88      $ 1.30  

May 30, 2017

     135,000      $ 2.10      $ 2.10      $ 1.45  

June 27, 2017

     536,000      $ 2.46      $ 2.46      $ 1.70  

July 17, 2017

     154,000      $ 2.46      $ 2.46      $ 1.79  

August 28, 2017

     3,000      $ 2.46      $ 2.46      $ 1.79  

August 31, 2017

     280,000      $ 2.46      $ 2.46      $ 1.79  

September 6, 2017

     86,000      $ 2.46      $ 2.46      $ 1.78  

October 10, 2017

     55,000      $ 3.53      $ 3.53      $ 2.42  

December 8, 2017

     260,444      $ 3.77      $ 3.77      $ 2.58  

December 11, 2017

     45,000      $ 3.77      $ 3.77      $ 2.58  

January 24, 2018

     218,000      $ 4.06      $ 4.06      $ 2.57  

February 5, 2018

     1,378,500      $ 4.37      $ 4.37      $ 2.93  

February 12, 2018

     128,500      $ 4.37      $ 4.37      $ 2.67  

March 2, 2018

     1,276,500      $ 5.86      $ 5.86      $ 3.85  

March 11, 2018

     96,000      $ 5.86      $ 5.86      $ 3.58  

Off-Balance Sheet Arrangements

We did not have, during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under applicable Securities and Exchange Commission rules.

 

87


Table of Contents

Recently Issued Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our consolidated financial statements appearing at the end of this prospectus.

Emerging Growth Company Status

As an “emerging growth company,” the Jumpstart Our Business Startups Act of 2012 allows us to delay adoption of new or revised accounting standards applicable to public companies until such standards are made applicable to private companies. However, we have irrevocably elected not to avail ourselves of this extended transition period for complying with new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

Quantitative and Qualitative Disclosures about Market Risk

Our cash, cash equivalents and marketable securities as of December 31, 2017 consisted of cash, a money market fund invested primarily in short-term U.S. Treasury obligations, U.S. government agency bonds and corporate bonds. Interest income is sensitive to changes in the general level of interest rates; however, due to the nature of these investments, we do not believe that we have any material exposure to changes in the fair value of our investment portfolio as a result of changes in interest rates.

 

88


Table of Contents

BUSINESS

Overview

We are a clinical-stage immuno-oncology company focused on using our specialized knowledge of the biological pathways critical to the immunosuppressive tumor microenvironment, or the TME, for the development of next-generation cancer therapies. While first-generation immuno-oncology therapies, such as checkpoint inhibitors, are a remarkable therapeutic advancement, we believe most patients do not achieve durable clinical benefit primarily because these therapies focus on only one element of the complex and interconnected immunosuppressive TME. We believe there is a significant opportunity to more broadly engage the body’s immune system in a multi-faceted, coordinated and personalized approach, to meaningfully improve cure rates for patients with a variety of cancers. Our approach is to identify key components within the TME to gain a deep understanding of its biology, leverage this understanding to define the optimal therapeutic targets and the patients most likely to benefit and develop novel antibody therapeutics with differentiated biologic activity. By utilizing our specialized knowledge and expertise in immunology, oncology, antibody selection and characterization, and translational research, we have developed a broad pipeline of TME-focused programs that we believe are the next generation of immuno-oncology therapies. We initiated a Phase 1 clinical trial for our lead product candidate, SRF231, in February 2018.

Our programs demonstrate our multi-faceted approach by targeting several critical components of the immunosuppressive TME, including macrophages, metabolites and cytokines. Our lead product candidate, SRF231, is an antibody targeting cluster of differentiation, or CD, 47, which is a protein expressed on many cells, but often overexpressed on tumor cells. By targeting CD47, we believe we can promote macrophage activation to attack tumors expressing this target. We believe SRF231 possesses a safety profile that distinguishes it from other CD47-targeted therapies in development. Specifically, in preclinical studies, we have not observed hemagglutination, which is an aggregation of red blood cells, that has been observed after treatment with other CD47 antibodies in development. We plan to evaluate SRF231 as both a monotherapy and in combination with other currently available cancer therapeutics. We initiated a Phase 1 clinical trial of SRF231 in February 2018 and expect to report initial clinical results from this trial in the first half of 2019.

Our next two programs, SRF373 and SRF617, are antibodies inhibiting CD73 and CD39, respectively, and illustrate how our specialized knowledge of TME biology can be leveraged across programs. CD73 and CD39 are both critical enzymes involved in the production of extracellular adenosine, a key metabolite with strong immunosuppressive properties within the TME. Overexpression of CD73 and CD39 are each associated with a poor prognosis in patients with certain types of cancer. SRF373 and SRF617 each aim to reduce the production of immunosuppressive adenosine, but target different points of the adenosine pathway. In addition to reducing the production of adenosine, we believe SRF617 will also stimulate anti-tumor immunity because of its ability to maintain levels of extracellular adenosine triphosphate, or ATP, a proinflammatory molecule and key driver of the maturation and activation of immune cells, including T cells. We expect SRF373 to enter clinical development in 2018 and to commence IND-enabling studies for SRF617 in 2018.

SRF388 is an antibody targeting interleukin 27, or IL-27, an immunosuppressive cytokine in the TME that is overexpressed in certain cancers. We expect to begin IND-enabling studies for SRF388 in 2018. We also have several earlier stage programs that target macrophages and other critical components of the TME, including regulatory T cells and natural killer, or NK, cells. We expect that the unique insights generated in any one of our product programs will accelerate the development of the other programs in a synergistic fashion due to the interconnections between these TME pathways.

 

89


Table of Contents

In 2016, we entered into a strategic collaboration agreement, or the Collaboration Agreement, with Novartis Institutes for Biomedical Research, Inc., or Novartis, to develop next-generation cancer therapies. Importantly, this collaboration enables us to leverage the expertise and resources of Novartis to accelerate the development of our collaboration programs. We received an upfront payment of $70.0 million from Novartis upon entering into the agreement. Under the Collaboration Agreement, we are currently entitled to potential option purchase, option exercise and milestone payments upon the achievement of specified development and sales milestones, which could amount to $1.17 billion, as well as tiered royalties on annual net sales by Novartis ranging from high single-digit to mid-teens percentages upon successful commercialization of any products. Through December 31, 2017, we had received an aggregate of $35.0 million in option purchase and milestone payments from Novartis. In February 2018, we received an additional milestone payment of $45.0 million from Novartis. In January 2016, we also received a $13.5 million equity investment from Novartis.

We have assembled an outstanding team, including our world-class scientific advisory board, to execute on our mission to create next-generation immuno-oncology therapies to help patients suffering with cancer. Our scientific founders and members of our management team have extensive experience in drug discovery and development and are leaders in the immuno-oncology field. Members of our leadership team have helped develop over ten commercialized therapies, including cancer and immune disorder treatments, such as Avastin, Istodax, Rebif, Thyrogen and Velcade. Our scientific advisory board is co-chaired by leading immuno-oncology researchers Alexander Y. Rudensky, Ph.D., a world leader in regulatory T cell biology, and Arlene H. Sharpe, M.D., Ph.D., who led pioneering work related to the ligands for PD-1, including the co-discovery of PD-L2, and has defined functions of the PD-1 pathway as well as other costimulatory and immune checkpoint molecules. Collectively, we believe our team, industry-leading capabilities and collaboration with Novartis, position us to build the leading TME company focused on developing next-generation immunotherapies for the tens of millions of cancer patients worldwide.

Our Strategy

Our goal is to build the leading TME company to develop next-generation immunotherapies for patients suffering with cancer. The specific elements of our strategy to achieve this goal are:

 

    Pioneer the translation of TME biology into cancer therapeutics.    We have established a world-class team who, together with our scientific advisory board, have unique expertise and capabilities within TME biology. Our approach is to (i) use our unique insights to identify key immunosuppressive components and pathways in the TME, (ii) employ a robust antibody discovery methodology to interrogate multiple critical targets in these pathways, (iii) identify the patients most likely to benefit from our approach and (iv) select and advance potential therapeutic candidates with differentiated biological activity in the TME.

 

    Advance our lead product candidate, SRF231, through clinical development.    In preclinical studies, we observed that SRF231 (i) exhibited potent inhibition of CD47 binding to its primary target, (ii) resulted in robust macrophage infiltration into the tumor, (iii) increased killing of tumor cells and (iv) was well tolerated and did not result in hemagglutination. We believe that our promising preclinical data supports the clinical potential of SRF231 as a monotherapy and in combination with other approved cancer therapies. We initiated our Phase 1 clinical trial of SRF231 in February 2018 and expect to report initial clinical results from this trial in the first half of 2019.

 

   

Efficiently progress our other programs into clinical development.    We expect our collaborator, Novartis, to advance SRF373 into clinical development in 2018. Additionally, we expect to initiate IND-enabling studies for SRF388 and SRF617 in 2018. Our development strategy entails utilizing biomarkers to identify different patient subsets we believe will uniquely benefit from our product candidates. From time to time, we may seek to leverage the

 

90


Table of Contents
 

capabilities of strategic partners to accelerate the development of our programs, as evidenced by our collaboration with Novartis.

 

    Maintain significant product rights while appropriately leveraging the commercial capabilities of strategic partners.    Retaining substantial commercial rights to our programs is core to our strategy. Beyond our collaboration with Novartis, we intend to opportunistically evaluate partnerships that enable us to supplement our capabilities and maximize the potential commercial value of our programs.

The Tumor Microenvironment

The TME contains a complex interplay of immunosuppressive biological pathways, cells and other components surrounding the tumor. It comprises several key components that often act together to profoundly suppress the body’s anticancer immune response through a variety of different biological mechanisms, allowing the tumor to evade the immune system. Given the complexity of the TME, we believe it is imperative to target more than one component of this environment in order to provide durable clinical benefit to patients suffering with cancer.

Checkpoint inhibitors are a drug class designed to counteract certain defenses a tumor has against the immune system. Currently approved checkpoint inhibitors were developed for the treatment of cancer because of the initial belief that inactivation of the immune system by checkpoint proteins, one component of the TME, could be reversed to reactivate the immune system to recognize and attack the tumor. These therapies against checkpoint proteins, such as cytotoxic T-lymphocyte antigen 4, or CTLA-4, programmed cell death protein 1, or PD-1, and programmed death-ligand 1, or PD-L1, have produced impressive results in the clinic across an array of cancers and have been approved for a number of malignancies. However, the breadth and durability of clinical benefit achieved has been limited to a subset of patients and tumor types. For example, PD-1 inhibition has doubled three-year survival rates in previously treated non-small cell lung cancer patients, but more than 80% of patients do not achieve a durable clinical benefit. We believe the primary reason only a relatively modest number of patients achieve durable response with checkpoint inhibitors is because only one component of the TME, the effector T lymphocyte, is reactivated while the remaining elements of the TME, including macrophages, suppressive metabolites and cytokines, regulatory T cells, and NK cells remain unaffected.

Macrophages are a type of immune cell that can recognize and engulf, or phagocytose, other cells that need to be destroyed, including cancer cells. These immune cells are a key component of the immune system that provides a rapid, non-specific response to pathogens. Cells expressing CD47 on their surface are not phagocytosed by macrophages, causing CD47 to be termed a “don’t eat me signal.” Therefore, many tumor cells overexpress CD47, which suppresses macrophage activation and allows tumor cells to evade phagocytosis. Targeting CD47 is an attractive therapeutic strategy for treating cancer because by blocking its interaction with key binding partners, macrophage activity is restored and they can effectively recognize and phagocytose the tumor. We believe targeting CD47 as both a monotherapy and in combination with other cancer therapeutics could provide meaningful clinical benefit to patients.

Adenosine is a key metabolite within the TME that accumulates and inhibits the function of important immune cells, including T cells and NK cells, leading to an environment conducive to tumor growth. CD39 and CD73, two of the enzymes involved in the production of adenosine, are both attractive therapeutic targets because inhibiting either of them will reduce the amount of adenosine in the TME. We believe inhibiting CD39 may have further immunostimulatory effects because this inhibition will maintain the amount of ATP in the TME.

IL-27 is a cytokine, or protein secreted by cells, that plays an important physiologic role in suppressing the immune system. In preclinical studies, the IL-27 pathway has been observed to

 

91


Table of Contents

suppress T cell activation within the TME, which may prevent the immune system from recognizing, attacking and killing cancer cells. Due to its immunosuppressive nature, there is an emerging rationale for inhibiting IL-27 to treat cancer as this approach influences the activity of multiple types of immune cells, including the reactivation of T cells, that are necessary to recognize and attack the tumor.

Our Pipeline

We believe next-generation immuno-oncology therapies need to encompass a multi-faceted, coordinated and personalized approach to treating cancer in order to achieve meaningful increases in patient cure rates. We have developed a pipeline of multiple therapeutic programs to address the complexity of the TME, as shown in the table below.

 

LOGO

 

(1)  Novartis has worldwide development and commercial rights to this program. See “—Collaboration Agreement with Novartis” for additional information.
(2)  Novartis has the right to purchase an option to SRF388. See “—Collaboration Agreement with Novartis” for additional information.

Our Programs

Driving Macrophage Activation and Tumor Infiltration with SRF231, a CD47 Inhibitor

Overview of SRF231

SRF231 inhibits CD47, a protein expressed on many cells, but often overexpressed on tumor cells. In our preclinical studies we observed that inhibiting CD47 with SRF231 had potent anti-tumor activity through increased macrophage infiltration of the tumor and phagocytosis of the tumor cells. This anti-tumor activity was observed when administrating SRF231 as both a monotherapy and in combination with other currently available cancer therapies. Notably, SRF231 was not observed to be associated with hemagglutination. We initiated our first clinical trial of SRF231 in February 2018 in order to evaluate SRF231 in multiple tumor types and expect to report initial clinical results from this trial in the first half of 2019. We have exclusive, worldwide rights to SRF231.

CD47 Background

CD47 is a protein found on the surface of cells and is involved in physiological functions such as cell migration, cell adhesion, T cell function and macrophage activation. CD47 is a well-validated target in macrophage biology as overexpression of CD47 has been observed in various types of tumors, and there is a growing body of third-party clinical evidence that suggests blocking CD47 results in anti-tumor effects. Tumor cell expression of CD47 has been shown to prevent macrophages from recognizing and phagocytosing, or attacking and engulfing, tumor cells. SIRPa, an inhibitory protein

 

92


Table of Contents

expressed on macrophages, is a primary binding partner of CD47, and our antibodies are designed to disrupt this binding. As shown in the figure below, by blocking the CD47:SIRPa interaction, the “don’t eat me signal” is inhibited, which then enables the macrophage to kill the tumor cells.

Overview of CD47:SIRPa Binding and Inhibition

 

 

LOGO

Landscape of CD47 Inhibitors and Opportunity

CD47 is overexpressed in a wide variety of tumors, making it an attractive target for cancer therapies. Many companies are currently developing candidates in preclinical studies and clinical trials that target CD47, although there are no currently approved CD47 therapies. We believe that important differentiators among these CD47-targeted therapies will include dosing frequency and safety. In particular, hemagglutination and thrombocytopenia have been identified as adverse side effects in clinical trials of CD47-targeted therapies, which have been dose limiting in some instances.

Our Solution

SRF231 is a fully human immunoglobulin isotype G4, or IgG4, monoclonal antibody that is a potent inhibitor of CD47. We selected SRF231 for clinical development based on the following key attributes observed in preclinical development:

 

    Potent inhibition of CD47:SIRPa binding to drive macrophage activation, infiltration and phagocytosis;

 

    Potent activity against multiple hematologic and solid tumors, both as a monotherapy and in combination with other approved cancer therapies; and

 

    Being well tolerated without resulting in hemagglutination.

In February 2018, we initiated a Phase 1 clinical trial to evaluate SRF231 in patients with advanced malignancies, as a monotherapy and potentially in combination with other currently available cancer therapies in 2018. We believe that SRF231 is the first fully human anti-CD47 antibody to enter clinical trials.

 

93


Table of Contents

Our Preclinical Studies

Preclinical Activity Studies

We have conducted numerous preclinical studies to assess the activity of SRF231 across a variety of models. In February 2017, we assessed the ability of SRF231 to block the binding of CD47 to SIRPa. The binding of CD47 to SIRPa gives rise to a “don’t eat me signal” and, as a result, blocking this signal is critical in enabling the phagocytosis of tumor cells by macrophages. As shown in the figure below, SRF231 was observed to be a potent blocker of the CD47:SIRPa interaction relative to a control antibody. These results are consistent with a similar previous study we conducted.

SRF231 Effect on CD47:SIRPa Binding

 

 

LOGO

We have also observed in preclinical models that SRF231 has the ability to overcome the TME’s immunosuppressive characteristics that prevent macrophage infiltration into the tumor. Without the ability to infiltrate, the macrophages are unable to reach, and subsequently phagocytose and kill, the tumor cells. As shown in the figures below, in a study conducted by us in May 2017, the administration of SRF231 in an ovarian cancer tumor model meaningfully increased the ability of macrophages, which are stained brown, to infiltrate the tumor. These results were consistent with other studies conducted by us.

SRF231 Effect on Tumor Infiltration by Macrophages

 

 

LOGO

SRF231 was also observed to substantially increase phagocytosis of tumor cells by macrophages in numerous preclinical studies conducted by us since 2015. As shown in the figure below, the activity of SRF231, as measured by the percentage of macrophages that have engulfed tumor cells, was compared

 

94


Table of Contents

to a negative control and a positive control antibody. A research reagent antibody known to bind to CD47 and increase phagocytosis was used as our positive control. A research reagent antibody that does not bind to CD47 and, as such, does not have any effect on the level of phagocytosis, was used as our negative control. In this preclinical study, SRF231 was observed to meaningfully increase macrophage activity in a concentration-dependent fashion and its activity compared favorably to the positive control.

SRF231 Effects on Phagocytosis

 

 

LOGO

In preclinical studies, SRF231 exhibited anti-tumor activity in both hematologic and solid tumors.

As shown in the figure below, in separate studies conducted in 2016, SRF231 was observed to inhibit growth of established tumors in preclinical hematologic malignancy models of acute myeloid leukemia, or AML, and multiple myeloma. By comparison, treatment with a control antibody did not have a meaningful impact on tumor growth over the same timeframe in the same study. We have observed similar effects on tumor growth in other models of hematologic malignancies, including non-Hodgkin’s lymphoma.

SRF231 Monotherapy Anti-Tumor Activity in Hematologic Tumors

 

 

LOGO

 

95


Table of Contents

In a study conducted by us in April 2016, SRF231 was also observed to have anti-tumor activity in a solid tumor model, and similar results have been observed in additional studies conducted by us. As demonstrated in the murine model of ovarian cancer depicted below, SRF231 was observed to substantially increase overall survival when compared to a control antibody over the same time frame. All the animals treated with SRF231 (n=10) survived over the study period, while less than 25% of all animals treated with the control (n=10) survived over the same time frame.

SRF231 Monotherapy Impact on Overall Survival in Ovarian Cancer

 

 

LOGO

In addition, data from our preclinical studies supports the use of SRF231 in combination with other cancer therapies. For example, when combined with rituximab, a CD20 antibody and current standard of care for the treatment of many hematologic malignancies, SRF231 was observed to meaningfully reduce tumor growth in murine models of Burkitt lymphoma and diffuse large B cell lymphoma, or DLBCL, when compared to treatment with either SRF231 or rituximab alone. The initial Burkitt lymphoma study was conducted by us in October 2016 and was repeated twice with similar results, and the diffuse large B cell lymphoma study was conducted by us in April 2016.

SRF231 Combination Anti-Tumor Activity in Hematologic Tumors

 

 

LOGO

 

96


Table of Contents

Further, SRF231 administered in combination with rituximab was observed to increase tumor cell phagocytosis in a concentration-dependent fashion when compared to treatment with SRF231 alone.

Preclinical Safety Studies

We have tested SRF231 in multiple preclinical studies, including incubation of SRF231 at concentrations of up to 1 mg/mL with human whole blood, and we have not observed hemagglutination. As shown in the figure below, in a study conducted by us in September 2016, blood samples treated with SRF231 did not agglutinate at any concentration tested. To examine the safety profile of SRF231 against potential competitor antibodies, we engineered an antibody that we believe to have the same properties as another CD47 antibody in clinical development. We based our construction of this antibody on information from a scientific publication. As depicted in the figure below, this analog of a competitor antibody, labeled as Antibody A, was observed to cause hemagglutination over a broad range of concentrations. Similar results were observed in additional studies conducted by us.

SRF231 Effect on Hemagglutination

 

 

LOGO

We have completed Good Laboratory Practice, or GLP, preclinical toxicology studies with SRF231 and believe that they support advancement into clinical development.

Our Phase 1 Clinical Trial

We initiated our first Phase 1 clinical trial of SRF231 in February 2018 and anticipate conducting this trial at multiple sites in the United States and Canada pursuant to an IND that was filed and sponsored by us. Initial results from this open-label Phase 1 clinical trial are anticipated in the first half of 2019. Our Phase 1 clinical trial of SRF231 consists of a monotherapy dose-escalation phase as well as expansion cohorts that evaluate SRF231 as a monotherapy. In addition, we anticipate adding expansion cohorts to this trial, which will combine SRF231 with currently approved cancer therapies. We expect to enroll approximately 170 patients across this trial. The dose-escalation phase is enrolling patients with solid tumors or lymphoma. We are also enrolling patients in expansion cohorts with various cancer types, including AML/myelodysplastic syndrome, T cell lymphoma, multiple myeloma and ovarian cancer. Our Phase 1 clinical trial design also includes a translational biomarker plan from which we hope to identify biomarkers useful in stratifying patients in order to identify those patients most likely to benefit from SRF231.

 

97


Table of Contents

Modulating the Adenosine Pathway to Treat Cancer with SRF373 and SRF617

Overview of SRF373 and SRF617

Based on our understanding of the adenosine pathway and its role in the TME, we are advancing two programs targeting different metabolic points on the adenosine pathway in order to reduce the immunosuppressive effects of adenosine in the TME.

SRF373 has been observed to inhibit CD73, an enzyme critical to the production of extracellular adenosine. By reducing the amount of adenosine in the TME, we believe the immune system will be able to better recognize and attack tumors. In our preclinical studies, SRF373 has exhibited potent CD73 enzymatic inhibition, resulting in a reduction of adenosine and increased activity of immune cells, particularly T cells. Further, in combination with a PD-1 inhibitor, our antibodies against CD73 have demonstrated potent anti-tumor effects in preclinical animal studies. CD73 is overexpressed in many tumors and can be shed from the cell surface. We therefore believe CD73 overexpression could be a useful biomarker to identify those patients most likely to benefit from SRF373. We have granted Novartis a worldwide exclusive license to develop and commercialize SRF373. We expect SRF373 to enter clinical development in 2018.

SRF617 inhibits CD39, an enzyme critical both to the production of adenosine and the breakdown of ATP. Therefore, we believe targeting CD39 will not only reduce extracellular adenosine, but will also maintain extracellular levels of immunostimulatory ATP, both of which have been observed to promote anti-tumor immunity. CD39 overexpression also counteracts the effects of chemotherapy, which we believe further supports its importance as a therapeutic target. In preclinical studies, SRF617 exhibited potent CD39 enzymatic inhibition. We wholly own SRF617 and it is not part of the Novartis collaboration. We anticipate initiating IND-enabling studies for SRF617 in 2018.

CD73 and CD39 Background

Within the TME, the adenosine pathway refers to the extracellular conversion of ATP to adenosine and the signaling of adenosine through the A2A/A2B adenosine receptors on immune cells. Under normal conditions, CD39 and CD73 maintain the balance of extracellular levels of immunosuppressive adenosine and immunostimulatory ATP. In healthy tissue, ATP is barely detectable in the extracellular environment because ATP is rapidly broken down by CD39 to generate adenosine monophosphate, or AMP, which is then converted to adenosine by CD73. Under conditions of cellular stress, including cancer, extracellular ATP levels rise significantly, but ATP is rapidly broken down, subsequently hindering the ability of the immune system to recognize and attack the tumor due to lower levels of ATP and higher levels of adenosine.

We believe inhibiting CD73 will reduce levels of immunosuppressive adenosine in the TME and allow key immune cells, including T cells, to attack the tumor. In addition, we believe inhibiting CD39 will maintain extracellular levels of immunostimulatory ATP in addition to reducing the amount of extracellular adenosine in the TME. Because of its role in regulating the immune system, we believe a multi-faceted approach targeting components of the adenosine pathway is attractive for the treatment of cancer.

 

98


Table of Contents

Role of Adenosine in the TME

 

 

LOGO

Landscape of Competitive Agents and the Opportunity

There are multiple third-party programs evaluating targets in the adenosine pathway, including inhibitors of CD73, CD39 and the key adenosine receptors. Due to the relatively high amounts of adenosine in the TME, we believe achieving inhibition of adenosine receptors sufficient to result in a meaningful clinical response as a monotherapy could prove challenging. CD73 and CD39 are overexpressed in a variety of tumors, making them attractive targets for cancer therapies. We believe that the potency of CD73 and CD39 enzymatic inhibition will be an important differentiator and may lead to improved clinical efficacy by reducing adenosine levels in the TME to a greater extent.

Our Adenosine Pathway Programs

SRF373

SRF373 is a fully human IgG4 monoclonal antibody that is a potent inhibitor of CD73. We selected SRF373 for clinical development based on the following key attributes observed in preclinical development:

 

    Potent enzymatic inhibition of CD73, resulting in reduced adenosine levels;

 

    Increased T cell proliferation; and

 

    Inhibition of tumor growth as a monotherapy and more potently in combination with a PD-1 inhibitor.

Our Preclinical Studies

We have conducted numerous preclinical studies to assess the activity of SRF373 across a variety of preclinical models. We examined the ability of SRF373 to inhibit CD73 enzymatic activity in an ovarian cancer cell line expressing CD73 and observed that SRF373’s inhibitory activity increased in a concentration-dependent manner. To compare the enzymatic inhibitory activity of SRF373 against potential competitor antibodies, we engineered an antibody, Antibody X, that we believe to have the same properties as another CD73 antibody in clinical development. We based our construction of this antibody on publicly available patent filings. Notably, the peak CD73 enzymatic inhibition achieved using SRF373 was observed to be substantially greater than Antibody X.

 

99


Table of Contents

Further, SRF373 was observed to meaningfully reduce adenosine production from cells, and SRF373 treatment in a mouse tumor model was observed to reduce levels of plasma adenosine.

CD4+ T cell proliferation is inhibited by adenosine, and high levels of adenosine in the TME result in the tumor evading these important immune cells. By reducing the production of adenosine, SRF373 has the potential to increase the proliferation of CD4+ T cells. As depicted in the figure below, in a study conducted in September 2016, we observed that SRF373 treatment mitigated the immunosuppressive effects of adenosine produced by CD73 and subsequently increased the proliferation of T cell receptor-stimulated CD4+ T cells in a concentration-dependent fashion. Further, the level of T cell proliferation achieved using SRF373 was greater than the levels achieved using Antibody X. We have observed similar results in additional studies conducted by us. We believe the increased T cell proliferation seen with SRF373 is a result of greater enzymatic inhibition of CD73.

SRF373 Effect on CD4+ T Cell Proliferation

 

 

LOGO

Additionally, we have seen compelling preclinical anti-tumor activity when combining a CD73 inhibitor with a PD-1 inhibitor. We developed a CD73 antibody closely related to SRF373 that cross reacts with murine CD73. This antibody, as shown below, was observed in a December 2015 study conducted by us to have anti-tumor activity as a monotherapy and in combination with a PD-1 inhibitor when compared to a control antibody. Notably, combining the CD73 antibody and the PD-1 inhibitor was observed to result in synergistic anti-tumor effects. Further, when the same tumor cells were reintroduced into mice treated in the combination group, the anti-tumor effects were maintained in the absence of additional antibody treatment, demonstrating the potential to establish durable anti-tumor immunity. We have observed similar results in an additional study conducted by us.

Effect of Targeting CD73 and PD-1 in Combination

 

 

LOGO

 

100


Table of Contents

Planned Clinical Trial

We have granted Novartis worldwide development and commercialization rights to SRF373. An IND for SRF373, was sponsored and filed by Novartis with the FDA in February 2018, and we anticipate SRF373 entering clinical trials in 2018.

SRF617

SRF617 is a fully human IgG4 monoclonal antibody that is a potent inhibitor of CD39 enzymatic activity. In preclinical studies, we observed that SRF617 maintained immunostimulatory levels of ATP. SRF617 has the potential to be the first CD39 inhibitor to enter clinical development.

Our Preclinical Studies

In a study conducted in October 2017, we observed increased expression of CD39 following treatment with nivolumab, a PD-1 inhibitor. Specifically, samples from five donors were either treated, or not, with nivolumab. As shown in the figure below, increased CD39 expression was observed in three cell types, specifically, CD4+ T regulatory cells, or Treg; CD19+ B cells, or B cell; and CD14+ monocytes, or Mono. In clinical trials, others have shown increased CD39 expression in tumor biopsies from patients with renal cell carcinoma and non-small cell lung cancer that were resistant to treatment with atezolizumab, a PD-L1 inhibitor. These studies suggest that CD39 expression may contribute to PD-1/PD-L1 resistance and an immunosupressive TME.

Effect of Nivolumab on CD39 Expression

 

 

LOGO

 

101


Table of Contents

As shown in the figure below, in a July 2017 study conducted by us, SRF617 inhibited CD39 enzymatic activity in a concentration-dependent fashion in a multiple myeloma cell line expressing CD39 when compared to a control antibody. We have observed similar results in additional studies conducted by us.

SRF617 Effect on CD39 Enzymatic Activity

 

 

LOGO

Further, in a study conducted in November 2017, we observed the immunostimulatory effects of SRF617 in a preclinical model. Specifically, in three donor samples as shown below, SRF617 was observed to enhance the immunostimulatory effects of ATP resulting in increased maturation of dendritic cells when compared to a control antibody. Dendritic cell maturation was determined by measuring levels of CD86, a known marker of dendritic cell maturation, following treatment with SRF617, or a control antibody, and ATP. In the figure below, CD86 expression levels shown for the control and SRF617 treated groups were normalized to pre-treatment levels of CD86. We have observed similar results in additional studies conducted by us.

SRF617 Effect on Dendritic Cell Maturation

 

 

LOGO

Additionally, we have seen preclinical anti-tumor activity with SRF617. The study shown below was conducted by us in August and September 2017, and we observed that SRF617 was associated with inhibited tumor growth, as compared to a control antibody, with all tumors staying below 300mm3 in size in all mice treated with SRF617.

 

102


Table of Contents

Effect of SRF617 on Tumor Growth

 

 

LOGO

We expect SRF373 to enter clinical development in 2018 and to commence IND-enabling studies for SRF617 in 2018.

Inhibiting the Immunosuppressive Cytokine IL-27 to Activate the Immune System

Overview of SRF388

SRF388 inhibits the immunosuppressive cytokine IL-27. In preclinical studies, treatment with SRF388 was observed to block IL-27 signaling and its downstream immunosuppressive effects. Further, combining SRF388 with a PD-1 inhibitor in preclinical studies increased the production of key inflammatory cytokines. We have developed specialized reagents and assays to understand the complex biology associated with IL-27 and its role in cancer. SRF388 is anticipated to begin IND-enabling studies in 2018. We believe SRF388 has the potential to be the first IL-27 inhibitor to enter clinical development. Under our Collaboration Agreement, Novartis has the right to purchase an option to our SRF388 program.

IL-27 Background

IL-27 is a cytokine secreted by cells that plays an important physiologic role in suppressing the immune system as evidenced by its role in resolving tissue inflammation and its association with maternal-fetal tolerance. Due to its immunosuppressive nature, there is an emerging rationale for inhibiting IL-27 to treat cancer as this approach influences the activity of multiple types of immune cells that are necessary to recognize and attack the tumor. As shown in the diagram below, IL-27 suppresses T cell activation, which we believe will prevent the immune system from recognizing, attacking and killing cancerous cells.

 

103


Table of Contents

IL-27 Role in Immunosuppression

 

 

LOGO

Our Solution

SRF388 is a fully human IgG1 monoclonal antibody that binds to IL-27 and inhibits its activity. We identified SRF388 using our proprietary suite of research tools, which have allowed us to enhance our deep biological understanding of IL-27 and its receptor. We selected SRF388 for clinical development based on the following key observations in our preclinical studies:

 

    Potent reduction of IL-27 driven immune cell suppression;

 

    Potential for combination therapy with checkpoint inhibitors; and

 

    Strong translational rationale for targeting IL-27 in certain types of cancer.

Our Preclinical Studies

In several preclinical studies conducted by us starting in December 2016, we observed that the treatment of human T cells and monocytes with IL-27 resulted in the induction of an immunosuppressive phenotype, including increased expression of the checkpoint proteins PD-L1 and TIM3. We observed that treatment with SRF388 blocked IL-27 signaling and prevented the induction of this phenotype, as shown in the figure below.

SRF388 Effect on IL-27 Induced Immunosuppressive Phenotype

 

 

LOGO

 

104


Table of Contents

In several preclinical studies conducted by us starting in May 2017, we observed that blocking IL-27 with SRF388 in cancer patient-derived human peripheral blood mononuclear cells, after T cell receptor activation, increased key inflammatory cytokines, TNFa and IL-6, which are indicative of an activated immune state, as shown in the figure below. Additionally, in December 2016, we conducted several preclinical studies and observed that by combining SRF388 with a PD-1 inhibitor, expression of these inflammatory cytokines was further increased, also shown in the figure below. Based upon our preclinical studies, we believe that blocking both PD-1 and IL-27 in certain clinical settings could help to promote tumor specific immunity.

SRF388 Plus PD-1 Inhibitor Effect on Inflammatory Cytokine Production

 

 

LOGO

We expect to begin IND-enabling studies for SRF388 in 2018.

Other Research Programs

We also have several earlier stage programs that target macrophages and other critical components of the TME, including regulatory T cells and NK cells. We expect that the unique insights generated in any one of our product programs will accelerate the development of the other programs in a synergistic fashion due to the interconnection between the pathways of the TME.

Collaboration Agreement with Novartis

Overview

In January 2016, we entered into a strategic collaboration with Novartis to develop next-generation cancer therapies. The Collaboration Agreement was subsequently amended in May 2016, July 2017 and September 2017. Pursuant to the Collaboration Agreement, we granted Novartis a worldwide exclusive license to research, develop, manufacture and commercialize antibodies that target CD73, along with the right to purchase exclusive option rights, each an Option, for up to four specified targets, each an Option Target, to obtain certain development, manufacturing and commercialization rights. Prior to filing an IND for such Option Target, we are obligated to provide Novartis with a data package with respect to such Option Target, and Novartis may purchase the Option by paying the option purchase fee. If Novartis purchases an Option, following receipt of IND acceptance of a candidate with respect to the applicable Option Target, Novartis will be entitled to exercise the Option for such Option Target. The Collaboration Agreement initially granted Novartis the right to exercise up to three purchased Options. Each Option is designated as either a regional option or a global option in accordance with a selection mechanism in the Collaboration Agreement and as

 

105


Table of Contents

further described below. The Collaboration Agreement granted Novartis the right to exclusively license the development, commercialization and manufacturing rights for up to two targets (inclusive of CD73) worldwide (we refer to these as global targets). In addition, Novartis was granted the right to exclusively license the development and manufacturing rights and ex-U.S. commercial rights for up to two additional targets, while we retained the right to retain the U.S. commercial rights for such two targets (we refer to these as regional targets). We received an upfront payment of $70.0 million from Novartis upon entering into the agreement. Under the Collaboration Agreement, Novartis currently has two Options remaining eligible for purchase, both of which can be exercised. As a result, we are entitled to potential option purchase, option exercise and milestone payments upon the achievement of specified development and sales milestones, which could amount to $1.17 billion, as well as tiered royalties on annual net sales by Novartis ranging from high single-digit to mid-teens percentages. Such amount of potential option purchase, option exercise and milestone payments assumes that Novartis purchases, and exercises, both of the remaining Options available to it pursuant to the Collaboration Agreement as well as the successful clinical development of and achievement of all sales milestones for all targets covered by the Collaboration Agreement. For each regional target for which we retain U.S. commercial rights, we will pay Novartis tiered royalties ranging from a high single-digit to a mid-teens percentage on our annual net sales of regional licensed products in the United States. Through December 31, 2017, we had received an aggregate of $35.0 million in option purchase and milestone payments from Novartis. In February 2018, we received an additional milestone payment of $45.0 million from Novartis. In January 2016, we also received a $13.5 million equity investment from Novartis.

Research on Targets

Under the Collaboration Agreement, we are responsible for performing preclinical research through the first IND acceptance on antibodies that bind to CD73 and each Option Target, pursuant to a research plan directed toward each target. We are responsible for all costs and expenses incurred by or on behalf of us in connection with such research.

Development and Commercialization of CD73 Products

Novartis has the sole right to develop and commercialize CD73 antibody candidates and corresponding licensed products worldwide pursuant to a development plan and a commercialization plan, respectively. Novartis is obligated to use commercially reasonable efforts to develop the CD73 antibody candidates and corresponding licensed products, obtain regulatory approval of such products, including within certain defined markets, and to commercialize such products following regulatory approval. Novartis is responsible for all costs and expenses of such development and commercialization and is obligated to provide us with updates on its development and commercialization activities through the joint steering committee, joint development committee and joint commercialization committee.

Option Targets

Prior to filing an IND for an Option Target, Novartis may purchase the Option to obtain certain development, manufacturing and commercialization rights for antibodies that bind to up to four Option Targets. To the extent Novartis does not elect to purchase an Option to an Option Target, the Option for such Option Target will expire and all of Novartis’ rights to such Option Target under the Collaboration Agreement will terminate. The Collaboration Agreement initially granted Novartis the right to exercise up to three purchased Options. Each exercised Option will be designated as either a regional option or global option, with each such designation determining the development and commercialization rights between the parties with respect to such Option Target, corresponding antibody candidates and licensed products, as summarized below. The Collaboration Agreement

 

106


Table of Contents

granted us the ability to designate the first Option as either regional or global and one of the remaining two Options, with Novartis designating the other remaining Option. Following Novartis’ exercise of an Option with respect to an Option Target, we will grant to Novartis licenses that are necessary to effectuate the development, manufacturing or commercialization rights associated with a regional or global option, as described below.

In December 2016, Novartis purchased an Option right for antibodies that bind to CD47 for $5.0 million. This was the first Option under the Collaboration Agreement, which gave us the ability to designate it as a regional or global option. In January 2018, we notified Novartis of our decision to designate the Option related to SRF231, our CD47 product candidate, as a regional option in order to retain U.S. rights. In March 2018, Novartis notified us of its decision to not exercise its previously purchased Option for SRF231. In March 2018, we and Novartis also mutually agreed to cease development of one of the undisclosed programs subject to the Collaboration Agreement. As a result, Novartis has two Options remaining eligible for purchase, both of which can be exercised.

Development and Commercialization of Regional Licensed Products

To the extent an exercised Option is designated as a regional target, we are primarily responsible for the early clinical development of each corresponding regional antibody candidate and regional licensed product at our own cost. Unless we choose to opt out of our development rights, we will collaborate with Novartis on the further clinical development of regional antibody candidates and regional licensed products. Pursuant to a regional development plan for each regional licensed product, we will be responsible for development activities related to obtaining regulatory approval in the United States, with Novartis responsible for development activities related to obtaining regulatory approval elsewhere in the world. The development costs of such later clinical development activities will be shared evenly between the parties. Thereafter, we are responsible for the commercialization of regional licensed products in the United States, and Novartis is responsible for the commercialization of regional licensed products outside of the United States, each pursuant to a commercialization plan. Each party must use commercially reasonable efforts to commercialize such products within their respective territories. We will work with Novartis to agree to a global commercialization strategy with respect to the regional licensed products prior to commercialization.

Development and Commercialization of Global Licensed Products

To the extent an exercised Option is designated as a global target, we are primarily responsible for the early clinical development of each global antibody candidate and global licensed product at our own cost, and Novartis is responsible for later worldwide clinical development of global antibody candidates and global licensed products, pursuant to a development plan for such global licensed product, at its own cost. Novartis is solely responsible for the worldwide commercialization of global licensed products and must use commercially reasonable efforts to commercialize such products, pursuant to a commercialization plan, at its own cost. Novartis agrees to provide us with development and commercialization updates regarding global licensed products through the joint steering committee, joint development committee and joint commercialization committee.

Exclusivity

Neither party may, alone or with any affiliate or third party, (i) research or develop any antibody that specifically binds to an Option Target for a specified period of time outside of the Collaboration Agreement or (ii) develop or commercialize any antibody that specifically binds to CD73 or any Option Target that subsequently becomes a licensed target for a specified period of time outside the Collaboration Agreement.

 

107


Table of Contents

Financial Terms

In addition to the upfront fee, under the Collaboration Agreement, Novartis is obligated to pay us a fee to the extent it desires to purchase each Option for each Option Target and another fee to exercise such purchased Option. As of December 31, 2017, we had received $5.0 million in option purchase payments and we are currently entitled to an aggregate of up to $67.5 million of potential option purchase and option exercise payments. We are also eligible to receive payments on a target-by-target basis upon the achievement of specified development and sales milestones and tiered royalties on annual net sales by Novartis of licensed products ranging from high single-digit to mid-teens percentages. We are required to pay Novartis tiered royalties of a high single-digit to mid-teens percentage on our annual net sales of regional licensed products in the United States. The royalty payments are subject to reduction under specified conditions set forth in the Collaboration Agreement. In January 2016, we also received a $13.5 million equity investment from Novartis.

Termination

Unless terminated earlier, the Collaboration Agreement will continue in effect until neither we nor Novartis is researching, developing, manufacturing or commercializing any antibody candidates or licensed products under the Collaboration Agreement. Novartis may terminate the Collaboration Agreement on a target-by-target basis for any reason upon prior notice to us within a specified time period. However, Novartis cannot terminate the Collaboration Agreement with respect to CD73 for a certain period of time following the effective date. Either party may terminate the Collaboration Agreement on a target-by-target basis if an undisputed material breach is not cured within a certain period of time or upon notice of insolvency of the other party. To the extent Novartis terminates for convenience, for our material breach or insolvency, Novartis will grant us, on mutually agreeable financial terms, an exclusive, worldwide, irrevocable, perpetual and royalty-bearing license with respect to intellectual property controlled by Novartis that is reasonably necessary to research, develop, manufacture or commercialize certain products.

Other Collaborations and License Agreements

H2L2 License Agreement

In April 2014, we entered into a license agreement, or the H2L2 License Agreement, with Harbour Antibodies H2L2 BV, or H2L2. Pursuant to the H2L2 License Agreement, H2L2 granted us a worldwide, non-exclusive license under H2L2’s technology to (i) make, use, manufacture, import and export (but not sell) H2L2 mice, which are capable of generating fully human antibodies, for research, development, clinical and manufacturing purposes and (ii) make, use, sell, offer for sale, import and export antibodies discovered or generated using H2L2 technology, and products incorporating such antibodies. Such licenses are sublicensable only to our affiliates or third-party contractors, other than in the case of the license to sell antibody products, which we may license to any third party. Under the H2L2 License Agreement, we are obligated to pay H2L2 a low five-digit dollar amount as an upfront license fee for each antibody program that we initiate using the H2L2 mice. We may be obligated to pay up to an aggregate of $1.04 million in milestone payments to H2L2 for each antibody cell line we develop through Phase 3 clinical trials and regulatory approval. We are required to pay H2L2 a one-time sales performance payment of a low seven-digit dollar amount for each antibody product that is commercialized and achieves worldwide gross sales in excess of a low eight-digit dollar amount. If we enter an agreement with a third party to further research or commercialize an antibody product developed under the H2L2 License Agreement, then we are obligated to pay H2L2 a one-time payment of the lesser of (i) a low double-digit percentage of the upfront fee paid to us by the third party or (ii) a low six-digit dollar amount.

 

108


Table of Contents

We own all results and inventions that we generate while exercising our rights under the licenses.

Unless earlier terminated, the H2L2 License Agreement will expire in 2019. Either party may terminate the H2L2 License Agreement upon an uncured material breach by the other party. We may also terminate the H2L2 License Agreement at will upon providing prior written notice to H2L2.

Harbour License Agreement

In September 2015, we entered into an exclusive license agreement, or the Harbour License Agreement, with Harbour Antibodies B.V., or Harbour, to receive an exclusive license to Harbour’s materials and patent rights directed to CD47. Pursuant to the Harbour License Agreement, Harbour granted us a worldwide, royalty-bearing exclusive license, with the right to sublicense, to exploit products that incorporate Harbour’s materials or that would infringe Harbour’s patent rights. We are obligated to use commercially reasonable efforts to develop and commercialize such licensed products.

In consideration, we paid Harbour a one-time license upfront payment of $125,000 and are required to pay a nominal annual maintenance fee during the term. We are obligated to pay up to an aggregate of $4.75 million in developmental and commercial milestones on each licensed product. We are also obligated pay Harbour royalties of a low single-digit percentage on the worldwide net sales of any licensed product on a country-by-country basis until the expiration of the royalty term, which is the later of (i) expiration or termination of the last to expire of a valid claim within the patent rights that cover such licensed product in a country or (ii) ten years from the date of first commercial sale of the licensed product within a country.

The Harbour License Agreement will expire on the last to expire royalty term on a licensed product-by-licensed product basis, unless terminated earlier by the parties. We may terminate the agreement for any reason with proper prior notice to Harbour. Harbour may terminate if we fail to pay an amount due after Harbour provides us written notice or upon our uncured material breach, subject to completion of a dispute resolution process and subsequent cure.

Adimab Development and Option Agreement

In July 2014, we entered a development and option agreement, or the Adimab Agreement, with Adimab, LLC, or Adimab, for the discovery and optimization of proprietary antibodies as potential therapeutic product candidates. Under the Adimab Agreement, we will select biological targets against which Adimab will use its proprietary platform technology to research and develop antibody proteins using a mutually agreed upon research plan.

Upon our selection of a target, we and Adimab will initiate a research plan and the discovery term begins. During the discovery term, Adimab will grant us a non-exclusive, non-sublicenseable license under its technology with respect to the target, to research, design and preclinically develop and use antibodies that were modified or derived using Adimab technology, solely to evaluate such antibodies and perform our responsibilities under the research plan. We also will grant to Adimab a non-exclusive, nontransferable license with respect to the target under our technology that covers or relates to such target, solely to perform its responsibilities under the research plan during the discovery period. We are required to pay Adimab at an agreed upon rate for its full-time employees during the discovery period while Adimab performs research on each target under the applicable research plan.

Adimab granted us an exclusive option to obtain a non-exclusive, worldwide, fully paid-up, sublicensable license under Adimab’s platform patents and other Adimab technology solely to research up to ten antibodies, chosen by us against a specific biological target for a specified period of time, or

 

109


Table of Contents

the Research Option. In addition, Adimab granted us an exclusive option to obtain a worldwide, royalty-bearing, sublicensable license under Adimab platform patents and other Adimab technology to exploit, including commercially, up to 20 antibodies against specific biological targets, or the Commercialization Option. Upon the exercise of a Commercialization Option, and payment of the option fee to Adimab, Adimab will assign us the patents that cover the antibodies selected by such Commercialization Option. We will be required to use commercially reasonable efforts to develop, seek market approval of, and commercialize at least one antibody against the target covered by the Commercialization Option in specified markets upon the exercise of a Commercialization Option.

We are obligated to make milestone payments and specified fees upon the exercise of the Research or Commercialization Options. During the discovery term, we may be obligated to pay Adimab up to $250,000 for technical milestones achieved against each biological target. Upon exercise of a Research Option we are obligated to pay a nominal research maintenance fee on each of the next four anniversaries of the exercise. Upon the exercise of each Commercialization Option, we will be required to pay an option exercise fee of a low seven-digit dollar amount, and we may be responsible for milestone payments of up to an aggregate of $13.0 million for each licensed product that receives marketing approval. For any licensed product that is commercialized, we are obligated to pay Adimab tiered royalties of a low to mid single-digit percentage on worldwide net sales of such product. We may also partially exercise a Commercialization Option with respect to ten antibodies against a biological target by paying 65% of the option fee and later either (i) paying the balance and choosing up to 20 antibodies for commercialization or (ii) forgoing the Commercialization Option entirely.

The Adimab Agreement will remain in effect until the later of (a) the earlier of (i) the expiration of the Research and Commercialization Options (if they expire without exercise) and (ii) 12 months from the effective date without us providing materials that pass Adimab’s quality control; or (b) if a Research Option is exercised but the Commercialization Option is not, then upon the expiration of the last to expire research license term; or (c) upon commercialization of a product, until the end of the royalty term, which will vary on a product-by-product and country-by-country basis, ending on the later of (y) the expiration of the last valid claim covering the product in such country as the product is manufactured or sold or (z) ten years after the first commercial sale of the product in such country.

Either party may terminate the Adimab Agreement for material breach if such breach remains uncured for a specified period of time, however, if a Research Option or Commercialization Option has been exercised and the breach only applies to the applicable target of such Research Option or Commercialization Option, then the termination right will only apply to such target. We may also terminate the Adimab Agreement for any reason with prior notice to Adimab. If Adimab is bankrupt, we will be entitled to a complete duplicate of, or complete access to, all rights and licenses granted under or pursuant to the Adimab Agreement.

Manufacturing

We rely on and will continue to rely on our contract manufacturing organizations, or CMOs, for both drug substance and drug product. While we do not plan to develop our own full-scale manufacturing capabilities, we may consider establishing a small, flexible facility for supporting preclinical IND-enabling studies and early clinical studies. Currently, all of our manufacturing is outsourced to well-established third-party manufacturers. We have entered into contracts with CMOs for production of SRF231 drug substance and drug product for our clinical trials and plan to enter into additional contracts with these or other manufacturers for additional supply.

Our outsourced approach to manufacturing relies on CMOs to first develop cell lines and manufacturing processes that are compliant with current Good Manufacturing Practice, or cGMP, then

 

110


Table of Contents

produce material for preclinical and clinical studies. Our agreements with CMOs may obligate them to develop a production cell line, establish master and working cell banks, develop and qualify upstream and downstream processes, develop drug product process, validate (and in some cases develop) suitable analytical methods for test and release as well as stability testing, produce drug substance for preclinical testing, produce cGMP-compliant drug substance, or produce cGMP-compliant drug product. We conduct audits of CMOs prior to initiation of activities under these agreements and monitor operations to ensure compliance with the mutually agreed process descriptions and to cGMP regulations.

Competition

The biotechnology and pharmaceutical industries, and the immuno-oncology subsector, are characterized by rapid evolution of technologies, fierce competition and strong defense of intellectual property. While we believe that our discovery programs, technology, knowledge, experience, and scientific resources provide us with competitive advantages, we face competition from major pharmaceutical and biotechnology companies, academic institutions, governmental agencies and public and private research institutions, among others.

Any product candidates that we successfully develop and commercialize will compete with currently approved therapies and new therapies that may become available in the future. Key product features that would affect our ability to effectively compete with other therapeutics include the efficacy, safety and convenience of our products and the ease of use and effectiveness of any complementary diagnostics and/or companion diagnostics. Our competitors fall primarily into the following groups of treatment:

 

    Programs in development targeting CD47 or SIRPa, including those by Alexo Therapeutics, Inc., Arch Oncology, Aurigene, Inc., Blink Biomedical, Inc., Celgene, Inc., Forty Seven, Inc., Novimmune, S.A., OSE Immunotherapeutics S.A., Sorrento, Inc., Synthon Holding B.V. and Trillium Therapeutics, Inc.;

 

    Programs in development targeting other components of the TME, including those by Arcus Biosciences, Inc., AstraZeneca PLC, Bristol-Myers Squibb Company, Corvus Pharmaceuticals, Inc., Innate Pharma, S.A. and Palobiofarma SL;

 

    Traditional cancer therapies, including chemotherapy; and

 

    Approved immunotherapy antibodies such as those targeting CTLA-4 (Yervoy, marketed by Bristol-Myers Squibb Company) and PD-1/PD-L1 (Opdivo, Keytruda and Tecentriq, marketed by Bristol-Myers Squibb Company, Merck & Co. and Genentech, Inc., respectively).

The availability of reimbursement from government and other third-party payors will also significantly affect the pricing and competitiveness of our products. Our competitors also may obtain U.S. Food and Drug Administration, or the FDA, or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market.

Many of the companies against which we may compete have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.

 

111


Table of Contents

Intellectual Property

Our patents and patent applications are directed to our antibodies and accompanying technologies. We seek patent protection for our development programs, product candidates and related alternatives by filing and prosecuting patent applications in the U.S. and other countries as appropriate.

As of March 22, 2018, we co-own U.S. Patent Nos. 9,803,016 and 9,650,441, which cover composition of matter and the treatment of cancer using our therapeutic CD47 antibody, SRF231. These patent rights are expected to expire in 2036, not including any applicable patent term extension. With respect to SRF231, we co-own two pending U.S. non-provisional applications and one pending PCT patent application, and we own one pending provisional patent application, within three patent families that cover compositions of matter and methods of using SRF231 in combination with certain other therapeutic agents. Any patent issuing from these applications would also be expected to expire in 2036 or 2038, not including any applicable patent term adjustment or extension.

As of March 22, 2018, we co-own and have exclusively licensed to Novartis our rights in two U.S. provisional patent applications that cover compositions of matter and methods of use for our CD73 therapeutic antibody candidate, SRF373, and we do not yet own any non-provisional applications or issued patents for this candidate. Any patents issuing from these applications would be expected to expire in 2038, not including any applicable patent term adjustment or extension.

Government Regulation

Government authorities in the United States at the federal, state and local level and in other countries regulate, among other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, post-approval monitoring and reporting, marketing and export and import of drug and biological products, such as SRF231 and any other product candidates we develop. Generally, before a new drug or biologic can be marketed, considerable data demonstrating its quality, safety and efficacy must be obtained, organized into a format specific for each regulatory authority, submitted for review and approved by the regulatory authority.

U.S. Drug Development

In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, or FDCA, and its implementing regulations and biologics under the FDCA, the Public Health Service Act, or PHSA, and their implementing regulations. Both drugs and biologics also are subject to other federal, state and local statutes and regulations. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state and local 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 post-market may subject an applicant to administrative or judicial sanctions. These sanctions could include, among other actions, the FDA’s refusal to approve pending applications, withdrawal of an approval, a clinical hold, untitled or warning letters, product recalls or market withdrawals, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement and civil or criminal penalties. Any agency or judicial enforcement action could have a material adverse effect on us.

 

112


Table of Contents

SRF231 and any other product candidates we develop must be approved by the FDA through either a New Drug Application, or NDA, or Biologics License Application, or BLA, process before they may be legally marketed in the United States. The process generally involves the following:

 

    Completion of extensive preclinical studies in accordance with applicable regulations, including studies conducted in accordance with GLP requirements;

 

    Submission to the FDA of an IND, which must become effective before human clinical trials may begin;

 

    Approval by an Institutional Review Board, or IRB, or independent ethics committee at each clinical trial site before each trial may be initiated;

 

    Performance of adequate and well-controlled human clinical trials in accordance with applicable IND regulations, good clinical practice, or GCP, requirements and other clinical trial-related regulations to establish the safety and efficacy of the investigational product for each proposed indication;

 

    Submission to the FDA of an NDA or BLA;

 

    A determination by the FDA within 60 days of its receipt of an NDA or BLA to accept the filing for review;

 

    Satisfactory completion of an FDA pre-approval inspection of the manufacturing facility or facilities where the drug or biologic will be produced to assess compliance with cGMP requirements to assure that the facilities, methods and controls are adequate to preserve the drug or biologic’s identity, strength, quality and purity;

 

    Potential FDA audit of the clinical trial sites that generated the data in support of the NDA or BLA; and

 

    FDA review and approval of the NDA or BLA, including consideration of the views of any FDA advisory committee, prior to any commercial marketing or sale of the drug or biologic in the United States.

The preclinical and clinical testing and approval process requires substantial time, effort and financial resources, and we cannot be certain that any approvals for SRF231 and any other product candidates we develop will be granted on a timely basis, or at all.

Preclinical Studies and IND

Preclinical studies include laboratory evaluation of product chemistry and formulation, as well as in vitro and animal studies to assess the potential for adverse events and in some cases to establish a rationale for therapeutic use. The conduct of preclinical studies is subject to federal regulations and requirements, including GLP regulations for safety/toxicology studies.

An IND sponsor must submit the results of the preclinical studies, together with manufacturing information, analytical data, any available clinical data or literature and plans for clinical studies, among other things, to the FDA as part of an IND. An IND is a request for authorization from the FDA to administer an investigational product to humans, and must become effective before human clinical trials may begin. Some long-term preclinical testing, such as animal tests of reproductive adverse events and carcinogenicity, may continue after the IND is submitted. An IND automatically becomes effective 30 days after receipt by the FDA, unless before that time, the FDA raises concerns or questions related to one or more proposed clinical trials and places the trial on clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. As a result, submission of an IND may not result in the FDA allowing clinical trials to commence.

 

113


Table of Contents

Clinical Trials

The clinical stage of development involves the administration of the investigational product to healthy volunteers or patients under the supervision of qualified investigators, generally physicians not employed by or under the trial sponsor’s control, in accordance with GCP requirements, which include the requirement that all research subjects provide their informed consent for their participation in any clinical trial. Clinical trials are conducted under protocols detailing, among other things, the objectives of the clinical trial, dosing procedures, subject selection and exclusion criteria and the parameters to be used to monitor subject safety and assess efficacy. Each protocol, and any subsequent amendments to the protocol, must be submitted to the FDA as part of the IND. Further, each clinical trial must be reviewed and approved by an IRB for each institution at which the clinical trial will be conducted to ensure that the risks to individuals participating in the clinical trials are minimized and are reasonable in relation to anticipated benefits. The IRB also approves the informed consent form that must be provided to each clinical trial subject or his or her legal representative, and must monitor the clinical trial until completed. There also are requirements governing the reporting of ongoing clinical trials and completed clinical trial results to public registries.

A sponsor who wishes to conduct a clinical trial outside of the United States may, but need not, obtain FDA authorization to conduct the clinical trial under an IND. If a foreign clinical trial is not conducted under an IND, the sponsor may submit data from the clinical trial to the FDA in support of an NDA or BLA. The FDA will accept a well-designed and well-conducted foreign clinical trial not conducted under an IND if the study was conducted in accordance with GCP requirements, and the FDA is able to validate the data through an onsite inspection if deemed necessary.

Clinical trials generally are conducted in three sequential phases, known as Phase 1, Phase 2 and Phase 3, and may overlap.

 

    Phase 1 clinical trials generally involve a small number of healthy volunteers or disease-affected patients who are initially exposed to a single dose and then multiple doses of the product candidate. The primary purpose of these clinical trials is to assess the metabolism, pharmacologic action, side effect tolerability and safety of the drug.

 

    Phase 2 clinical trials involve studies in disease-affected patients to determine the dose required to produce the desired benefits. At the same time, safety and further pharmacokinetic and pharmacodynamic information is collected, possible adverse effects and safety risks are identified and a preliminary evaluation of efficacy is conducted.

 

    Phase 3 clinical trials generally involve a large number of patients at multiple sites and are designed to provide the data necessary to demonstrate the effectiveness of the product for its intended use, its safety in use and to establish the overall benefit/risk relationship of the product and provide an adequate basis for product labeling.

Post-approval trials, sometimes referred to as Phase 4 clinical trials, may be conducted after initial marketing approval. These trials are used to gain additional experience from the treatment of patients in the intended therapeutic indication. In certain instances, the FDA may mandate the performance of Phase 4 clinical trials as a condition of approval of an NDA or BLA.

Progress reports detailing the results of the clinical trials, among other information, must be submitted at least annually to the FDA and written IND safety reports must be submitted to the FDA and the investigators for serious and unexpected suspected adverse events, findings from other studies or animal or in vitro testing that suggest a significant risk for human subjects and any clinically important increase in the rate of a serious suspected adverse reaction over that listed in the protocol or investigator brochure.

 

114


Table of Contents

Phase 1, Phase 2 and Phase 3 clinical trials may not be completed successfully within any specified period, if at all. The FDA or the sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug or biologic has been associated with unexpected serious harm to patients. Additionally, some clinical trials are overseen by an independent group of qualified experts organized by the clinical trial sponsor, known as a data safety monitoring board or committee. This group provides authorization for whether a trial may move forward at designated check points based on access to certain data from the trial. Concurrent with clinical trials, companies usually complete additional animal studies and also must develop additional information about the chemistry and physical characteristics of the drug or biologic as well as finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product and, among other things, companies must develop methods for testing the identity, strength, quality and purity of the final product. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that SRF231 and any future product candidates we develop do not undergo unacceptable deterioration over their shelf life.

NDA/BLA and FDA Review Process

Following completion of the clinical trials, data are analyzed to assess whether the investigational product is safe and effective for the proposed indicated use or uses. The results of preclinical studies and clinical trials are then submitted to the FDA as part of an NDA or BLA, along with proposed labeling, chemistry and manufacturing information to ensure product quality and other relevant data. The NDA or BLA is a request for approval to market the drug or biologic for one or more specified indications and must contain proof of safety and efficacy for a drug or safety, purity and potency for a biologic. The application may include both negative and ambiguous results of preclinical studies and clinical trials, as well as positive findings. Data may come from company-sponsored clinical trials intended to test the safety and efficacy of a product’s use or from a number of alternative sources, including studies initiated by investigators. To support marketing approval, the data submitted must be sufficient in quality and quantity to establish the safety and efficacy of the investigational product to the satisfaction of FDA. FDA approval of an NDA or BLA must be obtained before a drug or biologic may be marketed in the United States.

Under the Prescription Drug User Fee Act, or PDUFA, as amended, each NDA or BLA must be accompanied by a user fee. FDA adjusts the PDUFA user fees on an annual basis. According to the FDA’s fee schedule, effective through September 30, 2018, the user fee for an application requiring clinical data, such as an NDA or BLA, is $2,421,495. The sponsor of an approved NDA or BLA is also subject to an annual prescription drug program fee, which for fiscal year 2018 is $304,162. Fee waivers or reductions are available in certain circumstances, including a waiver of the application fee for the first application filed by a small business. Additionally, no user fees are assessed on NDAs or BLAs for products designated as orphan drugs, unless the product also includes a non-orphan indication.

The FDA reviews all submitted NDAs and BLAs before it accepts them for filing, and may request additional information rather than accepting the NDA or BLA for filing. The FDA must make a decision on accepting an NDA or BLA for filing within 60 days of receipt. Once the submission is accepted for filing, the FDA begins an in-depth review of the NDA or BLA. Under the goals and policies agreed to by the FDA under PDUFA, the FDA has ten months, from the filing date, in which to complete its initial review of a new molecular-entity NDA or original BLA and respond to the applicant, and six months from the filing date of a new molecular-entity NDA or original BLA designated for priority review. The

 

115


Table of Contents

FDA does not always meet its PDUFA goal dates for standard and priority NDAs or BLAs, and the review process is often extended by FDA requests for additional information or clarification.

Before approving an NDA or BLA, the FDA will conduct a pre-approval inspection of the manufacturing facilities for the new product to determine whether they comply with cGMP requirements. The FDA will not approve the product unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. The FDA also may audit data from clinical trials to ensure compliance with GCP requirements. Additionally, the FDA may refer applications for novel drug products or drug products which present difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved and under what conditions, if any. The FDA is not bound by recommendations of an advisory committee, but it considers such recommendations when making decisions on approval. The FDA likely will reanalyze the clinical trial data, which could result in extensive discussions between the FDA and the applicant during the review process. After the FDA evaluates an NDA or BLA, it will issue an approval letter or a Complete Response Letter. An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. A Complete Response Letter indicates that the review cycle of the application is complete and the application will not be approved in its present form. A Complete Response Letter usually describes all of the specific deficiencies in the NDA or BLA identified by the FDA. The Complete Response Letter may require additional clinical data, additional pivotal Phase 3 clinical trial(s) and/or other significant and time-consuming requirements related to clinical trials, preclinical studies or manufacturing. If a Complete Response Letter is issued, the applicant may either resubmit the NDA or BLA, addressing all of the deficiencies identified in the letter, or withdraw the application. Even if such data and information are submitted, the FDA may decide that the NDA or BLA does not satisfy the criteria for approval. Data obtained from clinical trials are not always conclusive and the FDA may interpret data differently than we interpret the same data.

Orphan Drug Designation

Under the Orphan Drug Act, the FDA may grant orphan designation to a drug or biological product intended to treat a rare disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the United States, or more than 200,000 individuals in the United States and for which there is no reasonable expectation that the cost of developing and making the product available in the United States for this type of disease or condition will be recovered from sales of the product.

Orphan drug designation must be requested before submitting an NDA or BLA. After the FDA grants orphan drug designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in or shorten the duration of the regulatory review and approval process.

If a product that has orphan designation subsequently receives the first FDA approval for the disease or condition for which it has such designation, the product is entitled to orphan drug exclusivity, which means that the FDA may not approve any other applications to market the same drug for the same indication for seven years from the date of such approval, except in limited circumstances, such as a showing of clinical superiority to the product with orphan exclusivity by means of greater effectiveness, greater safety or providing a major contribution to patient care or in instances of drug supply issues. Competitors, however, may receive approval of either a different product for the same indication or the same product for a different indication but that could be used off-label in the orphan indication. Orphan drug exclusivity also could block the approval of one of our products for seven years if a competitor obtains approval before we do for the same product, as defined by the FDA, for the

 

116


Table of Contents

same indication we are seeking approval, or if SRF231 is determined to be contained within the scope of the competitor’s product for the same indication or disease. If one of our products designated as an orphan drug receives marketing approval for an indication broader than that which is designated, it may not be entitled to orphan drug exclusivity. Orphan drug status in the European Union has similar, but not identical, requirements and benefits.

Expedited Development and Review Programs

The FDA has a fast track program that is intended to expedite or facilitate the process for reviewing new drugs and biologics that meet certain criteria. Specifically, new drugs and biologics are eligible for fast track designation if they are intended to treat a serious or life threatening condition and preclinical or clinical data demonstrate the potential to address unmet medical needs for the condition. Fast track designation applies to both the product and the specific indication for which it is being studied. The sponsor can request the FDA to designate the product for fast track status any time before receiving NDA or BLA approval, but ideally no later than the pre-NDA or pre-BLA meeting.

Any product submitted to the FDA for marketing, including under a fast track program, may be eligible for other types of FDA programs intended to expedite development and review, such as priority review and accelerated approval. Any product is eligible for priority review if it treats a serious or life-threatening condition and, if approved, would provide a significant improvement in safety and effectiveness compared to available therapies. The FDA will attempt to direct additional resources to the evaluation of an application for a new drug or biologic designated for priority review in an effort to facilitate the review.

A product may also be eligible for accelerated approval, if it treats a serious or life-threatening condition and generally provides a meaningful advantage over available therapies. In addition, it must demonstrate an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, or IMM, that is reasonably likely to predict an effect on IMM or other clinical benefit. As a condition of approval, the FDA may require that a sponsor of a drug or biologic receiving accelerated approval perform adequate and well-controlled post-marketing clinical trials. If the FDA concludes that a drug or biologic shown to be effective can be safely used only if distribution or use is restricted, it will require such post-marketing restrictions, as it deems necessary to assure safe use of the product.

Additionally, a drug or biologic may be eligible for designation as a breakthrough therapy if the product is intended, alone or in combination with one or more other drugs or biologics, to treat a serious or life-threatening condition and preliminary clinical evidence indicates that the product may demonstrate substantial improvement over currently approved therapies on one or more clinically significant endpoints. The benefits of breakthrough therapy designation include the same benefits as fast track designation, plus intensive guidance from the FDA to ensure an efficient drug development program.

Fast track designation, priority review, accelerated approval and breakthrough therapy designation do not change the standards for approval, but may expedite the development or approval process.

Pediatric Information

Under the Pediatric Research Equity Act, or PREA, an NDA or BLA or supplement to an NDA or BLA must contain data to assess the safety and efficacy of the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The FDA may grant deferrals for submission

 

117


Table of Contents

of pediatric data or full or partial waivers. The Food and Drug Administration Safety and Innovation Act, or FDASIA, amended the FDCA to require that a sponsor who is planning to submit a marketing application for a drug that includes a new active ingredient, new indication, new dosage form, new dosing regimen or new route of administration submit an initial Pediatric Study Plan, or PSP, within 60 days of an end-of-Phase 2 meeting or, if there is no such meeting, as early as practicable before the initiation of the Phase 3 or Phase 2/3 study. The initial PSP must include an outline of the pediatric study or studies that the sponsor plans to conduct, including study objectives and design, age groups, relevant endpoints and statistical approach, or a justification for not including such detailed information, and any request for a deferral of pediatric assessments or a full or partial waiver of the requirement to provide data from pediatric studies along with supporting information. The FDA and the sponsor must reach an agreement on the PSP. A sponsor can submit amendments to an agreed-upon initial PSP at any time if changes to the pediatric plan need to be considered based on data collected from preclinical studies, early phase clinical trials and/or other clinical development programs.

Post-Marketing Requirements

Following approval of a new product, the manufacturer and the approved product are subject to continuing regulation by the FDA, including, among other things, monitoring and record-keeping activities, reporting of adverse experiences, complying with promotion and advertising requirements, which include restrictions on promoting drugs for unapproved uses or patient populations (known as “off-label use”) and limitations on industry-sponsored scientific and educational activities. Although physicians may prescribe legally available drugs for off-label uses, manufacturers may not market or promote such uses. Prescription drug promotional materials must be submitted to the FDA in conjunction with their first use. Further, if there are any modifications to the drug or biologic, including changes in indications, labeling or manufacturing processes or facilities, the applicant may be required to submit and obtain FDA approval of a new NDA/BLA or NDA/BLA supplement, which may require the development of additional data or preclinical studies and clinical trials.

The FDA may also place other conditions on approvals including the requirement for a Risk Evaluation and Mitigation Strategy, or REMS, to assure the safe use of the product. If the FDA concludes a REMS is needed, the sponsor of the NDA or BLA must submit a proposed REMS. The FDA will not approve the NDA or BLA without an approved REMS, if required. A REMS could include medication guides, physician communication plans or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. Any of these limitations on approval or marketing could restrict the commercial promotion, distribution, prescription or dispensing of products. Product approvals may be withdrawn for non-compliance with regulatory standards or if problems occur following initial marketing.

FDA regulations require that products be manufactured in specific approved facilities and in accordance with cGMP regulations. We rely, and expect to continue to rely, on third parties for the production of clinical and commercial quantities of our products in accordance with cGMP regulations. These manufacturers must comply with cGMP regulations that require, among other things, quality control and quality assurance, the maintenance of records and documentation and the obligation to investigate and correct any deviations from cGMP. Manufacturers and other entities involved in the manufacture and distribution of approved drugs or biologics are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP requirements and other laws. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain cGMP compliance. The discovery of violative conditions, including failure to conform to cGMP regulations, could result in enforcement actions, and the discovery of problems with a product after approval may result in restrictions on a product, manufacturer or holder of an approved NDA or BLA, including recall.

 

118


Table of Contents

Companion Diagnostics and Complementary Diagnostics

We believe that the success of any product candidates we develop will depend, in part, on the development and commercialization of either a companion diagnostic or complementary diagnostic. Companion diagnostics and complementary diagnostics can identify patients who are most likely to benefit from a particular therapeutic product; identify patients likely to be at increased risk for serious side effects as a result of treatment with a particular therapeutic product; or monitor response to treatment with a particular therapeutic product for the purpose of adjusting treatment to achieve improved safety or effectiveness. Companion diagnostics and complementary diagnostics are regulated as medical devices by the FDA and, as such, require either clearance or approval prior to commercialization. The level of risk combined with available controls to mitigate risk determines whether a companion diagnostic device requires Premarket Approval Application, or PMA, approval or is cleared through the 510(k) premarket notification process. For a novel therapeutic product for which a companion diagnostic device is essential for the safe and effective use of the product, the companion diagnostic device should be developed and approved or 510(k)-cleared contemporaneously with the therapeutic. The use of the companion diagnostic device will be stipulated in the labeling of the therapeutic product. This is also true for a complementary diagnostic, although it is not a prerequisite for receiving the therapeutic.

U.S. Healthcare Reform and Other U.S. Healthcare Laws

Manufacturing, sales, promotion and other activities following product approval are also subject to regulation by numerous regulatory authorities in the United States in addition to the FDA, including the Centers for Medicare & Medicaid Services, other divisions of the Department of Health and Human Services, the Department of Justice, the Drug Enforcement Administration, the Consumer Product Safety Commission, the Federal Trade Commission, the Occupational Safety & Health Administration, the Environmental Protection Agency and state and local governments.

Healthcare providers, physicians and third-party payors in the United States and elsewhere play a primary role in the recommendation and prescription of pharmaceutical products. Arrangements with third-party payors and customers can expose pharmaceutical manufactures to broadly applicable fraud and abuse and other healthcare laws and regulations, including, without limitation, the federal Anti-Kickback Statute and the federal False Claims Act, or FCA, which may constrain the business or financial arrangements and relationships through which such companies sell, market and distribute pharmaceutical products. In addition, transparency laws and patient privacy regulations by federal and state governments and by governments in foreign jurisdictions can apply to the manufacturing, sales, promotion and other activities of pharmaceutical manufactures. The applicable federal, state and foreign healthcare laws and regulations that can affect a pharmaceutical company’s operations include:

 

    The federal Anti-Kickback Statute, which prohibits, among other things, knowingly and willfully soliciting, receiving, offering or paying any remuneration (including any kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce, or in return for, either the referral of an individual, 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 the Medicare and Medicaid programs, or other federal healthcare programs. A person or entity can be found guilty of violating the statute without actual knowledge of the statute or specific intent to violate it. In addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the FCA. The Anti-Kickback Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers, and formulary managers on the other. There are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution;

 

119


Table of Contents
    The federal civil and criminal false claims laws and civil monetary penalty laws, including the FCA, which prohibit any person or entity from, among other things, knowingly presenting, or causing to be presented, a false, fictitious or fraudulent claim for payment to, or approval by, the federal government or knowingly making, using or causing to be made or used a false record or statement, including providing inaccurate billing or coding information to customers or promoting a product off-label, material to a false or fraudulent claim to the federal government. As a result of a modification made by the Fraud Enforcement and Recovery Act of 2009, a claim includes “any request or demand” for money or property presented to the federal government. In addition, manufacturers can be held liable under the FCA even when they do not submit claims directly to government payors if they are deemed to “cause” the submission of false or fraudulent claims. The FCA also permits a private individual acting as a “whistleblower” to bring actions on behalf of the federal government alleging violations of the FCA and to share in any monetary recovery;

 

    The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created federal criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor (e.g., public or private) and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false statements in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters. Similar to the federal Anti-Kickback Statute, a person or entity can be found guilty of violating HIPAA without actual knowledge of the statute or specific intent to violate it;

 

    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, among other things, specified requirements relating to the privacy, security and transmission of individually identifiable health information held by covered entities and their business associates. HITECH also created new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions;

 

    the federal legislation commonly referred to as the Physician Payments Sunshine Act, created under the Patient Protection and Affordable Care Act, or ACA, and its implementing regulations, which requires manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to the Centers for Medicare & Medicaid Services, or CMS, information related to payments or other transfers of value made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members;

 

    Federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers; and

 

   

Analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, which may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers; state and foreign laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government or otherwise restrict payments that may be

 

120


Table of Contents
 

made to healthcare providers; state and foreign laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; and state and foreign laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.

Pricing and rebate programs must comply with the Medicaid rebate requirements of the U.S. Omnibus Budget Reconciliation Act of 1990 and more recent requirements in the ACA. If products are made available to authorized users of the Federal Supply Schedule of the General Services Administration, additional laws and requirements apply. Products must meet applicable child-resistant packaging requirements under the U.S. Poison Prevention Packaging Act. Manufacturing, sales, promotion and other activities also are potentially subject to federal and state consumer protection and unfair competition laws.

The distribution of pharmaceutical products is subject to additional requirements and regulations, including extensive record-keeping, licensing, storage and security requirements intended to prevent the unauthorized sale of pharmaceutical products.

The scope and enforcement of each 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 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. Ensuring business arrangements comply with applicable healthcare laws, as well as responding to possible investigations by government authorities, can be time- and resource-consuming and can divert a company’s attention from the business.

The failure to comply with any of these laws or regulatory requirements subjects firms to possible legal or regulatory action. Depending on the circumstances, failure to meet applicable regulatory requirements can result in civil, criminal and administrative penalties, damages, fines, disgorgement, individual imprisonment, possible exclusion from participation in federal and state funded healthcare programs, contractual damages and the curtailment or restricting of our operations, as well as additional reporting obligations and oversight if we become subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws. Any action for violation of these laws, even if successfully defended, could cause a pharmaceutical manufacturer to incur significant legal expenses and divert management’s attention from the operation of the business. Prohibitions or restrictions on sales or withdrawal of future marketed products could materially affect business in an adverse way. Changes in regulations, statutes or the interpretation of existing regulations could impact our business in the future by requiring, for example: (i) changes to our manufacturing arrangements; (ii) additions or modifications to product labeling; (iii) the recall or discontinuation of our products; or (iv) additional record-keeping requirements. If any such changes were to be imposed, they could adversely affect the operation of our business.

In the United States, there have been and continue to be a number of legislative initiatives to contain healthcare costs. For example, in March 2010, the ACA was passed, which substantially changes the way healthcare is financed by both governmental and private insurers, and significantly impacts the U.S. pharmaceutical industry. The ACA, among other things, subjects biological products to potential competition by lower-cost biosimilars, addresses a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected, increases the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extends the rebate program to individuals enrolled in Medicaid managed care organizations, establishes annual fees and taxes on

 

121


Table of Contents

manufacturers of certain branded prescription drugs, and creates a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% (70% commencing January 1, 2019) point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D.

Some of the provisions of the ACA have yet to be fully implemented, while certain provisions have been subject to judicial and Congressional challenges, as well as efforts by the Trump administration to repeal or replace certain aspects of the ACA. Since January 2017, President Trump has signed two Executive Orders designed to delay the implementation of certain provisions of the ACA or otherwise circumvent some of the requirements for health insurance mandated by the ACA. Concurrently, Congress has considered legislation that would repeal or repeal and replace all or part of the ACA. While Congress has not passed comprehensive repeal legislation, two bills affecting the implementation of certain taxes under the ACA have been signed into law. The Tax Cuts and Jobs Act of 2017, or TCJA, includes a provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate.” Additionally, on January 22, 2018, President Trump signed a continuing resolution on appropriations for fiscal year 2018 that delayed the implementation of certain ACA-mandated fees, including the so-called “Cadillac” tax on certain high cost employer-sponsored insurance plans, the annual fee imposed on certain high cost employer-sponsored insurance plans, the annual fee imposed on certain health insurance providers based on market share, and the medical device excise tax on non-exempt medical devices. Further, the Bipartisan Budget Act of 2018, or the BBA, among other things, amends the ACA, effective January 1, 2019, to reduce the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole.”

Other legislative changes have been proposed and adopted in the United States since the ACA was enacted. On August 2, 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions of Medicare payments to providers of 2% per fiscal year. These reductions went into effect on April 1, 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2027 unless additional congressional action is taken. On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, further reduced Medicare payments to several types of providers.

Moreover, payment methodologies may be subject to changes in healthcare legislation and regulatory initiatives which could limit the amounts that federal and state governments will pay for healthcare products and services and result in reduced demand for certain pharmaceutical products or additional pricing pressures.

Additionally, there has been increasing legislative and enforcement interest in the United States with respect to specialty drug pricing practices. Specifically, there have been several recent U.S. Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drugs.

 

122


Table of Contents

U.S. Patent-Term Restoration and Marketing Exclusivity

Depending upon the timing, duration and specifics of FDA approval of SRF231 and any future product candidates we develop, some of our U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, commonly referred to as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit restoration of the patent term of up to five years as compensation for patent term lost during product development and FDA regulatory review process. Patent-term restoration, however, cannot extend the remaining term of a patent beyond a total of 14 years from the product’s approval date. The patent-term restoration period is generally one-half the time between the effective date of an IND and the submission date of an NDA or BLA plus the time between the submission date of an NDA or BLA and the approval of that application, except that the review period is reduced by any time during which the applicant failed to exercise due diligence. Only one patent applicable to an approved drug is eligible for the extension and the application for the extension must be submitted prior to the expiration of the patent. The United States Patent and Trademark Office, or USPTO, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration. In the future, we may apply for restoration of patent term for our currently owned or licensed patents to add patent life beyond its current expiration date, depending on the expected length of the clinical trials and other factors involved in the filing of the relevant NDA or BLA.

Market exclusivity provisions under the FDCA also can delay the submission or the approval of certain applications. The FDCA provides a five-year period of non-patent marketing exclusivity within the United States to the first applicant to gain approval of an NDA for a new chemical entity. A drug is a new chemical entity if the FDA has not previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the action of the drug substance. During the exclusivity period, the FDA may not accept for review an Abbreviated New Drug Application, or ANDA, or a 505(b)(2) NDA submitted by another company for another version of such drug where the applicant does not own or have a legal right of reference to all the data required for approval. However, an application may be submitted after four years if it contains a certification of patent invalidity or non-infringement. The FDCA also provides three years of marketing exclusivity for a NDA, 505(b)(2) NDA or supplement to an existing NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, for example, new indications, dosages or strengths of an existing drug. This three-year exclusivity covers only the conditions of use associated with the new clinical investigations and does not prohibit the FDA from approving ANDAs for drugs containing the original active agent. Five-year and three-year exclusivity will not delay the submission or approval of a full NDA. However, an applicant submitting a full NDA would be required to conduct or obtain a right of reference to all of the preclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness.

An abbreviated approval pathway for biological products shown to be similar to, or interchangeable with, an FDA-licensed reference biological product was created by the Biologics Price Competition and Innovation Act of 2009, or BPCI Act, as part of the ACA. This amendment to the PHSA, in part, attempts to minimize duplicative testing. Biosimilarity, which requires that the biological product be highly similar to the reference product notwithstanding minor differences in clinically inactive components and that there be no clinically meaningful differences between the product and the reference product in terms of safety, purity and potency, can be shown through analytical studies, animal studies and a clinical trial or trials. Interchangeability requires that a biological product be biosimilar to the reference product and that the product can be expected to produce the same clinical results as the reference product in any given patient and, for products administered multiple times to an individual, that the product and the reference product may be alternated or switched after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to

 

123


Table of Contents

exclusive use of the reference biological product without such alternation or switch. Complexities associated with the larger, and often more complex, structure of biological products as compared to small molecule drugs, as well as the processes by which such products are manufactured, pose significant hurdles to implementation that are still being worked out by the FDA.

A reference biological product is granted 12 years of data exclusivity from the time of first licensure of the product, and the FDA will not accept an application for a biosimilar or interchangeable product based on the reference biological product until four years after the date of first licensure of the reference product. “First licensure” typically means the initial date the particular product at issue was licensed in the United States. Date of first licensure does not include the date of licensure of (and a new period of exclusivity is not available for) a biological product if the licensure is for a supplement for the biological product or for a subsequent application by the same sponsor or manufacturer of the biological product (or licensor, predecessor in interest, or other related entity) for a change (not including a modification to the structure of the biological product) that results in a new indication, route of administration, dosing schedule, dosage form, delivery system, delivery device or strength, or for a modification to the structure of the biological product that does not result in a change in safety, purity, or potency. Therefore, one must determine whether a new product includes a modification to the structure of a previously licensed product that results in a change in safety, purity, or potency to assess whether the licensure of the new product is a first licensure that triggers its own period of exclusivity. Whether a subsequent application, if approved, warrants exclusivity as the “first licensure” of a biological product is determined on a case-by-case basis with data submitted by the sponsor.

Pediatric exclusivity is another type of regulatory market exclusivity in the United States. Pediatric exclusivity, if granted, adds six months to existing regulatory exclusivity periods. This six-month exclusivity may be granted based on the voluntary completion of a pediatric trial in accordance with an FDA-issued “Written Request” for such a trial.

European Union Drug Development

In the European Union, or EU, our future products also may be subject to extensive regulatory requirements. As in the United States, medicinal products can be marketed only if a marketing authorization from the competent regulatory agencies has been obtained.

Similar to the United States, the various phases of preclinical and clinical research in the European Union are subject to significant regulatory controls. Although the EU Clinical Trials Directive 2001/20/EC has sought to harmonize the EU clinical trials regulatory framework, setting out common rules for the control and authorization of clinical trials in the EU, the EU Member States have transposed and applied the provisions of the Directive differently. This has led to significant variations in the member state regimes. Under the current regime, before a clinical trial can be initiated it must be approved in each of the EU countries where the trial is to be conducted by two distinct bodies: the National Competent Authority, or NCA, and one or more Ethics Committees, or ECs. Under the current regime all suspected unexpected serious adverse reactions to the investigated drug that occur during the clinical trial have to be reported to the NCA and ECs of the Member State where they occurred.

The EU clinical trials legislation currently is undergoing a transition process mainly aimed at harmonizing and streamlining clinical-trial authorization, simplifying adverse-event reporting procedures, improving the supervision of clinical trials and increasing their transparency. Recently enacted Clinical Trials Regulation EU No 536/2014 ensures that the rules for conducting clinical trials in the EU will be identical.

 

124


Table of Contents

European Union Drug Review and Approval

In the European Economic Area, or EEA, which is comprised of the 27 Member States of the European Union (including Norway but excluding Croatia), Iceland and Liechtenstein, medicinal products can only be commercialized after obtaining a Marketing Authorization, or MA. There are two types of marketing authorizations.

 

    The Community MA is issued by the European Commission through the Centralized Procedure, based on the opinion of the Committee for Medicinal Products for Human Use, or CHMP, of the European Medicines Agency, or EMA, and is valid throughout the entire territory of the EEA. The Centralized Procedure is mandatory for certain types of products, such as biotechnology medicinal products, orphan medicinal products, advanced-therapy medicines such as gene-therapy, somatic cell-therapy or tissue-engineered medicines and medicinal products containing a new active substance indicated for the treatment of HIV, AIDS, cancer, neurodegenerative disorders, diabetes, auto-immune and other immune dysfunctions and viral diseases. The Centralized Procedure is optional for products containing a new active substance not yet authorized in the EEA, or for products that constitute a significant therapeutic, scientific or technical innovation or which are in the interest of public health in the EU.

 

    National MAs, which are issued by the competent authorities of the Member States of the EEA and only cover their respective territory, are available for products not falling within the mandatory scope of the Centralized Procedure. Where a product has already been authorized for marketing in a Member State of the EEA, this National MA can be recognized in another Member States through the Mutual Recognition Procedure. If the product has not received a National MA in any Member State at the time of application, it can be approved simultaneously in various Member States through the Decentralized Procedure. Under the Decentralized Procedure an identical dossier is submitted to the competent authorities of each of the Member States in which the MA is sought, one of which is selected by the applicant as the Reference Member State, or RMS. The competent authority of the RMS prepares a draft assessment report, a draft summary of the product characteristics, or SPC, and a draft of the labeling and package leaflet, which are sent to the other Member States, referred to as the Member States Concerned, for their approval. If the Member States Concerned raise no objections, based on a potential serious risk to public health, to the assessment, SPC, labeling, or packaging proposed by the RMS, the product is subsequently granted a national MA in all the Member States (i.e., in the RMS and the Member States Concerned).

Under the above described procedures, before granting the MA, the EMA or the competent authorities of the Member States of the EEA make an assessment of the risk-benefit balance of the product on the basis of scientific criteria concerning its quality, safety and efficacy.

European Union New Chemical Entity Exclusivity

In the European Union, new chemical entities, sometimes referred to as new active substances, qualify for eight years of data exclusivity upon marketing authorization and an additional two years of market exclusivity. The data exclusivity, if granted, prevents regulatory authorities in the European Union from referencing the innovator’s data to assess a generic application for eight years, after which generic marketing authorization can be submitted, and the innovator’s data may be referenced, but not approved for two years. The overall ten-year period will be extended to a maximum of 11 years if, during the first eight years of those ten years, the marketing authorization holder obtains an authorization for one or more new therapeutic indications which, during the scientific evaluation prior to their authorization, are determined to bring a significant clinical benefit in comparison with currently approved therapies.

 

125


Table of Contents

European Union Orphan Designation and Exclusivity

In the European Union, the EMA’s Committee for Orphan Medicinal Products grants orphan drug designation to promote the development of products that are intended for the diagnosis, prevention or treatment of life-threatening or chronically debilitating conditions affecting not more than 5 in 10,000 persons in the European Union community (or where it is unlikely that the development of the medicine would generate sufficient return to justify the investment) and for which no satisfactory method of diagnosis, prevention or treatment has been authorized (or, if a method exists, the product would be a significant benefit to those affected).

In the European Union, orphan drug designation entitles a party to financial incentives such as reduction of fees or fee waivers and ten years of market exclusivity is granted following medicinal product approval. This period may be reduced to six years if the orphan drug designation criteria are no longer met, including where it is shown that the product is sufficiently profitable not to justify maintenance of market exclusivity. Orphan drug designation must be requested before submitting an application for marketing approval. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process.

Rest of the World Regulation

For other countries outside of the European Union and the United States, such as countries in Eastern Europe, Latin America or Asia, the requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. Additionally, the clinical trials must be conducted in accordance with GCP requirements and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki.

If we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.

Reimbursement

Sales of our products, when and if approved, will depend, in part, on the extent to which our products will be covered by third-party payors, such as government health programs, commercial insurance and managed healthcare organizations. In the United States no uniform policy of coverage and reimbursement for drug or biological products exists. Accordingly, decisions regarding the extent of coverage and amount of reimbursement to be provided for any of our products will be made on a payor-by-payor basis. As a result, the coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our products to each payor separately, with no assurance that coverage and adequate reimbursement will be obtained.

The United States government, state legislatures and foreign governments have shown significant interest in implementing cost containment programs to limit the growth of government-paid health care costs, including price-controls, restrictions on reimbursement and requirements for substitution of generic products and/or biosimilars for branded prescription drugs. For example, the ACA contains provisions that may reduce the profitability of drug products through increased rebates for drugs reimbursed by Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatory discounts for certain Medicare Part D beneficiaries and annual fees based on pharmaceutical companies’ share of sales to federal healthcare programs. Adoption of general controls and measures, coupled with the tightening of restrictive policies in jurisdictions with existing controls and measures, could limit payments for pharmaceutical drugs.

 

126


Table of Contents

The Medicaid Drug Rebate Program requires pharmaceutical manufacturers to enter into and have in effect a national rebate agreement with the Secretary of the Department of Health and Human Services as a condition for states to receive federal matching funds for the manufacturer’s outpatient drugs furnished to Medicaid patients. The ACA made several changes to the Medicaid Drug Rebate Program, including increasing pharmaceutical manufacturers’ rebate liability by raising the minimum basic Medicaid rebate on most branded prescription drugs from 15.1% of average manufacturer price, or AMP, to 23.1% of AMP and adding a new rebate calculation for “line extensions” (i.e., new formulations, such as extended release formulations) of solid oral dosage forms of branded products, as well as potentially impacting their rebate liability by modifying the statutory definition of AMP. The ACA also expanded the universe of Medicaid utilization subject to drug rebates by requiring pharmaceutical manufacturers to pay rebates on Medicaid managed care utilization and by enlarging the population potentially eligible for Medicaid drug benefits.

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or the MMA, established the Medicare Part D program to provide a voluntary prescription drug benefit to Medicare beneficiaries. Under Part D, Medicare beneficiaries may enroll in prescription drug plans offered by private entities that provide coverage of outpatient prescription drugs. Unlike Medicare Part A and B, Part D coverage is not standardized. While all Medicare drug plans must give at least a standard level of coverage set by Medicare, Part D prescription drug plan sponsors are not required to pay for all covered Part D drugs, and each drug plan can develop its own drug formulary that identifies which drugs it will cover and at what tier or level. However, Part D prescription drug formularies must include drugs within each therapeutic category and class of covered Part D drugs, though not necessarily all the drugs in each category or class. Any formulary used by a Part D prescription drug plan must be developed and reviewed by a pharmacy and therapeutic committee. Government payment for some of the costs of prescription drugs may increase demand for products for which we receive marketing approval. However, any negotiated prices for our products covered by a Part D prescription drug plan likely will be lower than the prices we might otherwise obtain. Moreover, while the MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own payment rates. Any reduction in payment that results from the MMA may result in a similar reduction in payments from non-governmental payors.

For a drug product to receive federal reimbursement under the Medicaid or Medicare Part B programs or to be sold directly to U.S. government agencies, the manufacturer must extend discounts to entities eligible to participate in the 340B drug pricing program. The required 340B discount on a given product is calculated based on the AMP and Medicaid rebate amounts reported by the manufacturer. As of 2010, the ACA expanded the types of entities eligible to receive discounted 340B pricing, although, under the current state of the law, with the exception of children’s hospitals, these newly eligible entities will not be eligible to receive discounted 340B pricing on orphan drugs. In addition, as 340B drug pricing is determined based on AMP and Medicaid rebate data, the revisions to the Medicaid rebate formula and AMP definition described above could cause the required 340B discount to increase.

As noted above, the marketability of any products for which we receive regulatory approval for commercial sale may suffer if the government and third-party payors fail to provide coverage and reimbursement. Obtaining coverage and reimbursement for newly approved drugs is a time-consuming and costly process, and coverage may be more limited than the purposes for which a drug is approved by the FDA or comparable foreign regulatory authorities. Assuming coverage is obtained for a given product by a third-party payor, the resulting reimbursement payment rates may not be adequate or may require co-payments that patients find unacceptably high. Patients who are prescribed medications for the treatment of their conditions, and their prescribing physicians, generally rely on

 

127


Table of Contents

third-party payors to reimburse all or part of the costs associated with their prescription drugs. Patients are unlikely to use products unless coverage is provided and reimbursement is adequate to cover all or a significant portion of the cost of prescribed products.

An increasing emphasis on cost containment measures in the United States has increased and we expect will continue to increase the pressure on pharmaceutical pricing. Coverage policies and third-party reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.

In addition, in most foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing and reimbursement vary widely from country to country. For example, the European Union provides options for its member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements for any of our products. Historically, products launched in the European Union do not follow price structures of the United States and generally prices tend to be significantly lower.

Employees

As of March 22, 2018, we had 56 full-time employees. Eighteen of our employees have Ph.D. or M.D. degrees and 42 of our employees are engaged in research and development activities. None of our employees are represented by labor unions or covered by collective bargaining agreements. We consider our relationship with our employees to be good.

Facilities

We lease a facility containing our research and development, laboratory and office space, which consists of approximately 32,000 square feet located at 50 Hampshire Street, Cambridge, Massachusetts. Our lease expires on February 19, 2027. We believe that our facilities are adequate for our current needs and that suitable additional or substitute space would be available if needed.

Legal Proceedings

In January 2017, we filed an opposition in the European Patent Office opposing the grant of European Patent No. EP 2242512 to Stanford University. We are one of seven parties opposing the grant of the European patent, which relates generally to CD47 antibodies for use in treating cancer. Stanford has filed a response to the seven oppositions. Oral arguments have been scheduled to commence on August 28, 2018, and the outcome of the opposition proceedings is uncertain. Furthermore, any party can appeal an opposition decision to the Technical Boards of Appeal at the European Patent Office. Accordingly, final resolution of the oppositions may be several years in the future.

From time to time, we may become involved in other litigation or legal proceedings relating to claims arising from the ordinary course of business.

 

128


Table of Contents

MANAGEMENT

Executive Officers and Directors

The following table sets forth information regarding our executive officers and directors, including their ages as of March 22, 2018:

 

Name

   Age     

Position(s)

Executive Officers:

     

J. Jeffrey Goater

     42      Chief Executive Officer, President and Secretary and Director

Scott C. Chappel, Ph.D.

     67      Chief Technology Officer

Vito J. Palombella, Ph.D.

     55      Chief Scientific Officer

Robert W. Ross, M.D.

     44      Chief Medical Officer

Executive Directors:

     

Daniel S. Lynch(2)

     59      Chairman and Director

Non-Executive Directors:

     

David S. Grayzel, M.D.(3)

     50      Director

Geoffrey McDonough, M.D.(1)(3)

     47      Director

Armen B. Shanafelt, Ph.D.(1)(2)

     58      Director

Elliott Sigal, M.D., Ph.D(3)

     66      Director

Laurie D. Stelzer(1)(2)

     50      Director

 

(1) Member of the audit committee.
(2) Member of the compensation committee.
(3) Member of the nominating and corporate governance committee.

Executive Officers

J. Jeffrey Goater has served as our Chief Executive Officer and a member of our board of directors since February 2018. Mr. Goater has served as our Secretary since February 2017 and previously served as our Chief Business Officer from February 2017 to February 2018. Prior to Surface, Mr. Goater served as the Chief Financial Officer and held other senior business and finance positions at Voyager Therapeutics, Inc. from September 2013 to December 2016. Prior to that, he served as Vice President of Business Development at Synageva BioPharma Corp. (now Alexion Pharmaceuticals, Inc.) from April 2013 to July 2013, and prior to that, he worked as an investment banker at Evercore Partners, Inc. (now Evercore Inc.) from April 2008 to April 2013, most recently as Managing Director. Prior to that, Mr. Goater worked as an equity research analyst at Cowen and Company, LLC, covering the biopharmaceutical sector, from August 2004 to March 2008. He also currently serves on the board of directors of Vaccinex, Inc., a privately held biotechnology company. Mr. Goater received a B.A. in Biology, an M.S. in Pathology, an M.S. in Microbiology and Immunology and an M.B.A., all from the University of Rochester. Our board of directors believes that Mr. Goater’s experience as our Chief Executive Officer, as well as his experience in the life science industry, qualifies him to serve on our board of directors.

Scott C. Chappel, Ph.D. has served as our Chief Technology Officer since June 2014. Prior to Surface, Dr. Chappel served as Chief Scientific Officer at Arteaus Therapeutics, LLC from July 2013 until it was acquired by Eli Lilly and Company in January 2014, Annovation Biopharma, Inc. from July 2013 to January 2014, and OvaScience, Inc. from June 2011 to July 2013. Prior to that, he served as the Chief Scientific Officer at Tokai Pharmaceuticals, Inc. (now Novus Therapeutics, Inc.) from June 2005 to May 2011. Before that, Dr. Chappel held several senior positions at Dyax Corp., Serono (now

 

129


Table of Contents

EMD Serono, Inc.), Diacrin, Inc. (now GenVec, Inc.), Ares-Serono Inc. (now Serono S.A.) and Integrated Genetics, Inc. (now Laboratory Corporation of America Holdings). Dr. Chappel received a B.S. in Biology from Pennsylvania State University and a Ph.D. in Medicine from University of Maryland, School of Medicine.

Vito J. Palombella, Ph.D. has served as our Chief Scientific Officer since January 2016. Prior to Surface, Dr. Palombella served in a variety of roles at Infinity Pharmaceuticals, Inc. from January 2004 to January 2016, most recently as Chief Scientific Officer. Prior to that, he was Director of Molecular Biology and Protein Chemistry at Syntonix Pharmaceuticals, Inc. (now Biogen, Inc.) from October 2000 to January 2004, Senior Director of Cell and Molecular Biology at Millennium Pharmaceuticals, Inc. (now Takeda Pharmaceutical Co. Ltd.) from December 1999 to October 2000, and also held a number of positions at LeukoSite, Inc. from July 1999 to December 1999, and ProScript, Inc. from September 1994 to July 1999. Dr. Palombella received a B.S. in Microbiology from Rutgers University and an M.S. and Ph.D. in Viral Oncology and Immunology from the New York University Medical Center and completed his post-doctoral training at Harvard University.

Robert W. Ross, M.D. has served as our Chief Medical Officer since October 2016. Prior to Surface, Dr. Ross served as Head of Oncology at bluebird bio, Inc. from October 2015 to October 2016, Senior Vice President of Clinical Development and Pharmacovigilance, from January 2015 to October 2016, and Vice President of Clinical Development, from October 2012 to January 2015. Prior to that, he worked at Infinity Pharmaceuticals, Inc. from October 2007 to October 2012. Dr. Ross was a Fellow in Medical Oncology and a faculty member at the Dana Farber Cancer Center from July 2003 to August 2007, and then maintained a clinical practice at Dana Farber Cancer from August 2007 to October 2015. Dr. Ross received a B.S. in Biological Sciences and a B.A. in Philosophy from Stanford University, an M.S. in Medical Science as part of the Clinical Investigator Training Program from Harvard Medical School and an M.D. from Columbia University College of Physicians and Surgeons. He completed his residency training in Internal Medicine at the University of California, San Francisco.

Executive Directors

Daniel S. Lynch has served as the Chairman of our board of directors since December 2016 and has served in a senior management role since November 2016. Mr. Lynch also served as our Interim Chief Executive Officer from September 2017 to January 2018. Since October 2007, Mr. Lynch has advised and served as executive chairman or member of the board of directors for a number of biopharmaceutical companies, which include Stromedix, Inc., until its acquisition by Biogen Idec (now Biogen, Inc.) in February 2012, Ivrea Pharmaceuticals, Inc., Avila Therapeutics, Inc., until its acquisition by Celgene Corporation in February 2012, Edimer Pharmaceuticals, Inc., Ember Therapeutics, Inc. and US Oncology, Inc., until its acquisition by McKesson Corporation in December 2010. He currently serves on the board of directors of BIND Biosciences, Inc. (now DNIB Unwind, Inc.), eGenesis, Inc., Proclara Biosciences, Inc., Translate Bio, Inc. (fka RaNA Therapeutics, Inc.), Blueprint Medicines Corporation, bluebird bio, Inc., Nimbus Discovery, Inc., SpringWorks Therapeutics, LLC and Eleven Biotherapeutics, Inc. Mr. Lynch joined Third Rock Ventures, LLC as an entrepreneur-in-residence in May 2011, and became a Venture Partner in June 2013. Previously, Mr. Lynch served as Chief Executive Officer and Chief Financial Officer of ImClone Systems Corporation from April 2001 to November 2005. Earlier in his career, he served in various financial positions at Bristol-Myers Squibb Company over a 15-year tenure, most recently serving as Vice President of Finance, U.S. Pharmaceuticals, Worldwide Medicines Group. Mr. Lynch received a B.A. in Mathematics from Wesleyan University and an M.B.A. from the Darden Graduate School of Business Administration at the University of Virginia. Our board of directors believes that Mr. Lynch’s experience as the Chief Executive Officer and Chief Financial Officer of a public pharmaceutical company and as executive chairman and director for many other life science companies, qualify him to serve on our board of directors.

 

130


Table of Contents

Non-Executive Directors

David S. Grayzel, M.D. is our co-founder and has served as a member of our board of directors since April 2014. Dr. Grayzel has also served as our Chief Executive Officer from April 2014 to May 2015, and Chairman of our board of directors from April 2014 to January 2017. Dr. Grayzel has been a Partner at Atlas Venture Inc. since April 2014. Since joining Atlas Venture Inc. as a Managing Director in June 2010, Dr. Grayzel co-founded and served as Chief Executive Officer of Arteaus Therapeutics, LLC from June 2011 until it was acquired by Eli Lilly and Company in January 2014, and served as co-founder and Chief Executive Officer of Annovation Biopharma, Inc. from May 2011 until it was acquired by The Medicines Company in February 2015. He is a co-founder and member of the board of directors of Cadent Therapeutics, Inc. (now Luc Therapeutics, Inc.), a founding board member of Delinia, Inc. from September 2015 until it was acquired by Celgene Corporation in January 2017, and a co-founder and board observer of Quartet Medicine, Inc. since December 2013. Prior to that, he was Vice President of Clinical Development and Medical Affairs at Infinity Pharmaceuticals, Inc. from August 2002 to June 2010. Dr. Grayzel serves on the board of Acera School, Inc. (The Massachusetts School for Science, Creativity, and Leadership). Dr. Grayzel also serves as an advisor to Memorial Sloan Kettering Cancer Center’s Technology Development Fund and a scientific advisory board member of the Tri-Institutional Therapeutics Discovery Institute. Dr. Grayzel received a B.A. in Psychology from Stanford University and an M.D. from Harvard Medical School, and completed his internship and residency training in Internal Medicine at Massachusetts General Hospital. Our board of directors believes that Dr. Grayzel’s experience working with and serving on the boards of directors of life sciences companies and his experience working in the venture capital industry qualify him to serve on our board of directors.

Geoffrey McDonough, M.D. has served as a member of our board of directors since February 2018. Dr. McDonough currently serves as the President, Chief Executive Officer and member of the board of directors of Generation Bio Co., where he joined in October 2017. He formerly served as President and Chief Executive Officer of Swedish Orphan Biovitrum AB (Sobi) from August 2011 to June 2017. Prior to Sobi, he held a variety of senior roles at Genzyme Corporation, including President of Genzyme Europe and Senior Vice President and general manager of the global lysosomal storage disease business. Dr. McDonough currently serves on the board of Zafgen, Inc., a publicly traded biopharmaceutical company. Dr. McDonough has a B.S. in Biology and a B.A. in Philosophy from University of North Carolina at Chapel Hill. He obtained his M.D. at Harvard Medical School and completed his residency training in internal medicine and pediatrics at Massachusetts General Hospital and Boston Children’s Hospital. Our board of directors believes that Dr. McDonough’s experience as a biotechnology Chief Executive Officer and several years of experience in the biotechnology industry qualify him to serve on our board of directors.

Armen B. Shanafelt, Ph.D. has served as a member of our board of directors since November 2015. He has been investing in leading biotech companies since April 2009 as a member of Lilly Ventures Fund I, LLC. Prior to that, Dr. Shanafelt served as the Chief Scientific Officer of Biotherapeutics Lead Generation at Eli Lilly and Company from January 2002 to April 2009. Prior to joining Eli Lilly, he was a Research Fellow and Director of Drug Monitoring Research at Roche Diagnostics Corporation, a global diagnostics company, from 2000 to 2002 and held several leadership positions in the Biotechnology Division at Bayer Corporation, a multinational chemical and healthcare corporation from 1993 to 2000. Dr. Shanafelt currently serves on the boards of directors of three publicly traded biopharmaceutical companies, Aeglea BioTherapeutics, Inc., Aileron Therapeutics, Inc. and Protagonist Therapeutics, Inc., and two private biotechnology companies, Sutro Biopharma, Inc. and Symic Bio, LLC. Dr. Shanafelt received a B.S. in Chemistry and Physics from Pacific Lutheran University and a Ph.D. in Chemistry from the University of California, Berkeley. Our board of directors believes that Dr. Shanafelt’s significant background in pharmaceutical research and development and his experience in life sciences investing qualify him to serve on our board of directors.

 

131


Table of Contents

Elliott Sigal, M.D., Ph.D. has served as a member of our board of directors since February 2018. Dr. Sigal is a former Executive Vice President and member of the Board of Directors of Bristol-Myers Squibb, or BMS. He joined BMS in 1997 as head of Applied Genomics, went on to head Discovery Research followed by clinical development and ultimately served as Chief Scientific Officer and President of R&D from 2004 until 2013. Dr. Sigal serves as a board member for Adaptimmune Therapeutics plc, Spark Therapeutics, Mead Johnson Nutrition Company and the Melanoma Research Alliance. He also serves as a venture partner and senior advisor to the healthcare team of New Enterprise Associates and consults for several biotechnology companies. Dr. Sigal holds an M.D. from the University of Chicago and trained in Internal Medicine and Pulmonary Medicine at the University of California, San Francisco, where he was on faculty from 1988 to 1992. He also holds a B.S., M.S, and Ph.D. in Engineering from Purdue University. Our board of directors believes Dr. Sigal’s qualifications to serve as a member of our board include his extensive experience in the pharmaceutical industry and his years of experience in his leadership roles as a director and executive officer.

Laurie D. Stelzer has served as a member of our board of directors since February 2018. She serves as Senior Vice President, Chief Financial Officer at Halozyme Therapeutics, Inc., which she joined in June 2015. Prior to joining Halozyme, Ms. Stelzer served from April 2014 to January 2015 as the Senior Vice President of Finance supporting R&D, Technical Operations and M&A at Shire, Inc. Prior to that, she was the Division Chief Financial Officer for the Regenerative Medicine Division and the Head of Investor Relations at Shire from March 2012 to April 2014. Prior to Shire, Ms. Stelzer held positions of increasing responsibility for 15 years at Amgen, Inc., including Interim Treasurer, Head of Emerging Markets Expansion, Executive Director of Global Commercial Finance and Head of Global Accounting. Early in her career, she held various finance and accounting positions in the real estate and banking industries. Ms. Stelzer received her M.B.A. from the Anderson School at the University of California, Los Angeles, and a B.S. in Accounting from Arizona State University. Our board of directors believes Ms. Stelzer’s qualifications to serve as a member of our board include her extensive experience in the pharmaceutical industry and her years of experience in her leadership roles as an executive officer.

Family Relationships

There are no family relationships among any of our executive officers or directors.

Composition of Our Board Of Directors

Our board of directors consists of seven members, each of whom are members pursuant to the board composition provisions of our certificate of incorporation and agreements with our stockholders. These board composition provisions will terminate upon the completion of this offering. Upon the termination of these provisions, there will be no further contractual obligations regarding the election of our directors.

Our nominating and corporate governance committee and our board of directors may therefore consider a broad range of factors relating to the qualifications and background of nominees, which may include diversity, which is not only limited to race, gender or national origin. We have no formal policy regarding board diversity. Our nominating and corporate governance committee’s and our board of directors’ priority in selecting board members is identification of persons who will further the interests of our stockholders through his or her established record of professional accomplishment, the ability to contribute positively to the collaborative culture among board members, knowledge of our business, understanding of the competitive landscape and professional and personal experiences and expertise relevant to our growth strategy. Our directors hold office until their successors have been elected and qualified or until the earlier of their resignation or removal. Our amended and restated certificate of incorporation and amended and restated bylaws that will become effective immediately prior to the

 

132


Table of Contents

completion of this offering also provide that our directors may be removed only for cause by the affirmative vote of the holders of at least 75% of the votes that all our stockholders would be entitled to cast in an annual election of directors, and that any vacancy on our board of directors, including a vacancy resulting from an enlargement of our board of directors, may be filled only by vote of a majority of our directors then in office.

Director Independence

Our board of directors has determined that Drs. McDonough, Shanafelt and Sigal and Ms. Stelzer are independent directors, including for purposes of the Nasdaq Stock Market, or Nasdaq, and the SEC. In making such independence determination, our board of directors considered the relationships that each non-employee director has with us and all other facts and circumstances that our board of directors deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director. In considering the independence of our directors, our board of directors considered the association of our directors with the holders of more than 5% of our common stock. Upon the completion of this offering, we expect that the composition and functioning of our board of directors and each of our committees will comply with all applicable requirements of Nasdaq and the rules and regulations of the SEC.

Under the rules of Nasdaq, subject to specified exceptions, each member of a listed company’s audit, compensation and nominating and corporate governance committees must be independent. We intend to rely on the phase-in rules of Nasdaq with respect to the independence of the audit, compensation, and nominating and corporate governance committees. In accordance with these phase-in provisions, our audit, compensation, and nominating and corporate governance committees will have at least one independent member by the effective date of the registration statement of which this prospectus is a part, at least two independent members within 90 days of the effective date of the registration statement of which this prospectus is a part and all members will be independent within one year of the effective date of the registration statement of which this prospectus is a part.

Staggered Board

In accordance with the terms of our amended and restated certificate of incorporation and amended and restated bylaws, both of which will become effective immediately prior to the completion of this offering, our board of directors will be divided into three staggered classes of directors and each will be assigned to one of the three classes. At each annual meeting of the stockholders, a class of directors will be elected for a three-year term to succeed the directors of the same class whose terms are then expiring. The terms of the directors will expire upon the election and qualification of successor directors at the annual meeting of stockholders to be held during the years 2019 for Class I directors, 2020 for Class II directors and 2021 for Class III directors.

 

    Our Class I directors will be J. Jeffrey Goater and David S. Grayzel, M.D.;

 

    Our Class II directors will be Daniel S. Lynch and Armen B. Shanafelt, Ph.D.; and

 

    Our Class III directors will be Geoffrey McDonough, M.D., Elliott Sigal, M.D., Ph.D. and Laurie D. Stelzer.

Our amended and restated certificate of incorporation and amended and restated bylaws, both of which will become effective immediately prior to the completion of the offering provide that the number of our directors shall be fixed from time to time by a resolution of the majority of our board of directors.

The division of our board of directors into three classes with staggered three-year terms may delay or prevent stockholder efforts to effect a change of our management or a change in control.

 

133


Table of Contents

Board Leadership Structure and Board’s Role in Risk Oversight

Our board of directors is currently chaired by Mr. Lynch. Our corporate governance guidelines provide that, if the Chairman of the board of directors is a member of management or does not otherwise qualify as independent, the independent directors of the board may or may not elect a lead independent director. Our corporate governance guidelines further provide the flexibility for our board of directors to modify our leadership structure in the future, as it deems appropriate.

Risk is inherent with every business, and how well a business manages risk can ultimately determine its success. We face a number of risks, including risks relating to our financial condition, development and commercialization activities, operations, strategic direction and intellectual property as more fully discussed under “Risk Factors” in this prospectus. Management is responsible for the day-to-day management of risks we face, while our board of directors, as a whole and through its committees, has responsibility for the oversight of risk management. In its risk oversight role, our board of directors has the responsibility to satisfy itself that the risk management processes designed and implemented by management are adequate and functioning as designed.

The role of the board of directors in overseeing the management of our risks is conducted primarily through committees of the board of directors, as disclosed in the descriptions of each of the committees below and in the charters of each of the committees. The full board of directors (or the appropriate board committee in the case of risks that are under the purview of a particular committee) discusses with management our major risk exposures, their potential impact on us, and the steps we take to manage them. When a board committee is responsible for evaluating and overseeing the management of a particular risk or risks, the chairman of the relevant committee reports on the discussion to the full board of directors during the committee reports portion of the next board meeting. This enables the board of directors and its committees to coordinate the risk oversight role, particularly with respect to risk interrelationships.

Committees of Our Board Of Directors

Our board of directors has established an audit committee, a compensation committee and a nominating and corporate governance committee, each of which will operate pursuant to a charter to be adopted by our board of directors and will be effective immediately prior to the completion of this offering. Upon the completion of this offering, the composition and functioning of all of our committees will comply with all applicable requirements of the Sarbanes-Oxley Act of 2002, Nasdaq and the SEC rules and regulations.

Audit Committee

Laurie D. Stelzer, Geoffrey McDonough, M.D. and Armen B. Shanafelt, Ph.D. will serve on the audit committee, which will be chaired by Ms. Stelzer. Our board of directors has determined that each of Ms. Stelzer and Drs. McDonough and Shanafelt are “independent” for audit committee purposes as that term is defined in the rules of the SEC and the applicable Nasdaq rules, and each has sufficient knowledge in financial and auditing matters to serve on the audit committee. Our board of directors has designated Ms. Stelzer as an “audit committee financial expert” as defined under the applicable rules of the SEC. The audit committee’s responsibilities include:

 

    appointing, approving the compensation of, and assessing the independence of our independent registered public accounting firm;

 

    pre-approving auditing and permissible non-audit services, and the terms of such services, to be provided by our independent registered public accounting firm;

 

134


Table of Contents
    reviewing the overall audit plan with our independent registered public accounting firm and members of management responsible for preparing our financial statements;

 

    reviewing and discussing with management and our independent registered public accounting firm our annual and quarterly financial statements and related disclosures as well as critical accounting policies and practices used by us;

 

    coordinating the oversight and reviewing the adequacy of our internal control over financial reporting;

 

    establishing policies and procedures for the receipt and retention of accounting-related complaints and concerns;

 

    recommending based upon the audit committee’s review and discussions with management and our independent registered public accounting firm whether our audited financial statements shall be included in our Annual Report on Form 10-K;

 

    monitoring the integrity of our financial statements and our compliance with legal and regulatory requirements as they relate to our financial statements and accounting matters;

 

    preparing the audit committee report required by SEC rules to be included in our annual proxy statement;

 

    reviewing all related person transactions for potential conflict of interest situations and approving all such transactions; and

 

    reviewing quarterly earnings releases.

Compensation Committee

Daniel S. Lynch, Armen B. Shanafelt, Ph.D. and Laurie D. Stelzer will serve on the compensation committee, which will be chaired by Mr. Lynch. Our board of directors has determined that Dr. Shanafelt and Ms. Stelzer are “independent” as defined in the applicable Nasdaq rules. The compensation committee’s responsibilities include:

 

    annually reviewing and approving corporate goals and objectives relevant to the compensation of our Chief Executive Officer;

 

    evaluating the performance of our Chief Executive Officer in light of such corporate goals and objectives and determining the compensation of our Chief Executive Officer;

 

    reviewing and approving the compensation of our other executive officers;

 

    reviewing and establishing our overall management compensation, philosophy and policy;

 

    overseeing and administering our compensation and similar plans;

 

    evaluating and assessing potential and current compensation advisors in accordance with the independence standards identified in the applicable Nasdaq rules;

 

    retaining and approving the compensation of any compensation advisors;

 

    reviewing and making recommendations to our board of directors about our policies and procedures for the grant of equity-based awards;

 

    evaluating and making recommendations to the board of directors about director compensation;

 

    preparing the compensation committee report required by SEC rules, if and when required, to be included in our annual proxy statement; and

 

135


Table of Contents
    reviewing and approving the retention or termination of any consulting firm or outside advisor to assist in the evaluation of compensation matters.

Under the applicable Nasdaq rules, a company listing in conjunction with its initial public offering is permitted to phase in its compliance with the independent committee requirements set forth in Nasdaq Rules §5605(d) and (e) as follows: (1) one independent member at the time of listing; (2) a majority of independent members within 90 days of listing; and (3) all independent members within one year of listing.

Nominating And Corporate Governance Committee

Geoffrey McDonough, M.D., David S. Grayzel, M.D. and Elliott Sigal, M.D., Ph.D. will serve on the nominating and corporate governance committee, which will be chaired by Dr. McDonough. Our board of directors has determined that Drs. McDonough and Sigal are “independent” as defined in the applicable Nasdaq rules. The nominating and corporate governance committee’s responsibilities include:

 

    developing and recommending to the board of directors criteria for board and committee membership;

 

    establishing procedures for identifying and evaluating board of director candidates, including nominees recommended by stockholders;

 

    reviewing the size and composition of the board of directors to ensure that it is composed of members containing the appropriate skills and expertise to advise us;

 

    identifying individuals qualified to become members of the board of directors;

 

    recommending to the board of directors the persons to be nominated for election as directors and to each of the board’s committees;

 

    developing and recommending to the board of directors a code of business conduct and ethics and a set of corporate governance guidelines; and

 

    overseeing the evaluation of our board of directors and management.

Our board of directors may from time to time establish other committees.

Under the applicable Nasdaq rules, a company listing in conjunction with its initial public offering is permitted to phase in its compliance with the independent committee requirements set forth in Nasdaq Rules §5605(d) and (e) as follows: (1) one independent member at the time of listing; (2) a majority of independent members within 90 days of listing; and (3) all independent members within one year of listing.

Compensation Committee Interlocks and Insider Participation

None of the members of our compensation committee has at any time during the prior three years been one of our officers or employees. None of our executive officers currently serves, or in the past fiscal year has served, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our board of directors or compensation committee.

Corporate Governance

Prior to the effectiveness of the registration statement of which this prospectus is a part, we will adopt a written code of business conduct and ethics that applies to our directors, officers and

 

136


Table of Contents

employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. Following the effectiveness of the registration statement of which this prospectus is a part, a current copy of the code will be posted on the Corporate Governance section of our website, which is located at www.surfaceoncology.com. If we make any substantive amendments to, or grant any waivers from, the code of business conduct and ethics for any officer or director, we will disclose the nature of such amendment or waiver on our website or in a current report on Form 8-K. We do not incorporate the information on or accessible through our website into this prospectus, and you should not consider any information on, or that can be accessed through, our website as part of this prospectus.

 

137


Table of Contents

EXECUTIVE COMPENSATION

Executive Compensation Overview

Historically, our executive compensation program has reflected our growth and development-oriented corporate culture. To date, the compensation of Dr. Biniszkiewicz, our former President and Chief Executive Officer, and our other executive officers identified in the 2017 Summary Compensation Table below, who we refer to as the named executive officers, has consisted of a combination of base salary, bonuses and long-term incentive compensation in the form of stock options. Our named executive officers, like all full-time employees, are eligible to participate in our health and welfare benefit plans. As we transition from a private company to a publicly traded company, we will evaluate our compensation values and philosophy and compensation plans and arrangements as circumstances require. At a minimum, we expect to review executive compensation annually with input from a compensation consultant. As part of this review process, we expect the board of directors and the compensation committee to apply our values and philosophy, while considering the compensation levels needed to ensure our executive compensation program remains competitive. We will also review whether we are meeting our retention objectives and the potential cost of replacing a key employee.

2017 Summary Compensation Table

The following table presents information regarding the total compensation awarded to, earned by, and paid to our named executive officers for services rendered to us in all capacities for the year ended December 31, 2017.

 

Name

  Year     Salary
($)
    Bonus
($)
    Option
Awards
($)(1)
    All Other
Compensation

($)(2)
    Total
($)
 

Detlev Biniszkiewicz, Ph.D.(3)

    2017       386,364       112,800 (3)      84,930       1,164       585,258  

Former President and
Chief Executive Officer

           

Daniel S. Lynch(4)

    2017       149,519       35,700 (5)                  185,219  

Interim Chief Executive Officer and Director

           

J. Jeffrey Goater(6)

    2017       315,898       199,800 (7)      893,807       1,200       1,410,705  

Chief Executive Officer and Director

           

Vito J. Palombella, Ph.D.

    2017       359,345       102,800 (5)      203,832       2,565       668,542  

Chief Scientific Officer

           

 

(1) This column reflects the full grant-date fair value of stock option awards granted during the year as measured pursuant to Financial Accounting Standard Board Accounting Standards Codification Topic 718. These amounts do not correspond to the actual value that may be recognized by the named executive officers upon vesting or exercise of the applicable awards. See Note 11 to our consolidated financial statements appearing at the end of this prospectus regarding assumptions underlying the valuation of equity awards.
(2) The amounts represent commuter benefits, life insurance and long-term disability premiums paid by us.
(3) Dr. Biniszkiewicz’s employment as our Chief Executive Officer ended in September 2017. He resigned from our board of directors on February 4, 2018. Dr. Biniszkiewicz’s bonus for 2017 was paid during 2017.
(4)

Mr. Lynch became our Chairman of our board of directors on November 23, 2016 and in connection therewith, entered into an employment agreement with us as of such date. Mr. Lynch also served as our Interim Chief Executive Officer from September 2017 to January 2018. Mr.

 

138


Table of Contents
  Lynch’s employment agreement provides for monthly compensation for his service at a rate of $12,500 per month. The amount of the fees he received for service as a director on our board for the year ended December 31, 2017 is as indicated above. See “Executive Compensation—Executive Agreements” for further information regarding Mr. Lynch’s employment arrangements.
(5) The amount reported represents a discretionary bonus earned for the year ended December 31, 2017, for which payment was made in January 2018.
(6) Mr. Goater became our Chief Business Officer and Secretary in February 2017. Mr. Goater became our Chief Executive Officer and a member of our board of directors in February 2018. His annualized base salary for 2017 was $350,000.
(7) The amount reported represents (i) a $100,000 sign-on bonus payable pursuant to the terms of Mr. Goater’s offer letter and (ii) a discretionary bonus of $99,800 earned for the year ended December 31, 2017 paid in January 2018.

Employment Arrangements and Severance Agreements with our Named Executive Officers

We have entered into an employment agreement with each of Mr. Goater and Dr. Palombella, which will become effective upon the closing of this offering and will replace their prior employment agreements and offer letters (which are described below). We have also entered into a severance agreement with Dr. Biniszkiewicz, our former Chief Executive Officer, and an employment agreement with Mr. Lynch, our former Interim-Chief Executive Officer and director.

Employment Agreement with J. Jeffrey Goater

Under the new employment agreement with J. Jeffrey Goater for the position of Chief Executive Officer, Mr. Goater’s current base salary will be $465,000, which is subject to redetermination by our board of directors or our compensation committee, and he will be eligible to earn an annual bonus with a target amount equal to 50% of his base salary. Mr. Goater is also eligible to participate in the employee benefit plans available to our employees, subject to the terms of those plans.

Mr. Goater’s employment agreement provides that, in the event that his employment is terminated by us without “cause” (as defined in his employment agreement) or Mr. Goater resigns for “good reason” (as defined in his employment agreement), subject to the execution and effectiveness of a separation agreement, including a general release of claims in our favor, he will be entitled to receive (i) an amount equal to 12 months of his base salary, payable in substantially equal installments over 12 months following his termination, and (ii) if Mr. Goater is participating in our group health plan immediately prior to his termination, a monthly cash payment until the earlier of 12 months following termination or the end of Mr. Goater’s COBRA health continuation period in an amount equal to the amount that we would have paid to provide health insurance to Mr. Goater had he remained employed with us. In lieu of the payments and benefits described in the preceding sentence, in the event that Mr. Goater’s employment is terminated by us without cause or Mr. Goater resigns for good reason, in either case within 12 months following a “change in control” (as defined in his employment agreement), subject to the execution and effectiveness of a separation agreement, including a general release of claims in our favor, he will be entitled to receive (i) an amount equal to 18 months of his base salary, plus 150% of his annual target bonus, payable in substantially equal installments over 18 months following his termination, and (ii) if Mr. Goater is participating in our group health plan immediately prior to his termination, a monthly cash payment until the earlier of 18 months following termination or the end of Mr. Goater’s COBRA health continuation period in an amount equal to the amount that we would have paid to provide health insurance to him had he remained employed with us. Further, in the event that Mr. Goater’s employment is terminated without cause by the successor entity in the change in control or he resigns for good reason within the 12-month period following such change in control, then any time-based equity awards granted to him subsequent to the change in control will vest in full upon such termination event.

 

139


Table of Contents

The payments and benefits provided to Mr. Goater under his employment agreement in connection with a change in control may not be eligible for a federal income tax deduction for the Company pursuant to Section 280G of the Code. These payments and benefits also may be subject to an excise tax under Section 4999 of the Code. If the payments or benefits payable to Mr. Goater in connection with a change in control would be subject to the excise tax on golden parachutes imposed under Section 4999 of the Code, then those payments or benefits will be reduced if such reduction would result in a higher net after-tax benefit to such officer.

In addition, in consideration of the payments and benefits provided under his employment agreement, Mr. Goater has agreed to certain restrictive covenants, including, among other things, non-competition and non-solicitation provisions that apply during the term of Mr. Goater’s employment and for 12 months thereafter.

Employment Agreement with Vito J. Palombella, Ph.D.

Under the employment agreement with Vito Palombella for the position of Chief Scientific Officer, Dr. Palombella’s base salary will be $375,000, which is subject to redetermination by our board of directors or our compensation committee, and he will be eligible to earn an annual bonus with a target amount equal to 35% of his base salary. Dr. Palombella is also eligible to participate in the employee benefit plans available to our employees, subject to the terms of those plans.

Dr. Palombella’s employment agreement provides that, in the event that his employment is terminated by us without “cause” (as defined in his employment agreement) or Dr. Palombella resigns for “good reason” (as defined in his employment agreement), subject to the execution and effectiveness of a separation agreement, including a general release of claims in our favor, he will be entitled to receive (i) an amount equal to nine months of his base salary, payable in substantially equal installments over nine months following his termination, and (ii) if Dr. Palombella is participating in our group health plan immediately prior to his termination, a monthly cash payment until the earlier of nine months following termination or the end of Dr. Palombella’s COBRA health continuation period in an amount equal to the amount that we would have paid to provide health insurance to Dr. Palombella had he remained employed with us. In lieu of the payments and benefits described in the preceding sentence, in the event that Dr. Palombella’s employment is terminated by us without cause or Dr. Palombella resigns for good reason, in either case within 12 months following a “change in control” (as defined in his employment agreement), subject to the execution and effectiveness of a separation agreement, including a general release of claims in our favor, he will be entitled to receive (i) an amount equal to 12 months of his base salary, plus 100% of his annual target bonus, payable in substantially equal installments over 12 months following his termination, and (ii) if Dr. Palombella is participating in our group health plan immediately prior to his termination, a monthly cash payment until the earlier of 12 months following termination or the end of Dr. Palombella’s COBRA health continuation period in an amount equal to the amount that we would have paid to provide health insurance to him had he remained employed with us. Further, in the event that Dr. Palombella’s employment is terminated without cause by the successor entity in the change in control or he resigns for good reason within the 12-month period following such change in control, then any equity awards granted to him subsequent to the change in control will vest in full upon such termination event.

The payments and benefits provided to Dr. Palombella under his employment agreement in connection with a change in control may not be eligible for a federal income tax deduction for the Company pursuant to Section 280G of the Code. These payments and benefits also may be subject to an excise tax under Section 4999 of the Code. If the payments or benefits payable to Dr. Palombella in connection with a change in control would be subject to the excise tax on golden parachutes imposed under Section 4999 of the Code, then those payments or benefits will be reduced if such reduction would result in a higher net after-tax benefit to such officer.

 

140


Table of Contents

In addition, in consideration of the payments and benefits provided under his employment agreement, Dr. Palombella has agreed to certain restrictive covenants, including, among other things, non-competition and non-solicitation provisions that apply during the term of Dr. Palombella’s employment and for 12 months thereafter.

Employment Agreement with Daniel S. Lynch

On November 23, 2016, we entered into an employment agreement with Mr. Lynch, pursuant to which Mr. Lynch agreed to serve in a senior management role. From September 2017 to February 2018, Mr. Lynch also served as our Interim Chief Executive Officer. Mr. Lynch’s current base salary is $156,000, and he is eligible to earn an annual cash incentive bonus with a target amount equal to 25% of his base salary. Mr. Lynch is also eligible to participate in the employee benefit plans available to our employees, subject to the terms of those plans.

Mr. Lynch’s employment agreement provides that, in the event his employment is terminated by us without “cause” or he resigns for “good reason” (as each such term is defined in his employment agreement), subject to the execution and effectiveness of a general release of claims against the Company, he will be entitled to receive an amount equal to 12 months of base salary, and any then-outstanding equity awards will continue to vest for an additional 12 months. In the event of a “Deemed Liquidation Event” (as defined in Mr. Lynch’s employment agreement), the unvested portion of any of Mr. Lynch’s outstanding equity awards will accelerate and vest in full upon such Deemed Liquidation Event.

In addition, Mr. Lynch’s employment agreement contains certain restrictive covenants, including non-competition and non-solicitation provisions that apply during the term of Mr. Lynch’s employment and for 12 months thereafter.

Separation Agreement with Dr. Biniszkiewicz

We entered into a separation agreement with Dr. Biniszkiewicz, dated September 27, 2017, or the Separation Agreement, pursuant to which we agreed to provide certain termination-related payments and benefits to Dr. Biniszkiewicz in connection with his resignation as President and Chief Executive Officer, effective September 15, 2017. Dr. Biniszkiewicz will continue to serve as a member of our board of directors following the termination of his employment relationship. In addition to the payment of accrued salary and benefits, Dr. Biniszkiewicz is entitled to receive the following: (i) base salary continuation for nine months following the date of his termination in an amount equal to $282,000; (ii) if elected, continued benefits coverage pursuant to COBRA (of the employer’s portion of the premium cost) for up to nine months; (iii) accelerated vesting of his outstanding restricted stock award for an additional six months beyond the date of termination; and (iv) an annual cash incentive bonus with respect to 2017, pro-rated based on the number of days employed during the 2017 fiscal year, amounting to $112,800.

The Separation Agreement also provides for the modification of certain of Dr. Biniszkiewicz’s outstanding equity awards. With respect to his restricted stock award, he is entitled to full accelerated vesting of the remainder of the shares subject to the restricted stock award, after giving effect to six months’ accelerated vesting offered as a separate severance benefit. For his stock option granted December 4, 2015, this award was restructured such that (i) 387,681 shares were deemed vested as of the date of termination; (ii) 102,900 shares were subjected to a revised vesting schedule with monthly vesting over a three-year period, subject to his continued service as a director, commencing as of the date of termination; and (iii) the remaining 51,911 shares were automatically forfeited and cancelled as of September 15, 2017. Finally, with respect to stock options granted to Dr. Biniszkiewicz in 2016 and 2017, such awards were automatically forfeited and cancelled in full.

 

 

141


Table of Contents

In consideration of the payments and benefits received under the Separation Agreement, the terms and conditions of Dr. Biniszkiewicz’s non-competition, non-solicitation, confidentiality and assignment agreement will continue to remain in full force, including certain non-competition and non-solicitation provisions that will apply for 12 months following Dr. Biniszkiewicz’s termination of employment. Dr. Biniszkiewicz provided us with a release, in favor of us, of any and all claims relating to his employment with us.

Prior Agreements

Offer Letter with J. Jeffrey Goater

We entered into an offer letter with Mr. Goater on December 6, 2016 for the position of Chief Business Officer. Mr. Goater’s offer letter was then amended on February 7, 2018 to reflect his position as our Chief Executive Officer. This offer letter will be replaced, upon the completion of this offering, with the employment agreement described above. Mr. Goater’s base salary under the terms of the offer letter is $425,000, which is subject to periodic review and adjustment, and he is be eligible to earn an annual cash incentive bonus with a target amount equal to 40% of his base salary. Mr. Goater is also eligible to participate in the employee benefit plans available to our employees, subject to the terms of those plans.

Mr. Goater’s offer letter provides that, in the event that his employment is terminated by us without “cause” or he resigns for “good reason” (as each such term is defined in his offer letter), subject to the execution and effectiveness of a separation agreement and release, he will be entitled to receive (i) an amount equal to nine months of base salary, payable in substantially equal installments over nine months following the date of termination, and (ii) continuation of group health plan benefits for nine months, with the cost of the regular premium shared in the same relative proportion by the Company and Mr. Goater as if he had remained employed by us. In addition, upon a “Change of Control” (as defined in Mr. Goater’s offer letter), an option to purchase 99,116 shares of our common stock granted in connection with the commencement of Mr. Goater’s employment will accelerate in full upon a Change of Control occurring subsequent to the completion of our offering, subject to his continued employment.

In addition, Mr. Goater has entered into an employee invention, non-disclosure, non-competition and non-solicitation agreement that contains, among other things, non-competition and non-solicitation provisions that apply during the term of Mr. Goater’s employment and for 12 months thereafter.

Offer Letter with Vito J. Palombella, Ph.D.

We entered into an offer letter with Dr. Palombella on December 14, 2015 for the position of Chief Scientific Officer. This offer letter will be replaced, upon the completion of this offering, with the employment agreement described above. Dr. Palombella’s base salary under the terms of the offer letter is $375,000, which is subject to periodic review and adjustment, and he is be eligible to earn an annual cash incentive bonus with a target amount equal to 30% of his base salary. Dr. Palombella is also eligible to participate in the employee benefit plans available to our employees, subject to the terms of those plans.

Dr. Palombella’s offer letter provides that, in the event that his employment is terminated by us without “cause” or he resigns for “good reason” (as each such term is defined in his offer letter), subject to the execution and effectiveness of a separation agreement and release, he will be entitled to receive an amount equal to six months of base salary, payable in substantially equal installments over six months following the date of termination. In addition, upon a “Change of Control” (as defined in Dr. Palombella’s offer letter), the unvested portion of any of Dr. Palombella’s outstanding equity awards granted prior to March 2, 2018, will accelerate and vest upon such Change of Control.

In addition, Dr. Palombella has entered into an employee invention, non-disclosure, non-competition and non-solicitation agreement that contains, among other things, non-competition and

 

142


Table of Contents

non-solicitation provisions that apply during the term of Dr. Palombella’s employment and for 12 months thereafter.

Outstanding Equity Awards at 2017 Fiscal Year-End

The following table sets forth information concerning outstanding equity awards held by each of our named executive officers as of December 31, 2017. All equity awards set forth in the table below, unless otherwise noted, were granted under our 2014 Stock Option and Grant Plan, or the 2014 Plan.

 

     Option Awards  

Name

   Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
    Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
    Option
Exercise
Price
($)
    Option
Expiration
Date
 

Detlev Biniszkiewicz, Ph.D.(1)

    
8,574
(4) 
   
94,326
 
   
0.16
 
   
12/4/2025
 

Daniel S. Lynch(2)

     201,328 (5)      542,040       1.88       12/9/2026  

J. Jeffrey Goater(3)

    

—  

—  

—  

(6) 

(7) 

(8) 

   

669,031

99,116

25,000

 

 

 

   

1.88

1.88

2.46

 

 

 

   

3/2/2027

3/2/2027

6/27/2027

 

 

 

Vito J. Palombella, Ph.D.

    

284,851

12,500

(9) 

(8) 

   

309,622

107,500

 

 

   

1.81

2.46

 

 

   

3/3/2026

6/27/2027

 

 

 

(1) Dr. Biniszkiewicz’s employment as our Chief Executive Officer ended in September 2017. He resigned from our board of directors on February 4, 2018.
(2) Mr. Lynch became our Chairman of our board of directors on November 23, 2016 and, in connection therewith, entered into an employment agreement with the Company as of such date. Mr. Lynch also served as our Interim Chief Executive officer from September 2017 to January 2018.
(3) Mr. Goater became our Chief Business Officer and Secretary in February 2017. Mr. Goater became our Chief Executive Officer and a member of our board of directors in February 2018.
(4) The shares underlying this grant were originally scheduled to vest in 48 equal monthly installments starting on January 4, 2016. Pursuant to the terms of Dr. Biniszkiewicz’s Separation Agreement, this stock option was restructured such that 387,681 shares were deemed vested as of the date of termination and the remaining 102,900 shares were subjected to a revised vesting schedule with monthly vesting over a three-year period commencing as of the date of his termination as our Chief Executive Officer, which was September 27, 2017.
(5) The shares underlying this grant vest in 48 monthly installments starting on November 23, 3016.
(6) The shares underlying this grant vest 25% on the first anniversary of February 6, 2017, with the remainder of the shares vesting in equal monthly installments over the following 36 months thereafter.
(7) The shares underlying this grant are subject to vesting upon the closing of this offering, over 48 monthly installments.
(8) The shares underlying this grant vest in 48 equal monthly installments from July 1, 2017.
(9) The shares underlying this grant vest 25% on the first anniversary of January 22, 2016, with the remainder of the shares vesting in equal monthly installments over the following 36 months thereafter.

Compensation Risk Assessment

We believe that although a portion of the compensation provided to our executive officers and other employees is performance-based, our executive compensation program does not encourage excessive or unnecessary risk taking. This is primarily due to the fact that our compensation programs

 

143


Table of Contents

are designed to encourage our executive officers and other employees to remain focused on both short-term and long-term strategic goals, in particular in connection with our pay-for-performance compensation philosophy. As a result, we do not believe that our compensation programs are reasonably likely to have a material adverse effect on us.

Employee Benefit and Equity Compensation Plans

2018 Stock Option and Incentive Plan

Our 2018 Stock Option and Incentive Plan, or our 2018 Plan, was adopted by our board of directors on March 14, 2018 and approved by our stockholders on                 , 2018 and will become effective on the date on which the registration statement of which this prospectus is part is declared effective by the U.S. Securities and Exchange Commission, or the SEC. Our 2018 Plan will replace our 2014 Plan as our board of directors has determined not to make additional awards under that plan following the consummation of our initial public offering. Our 2018 Plan allows the compensation committee to make equity-based incentive awards to our officers, employees, directors and other key persons (including consultants).

We have initially reserved                  shares of our common stock, or the Initial Limit, for the issuance of awards under our 2018 Plan, plus the shares of common stock remaining available for issuance under our 2014 Plan. This limit is subject to adjustment in the event of a stock split, stock dividend or other change in our capitalization. Our 2018 Plan provides that the number of shares reserved and available for issuance thereunder will automatically increase on January 1, 2019 and each January 1 thereafter by              of the number of shares of common stock outstanding on the immediately preceding December 31 or such lesser number of shares determined by the compensation committee, or the Annual Increase.

The shares we issue under our 2018 Plan will be authorized but unissued shares or shares that we reacquire. The shares of common stock underlying any awards that are forfeited, cancelled, held back upon exercise or settlement of an award to satisfy the exercise price or tax withholding, reacquired by us prior to vesting, satisfied without the issuance of stock, expire or are otherwise terminated (other than by exercise) under our 2018 Plan and our 2014 Plan will be added back to the shares of common stock available for issuance under our 2018 Plan.

Stock options and stock appreciation rights with respect to no more than                  shares of common stock may be granted to any one individual in any one calendar year. The maximum number of shares that may be issued as incentive stock options may not exceed                  shares, cumulatively increased on January 1, 2019 and on each January 1 thereafter by the lesser of the Annual Increase, or                  shares. The grant date fair value of all awards made under our 2018 Plan and all other cash compensation paid by us to any non-employee director in any calendar year shall not exceed $        .

Our 2018 Plan will be administered by our compensation committee. Our compensation committee has full power to select, from among the individuals eligible for awards, the individuals to whom awards will be granted, to make any combination of awards to participants, and to determine the specific terms and conditions of each award, subject to the provisions of our 2018 Plan. Persons eligible to participate in our 2018 Plan will be those full or part-time officers, employees, non-employee directors, and other key persons (including consultants) as selected from time to time by our compensation committee in its discretion.

Our 2018 Plan permits the granting of both options to purchase common stock intended to qualify as incentive stock options under Section 422 of the U.S. Internal Revenue Code of 1986, as amended, or the Code, and options that do not so qualify. The option exercise price of each option will be

 

144


Table of Contents

determined by our compensation committee but may not be less than 100% of the fair market value of our common stock on the date of grant. The term of each option will be fixed by our compensation committee and may not exceed ten years from the date of grant. Our compensation committee will determine at what time or times each option may be exercised.

Our compensation committee may award stock appreciation rights subject to such conditions and restrictions as it may determine. Stock appreciation rights entitle the recipient to shares of common stock equal to the value of the appreciation in our stock price over the exercise price. The exercise price may not be less than 100% of the fair market value of our common stock on the date of grant. The term of each stock appreciation right will be fixed by our compensation committee and may not exceed ten years from the date of grant. Our compensation committee will determine at what time or times each stock appreciation right may be exercised.

Our compensation committee may award restricted shares of common stock and restricted stock units to participants subject to such conditions and restrictions as it may determine. These conditions and restrictions may include the achievement of certain performance goals and/or continued employment with us through a specified vesting period. Our compensation committee may also grant shares of common stock that are free from any restrictions under our 2018 Plan. Unrestricted stock may be granted to participants in recognition of past services or for other valid consideration and may be issued in lieu of cash compensation due to such participant.

Our compensation committee may grant performance share awards to participants that entitle the recipient to receive awards of common stock upon the achievement of certain performance goals and such other conditions as our compensation committee may determine. Our compensation committee may grant dividend equivalent rights to participants that entitle the recipient to receive credits for dividends that would be paid if the recipient had held a specified number of shares of common stock.

Our compensation committee may grant cash bonuses under our 2018 Plan to participants, subject to the achievement of certain performance goals.

Our compensation committee may grant performance-based awards of restricted stock, restricted stock units, performance share awards or cash-based awards under our 2018 Plan. Such awards will only vest or become payable upon the attainment of performance goals that are established by our compensation committee and related to one or more performance criteria. The performance criteria that could be used with respect to any such awards include: total stockholder return, earnings before interest, taxes, depreciation and amortization, net income (loss) (either before or after interest, taxes, depreciation and/or amortization), changes in the market price of our common stock, economic value-added, funds from operations or similar measure, sales or revenue, development, clinical, regulatory or commercial milestones, acquisitions or strategic transactions, including licenses, collaborations, joint ventures, or promotion arrangements, operating income (loss), cash flow (including, but not limited to, operating cash flow and free cash flow), return on capital, assets, equity, or investment, return on sales, gross or net profit levels, productivity, expense, margins, operating efficiency, customer satisfaction, working capital, earnings (loss) per share of our common stock, sales or market shares and number of customers, any of which may be measured either in absolute terms or as compared to any incremental increase or as compared to results of a peer group.

Our 2018 Plan provides that upon the effectiveness of a “sale event,” as defined in our 2018 Plan, an acquirer or successor entity may assume, continue or substitute outstanding awards under our 2018 Plan. To the extent that awards granted under our 2018 Plan are not assumed or continued or substituted by the successor entity, except as may be otherwise provided in the relevant award certificate, all awards with time-based vesting, conditions or restrictions shall become fully vested and nonforfeitable as of the effective time of the sale event, and all awards with conditions and restrictions relating to the attainment of performance goals may become vested and nonforfeitable in connection

 

145


Table of Contents

with a sale event in the compensation committee’s discretion or to the extent specified in the relevant award certificate. Upon the effective time of the sale event, all outstanding awards granted under our 2018 Plan shall terminate. In the event of such termination, individuals holding options and stock appreciation rights will be permitted to exercise such options and stock appreciation rights (to the extent exercisable) within a specified period of time prior to the sale event. In addition, in connection with the termination of our 2018 Plan upon a sale event, we may make or provide for a payment, in cash or in kind, to participants holding vested and exercisable options and stock appreciation rights equal to the difference between the per share cash consideration payable to stockholders in the sale event and the exercise price of the options or stock appreciation rights and we may make or provide for a payment, in cash or in kind, to participants holding other vested awards.

Our board of directors may amend or discontinue our 2018 Plan and our compensation committee may amend or cancel outstanding awards for purposes of satisfying changes in law or any other lawful purpose, but no such action may adversely affect rights under an award without the holder’s consent. Certain amendments to our 2018 Plan require the approval of our stockholders.

No awards may be granted under our 2018 Plan after the date that is ten years from the effective date of our 2018 Plan. No awards under our 2018 Plan have been made prior to the date hereof.

2014 Stock Option and Grant Plan

Our 2014 Plan was approved by our board of directors and our stockholders on November 5, 2014 and was most recently amended in March 2018. Under our 2014 Plan, we have reserved for issuance an aggregate of 11,448,207 shares of our common stock, which number is subject to adjustment in the event of a reorganization, recapitalization, stock dividend, stock split or other similar change in our capital stock.

The shares we issue under our 2014 Plan are authorized but unissued shares or shares we reacquire. The shares of common stock underlying any awards that are forfeited, cancelled, reacquired by us prior to vesting, satisfied without the issuance of common stock or otherwise terminated (other than by exercise) under our 2014 Plan are currently added to the shares of common stock available for issuance under our 2014 Plan. Following this offering, such shares will be added to the shares available under our 2018 Plan.

Our board of directors has acted as administrator of our 2014 Plan. The administrator has full power to select, from among the individuals eligible for awards, the individuals to whom awards will be granted, and to determine the specific terms and conditions of each award, subject to the provisions of our 2014 Plan. Persons eligible to participate in our 2014 Plan are our full or part-time officers, employees, directors, consultants and other key persons as selected from time to time by the administrator in its discretion.

Our 2014 Plan permits the granting of (1) options to purchase common stock intended to qualify as incentive stock options under Section 422 of the Code and (2) options that do not so qualify. The option exercise price of each option is determined by the administrator but may not be less than 100% of the fair market value of the common stock on the date of grant. The term of each option is fixed by the administrator and may not exceed ten years from the date of grant. The administrator determines at what time or times each option may be exercised. In addition, our 2014 Plan permits the granting of restricted shares of common stock, restricted stock units and unrestricted stock.

Our 2014 Plan provides that upon the occurrence of a “sale event,” as defined in our 2014 Plan, all outstanding stock options will terminate at the effective time of such sale event, unless the parties to the sale event agree that such awards will be assumed or continued by the successor entity. In the event of a termination of our 2014 Plan and all options issued thereunder in connection with a sale

 

146


Table of Contents

event, optionees will be provided an opportunity to exercise options that are then exercisable or will become exercisable as of the effective time of the sale event prior to the consummation of the sale event. In addition, we have the right to provide for cash payment to holders of options, in exchange for the cancellation thereof, in an amount per share equal to the difference between the value of the consideration payable per share of common stock in the sale event and the per share exercise price of such options. In the event of and subject to the consummation of a sale event, unvested restricted stock and restricted stock units (other than those becoming vested as a result of the sale event) will be forfeited immediately prior to the effective time of a sale event unless such awards are assumed or continued by the successor entity. In the event that shares of restricted stock are forfeited in connection with a sale event, such shares of restricted stock shall be repurchased at a price per share equal to the lower of the original per share purchase price and the fair market value of such shares. We have the right to provide for cash payment to holders of restricted stock or restricted stock units, in exchange for the cancellation thereof, in an amount per share equal to the value of the consideration payable per share of common stock in the sale event.

No awards may be granted under our 2014 Plan after the date that is ten years from the date our 2014 Plan was adopted by the board of directors. Our board of directors has determined not to make any further awards under our 2014 Plan following the completion of this offering.

2018 Employee Stock Purchase Plan

Our 2018 Employee Stock Purchase Plan, or the ESPP, was adopted by our board of directors on March 14, 2018 and approved by our stockholders on     , 2018. The ESPP will become effective on the date on which the registration statement of which this prospectus is part is declared effective by the SEC. Our ESPP initially reserves and authorizes the issuance of up to a total of                  shares of common stock to participating employees. Our ESPP provides that the number of shares reserved and available for issuance will automatically increase on each January 1, beginning on January 1, 2019 and ending on January 1, 2028, by the lesser of (i)                  shares of common stock, (ii)     % of the outstanding shares of common stock on the immediately preceding December 31 or (iii) such lesser number of shares as determined by the administrator of our ESPP. This number is subject to adjustment in the event of a stock split, stock dividend or other change in our capitalization.

All employees whose customary employment is for more than 20 hours a week are eligible to participate in our ESPP. Any employee who owns 5% or more of the voting power or value of our shares of common stock is not eligible to purchase shares under our ESPP.

We will make one or more offerings each year to our employees to purchase shares under our ESPP. Offerings will usually begin on each January 1 and July 1 and will continue for six-month periods, referred to as offering periods. Each eligible employee may elect to participate in any offering by submitting an enrollment form at least 15 business days before the relevant offering date.

Each employee who is a participant in our ESPP may purchase shares by authorizing payroll deductions of up to 10% of his or her eligible compensation during an offering period. Unless the participating employee has previously withdrawn from the offering, his or her accumulated payroll deductions will be used to purchase shares of common stock on the last business day of the offering period at a price equal to 85% of the fair market value of the shares on the first business day or the last business day of the offering period, whichever is lower, provided that no more than                  shares of common stock may be purchased by any one employee during each offering period. Under applicable tax rules, an employee may purchase no more than $25,000 worth of shares of common stock, valued at the start of the purchase period, under our ESPP in any calendar year.

The accumulated payroll deductions of any employee who is not a participant on the last day of an offering period will be refunded. An employee’s rights under our ESPP terminate upon voluntary withdrawal from the plan or when the employee ceases employment with us for any reason.

 

147


Table of Contents

Our ESPP may be terminated or amended by our board of directors at any time. An amendment that increases the number of shares of common stock authorized under our ESPP and certain other amendments require the approval of our stockholders.

Senior Executive Incentive Bonus Plan

On March 14, 2018, our board of directors adopted the Senior Executive Cash Incentive Bonus Plan, or the Bonus Plan. Our Bonus Plan provides for bonus payments based upon the attainment of performance targets established by our compensation committee. The payment targets will be related to financial and operational measures or objectives with respect to our company, or the Corporate Performance Goals, as well as individual performance objectives.

Our compensation committee may select Corporate Performance Goals from among the following: cash flow (including, but not limited to, operating cash flow and free cash flow); revenue; corporate revenue; earnings before interest, taxes, depreciation and amortization; net income (loss) (either before or after interest, taxes, depreciation and/or amortization); changes in the market price of our common stock; economic value-added; development, clinical, regulatory or commercial milestones; acquisitions or strategic transactions; operating income (loss); return on capital, assets, equity, or investment; stockholder returns; return on sales; gross or net profit levels; productivity; expense efficiency; margins; operating efficiency; customer satisfaction; working capital; earnings (loss) per share of our common stock; bookings, new bookings or renewals; sales or market shares; number of customers; number of new customers or customer references; operating income and/or net annual recurring revenue, any of which may be measured in absolute terms, as compared to any incremental increase, in terms of growth, as compared to results of a peer group, against the market as a whole, compared to applicable market indices and/or measured on a pre-tax or post-tax basis.

Each executive officer who is selected to participate in our Bonus Plan will have a target bonus opportunity set for each performance period. The bonus formulas will be adopted in each performance period by the compensation committee and communicated to each executive. The Corporate Performance Goals will be measured at the end of each performance period after our financial reports have been published. If the Corporate Performance Goals and individual performance objectives are met, payments will be made as soon as practicable following the end of each performance period. Subject to the rights contained in any agreement between the executive officer and us, an executive officer must be employed by us on the bonus payment date to be eligible to receive a bonus payment. Our Bonus Plan also permits the compensation committee to approve additional bonuses to executive officers in its sole discretion.

401(k) Plan

We maintain a tax-qualified retirement plan that provides eligible employees with an opportunity to save for retirement on a tax-advantaged basis. All participants’ interests in their contributions are 100% vested when contributed. Contributions are allocated to each participant’s individual account and are then invested in selected investment alternatives according to the participants’ directions. The retirement plan is intended to qualify under Section 401(a) of the Code. We match 50% of employees’ contributions to the 401(k) Plan up to 6% of compensation.

Limitations on Liability and Indemnification Matters

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or controlling persons, 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.

 

148


Table of Contents

DIRECTOR COMPENSATION

The following table presents the total compensation for each person who served as a member of our board of directors during the year ended December 31, 2017. Other than as set forth in the table and described more fully below, we did not pay any compensation, make any equity awards or non-equity awards to, or pay any other compensation to any of the non-employee members of our board of directors in 2017. We reimburse non-employee members of our board of directors for reasonable travel expenses. Dr. Biniszkiewicz, our former President and Chief Executive Officer, did not receive any compensation for his service as a member of our board of directors in 2017. Mr. Lynch, our former Interim Chief Executive Officer, also did not receive any compensation for his service as a member of our board of directors in 2017. All compensation paid to Dr. Biniszkiewicz and Mr. Lynch for service as employees for fiscal year 2017 is presented above in the “2017 Summary Compensation Table.”

 

Name

   Fees Earned or
Paid in Cash ($)
     Option Awards ($)(1)      Total
($)
 

Robert J. Garland, M.D.(2)

                    

David S. Grayzel, M.D.

                    

Armen B. Shanafelt, Ph.D.

                    

Robert M. Weisskoff, Ph.D.(3)

                    

 

(1) This column reflects the full grant-date fair value of stock option awards granted during the year as measured pursuant to Financial Accounting Standard Board Accounting Standards Codification Topic 718. These amounts do not correspond to the actual value that may be recognized by the named executive officers upon vesting or exercise of the applicable awards. See Note 11 to our consolidated financial statements appearing at the end of this prospectus regarding assumptions underlying the valuation of equity awards.
(2) Dr. Garland resigned from our board of directors on November 7, 2017.
(3) Dr. Weisskoff resigned from our board of directors on October 13, 2017.

We intend to adopt a formal director compensation policy for all of our non-employee directors prior to the completion of this offering.

 

149


Table of Contents

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Other than the compensation agreements and other arrangements described under “Executive Compensation” and “Director Compensation” in this prospectus and the transactions described below, since April 29, 2014 (date of inception), there has not been and there is not currently proposed, any transaction or series of similar transactions to which we were, or will be, a party in which the amount involved exceeded, or will exceed, $120,000 and in which any director, executive officer, holder of five percent or more of any class of our capital stock or any member of the immediate family of, or entities affiliated with, any of the foregoing persons, had, or will have, a direct or indirect material interest.

We believe the terms obtained or consideration that we paid or received, as applicable, in connection with the transactions described below were comparable to terms available or the amounts that we would pay or receive, as applicable, in arm’s-length transactions.

Collaboration With Novartis

In January 2016, we entered into a strategic collaboration agreement, or the Collaboration Agreement, with Novartis Institutes for Biomedical Research, Inc., or Novartis, to develop next-generation cancer therapies. The Collaboration Agreement was subsequently amended in May 2016, July 2017 and September 2017. Pursuant to the Collaboration Agreement, we granted Novartis an exclusive license to research, develop, manufacture and commercialize antibodies that target CD73, along with the right to purchase exclusive option rights to up to four specified targets to obtain certain development, manufacturing and commercialization rights. Pursuant to the Collaboration Agreement, Novartis had the right to exercise up to three purchased options. In March 2018, Novartis notified us of its decision to not exercise its previously purchased option for SRF231, our CD47 product candidate. Novartis currently has two Options remaining eligible for purchase, both of which can be exercised. We received an upfront payment of $70.0 million from Novartis upon entering into the agreement. Under the Collaboration Agreement, we are currently entitled to potential option purchase, option exercise and milestone payments upon the achievement of specified development and sales milestones, which could amount to $1.17 billion, as well as tiered royalties on annual net sales by Novartis on licensed products ranging from high single-digit to mid-teens percentages. Such amount of potential option purchase, option exercise and milestone payments assumes that Novartis purchases, and exercises, both of the remaining options available to it pursuant to the Collaboration Agreement, as well as the successful clinical development and achievement of all sales milestones for all targets covered by the Collaboration Agreement. In addition, we are required to pay Novartis tiered royalties on annual net sales by us of licensed products in the United States ranging from high single-digit to mid-teens percentages. Through December 31, 2017, we had received an aggregate of $35.0 million in option purchase and milestone payments from Novartis. In February 2018, we received an additional milestone payment of $45.0 million from Novartis. See “Business—Strategic Collaboration with Novartis” for further information regarding the Collaboration Agreement. In January 2016, we also received a $13.5 million equity investment from Novartis.

Participation Agreement

In connection with entering into the Collaboration Agreement, we entered into a participation agreement, or the Participation Agreement, with Novartis. The Participation Agreement gives us the right, in our sole discretion, to require Novartis to participate in any (i) private placement of our preferred or common stock or (ii) our initial public offering, up to an aggregate of $11.5 million, subject to certain conditions. The rights granted under the Participation Agreement will terminate upon the completion of this offering, if not exercised by us.

 

150


Table of Contents

Sublease with CoStim (a Subsidiary of Novartis)

In November 2014, we entered into a sublease with CoStim Pharmaceuticals, Inc., or CoStim, a subsidiary of Novartis, to provide for the lease of 6,815 square feet of office and laboratory space in a building in Cambridge, Massachusetts. Pursuant to this sublease, we are to pay CoStim an aggregate of $1.5 million of base rent, payable in monthly installments of approximately $30,000, in addition to assuming all of CoStim’s additional rent obligations under its prime lease. Effective as of April 1, 2017, we entered into a sublease of the space to VL42, Inc. For the years ended December 31, 2014, 2015, 2016 and 2017, we paid CoStim an aggregate of $0, $0.6 million, $0.6 million and $0.6 million, respectively. The term of the sublease will terminate on March 31, 2018.

Preferred Stock Financing

In November 2014, December 2015 and January 2016, we issued and sold an aggregate of 35,100,000 shares of our Series A preferred stock at a price of $1.00 per share. In January 2016, we issued and sold 2,000,000 shares of our Series A-1 preferred stock at a price of $6.75 per share. The following table sets forth the number of shares of our Series A and Series A-1 preferred stock purchased by our directors, executive officers and five percent stockholders and their affiliates and the aggregate purchase price paid for such shares.

 

Name

  Shares of
Series A
Preferred
Stock
Purchased
    Aggregate
Purchase
Price
    Shares of
Series A-1
Preferred
Stock
Purchased
    Aggregate
Purchase
Price
 

Atlas Venture Fund IX, L.P.(1)

    7,000,000     $ 7,000,000              

F-Prime Capital Partners Healthcare Fund IV LP(2)

    7,000,000     $ 7,000,000              

Lilly Ventures Fund I, LLC(3)

    7,000,000     $ 7,000,000              

Affiliates of New Enterprise Associates(4)

    7,000,000     $ 7,000,000              

Novartis Institutes for Biomedical Research, Inc.(5)

    5,000,000     $ 5,000,000       2,000,000     $ 13,500,000  

 

(1) David S. Grayzel, M.D., a member of our board of directors, is a partner at Atlas Venture, an entity affiliated with Atlas Venture Fund IX, L.P.
(2) Formerly Beacon Bioventures Fund IV Limited Partnership. Robert M. Weisskoff, Ph.D., formerly a member of our board of directors and now a board observer, is a partner at F-Prime Capital, an entity affiliated with F-Prime Capital Partners Healthcare Fund IV LP. Dr. Weisskoff resigned from our board of directors on October 13, 2017.
(3) Armen B. Shanafelt, Ph.D., a member of our board of directors, is a general partner with Lilly Ventures, an entity affiliated with Lilly Ventures Fund I, LLC.
(4) Consists of 6,995,000 shares purchased by New Enterprise Associates 14, L.P. and 5,000 shares purchased by NEA Ventures 2014, L.P. Robert J. Garland, M.D. was a member of our board of directors and is a venture partner at New Enterprise Associates, an entity affiliated with New Enterprise Associates 14, L.P. and NEA Ventures 2014, L.P. Dr. Garland resigned from our board of directors on November 7, 2017. Dr. Garland does not have any voting or dispositive power over any of the shares directly held by NEA 14 or Ven 2014.
(5) Novartis Institutes for BioMedical Research, Inc. is an owner of more than five percent of common stock, issuable on the conversion of shares of Series A preferred stock and shares of Series A-1 preferred stock.

Investors’ Rights Agreement

In connection with the Series A preferred stock financing, on November 6, 2014, we entered into the Investors’ Rights Agreement with the holders of our Series A preferred stock. We amended the

 

151


Table of Contents

Investors Rights Agreement in connection with the Series A-1 preferred stock financing on January 9, 2016. This agreement provides these holders with certain rights relating to the registration of their shares under the Securities Exchange Act of 1933, as amended. For a more detailed description of these registration rights, see the section titled “Description of Capital Stock—Registration Rights.”

The agreement also establishes certain “information and observer” rights and rights of first offer, and sets forth certain covenants relating to insurance, employee agreements, employee stock, indemnification and related matters. On the completion of this offering the registration rights and certain indemnification provisions will continue, and all other provisions relating to these rights and covenants will terminate.

Agreement with Vaccinex, Inc.

On November 30, 2017, we entered into an Antibody Selection Research Collaboration and License Option Agreement, or the Research Agreement, with Vaccinex, Inc., or Vaccinex. Pursuant to the Research Agreement, among other things, Vaccinex will use its technology to assist us in identifying and selecting experimental human monoclonal antibodies against targets selected by us. J. Jeffrey Goater, our Chief Executive Officer, serves on the board of directors of Vaccinex. During the year ended December 31, 2017, we paid Vaccinex an aggregate of $250,000 pursuant to the terms of the Research Agreement, which consisted of a technology access fee payable upon entering into the Research Agreement.

Executive Officer and Director Compensation

See the section titled “Executive Compensation” for information regarding compensation of our executive officers and directors.

Employment Agreements

We plan to enter into new employment agreements with our executive officers. For more information regarding our agreements with our named executive officers for the fiscal year ended December 31, 2017, see the section titled “Executive Compensation—Narrative to Summary Compensation Table—Employment Arrangements With Our Named Executive Officers.”

See the section titled “Executive Compensation—Separation Agreement with Dr. Biniszkiewicz.”

Indemnification Agreements

We intend to enter agreements to indemnify our directors and certain executive officers. These agreements will, among other things, require us to indemnify these individuals for certain expenses (including attorneys’ fees), judgments, fines and settlement amounts reasonably incurred by such person in any action or proceeding, including any action by or in our right, on account of any services undertaken by such person on behalf of our company or that person’s status as a member of our board of directors to the maximum extent allowed under Delaware law.

Policies For Approval of Related Party Transactions

Our board of directors reviews and approves transactions with directors, officers and holders of five percent or more of our voting securities and their affiliates, each a related party. Prior to this

 

152


Table of Contents

offering, the material facts as to the related party’s relationship or interest in the transaction are disclosed to our board of directors prior to their consideration of such transaction, and the transaction is not considered approved by our board of directors unless a majority of the directors who are not interested in the transaction approve the transaction. Further, when stockholders are entitled to vote on a transaction with a related party, the material facts of the related party’s relationship or interest in the transaction are disclosed to the stockholders, who must approve the transaction in good faith.

In connection with this offering, we intend to adopt a formal written policy that our executive officers, directors, holders of more than five percent of any class of our voting securities, and any member of the immediate family of and any entity affiliated with any of the foregoing persons, are not permitted to enter into a related party transaction with us without the prior consent of our audit committee, or other independent members of our board of directors in the event it is inappropriate for our audit committee to review such transaction due to a conflict of interest. Any request for us to enter into a transaction with an executive officer, director, holders of more than 5% of any class of our voting securities, or any of their immediate family members or affiliates, in which the amount involved exceeds $120,000 must first be presented to our audit committee for review, consideration and approval. In approving or rejecting any such proposal, our audit committee will consider the relevant facts and circumstances available and deemed relevant to our audit committee, including, but not limited to, whether the transaction will be on terms no less favorable than terms generally available to an unaffiliated third-party under the same or similar circumstances and the extent of the related party’s interest in the transaction. All of the transactions described in this section were entered into prior to the adoption of this policy.

 

153


Table of Contents

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information known to us regarding beneficial ownership of our capital stock as of March 22, 2018, as adjusted to reflect the sale of common stock offered by us in this offering and the concurrent private placement, for:

 

    each person or group of affiliated persons known by us to be the beneficial owner of more than five percent of our capital stock;

 

    each of our named executive officers;

 

    each of our directors; and

 

    all of our 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. Under those rules, beneficial ownership includes any shares as to which the individual or entity has sole or shared voting power or investment power. Except as noted by footnote, and subject to community property laws where applicable, we believe, based on the information provided to us, that the persons and entities named in the table below have sole voting and investment power with respect to all common stock shown as beneficially owned by them.

The percentage of beneficial ownership prior to this offering in the table below is based on 43,187,499 shares of common stock deemed to be outstanding as of March 22, 2018, assuming the conversion of all outstanding shares of our preferred stock upon the completion of this offering, and the percentage of beneficial ownership after this offering in the table below is based on              shares of common stock assumed to be outstanding after the completion of the offering and the concurrent private placement. The information in the table below assumes no exercise of the underwriters’ option to purchase additional shares. Options to purchase shares of common stock that are exercisable within 60 days of March 22, 2018 are deemed to be beneficially owned by the persons holding these options for the purpose of computing percentage ownership of that person, but are not treated as outstanding for the purpose of computing any other person’s ownership percentage.

 

154


Table of Contents
     Shares Beneficially Owned
Prior to Offering

and Concurrent Private
Placement
    Shares Beneficially Owned
After Offering

and Concurrent Private
Placement
 

Name and Address of Beneficial Owner(1)

   Number      Percentage     Number      Percentage  

5% Stockholders:

          

Atlas Venture Fund IX, L.P.(2)

     10,000,000        23     

Entities affiliated with F-Prime Capital Partners(3)

     4,155,773        10     

Lilly Ventures Fund I, LLC(4)

     7,000,000        16     

Novartis Institutes for Biomedical Research, Inc.(5)

     7,000,000        16     

New Enterprises Associates 14, L.P.(6)

     7,000,000        16     

Named Executive Officers and Directors:

          

J. Jeffrey Goater(7)

     296,571        *       

Daniel S. Lynch(8)

     273,692        *       

Scott C. Chappel, Ph.D.(9)

     561,961        1     

Vito J. Palombella, Ph.D.(10)

     376,900        *       

Elliott Sigal, M.D., Ph.D.(11)

     360,708        *       

Laurie D. Stelzer(12)

     10,708        *       

Geoffrey McDonough, M.D.(13)

     10,708        *       

David S. Grayzel, M.D.(2)

     10,000,000        *       

Armen B. Shanafelt, Ph.D.(4)

     7,000,000        *       

All executive officers and directors as a group (10 persons)(14)

     19,132,925        43     

 

* Represents beneficial ownership of less than one percent.
(1) Unless otherwise indicated, the address for each beneficial owner is c/o Surface Oncology, Inc., 50 Hampshire Street Cambridge, MA 02139.
(2) Consists of: (i) 7,000,000 shares of common stock issuable upon conversion of shares of Series A preferred stock; and (ii) 3,000,000 shares of common stock. All shares are held directly by Atlas Venture Fund IX, L.P., or Atlas Venture Fund IX. Atlas Venture Associates IX, L.P., or AVA IX LP, is the general partner of Atlas Venture Fund IX, and Atlas Venture Associates IX, LLC, or AVA IX LLC, is the general partner of AVA IX LP. Peter Barrett, Bruce Booth, Jean-Francois Formela, Jeff Fagnan and Ryan Moore are the members of AVA IX LLC and collectively make investment decisions on behalf of Atlas Venture Fund IX. David Grayzel, M.D. owns an interest in AVA IX LP and is also a member of our board of directors. Dr. Grayzel disclaims beneficial ownership of such shares, except to the extent of his proportionate pecuniary interest therein, if any. The address for Atlas Venture Fund IX is 25 First Street, Suite 303, Cambridge, MA 02141.
(3) Consists of: (i) 1,689,354 shares of common stock issuable upon conversion of shares of Series A preferred stock held directly by F-Prime Capital Partners Healthcare Fund IV LP, (ii) 39,830 shares of common stock issuable upon conversion of shares of Series A preferred stock held by F-Prime Capital Partners Healthcare Advisors Fund IV LP, (iii) 1,244,158 shares of common stock issuable upon conversion of shares of Series A preferred stock held by an entity managed by Impresa Management LLC, and (iv) 1,182,431 shares of common stock issuable upon conversion of shares of Series A preferred stock held by an entity managed by Impresa Management LLC. The general partner of F-Prime Capital Partners Healthcare Fund IV LP is F-Prime Capital Partners Healthcare Advisors Fund IV LP. F-Prime Capital Partners Healthcare Advisors Fund IV LP is solely managed by Impresa Management LLC, the managing member of its general partner and investment manager. Impresa Management LLC is owned, directly or indirectly, by various shareholders and employees of FMR LLC. The general partner of Impresa Fund III Limited Partnership is Impresa Management LLC. Each of the entities listed above expressly disclaims beneficial ownership of the securities listed above except to the extent of any pecuniary interest therein. The address of these entities is 245 Summer Street, Boston, MA 02210.

 

155


Table of Contents
(4) Consists of 7,000,000 shares of common stock issuable upon conversion of shares of Series A preferred stock held by Lilly Ventures Fund I LLC, or LVFI. LV Management Group, LLC, or LVMG, is the management company for LVFI and as such may be deemed to indirectly beneficially own the shares held by LVFI. LVMG’s voting and dispositive decisions with respect to the shares held by LVFI are made by LVMG’s management committee, which consists of S. Edward Torres, Dr. Steven E. Hall and Dr. Armen B. Shanafelt. Dr. Armen B. Shanafelt is a member of our board of directors. The address of Lilly Ventures is 115 West Washington Street, Suite 1680S, Indianapolis, IN 46204.
(5) Consists of (i) 5,000,000 shares of common stock issuable upon conversion of shares of Series A preferred stock, and (ii) 2,000,000 shares of common stock issuable upon conversion of shares of Series A-1 preferred stock. All shares are held by Novartis Institutes for BioMedical Research, Inc., or Novartis. Beneficial ownership following the completion of this offering reflects the issuance of             shares to Novartis in a concurrent private placement, based on an assumed initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover page of this prospectus. See “ Concurrent Private Placement.” Novartis is an indirect wholly owned subsidiary of, and controlled by, Novartis AG. The address for Novartis is 250 Massachusetts Avenue, Cambridge, MA 02139.
(6) Consists of (i) 6,995,000 shares of common stock issuable upon conversion of shares of Series A preferred stock held by New Enterprise Associates 14, L.P., or NEA 14, and (ii) 5,000 shares of common stock issuable upon conversion of shares of Series A preferred stock held by NEA Ventures 2014, L.P., or Ven 2014. The shares directly held by NEA 14 are indirectly held by NEA Partners 14, L.P., or NEA Partners 14, the sole general partner of NEA 14, NEA 14 GP, LTD, or NEA 14 LTD, the sole general partner of NEA Partners 14 and each of the individual Directors of NEA 14 LTD. The individual Directors, or collectively, the Directors of NEA 14 LTD, are M. James Barrett, Peter J. Barris, Forest Baskett, Anthony A. Florence, Jr., Patrick J. Kerins, David M. Mott, Scott D. Sandell, Peter Sonsini and Ravi Viswanathan. The shares directly held by Ven 2014 are indirectly held by Karen P. Welsh, the general partner of Ven 2014. NEA Partners 14, NEA 14 LTD and the Directors share voting and dispositive power with regard to the Company’s securities directly held by NEA 14. Karen P. Welsh, the general partner of Ven 2014, has voting and dispositive power with regard to the Company’s securities directly held by Ven 2014. All indirect holders of the above referenced shares disclaim beneficial ownership of all applicable shares except to the extent of their actual pecuniary interest therein. The address for these entities is 1954 Greenspring Dr. Ste 600, Timonium, MD 21093.
(7) Consists of options to purchase 296,571 shares of common stock that are exercisable within 60 days of March 22, 2018.
(8) Consists of options to purchase 273,692 shares of common stock that are exercisable within 60 days of March 22, 2018.
(9) Consists of (i) options to purchase 204,314 shares of common stock that are exercisable within 60 days of March 22, 2018 and (ii) 357,647 shares of restricted stock.
(10) Consists of options to purchase 376,900 shares of common stock that are exercisable within 60 days of March 22, 2018.
(11) Consists of: (i) 100,000 shares of common stock issuable upon the conversion of shares of Series A preferred stock held by Sigal Family Investments, LLC, (ii) options to purchase 260,708 shares of common stock, exercisable within 60 days of March 22, 2018, held directly by Dr. Sigal. Dr. Sigal is a manager of Sigal Family Investments, LLC. Dr. Sigal may be deemed to have voting and investment power over shares held by Sigal Family Investments, LLC. Dr. Sigal disclaims beneficial ownership of such shares except to the extent of any pecuniary interest therein.
(12) Consists of options to purchase 10,708 shares of common stock that are exercisable within 60 days of March 22, 2018.

 

156


Table of Contents
(13) Consists of options to purchase 10,708 shares of common stock that are exercisable within 60 days of March 22, 2018.
(14) Consists of (i) 14,100,000 shares of common stock issuable upon conversion of shares of Series A preferred stock, (ii) 3,000,000 shares of common stock, (iii) options to purchase 1,675,278 shares of common stock that are exercisable within 60 days of March 22, 2018 and (iv) 357,647 shares of restricted stock.

 

157


Table of Contents

DESCRIPTION OF CAPITAL STOCK

The following descriptions are summaries of the material terms of our fourth amended and restated certificate of incorporation and second amended and restated bylaws, both of which will be effective immediately prior to the completion of this offering. The descriptions of the common stock and preferred stock give effect to changes to our capital structure that will occur immediately prior to the completion of this offering. We refer in this section to our fourth amended and restated certificate of incorporation as our certificate of incorporation, and we refer to our second amended and restated bylaws as our bylaws.

General

Upon completion of this offering, our authorized capital stock will consist of 150,000,000 shares of common stock, par value $0.001 per share, and 5,000,000 shares of preferred stock, par value $0.001 per share, all of which shares of preferred stock will be undesignated.

As of March 22, 2018, 6,087,499 shares of our common stock were outstanding and held by 18 stockholders of record. This amount assumes the conversion of all outstanding shares of our preferred stock into common stock, which will occur immediately prior to the completion of this offering. In addition, as of March 22, 2018, we had outstanding options to purchase 9,657,940 shares of our common stock under our 2014 Stock Option and Grant Plan at a weighted average exercise price of $2.77 per share, of which options for 2,418,190 shares were exercisable.

Common Stock

The holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of the stockholders. The holders of our common stock do not have any cumulative voting rights. Holders of our common stock are entitled to receive ratably any dividends declared by our board of directors out of funds legally available for that purpose, subject to any preferential dividend rights of any outstanding preferred stock. Our common stock has no preemptive rights, conversion rights or other subscription rights or redemption or sinking fund provisions.

In the event of our liquidation, dissolution or winding up, holders of our common stock will be entitled to share ratably in all assets remaining after payment of all debts and other liabilities and any liquidation preference of any outstanding preferred stock. The shares to be issued by us in this offering will be, when issued and paid for, validly issued, fully paid and non-assessable.

Preferred Stock

Immediately prior to the completion of this offering, all outstanding shares of our preferred stock will be converted into shares of our common stock. Upon the consummation of this offering, our board of directors will have the authority, without further action by our stockholders, to issue up to 5,000,000 shares of preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof. 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, or the designation of, such series, any or all of which may be greater than the rights of common stock. The issuance of our preferred stock could adversely affect the voting power of holders of common stock and the likelihood that such holders will receive dividend payments and payments upon our liquidation. In addition, the issuance of preferred stock could have the effect of delaying, deferring or preventing a change in control of our company or other corporate action. Immediately after consummation of this offering, no shares of preferred stock will be outstanding, and we have no present plan to issue any shares of preferred stock.

 

158


Table of Contents

Registration Rights

Upon the completion of this offering, the holders of                      shares of our common stock, including those issuable upon the conversion of preferred stock, are entitled to rights with respect to the registration of these securities under the Securities Act. These rights are provided under the terms of an investors’ rights agreement between us and certain holders of our common stock, Series A preferred stock and Series A-1 preferred stock. The investors’ rights agreement includes demand registration rights, short-form registration rights and piggyback registration rights. All fees, costs and expenses of underwritten registrations under these agreements will be borne by us and all selling expenses, including underwriting discounts and selling commissions, will be borne by the holders of the shares being registered.

Demand Registration Rights

Beginning 180 days after the completion of this offering, the holders of                      shares of our common stock, including those issuable upon the conversion of shares of our preferred stock, are entitled to demand registration rights. Under the terms of the investors’ rights agreement, we will be required, upon the written request of holders of at least 61% of the securities eligible for registration then outstanding to file a registration statement for at least 33 1/3% of the common stock outstanding (or a lesser percent if the anticipated aggregate offering price, net of selling expenses, would exceed $10 million), to file a registration statement and use commercially reasonable efforts to effect the registration of such shares. We are required to effect only two registrations pursuant to this provision of the investors’ rights agreement.

Short-Form Registration Rights

Upon the completion of this offering, the holders of                      shares of our common stock, including those issuable upon the conversion of shares of our preferred stock are also entitled to short-form registration rights. Pursuant to the investors’ rights agreement, if we are eligible to file a registration statement on Form S-3, upon the written request of at least 25% of the securities eligible for registration then outstanding to file a Form S-3 with an anticipated aggregate offering price, net of selling expenses, of at least $3 million, we will be required to file a registration statement and use commercially reasonable efforts to effect a registration of such shares. We are required to effect only two registrations in any 12-month period pursuant to this provision of the investors’ rights agreement.

Piggyback Registration Rights

Upon the completion of this offering, the holders of                      shares of our common stock, including those issuable upon the conversion of shares of our preferred stock, are entitled to piggyback registration rights. If we register any of our securities either for our own account or for the account of other security holders, the holders of these shares are entitled to include their shares in the registration. Subject to certain exceptions contained in the investors’ rights agreement, we and the underwriters may limit the number of shares included in the underwritten offering to the number of shares which we and the underwriters determine in our sole discretion will not jeopardize the success of the offering. In accordance with the terms of the investors’ rights agreement, we have received a waiver of these piggyback registration rights with respect to the registration for this offering. We must pay all expenses, except for underwriting discounts, selling commissions, any applicable stock transfer taxes, and fees and disbursements of security holders’ counsel, incurred in connection with the exercise of piggyback registration rights.

 

159


Table of Contents

Indemnification

Our investors’ rights agreement contains customary cross-indemnification provisions, under which we are obligated to indemnify holders of registrable securities in the event of material misstatements or omissions in the registration statement attributable to us, and they are obligated to indemnify us for material misstatements or omissions attributable to them.

Expiration of Registration Rights

The demand registration rights, short-form registration rights and piggyback registration rights granted under the investors’ rights agreement will terminate on the earlier of (i) the fifth anniversary of the completion of this offering, (ii) the closing of a deemed liquidation event, as defined in our amended and restated certificate of incorporation or (iii) such time as Rule 144 or a similar exception under the Securities Act is available for the sale of all of a common stockholder’s shares without limitation during a three-month period without registration.

Anti-Takeover Effects of Our Certificate of Incorporation and Bylaws and Delaware Law

Our certificate of incorporation and bylaws include a number of provisions that may have the effect of delaying, deferring or preventing another party from acquiring control of us and encouraging persons considering unsolicited tender offers or other unilateral takeover proposals to negotiate with our board of directors rather than pursue non-negotiated takeover attempts. These provisions include the items described below.

Board Composition and Filling Vacancies

Our certificate of incorporation provides for the division of our board of directors into three classes serving staggered three-year terms, with one class being elected each year. Our certificate of incorporation also provides that directors may be removed only for cause and then only by the affirmative vote of the holders of 75% or more of the shares then entitled to vote at an election of directors. Further, any vacancy on our board of directors, however occurring, including a vacancy resulting from an increase in the size of our board, may only be filled by the affirmative vote of a majority of our directors then in office even if less than a quorum. The classification of directors, together with the limitations on removal of directors and treatment of vacancies, has the effect of making it more difficult for stockholders to change the composition of our board of directors.

No Written Consent of Stockholders

Our certificate of incorporation provides that all stockholder actions are required to be taken by a vote of the stockholders at an annual or special meeting, and that stockholders may not take any action by written consent in lieu of a meeting. This limit may lengthen the amount of time required to take stockholder actions and would prevent the amendment of our bylaws or removal of directors by our stockholders without holding a meeting of stockholders.

Meetings of Stockholders

Our certificate of incorporation and bylaws provide that only a majority of the members of our board of directors then in office may call special meetings of stockholders and only those matters set forth in the notice of the special meeting may be considered or acted upon at a special meeting of stockholders. Our bylaws limit the business that may be conducted at an annual meeting of stockholders to those matters properly brought before the meeting.

 

160


Table of Contents

Advance Notice Requirements

Our bylaws establish advance notice procedures with regard to stockholder proposals relating to the nomination of candidates for election as directors or new business to be brought before meetings of our stockholders. These procedures provide that notice of stockholder proposals must be timely given in writing to our corporate secretary prior to the meeting at which the action is to be taken. Generally, to be timely, notice must be received at our principal executive offices not less than 90 days nor more than 120 days prior to the first anniversary date of the annual meeting for the preceding year. Our bylaws specify the requirements as to form and content of all stockholders’ notices. These requirements may preclude stockholders from bringing matters before the stockholders at an annual or special meeting.

Amendment to Certificate of Incorporation and Bylaws

Any amendment of our certificate of incorporation must first be approved by a majority of our board of directors, and if required by law or our certificate of incorporation, must thereafter be approved by a majority of the outstanding shares entitled to vote on the amendment and a majority of the outstanding shares of each class entitled to vote thereon as a class, except that the amendment of the provisions relating to stockholder action, board composition, limitation of liability and the amendment of our bylaws and certificate of incorporation must be approved by not less than 75% of the outstanding shares entitled to vote on the amendment, and not less than 75% of the outstanding shares of each class entitled to vote thereon as a class. Our bylaws may be amended by the affirmative vote of a majority of the directors then in office, subject to any limitations set forth in the bylaws; and may also be amended by the affirmative vote of at least 75% of the outstanding shares entitled to vote on the amendment, or, if our board of directors recommends that the stockholders approve the amendment, by the affirmative vote of the majority of the outstanding shares entitled to vote on the amendment, in each case voting together as a single class.

Undesignated Preferred Stock

Our certificate of incorporation will provide for 5,000,000 authorized shares of preferred stock. The existence of authorized but unissued shares of preferred stock may enable our board of directors to discourage an attempt to obtain control of us by means of a merger, tender offer, proxy contest or otherwise. For example, if in the due exercise of its fiduciary obligations, our board of directors were to determine that a takeover proposal is not in the best interests of our stockholders, our board of directors could cause shares of preferred stock to be issued without stockholder approval in one or more private offerings or other transactions that might dilute the voting or other rights of the proposed acquirer or insurgent stockholder or stockholder group. In this regard, our certificate of incorporation grants our board of directors broad power to establish the rights and preferences of authorized and unissued shares of preferred stock. The issuance of shares of preferred stock could decrease the amount of earnings and assets available for distribution to holders of shares of common stock. The issuance may also adversely affect the rights and powers, including voting rights, of these holders and may have the effect of delaying, deterring or preventing a change in control of us.

Exclusive Jurisdiction for Certain Actions

Our bylaws provide that, unless we consent in writing to an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers and employees to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, our certificate of incorporation or our bylaws, or (iv) any action asserting a claim that is governed by the internal affairs

 

161


Table of Contents

doctrine, in each case subject to the Court of Chancery having personal jurisdiction over the indispensable parties named as defendants therein. Although we believe this provision benefits us by providing increased consistency in the application of Delaware law in the types of lawsuits to which it applies, the provision may have the effect of discouraging lawsuits against our directors and officers. The enforceability of similar exclusive forum provisions in other companies’ bylaws has been challenged in legal proceedings, and it is possible that a court could rule that this provision in our bylaws is inapplicable or unenforceable.

Section 203 of the Delaware General Corporation Law

Upon completion of this offering, we will be subject to the provisions of Section 203 of the Delaware General Corporation Law. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a three-year period following the time that this stockholder becomes an interested stockholder, unless the business combination is approved in a prescribed manner. Under Section 203, a business combination between a corporation and an interested stockholder is prohibited unless it satisfies one of the following conditions:

 

    before the stockholder became interested, our board of directors approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder;

 

    upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the voting stock outstanding, shares owned by persons who are directors and also officers, and employee stock plans, in some instances, but not the outstanding voting stock owned by the interested stockholder; or

 

    at or after the time the stockholder became interested, the business combination was approved by our board of directors and authorized at an annual or special meeting of the stockholders by the affirmative vote of at least two-thirds of the outstanding voting stock which is not owned by the interested stockholder. Section 203 defines a business combination to include:

 

    any merger or consolidation involving the corporation and the interested stockholder;

 

    any sale, transfer, lease, pledge or other disposition involving the interested stockholder of 10% or more of the assets of the corporation;

 

    subject to exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder;

 

    subject to exceptions, any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the interested stockholder; and

 

    the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation.

In general, Section 203 defines an interested stockholder as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with or controlling or controlled by the entity or person.

Exchange Listing

We have applied to list our common stock on the Nasdaq Global Market under the trading symbol “SURF”.

 

162


Table of Contents

Transfer Agent and Registrar

The transfer agent and registrar for our common stock will be Computershare Trust Company, N.A. The transfer agent and registrar’s address is 250 Royall Street, Canton, Massachusetts 02021.

 

163


Table of Contents

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no public market for our shares. 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.

Upon completion of this offering and the concurrent private placement, we will have              shares of common stock outstanding assuming no exercise of the underwriters’ option to purchase additional shares. Of these shares,              shares of common stock, or              shares if the underwriters exercise option in full to purchase additional shares of common stock, sold in this offering will be freely transferable without restriction or registration under the Securities Act of 1933, as amended, or the Securities Act, except for any shares of common stock purchased by one of our existing “affiliates,” as that term is defined in Rule 144 under the Securities Act. The remaining              shares of common stock outstanding are “restricted shares” as defined in Rule 144. Restricted shares may be sold in the public market only if registered or if they qualify for an exemption from registration under Rules 144 or 701 of the Securities Act. After the expiration of the contractual 180-day lock-up period described below, or early release of shares therefrom, these shares may be sold in the public market only if registered or pursuant to an exemption under Rules 144 or 701, which are summarized below.

Additionally, of the options to purchase              shares of common stock outstanding as of                     , 2018 and assuming no outstanding options are exercised and no exercise of the underwriters’ option to purchase additional shares, options exercisable for              shares of common stock will be vested and eligible for sale 180 days after the date of this prospectus.

Rule 144

In general, a person who has beneficially owned restricted stock for at least six months would be entitled to sell their securities provided that (i) 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 (ii) we are subject to the Securities Exchange Act of 1934, as amended, periodic reporting requirements for at least 90 days before the sale. Persons who have beneficially owned restricted shares 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 the greater of either of the following:

 

    1% of the number of shares then outstanding, which will equal approximately              shares immediately after this offering and the concurrent private placement assuming no exercise of the underwriters’ option to purchase additional shares, based on the number of shares outstanding as of March 22, 2018; or

 

    the average weekly trading volume of our common stock on the Nasdaq Global Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale;

provided, in each case, that we are subject to the Exchange Act periodic reporting requirements for at least 90 days before the sale. Such sales both by affiliates and by non-affiliates must also comply with the manner of sale, current public information and notice provisions of Rule 144.

 

164


Table of Contents

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 under “Underwriting” included elsewhere in this prospectus and will become eligible for sale upon the expiration of the restrictions set forth in those agreements.

Lock-up Agreements

We and our executive officers, directors and holders of substantially all of our common stock and securities convertible into or exchangeable for our common stock have agreed or will agree with the underwriters, subject to certain exceptions, not to dispose of or hedge any of our or their common stock or securities convertible into or exchangeable for shares of common stock during the period from the date of this prospectus continuing through the date 180 days after the date of this prospectus, except with the prior written consent of Goldman Sachs & Co. LLC and Cowen and Company, LLC. This agreement does not apply to any existing employee benefit plans. See the section of this prospectus titled “Underwriting.”

Registration Rights

Upon completion of this offering, certain holders of our securities will be entitled to various rights with respect to registration of their shares under the Securities Act. Registration of these shares under the Securities Act would result in these shares becoming fully tradable without restriction under the Securities Act immediately upon the effectiveness of the registration. See “Description of Capital Stock—Registration Rights” for additional information.

Equity Incentive Plans

We intend to file one or more registration statements on Form S-8 under the Securities Act to register our shares issued or reserved for issuance under our equity incentive plans. The first such registration statement is expected to be filed soon after the date of this prospectus and will automatically become effective upon filing with the SEC. Accordingly, shares registered under such registration statement will be available for sale in the open market, unless such shares are subject to vesting restrictions with us or the lock-up restrictions described above.

 

165


Table of Contents

CERTAIN MATERIAL U.S. FEDERAL INCOME CONSIDERATIONS TO NON-U.S. HOLDERS

The following is a summary of material U.S. federal income tax considerations to non-U.S. holders (as defined below) relating to the acquisition, ownership and disposition of common stock pursuant to this offering. This summary deals only with common stock held as a capital asset (within the meaning of Section 1221 of the U.S. Internal Revenue Code of 1986, as amended, or the Code) by a holder and does not discuss the U.S. federal income tax considerations applicable to a holder that is subject to special treatment under U.S. federal income tax laws, including, but not limited to: a foreign government or governmental entity; a dealer in securities or currencies; a financial institution; a regulated investment company; a real estate investment trust; a tax-exempt organization; an insurance company; a person holding common stock as part of a hedging, integrated, conversion or straddle transaction or a person deemed to sell common stock under the constructive sale provisions of the Code; a trader in securities that has elected the mark-to-market method of accounting; an entity or arrangement that is treated as a partnership for U.S. federal income tax purposes or owners of such entity or arrangement; a person that received such common stock in connection with the performance of services; a pension fund or retirement account; a “controlled foreign corporation”; a “passive foreign investment company”; a corporation that accumulates earnings to avoid U.S. federal income tax; or a former citizen or long-term resident of the United States. This summary does not apply to any shares acquired in the concurrent private placement.

This summary is based upon provisions of the Code, applicable U.S. Treasury Regulations promulgated thereunder, published rulings and judicial decisions, all as in effect as of the date hereof. Those authorities may be changed, perhaps retroactively, or may be subject to differing interpretations, which could result in U.S. federal income tax consequences different from those discussed below. This summary does not address all aspects of U.S. federal income tax, does not deal with all tax considerations that may be relevant to stockholders in light of their personal circumstances and does not address estate taxes, the Medicare tax imposed on certain investment income or any state, local, foreign, gift, estate (except to a limited extent below) or alternative minimum tax considerations.

For purposes of this discussion, a “U.S. holder” is a beneficial owner of common stock that is: an individual citizen or resident of the United States; a corporation (or any other entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia; an estate the income of which is subject to U.S. federal income taxation regardless of its source; or a trust if it (1) is subject to the primary supervision of a court within the United States and one or more U.S. persons have the authority to control all substantial decisions of the trust or (2) has a valid election in effect under applicable U.S. Treasury Regulations to be treated as a U.S. person.

For purposes of this discussion a “non-U.S. holder” is a beneficial owner of common stock that is neither a U.S. holder nor a partnership (or any other entity or arrangement that is treated as a partnership) for U.S. federal income tax purposes. If a partnership (or an entity or arrangement that is treated as a partnership for U.S. federal income tax purposes) holds common stock, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. A partner of a partnership holding common stock is urged to consult its own tax advisors.

PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS CONCERNING THEIR PARTICULAR U.S. FEDERAL INCOME TAX CONSEQUENCES IN LIGHT OF THEIR SPECIFIC SITUATIONS, AS WELL AS THE TAX CONSEQUENCES ARISING UNDER ANY STATE, LOCAL OR NON-U.S. TAX LAWS AND ANY OTHER U.S. FEDERAL TAX LAWS (INCLUDING THE U.S. FEDERAL ESTATE AND GIFT TAX LAWS).

 

166


Table of Contents

Distributions on Our Common Stock

Distributions with respect to our common stock, if any, generally will constitute dividends for U.S. federal income tax purposes to the extent paid out of current or accumulated earnings and profits, as determined for U.S. federal income tax purposes. Any portion of a distribution in excess of current or accumulated earnings and profits will be treated as a return of capital and will first be applied to reduce the holder’s tax basis in its common stock, but not below zero. Any remaining amount will then be treated as gain from the sale or exchange of the common stock and will be treated as described under the section titled “Certain Material U.S. Federal Income Considerations to Non-U.S. Holders—Disposition of Our Common Stock” below.

Distributions treated as dividends, if any, that are paid to a non-U.S. holder with respect to shares of our common stock will be subject to U.S. federal withholding tax at a rate of 30% (or lower applicable income tax treaty rate) of the gross amount of the dividends unless the dividends are effectively connected with the non-U.S. holder’s conduct of a trade or business in the United States. If a non-U.S. holder is engaged in a trade or business in the United States and dividends with respect to the common stock are effectively connected with the conduct of that trade or business, then the non-U.S. holder will generally be exempt from the 30% U.S. federal withholding tax, provided certain certification requirements are satisfied. To claim the exemption from withholding with respect to any such effectively connected income, the non-U.S. holder must generally furnish to us or our paying agent a properly executed IRS Form W-8ECI (or applicable successor form). However, in this case the non-U.S. holder will be subject to U.S. federal income tax on those dividends on a net income basis at regular graduated U.S. federal income tax rates in the same manner as if such holder were a resident of the United States. To the extent provided in an applicable income tax treaty, such dividends may be exempt from such net income taxes (and instead subject to withholding tax) if such dividends are not attributable to a U.S. permanent establishment or fixed base. Any effectively connected income received by a foreign corporation may be subject to an additional branch profits tax equal to 30% (or lower applicable income tax treaty rate) of its effectively connected earnings and profits for the taxable year, as determined under the Code. A non-U.S. holder of shares of common stock who wishes to claim the benefit of an exemption or reduced rate of withholding tax under an applicable treaty must furnish to us or our paying agent a valid IRS Form W-8BEN or IRS Form W-8BEN-E (or applicable successor income tax form) certifying such holder’s qualification for the exemption or reduced rate. If a non-U.S. holder is eligible for a reduced rate of U.S. withholding tax pursuant to an income tax treaty, it may obtain a refund of any excess amounts withheld by filing an appropriate claim for refund with the Internal Revenue Service, or IRS. Non-U.S. holders are urged to consult their tax advisors regarding their entitlement to benefits under a relevant income tax treaty.

Disposition of Our Common Stock

Gain that non-U.S. holder realize upon the sale, exchange, or other taxable disposition of our common stock generally will not be subject to U.S. federal income tax unless: (i) the gain is effectively connected with the non-U.S. holder’s conduct of a trade or business in the United States (and, if required by an applicable income tax treaty, is attributable to a U.S. permanent establishment or fixed base maintained by the non-U.S. holder); (ii) the non-U.S. holder is an 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; or (iii) we are or have been a “U.S. real property holding corporation” for U.S. federal income tax purposes at any time during the shorter of the five-year period preceding the date of disposition or the holder’s holding period for our common stock, unless our common stock is regularly traded on an established securities market and the non-U.S. holder held no more than 5% of our outstanding common stock, directly or indirectly, during the shorter of the five-year period ending on the date of the disposition or the period that the non-U.S. holder held our common stock. We believe that we are not

 

167


Table of Contents

and we do not anticipate becoming a “U.S. real property holding corporation” for U.S. federal income tax purposes. No assurance can be provided that our common stock will remain regularly traded on an established securities market for purposes of the rules described above.

If a non-U.S. holder is an individual described in clause (i) of the preceding paragraph, the non-U.S. holder will generally be subject to tax on a net income basis at the regular graduated U.S. federal individual income tax rates in the same manner as if such holder were a resident of the United States, unless an applicable income tax treaty provides otherwise. If the non-U.S. holder is an individual described in clause (ii) of the preceding paragraph, the non-U.S. holder will generally be subject to a flat 30% tax on the gain, which may be offset by U.S. source capital losses even though the non-U.S. holder is not considered a resident of the United States, provided that the non-U.S. holder has timely filed U.S. federal income tax returns with respect to such losses. If a non-U.S. holder is a foreign corporation that falls under clause (i) of the preceding paragraph, it will be subject to tax on a net income basis at the regular graduated U.S. federal corporate income tax rates in the same manner as if it were a resident of the United States and, in addition, the non-U.S. holder may be subject to the branch profits tax at a rate equal to 30% (or lower applicable income tax treaty rate) of its effectively connected earnings and profits.

Information Reporting and Backup Withholding Tax

We must generally report to our non-U.S. holders and the IRS the amount of dividends paid during each calendar year and the amount of any tax withheld. All distributions to holders of common stock are subject to any applicable withholding. Information reporting requirements may apply even if no withholding was required because the distributions were effectively connected with the non-U.S. holder’s conduct of a United States trade or business or withholding was reduced or eliminated by an applicable income tax treaty. This information also may be made available under a specific treaty or agreement with the tax authorities in the country in which the non-U.S. holder resides or is established. Under U.S. federal income tax law, interest, dividends and other reportable payments may, under certain circumstances, be subject to “backup withholding” at the then applicable rate. Backup withholding, however, generally will not apply to distributions to a non-U.S. holder of our common stock, provided the non-U.S. holder furnishes to us or our paying agent the required certification as to its non-U.S. status, such as by providing a valid applicable IRS Form W-8BEN, IRS Form W-8BEN-E, or IRS Form W-8ECI, or certain other requirements are met. Notwithstanding the foregoing, backup withholding may apply if either we or our paying agent has actual knowledge, or reason to know, that the holder is a U.S. person that is not an exempt recipient. Backup withholding is not an additional tax but can be credited against a non-U.S. holder’s U.S. federal income tax, and may be refunded to the extent it results in an overpayment of tax and the appropriate information is timely supplied to the IRS.

Foreign Account Tax Compliance Act

The Foreign Account Tax Compliance Act, or FATCA, imposes withholding taxes on certain types of payments made to “foreign financial institutions” (as specially defined under these rules to include many entities that may not typically be thought of as financial institutions) and certain other non-U.S. entities if certification, information reporting and other specified requirements are not met. FATCA imposes a 30% withholding tax on “withholdable payments” if they are paid to a foreign financial institution or to a “non-financial foreign entity”, unless (i) the foreign financial institution undertakes certain diligence and reporting obligations and other specified requirements are satisfied or (ii) the non-financial foreign entity either certifies it does not have any substantial U.S. owners or furnishes identifying information regarding each substantial U.S. owner and other specified requirements are satisfied. “Withholdable payments” currently include dividends on our common stock, and, as described below, will include any gross proceeds from the sale or other disposition of our common

 

168


Table of Contents

stock. If the payee is a foreign financial institution, it must enter into an agreement with the U.S. Treasury requiring, among other things, that it undertake to identify accounts held by certain U.S. persons or U.S.-owned foreign entities, annually report certain information about such accounts and withhold 30% on payments to account holders whose actions prevent it from complying with these reporting and other requirements. Under final U.S. Treasury Regulations and current IRS guidance, any withholding on payments of gross proceeds from the sale or disposition of our common stock will only apply to payments made on or after December 31, 2018. An intergovernmental agreement between the United States and an applicable foreign country may modify the requirements described in this paragraph. Prospective investors should consult their own tax advisors regarding this legislation.

 

169


Table of Contents

UNDERWRITING

We and the underwriters named below have entered into an underwriting agreement with respect to the shares being offered. Subject to certain conditions, each underwriter has severally agreed to purchase the number of shares indicated in the following table. Goldman Sachs & Co. LLC and Cowen and Company, LLC are the representatives of the underwriters.

 

Underwriters

   Number of
Shares
 

Goldman Sachs & Co. LLC

  

Cowen and Company, LLC

  

Evercore Group L.L.C.

  
  

 

 

 

Total

  
  

 

 

 

The underwriters are committed to take and pay for all of the shares being offered, if any are taken, other than the shares covered by the option described below unless and until this option is exercised. 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 have an option to buy up to an additional              shares from us to cover sales by the underwriters of a greater number of shares than the total number set forth in the table above. They may exercise that option for 30 days. If any shares are purchased pursuant to this option, the underwriters will severally purchase shares in approximately the same proportion as set forth in the table above.

The following table shows the per share and total underwriting discounts and commissions to be paid to the underwriters by us. Such amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase up to             additional shares from us.

 

     No Exercise      Full Exercise  

Per Share

   $                   $               

Total

   $      $  

Shares sold by the underwriters to the public will initially be offered at the initial public offering price set forth on the cover of this prospectus. Any shares sold by the underwriters to securities dealers may be sold at a discount of up to $        per share from the initial public offering price. After the initial offering of the shares, the representatives may change the offering price and the other selling terms. The offering of the shares by the underwriters is subject to receipt and acceptance and subject to the underwriters’ right to reject any order in whole or in part. Sales of shares made outside of the United States may be made by affiliates of the underwriters.

A prospectus in electronic format may be made available on the web sites maintained by one or more underwriters, or selling group members, if any, participating in the offering. The underwriters may agree to 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 and our executive officers, directors, and holders of substantially all of our common stock and securities convertible into or exchangeable for our common stock have agreed or will agree with the underwriters, subject to certain exceptions, not to dispose of or hedge any of our or their common

 

170


Table of Contents

stock or securities convertible into or exchangeable for shares of common stock during the period from the date of this prospectus continuing through the date 180 days after the date of this prospectus, except with the prior written consent of Goldman Sachs & Co. LLC and Cowen and Company, LLC. This agreement does not apply to any existing employee benefit plans. See the section of this prospectus titled “Shares Eligible for Future Sale” for a discussion of certain transfer restrictions.

Prior to the offering, there has been no public market for the shares. The initial public offering price will be negotiated among us and the representatives. Among the factors to be considered in determining the initial public offering price of the shares, in addition to prevailing market conditions, will be our historical performance, estimates of our business potential and earnings prospects, an assessment of our management and the consideration of the above factors in relation to market valuation of companies in related businesses.

We have applied to list our common stock on the Nasdaq Global Market under the symbol “SURF.”

In connection with the offering, the underwriters may purchase and sell shares of our common stock in the open market. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in the offering, and a short position represents the amount of such sales that have not been covered by subsequent purchases. A “covered short position” is a short position that is not greater than the amount of additional shares for which the underwriters’ option described above may be exercised. The underwriters may cover any covered short position by either exercising their option to purchase additional shares or purchasing shares in the open market. In determining the source of shares to cover the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase additional shares pursuant to the option described above. “Naked” short sales are any short sales that create a short position greater than the amount of additional shares for which the option described above may be exercised. The underwriters must cover any such naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market after pricing that could adversely affect investors who purchase in the offering. Stabilizing transactions consist of various bids for or purchases of common stock made by the underwriters in the open market prior to the completion of the offering.

The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased shares sold by or for the account of such underwriter in stabilizing or short covering transactions.

Purchases to cover a short position and stabilizing transactions, as well as other purchases by the underwriters for their own accounts, may have the effect of preventing or retarding a decline in the market price of our stock, and together with the imposition of the penalty bid, may stabilize, maintain or otherwise affect the market price of the common stock. As a result, the price of the common stock may be higher than the price that otherwise might exist in the open market. The underwriters are not required to engage in these activities and may end any of these activities at any time. These transactions may be effected on the Nasdaq Global Market, in the over-the-counter market or otherwise.

We estimate that the expenses payable by us in this offering, excluding underwriting discounts and commissions, will be approximately $        million. We have agreed to reimburse the underwriters for certain of their expenses in an amount up to $        .

 

171


Table of Contents

We have agreed to indemnify the several underwriters against certain liabilities, including liabilities under the Securities Act of 1933.

The underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include sales and trading, commercial and investment banking, advisory, investment management, investment research, principal investment, hedging, market making, brokerage and other financial and non-financial activities and services. Certain of the underwriters and their respective affiliates have provided, and may in the future provide, a variety of these services to the issuer and to persons and entities with relationships with the issuer, for which they received or will receive customary fees and expenses.

The spouse of one of our executive officers is a senior managing director at Evercore Group L.L.C., a bookrunner for this offering.

In the ordinary course of their various business activities, the underwriters and their respective affiliates, officers, directors and employees may purchase, sell or hold a broad array of investments and actively traded securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments for their own account and for the accounts of their customers, and such investment and trading activities may involve or relate to assets, securities or instruments of the issuer (directly, as collateral securing other obligations or otherwise) or persons and entities with relationships with the issuer. The underwriters and their respective affiliates may also communicate independent investment recommendations, market color or trading ideas or publish or express independent research views in respect of such assets, securities or instruments and may at any time hold, or recommend to clients that they should acquire, long and/or short positions in such assets, securities and instruments.

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.

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”) an offer to the public of our common stock may not be made in that Relevant Member State, except that an offer to the public in that Relevant Member State of our common stock may be made at any time under the following exemptions under the Prospectus Directive:

 

    To any legal entity which is a qualified investor as defined in the Prospectus Directive;

 

    To fewer than 150 natural or legal persons (other than qualified investors as defined in the Prospectus Directive), subject to obtaining the prior consent of the Representatives for any such offer; or

 

    In any other circumstances falling within Article 3(2) of the Prospectus Directive;

 

172


Table of Contents

provided that no such offer or shares of our common stock shall require us or any underwriter to publish a prospectus pursuant to Article 3 of the Prospectus Directive.

For the purposes of this provision, the expression an “offer to public” in relation to our common stock in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and our common stock to be offered so as to enable an investor to decide to purchase our common stock, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State, and the expression “Prospectus Directive” means Directive 2003/71/EC (as amended), including by Directive 2010/73/EU and includes any relevant implementing measure in the Relevant Member State.

This European Economic Area selling restriction is in addition to any other selling restrictions set out below.

United Kingdom

In the United Kingdom, this prospectus is only addressed to and directed at qualified investors who are (i) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the Order); or (ii) high net worth entities and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as “relevant persons”). Any investment or investment activity to which this prospectus relates is available only to relevant persons and will only be engaged in with relevant persons. Any person who is not a relevant person should not act or rely on this prospectus or any of its contents.

Canada

The securities may be sold in Canada only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions, and Ongoing Registrant Obligations. Any resale of the securities must be made in accordance with an exemption form, or in a transaction not subject to, the prospectus requirements of applicable securities laws.

Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of these rights or consult with a legal advisor.

Pursuant to section 3A.3 of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.

Hong Kong

The securities may not be offered or sold in Hong Kong by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32 of the Laws of Hong Kong) (“Companies (Winding Up and Miscellaneous Provisions) Ordinance”) or which do not constitute an

 

173


Table of Contents

invitation to the public within the meaning of the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong) (“Securities and Futures Ordinance”), or (ii) to “professional investors” as defined in the Securities and Futures Ordinance and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a “prospectus” as defined in the Companies (Winding Up and Miscellaneous Provisions) Ordinance, and no advertisement, invitation or document relating to the securities may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” in Hong Kong as defined in the Securities and Futures Ordinance and any rules made thereunder.

Singapore

This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of 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 (i) to an institutional investor (as defined under Section 4A of the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”)) under Section 274 of the SFA, (ii) to a relevant person (as defined in Section 275(2) of the SFA) pursuant to Section 275(1) of the SFA, or any person pursuant to Section 275(1A) of the SFA, and in accordance with the conditions specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA, in each case subject to conditions set forth in the SFA.

Where the shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor, the securities (as defined in Section 239(1) of the SFA) of that corporation shall not be transferable for 6 months after that corporation has acquired the shares under Section 275 of the SFA except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person (as defined in Section 275(2) of the SFA), (2) where such transfer arises from an offer in that corporation’s securities pursuant to Section 275(1A) of the SFA, (3) where no consideration is or will be given for the transfer, (4) where the transfer is by operation of law, (5) as specified in Section 276(7) of the SFA, or (6) as specified in Regulation 32 of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 of Singapore (“Regulation 32”).

Where the shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is a trust (where the trustee is not an accredited investor (as defined in Section 4A of the SFA)) whose sole purpose is to hold investments and each beneficiary of the trust is an accredited investor, the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferable for 6 months after that trust has acquired the shares under Section 275 of the SFA except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person (as defined in Section 275(2) of the SFA), (2) where such transfer arises from an offer that is made on terms that such rights or interest are acquired at a consideration of not less than S$200,000 (or its equivalent in a foreign currency) for each transaction (whether such amount is to be paid for in cash or by exchange of securities or other assets), (3) where no consideration is or will be given for the transfer, (4) where the transfer is by operation of law, (5) as specified in Section 276(7) of the SFA, or (6) as specified in Regulation 32.

 

174


Table of Contents

Japan

The securities have not been and will not be registered under the Financial Instruments and Exchange Act of Japan (Act No. 25 of 1948, as amended), or the FIEA. The securities may not be offered or sold, directly or indirectly, in Japan or to or for the benefit of any resident of Japan (including any person resident in Japan or any corporation or other entity organized under the laws of Japan) or to others for reoffering or resale, directly or indirectly, in Japan or to or for the benefit of any resident of Japan, except pursuant to an exemption from the registration requirements of the FIEA and otherwise in compliance with any relevant laws and regulations of Japan.

Australia

No placement document, prospectus, product disclosure statement or other disclosure document has been lodged with the Australian Securities and Investments Commission (“ASIC”), in relation to the offering. This offering document does not constitute a prospectus, product disclosure statement or other disclosure document under the Corporations Act 2001 (the “Corporations Act”), and does not purport to include the information required for a prospectus, product disclosure statement or other disclosure document under the Corporations Act.

Any offer in Australia of the shares may only be made to persons (the “Exempt Investors”) who are “sophisticated investors” (within the meaning of section 708(8) of the Corporations Act), “professional investors” (within the meaning of section 708(11) of the Corporations Act) or otherwise pursuant to one or more exemptions contained in section 708 of the Corporations Act so that it is lawful to offer the shares without disclosure to investors under Chapter 6D of the Corporations Act.

The shares applied for by Exempt Investors in Australia must not be offered for sale in Australia in the period of 12 months after the date of allotment under the offering, except in circumstances where disclosure to investors under Chapter 6D of the Corporations Act would not be required pursuant to an exemption under section 708 of the Corporations Act or otherwise or where the offer is pursuant to a disclosure document which complies with Chapter 6D of the Corporations Act. Any person acquiring shares must observe such Australian on-sale restrictions.

This offering document contains general information only and does not take account of the investment objectives, financial situation or particular needs of any particular person. It does not contain any securities recommendations or financial product advice. Before making an investment decision, investors need to consider whether the information in this offering document is appropriate to their needs, objectives and circumstances, and, if necessary, seek expert advice on those matters.

Dubai International Financial Centre

This offering document relates to an Exempt Offer in accordance with the Offered Securities Rules of the Dubai Financial Services Authority (“DFSA”). This offering document is intended for distribution only to persons of a type specified in the Offered Securities Rules of the DFSA. It must not be delivered to, or relied on by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The DFSA has not approved this prospectus nor taken steps to verify the information set forth in this prospectus and has no responsibility for the offering document. The securities to which this offering document relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the securities offered should conduct their own due diligence on the securities. If you do not understand the contents of this offering document you should consult an authorized financial advisor.

 

175


Table of Contents

Switzerland

We have not and will not register with the Swiss Financial Market Supervisory Authority (“FINMA”) as a foreign collective investment scheme pursuant to Article 119 of the Federal Act on Collective Investment Scheme of 23 June 2006, as amended (“CISA”), and accordingly the securities being offered pursuant to this prospectus have not and will not be approved, and may not be licenseable, with FINMA. Therefore, the securities have not been authorized for distribution by FINMA as a foreign collective investment scheme pursuant to Article 119 CISA and the securities offered hereby may not be offered to the public (as this term is defined in Article 3 CISA) in or from Switzerland. The securities may solely be offered to “qualified investors,” as this term is defined in Article 10 CISA, and in the circumstances set out in Article 3 of the Ordinance on Collective Investment Scheme of 22 November 2006, as amended (“CISO”), such that there is no public offer. Investors, however, do not benefit from protection under CISA or CISO or supervision by FINMA. This prospectus and any other materials relating to the securities are strictly personal and confidential to each offeree and do not constitute an offer to any other person. This prospectus may only be used by those qualified investors to whom it has been handed out in connection with the offer described in this prospectus and may neither directly or indirectly be distributed or made available to any person or entity other than its recipients. It may not be used in connection with any other offer and shall in particular not be copied and/or distributed to the public in Switzerland or from Switzerland. This prospectus does not constitute an issue prospectus as that term is understood pursuant to Article 652a and/or 1156 of the Swiss Federal Code of Obligations. We have not applied for a listing of the securities on the SIX Swiss Exchange or any other regulated securities market in Switzerland, and consequently, the information presented in this prospectus does not necessarily comply with the information standards set out in the listing rules of the SIX Swiss Exchange and corresponding prospectus schemes annexed to the listing rules of the SIX Swiss Exchange.

 

176


Table of Contents

CONCURRENT PRIVATE PLACEMENT

In January 2016, we entered into a strategic collaboration agreement with Novartis Institutes for Biomedical Research, Inc., or Novartis. In connection with entering into that agreement, we entered into a participation agreement, or the Participation Agreement, with Novartis which gives us the right, in our sole discretion, to require Novartis to participate in any (i) private placement of our preferred or common stock or (ii) our initial public offering, up to an aggregate of $11.5 million, subject to certain conditions. The rights granted under the Participation Agreement will terminate upon the completion of this offering, if not exercised by us.

Pursuant to the Participation Agreement, on                     , 2018, we entered into a subscription agreement with Novartis, or the Subscription Agreement, which requires Novartis to purchase from us, concurrently with this offering in a private placement, $11.5 million of shares of our common stock at a price per share equal to the initial public offering price, subject to the terms and conditions set forth in the Subscription Agreement. The sale of these shares will not be registered under the Securities Act of 1933, as amended, and these shares will be subject to a 180-day lock-up agreement with the underwriters for this offering. The concurrent private placement is subject to certain closing conditions. We will receive the full proceeds from the sale and will not pay any underwriting discounts or commissions with respect to the shares of common stock that are sold in the concurrent private placement. The closing of this offering is not conditioned on the closing of the concurrent private placement.

 

177


Table of Contents

LEGAL MATTERS

The validity of the shares of common stock offered by this prospectus will be passed upon for us by Goodwin Procter LLP, Boston, Massachusetts. Certain legal matters related to this offering will be passed upon for the underwriters by Cooley LLP, Boston, Massachusetts.

EXPERTS

The financial statements as of December 31, 2017 and 2016 and for each of the two years in the period ended December 31, 2017 included in this prospectus have been so included in reliance on the report (which contains an explanatory paragraph relating to the Company’s requirement for additional financing to fund future operations as described in Note 1 to the consolidated financial statements) of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.

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 we are offering by this prospectus. This prospectus does not contain all of the information included in the registration statement. For further information pertaining to us and our common stock, you should refer to the registration statement and to its exhibits. Whenever we make reference in this prospectus to any of our contracts, agreements or other documents, the references are not necessarily complete, and you should refer to the exhibits attached to the registration statement for copies of the actual contract, agreement or other document.

Upon the completion of the offering, we will be subject to the informational requirements of the Securities Exchange Act of 1934 and will file annual, quarterly and current reports, proxy statements and other information with the SEC. You can read our SEC filings, including the registration statement, over the Internet at the SEC’s website at www.sec.gov. You may also read and copy any document we file with the SEC at its public reference facility at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. We also maintain a website at https://www.surfaceoncology.com. We do not incorporate the information on or accessible through our website into this prospectus, and you should not consider any information on, or that can be accessed through, our website as part of this prospectus. Upon completion of the offering, you may access, free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendment to those reported filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC.

You may also obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference facilities.

 

178


Table of Contents

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

     Page  

Report of Independent Registered Public Accounting Firm

     F-2  

Consolidated Balance Sheets

     F-3  

Consolidated Statements of Operations and Comprehensive Loss

     F-4  

Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Deficit

     F-5  

Consolidated Statements of Cash Flows

     F-6  

Notes to Consolidated Financial Statements

     F-7  

 

F-1


Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Surface Oncology, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Surface Oncology, Inc. and its subsidiary (the “Company”) as of December 31, 2017 and 2016, and the related consolidated statements of operations and comprehensive loss, of redeemable convertible preferred stock and stockholders’ deficit and of cash flows for the years then ended, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Emphasis of Matter

As discussed in Note 1 to the consolidated financial statements, the Company will require additional financing to fund future operations. Management’s plans in regard to this matter are also described in Note 1.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts

March 5, 2018

We have served as the Company’s auditor since 2016.

 

F-2


Table of Contents

SURFACE ONCOLOGY, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

 

    December 31,     Pro Forma
December 31,

2017
 
    2016     2017    
                (unaudited)  

Assets

     

Current assets:

     

Cash and cash equivalents

  $ 9,995     $ 22,455     $ 22,455  

Marketable securities

    69,156       40,854       40,854  

Amounts due from related party

    5,000       —         —    

Restricted cash

    —         85       85  

Prepaid expenses and other current assets

    9,024       7,936       7,936  
 

 

 

   

 

 

   

 

 

 

Total current assets

    93,175       71,330       71,330  

Property and equipment, net

    3,877       7,326       7,326  

Restricted cash

    1,085       1,000       1,000  

Deferred offering costs

    —         1,784       1,784  

Other assets

    2       14       14  
 

 

 

   

 

 

   

 

 

 

Total assets

  $ 98,139     $ 81,454     $ 81,454  
 

 

 

   

 

 

   

 

 

 

Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ Deficit

     

Current liabilities:

     

Accounts payable

  $ 2,845     $ 3,215     $ 3,215  

Accrued expenses and other current liabilities

    6,336       9,843       9,843  

Deferred revenue

    6,781       9,837       9,837  

Deferred rent

    245       489       489  
 

 

 

   

 

 

   

 

 

 

Total current liabilities

    16,207       23,384       23,384  

Deferred revenue, non-current

    58,150       72,268       72,268  

Deferred rent, non-current

    2,217       4,599       4,599  
 

 

 

   

 

 

   

 

 

 

Total liabilities

    76,574       100,251       100,251  
 

 

 

   

 

 

   

 

 

 

Commitments and contingencies (Note 15)

     

Redeemable convertible preferred stock (Series A and A-1), $0.0001 par value; 37,100,000 shares authorized, issued and outstanding at December 31, 2016 and 2017; aggregate liquidation preference of $48,600 at December 31, 2017; no shares issued and outstanding, pro forma at December 31, 2017 (unaudited)

    48,477       48,517       —    
 

 

 

   

 

 

   

 

 

 

Stockholders’ deficit:

     

Common stock, $0.0001 par value; 53,000,000 shares authorized at December 31, 2016 and 2017; 5,278,396 and 5,909,996 shares issued and outstanding at December 31, 2016 and 2017, respectively; 43,009,996 shares issued and outstanding, pro forma at December 31, 2017 (unaudited)

    —         1       4  

Additional paid-in capital

    2,040       6,876       55,390  

Note receivable from officer

    (31     —         —    

Accumulated other comprehensive loss

    (353     (246     (246

Accumulated deficit

    (28,568     (73,945     (73,945
 

 

 

   

 

 

   

 

 

 

Total stockholders’ deficit

    (26,912     (67,314     (18,797
 

 

 

   

 

 

   

 

 

 

Total liabilities, redeemable convertible preferred stock and stockholders’ deficit

  $ 98,139     $ 81,454     $ 81,454  
 

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-3


Table of Contents

SURFACE ONCOLOGY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except share and per share amounts)

 

     Year Ended December 31,  
     2016     2017  
        

Collaboration revenue(1)

   $ 6,632     $ 12,826  
  

 

 

   

 

 

 

Operating expenses:

    

Research and development

     20,492       47,783  

General and administrative

     4,144       11,033  
  

 

 

   

 

 

 

Total operating expenses

     24,636       58,816  
  

 

 

   

 

 

 

Loss from operations

     (18,004     (45,990

Interest and other income (expense), net

     551       613  
  

 

 

   

 

 

 

Net loss

     (17,453     (45,377

Accretion of redeemable convertible preferred stock to redemption value

     (41     (40
  

 

 

   

 

 

 

Net loss attributable to common stockholders

   $ (17,494   $ (45,417
  

 

 

   

 

 

 

Net loss per share attributable to common stockholders—basic and diluted

   $ (3.32   $ (8.34
  

 

 

   

 

 

 

Weighted average common shares outstanding—basic and diluted

     5,266,614       5,444,583  
  

 

 

   

 

 

 

Pro forma net loss per share attributable to common stockholders—basic and diluted (unaudited)

     $ (1.07
    

 

 

 

Pro forma weighted average common shares outstanding—basic and diluted (unaudited)

       42,544,583  
    

 

 

 

Comprehensive loss:

    

Net loss

   $ (17,453   $ (45,377

Other comprehensive loss:

    

Unrealized gain (loss) on marketable securities, net of tax of $0

     (353     107  
  

 

 

   

 

 

 

Comprehensive loss

   $ (17,806   $ (45,270
  

 

 

   

 

 

 

 

(1) Consists of revenue from a related party. See Note 16.

The accompanying notes are an integral part of these consolidated financial statements.

 

F-4


Table of Contents

SURFACE ONCOLOGY, INC.

CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT

(In thousands, except share amounts)

 

    Series A and A-1
Redeemable
Convertible Preferred
Stock
    Common Stock     Additional
Paid-in
Capital
    Note
Receivable
From
Officer
    Accumulated
Other
Comprehensive
Loss
    Accumulated
Deficit
    Total
Stockholders’

Deficit
 
    Shares     Amount     Shares     Amount            

Balances at December 31, 2015

    22,564,286     $ 22,498       5,250,396     $ —       $ 706     $ (31   $ —       $ (11,115   $ (10,440

Issuance of Series A redeemable convertible preferred stock, net of issuance costs of $4

    12,535,714       12,531       —         —         —         —         —         —         —    

Issuance of Series A-1 redeemable convertible preferred stock, net of issuance costs of $93

    2,000,000       13,407       —         —         —         —         —         —         —    

Issuance of common stock upon exercise of stock options

    —         —         28,000       —         4       —         —         —         4  

Vesting of restricted common stock

    —         —         —         —         26       —         —         —         26  

Stock-based compensation expense

    —         —         —         —         1,345       —         —         —         1,345  

Accretion of redeemable convertible preferred stock to redemption value

    —         41       —         —         (41     —         —         —         (41

Unrealized loss on marketable securities

    —         —         —         —         —         —         (353     —         (353

Net loss

    —         —         —         —         —         —         —         (17,453     (17,453
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances at December 31, 2016

    37,100,000       48,477       5,278,396       —         2,040       (31     (353     (28,568     (26,912

Issuance of common stock upon exercise of stock options

    —         —         631,600       1       101       —         —         —         102  

Vesting of restricted common stock

    —         —         —         —         35       —         —           35  

Stock-based compensation expense

    —         —         —         —         4,709       —         —         —         4,709  

Collection of note receivable from officer

    —         —         —         —         31       31       —         —         62  

Accretion of redeemable convertible preferred stock to redemption value

    —         40       —         —         (40     —         —         —         (40

Unrealized gain on marketable securities

    —         —         —         —         —         —         107       —         107  

Net loss

    —         —         —         —         —         —         —         (45,377     (45,377
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances at December 31, 2017

    37,100,000     $ 48,517       5,909,996     $ 1     $ 6,876     $ —       $ (246   $ (73,945   $ (67,314
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-5


Table of Contents

SURFACE ONCOLOGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, except share amounts)

 

     Year Ended
December 31,
 
         2016             2017      

Cash flows from operating activities:

    

Net loss

   $ (17,453   $ (45,377

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

    

Depreciation and amortization expense

     331       964  

Stock-based compensation expense

     1,345       4,709  

Premiums paid on marketable securities

     (1,841     —    

Net amortization of premiums and discounts on marketable securities

     477       516  

Realized (gains) losses on marketable securities

     (13     2  

Loss on disposal of property and equipment

     —         35  

Changes in operating assets and liabilities:

    

Amounts due from related party

     (5,000     5,000  

Prepaid expenses and other current assets

     (8,549     1,088  

Other assets

     41       (12

Accounts payable

     1,800       285  

Accrued expenses and other current liabilities

     5,430       2,945  

Deferred rent

     (86     249  

Deferred revenue

     64,931       17,174  
  

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     41,413       (12,422
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Purchases of property and equipment

     (836     (1,973

Purchases of marketable securities

     (97,048     —    

Proceeds from sales or maturities of marketable securities

     28,916       27,891  

Increase in restricted cash

     (1,000     —    
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     (69,968     25,918  
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Proceeds from issuances of redeemable convertible preferred stock, net of issuance costs

     25,938       —    

Payments of initial public offering costs

     —         (1,200

Collection of note receivable from officer

     —         62  

Proceeds from exercise of stock options

     4       102  
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     25,942       (1,036
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     (2,613     12,460  

Cash and cash equivalents at beginning of period

     12,608       9,995  
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 9,995     $ 22,455  
  

 

 

   

 

 

 

Supplemental disclosure of cash flow information:

    

Cash paid for income taxes (Note 6)

   $ 7,673     $ 3,297  

Supplemental disclosure of non-cash investing and financing activities:

    

Accretion of redeemable convertible preferred stock to redemption value

   $ 41     $ 40  

Purchases of property and equipment included in accounts payable and accrued expenses

   $ 352     $ 450  

Deferred offering costs included in accrued expenses

   $ —       $ 584  

Reclassification of restricted cash from non-current assets to current assets

   $ —       $ 85  

Reclassification of deposit liability for restricted stock upon vesting of shares

   $ 26     $ 35  

Landlord incentives for construction of leasehold improvements recorded as deferred rent

   $ 2,426     $ 2,377  

The accompanying notes are an integral part of these consolidated financial statements.

 

F-6


Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

 

1. Nature of the Business

Surface Oncology, Inc. (the “Company” or “Surface”) is a clinical-stage immuno-oncology company focused on using its specialized knowledge of the biological pathways critical to the immunosuppressive tumor microenvironment (“TME”) for the development of next-generation cancer therapies. Surface was incorporated in April 2014 under the laws of the State of Delaware.

The Company is subject to risks common to early-stage companies in the biotechnology industry including, but not limited to, development by competitors of new technological innovations, protection of proprietary technology, dependence on key personnel, compliance with government regulations and the ability to obtain additional financing to fund operations. Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval, prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel infrastructure and extensive compliance-reporting capabilities. Even if the Company’s development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.

The Company’s financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the ordinary course of business. The Company has primarily funded its operations with proceeds from the sales of redeemable convertible preferred stock and proceeds from a collaboration agreement with Novartis Institutes for BioMedical Research, Inc. (“Novartis”). The Company has incurred losses and negative cash flows from operations since its inception, including net losses of $17,453 and $45,377 for the years ended December 31, 2016 and 2017. As of December 31, 2017, the Company had an accumulated deficit of $73,945. The Company expects that its operating losses and negative cash flows will continue for the foreseeable future. As of March 5, 2018, the issuance date of the consolidated financial statements for the year ended December 31, 2017, the Company expects that its cash, cash equivalents and marketable securities, including a $45,000 milestone payment received in February 2018 from Novartis (see Note 18), will be sufficient to fund its operating expenses and capital expenditure requirements through at least the first quarter of 2019. The future viability of the Company beyond that date is dependent on its ability to raise additional capital to finance its operations.

The Company is seeking to complete an initial public offering of its common stock. Upon the closing of a qualified public offering on specified terms, the Company’s outstanding redeemable convertible preferred stock will automatically convert into shares of common stock (see Note 9).

In the event the Company does not complete an initial public offering, the Company will seek additional funding through private financings, debt financings, collaboration agreements, strategic alliances and licensing arrangements. The Company may not be able to obtain financing on acceptable terms, or at all, and the Company may not be able to enter into collaborations or other arrangements. The terms of any financing may adversely affect the holdings or the rights of the Company’s stockholders. If the Company is unable to obtain funding, the Company could be required to delay, reduce or eliminate research and development programs, product portfolio expansion or future commercialization efforts, which could adversely affect its business prospects.

Although management continues to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient funding on terms acceptable to the Company to fund continuing operations, if at all.

 

F-7


Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

 

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company and its wholly owned subsidiary, Surface Securities Corporation, after elimination of all intercompany accounts and transactions.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting periods. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, revenue recognition, the accrual of research and development expenses and the valuation of common stock and stock-based awards. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from the Company’s estimates.

Unaudited Pro Forma Information

The accompanying unaudited pro forma consolidated balance sheet as of December 31, 2017 has been prepared to give effect, upon the closing of an initial public offering, to the automatic conversion of all outstanding shares of redeemable convertible preferred stock into 37,100,000 shares of common stock as if the proposed initial public offering had occurred on December 31, 2017.

In the accompanying consolidated statements of operations, unaudited pro forma basic and diluted net loss per share attributable to common stockholders for the year ended December 31, 2017 have been prepared to give effect, upon the closing of an initial public offering, to the automatic conversion of all outstanding shares of redeemable convertible preferred stock into shares of common stock as if the proposed initial public offering had occurred on the later of January 1, 2017 or the issuance date of the redeemable convertible preferred stock.

Cash Equivalents

The Company considers all short-term, highly liquid investments with original maturities of 90 days or less at the acquisition date to be cash equivalents. Cash equivalents, which consist of money market funds are stated at fair value.

Marketable Securities

Marketable securities consist of investments with original maturities greater than 90 days at their acquisition date. The Company has classified its investments with maturities beyond one year as current, based on their highly liquid nature and because such marketable securities represent the investment of cash that is available for current operations.

The Company classifies all of its marketable securities as available-for-sale securities. The Company’s marketable securities are measured and reported at fair value using quoted prices in active

 

F-8


Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

 

markets for similar securities. Unrealized gains and losses on available-for-sale securities are reported as accumulated other comprehensive loss, which is a separate component of stockholders’ deficit. The cost of securities sold is determined on a specific identification basis, and realized gains and losses are included in interest and other income (expense), net in the consolidated statements of operations and comprehensive loss.

The Company evaluates its marketable securities with unrealized losses for other-than-temporary impairment. When assessing marketable securities for other-than-temporary declines in value, the Company considers such factors as, among other things, how significant the decline in value is as a percentage of the original cost, how long the market value of the investment has been less than its original cost, the Company’s ability and intent to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair value and market conditions in general. If any adjustment to fair value reflects a decline in the value of the investment that the Company considers to be “other than temporary,” the Company reduces the investment to fair value through a charge to the statement of operations and comprehensive loss. No such adjustments were necessary during the periods presented.

Restricted Cash

At December 31, 2016 and 2017, restricted cash consisted of cash deposited in a separate bank account as collateral for the Company’s facilities lease obligations. At December 31, 2016, $1,085 of restricted cash was classified as non-current. At December 31, 2017, $85 and $1,000 of restricted cash was classified as current and non-current, respectively.

Concentration of Credit Risk and of Significant Suppliers

Financial instruments that potentially expose the Company to concentrations of credit risk primarily consist of cash, cash equivalents, marketable securities and amounts due from related party. The Company maintains its cash, cash equivalents and marketable securities at one accredited financial institution in amounts that exceed federally insured limits. The Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.

Amounts due from related party consist of payments due from the Company’s collaborator. The Company monitors economic conditions to identify facts or circumstances that may indicate if such amount due is at risk of collection. There was no allowance for doubtful accounts recorded at December 31, 2016 and 2017.

The Company is dependent on third-party manufacturers to supply products for research and development activities of its programs, including preclinical testing. These programs could be adversely affected by a significant interruption in the supply of such drug substance products.

Fair Value of Financial Instruments

Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must

 

F-9


Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

 

maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

 

    Level 1—Quoted prices in active markets for identical assets or liabilities.

 

    Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

 

    Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

The Company’s cash equivalents and marketable securities are carried at fair value, determined according to the fair value hierarchy described above (see Note 4). The carrying values of the Company’s amounts due from related party, accounts payable, accrued expenses and other current liabilities approximate their fair values due to the short-term nature of these assets and liabilities.

Deferred Offering Costs

The Company capitalizes certain legal, professional accounting and other third-party fees that are directly associated with in-process equity financings as deferred offering costs (non-current) until such financings are consummated. After consummation of the equity financing, these costs are recorded in stockholders’ deficit as a reduction of additional paid-in capital generated as a result of the offering. Should the planned equity financing be abandoned, the deferred offering costs will be expensed immediately as a charge to operating expenses in the statement of operations and comprehensive loss. The Company did not record any deferred offering costs as of December 31, 2016. Deferred offering costs totaled $1,784 at December 31, 2017.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization expense is recognized using the straight-line method over the useful life of the asset. Laboratory equipment is depreciated over five years. Computer equipment and furniture and office equipment are depreciated over three years. Leasehold improvements are amortized over the shorter of the lease term or 10 years. Expenditures for repairs and maintenance of assets are charged to expense as incurred. Upon retirement or sale, the cost and related accumulated depreciation and amortization of assets disposed of are removed from the accounts, and any resulting gain or loss is included in loss from operations.

Impairment of Long-Lived Assets

Long-lived assets consist of property and equipment. Long-lived assets to be held and used are tested for recoverability whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends and significant changes or

 

F-10


Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

 

planned changes in the use of the assets. If an impairment review is performed to evaluate a long-lived asset group for recoverability, the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived asset group to its carrying value. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of an asset group are less than its carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset group over its fair value, determined based on discounted cash flows. To date, the Company has not recorded any impairment losses on long-lived assets.

Revenue Recognition

The Company recognizes revenue from license and collaboration agreements in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 605, Revenue Recognition (“ASC 605”). Accordingly, revenue is recognized when all of the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the seller’s price to the buyer is fixed or determinable, and collectibility is reasonably assured.

When evaluating multiple-element arrangements, the Company considers whether the deliverables under the arrangement represent separate units of accounting. This evaluation requires subjective determinations and requires management to make judgments about the individual deliverables and whether such deliverables are separable from the other aspects of the contractual relationship. In determining the units of accounting, management evaluates certain criteria, including whether the deliverables have standalone value, based on the consideration of the relevant facts and circumstances for each arrangement. The consideration to be received under each arrangement is allocated to the separate units of accounting using the relative selling price method, and the applicable revenue recognition criteria are applied to each of the separate units. Deliverables are considered separate units of accounting provided that (i) the delivered item has value to the customer on a standalone basis and (ii) if the arrangement includes a general right of return with respect to the delivered item, delivery or performance of the undelivered items is considered probable and substantially within the control of the Company. In assessing whether an item has standalone value, the Company considers factors such as the research, manufacturing and commercialization capabilities of the collaboration partner and the availability of the associated expertise in the general marketplace. In addition, the Company considers whether the collaboration partner can use the deliverable for its intended purpose without the receipt of the remaining deliverables, whether the value of the deliverable is dependent on the undelivered items, and whether there are other vendors that can provide the undelivered items.

Arrangement consideration that is fixed or determinable is allocated among the separate units of accounting using the relative selling price method. Then, the applicable revenue recognition criteria in ASC 605-25 are applied to each of the separate units of accounting in determining the appropriate period and pattern of recognition. The Company determines the selling price of a unit of accounting following the hierarchy of evidence prescribed by ASC 605-25. Accordingly, the Company determines the estimated selling price for units of accounting within each arrangement using vendor specific objective evidence (“VSOE”) of selling price, if available; third party evidence (“TPE”) of selling price, if VSOE is not available; or best estimate of selling price (“BESP”), if neither VSOE nor TPE is available. The Company typically uses BESP to estimate the selling price since it generally does not have VSOE

 

F-11


Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

 

or TPE of selling price for its units of accounting. Determining the BESP for a unit of accounting requires significant judgment. In developing the BESP for a unit of accounting, the Company considers applicable market conditions and relevant entity specific factors, including factors that were contemplated in negotiating the agreement with the customer and estimated costs. The Company validates the BESP for units of accounting by evaluating whether changes in the key assumptions used to determine the BESP will have a significant effect on the allocation of arrangement consideration between multiple units of accounting.

The Company recognizes arrangement consideration allocated to each unit of accounting when all of the revenue recognition criteria in ASC 605 are satisfied for that particular unit of accounting. In the event that a deliverable does not represent a separate unit of accounting, the Company recognizes revenue from the combined unit of accounting over the contractual or estimated performance period for the undelivered items. If there is no discernable pattern of performance or objectively measurable performance measures do not exist, then the Company recognizes revenue under the arrangement on a straight-line basis over the period the Company is expected to complete its performance obligations. Conversely, if the pattern of performance over which the service is provided to the customer can be determined and if objectively measurable performance measures exist, then the Company recognizes revenue under the arrangement using the proportional performance method. Revenue recognized is limited to the lesser of the cumulative amount of payments received or the cumulative amount of revenue earned, as determined using the straight-line method or proportional performance method, as applicable, as of the end of each reporting period.

Significant management judgment is required in determining the level of effort required under an arrangement and the period over which the Company expects to complete its performance obligations under an arrangement. Steering committee services that are not inconsequential or perfunctory and that are determined to be performance obligations are combined with other research services or performance obligations required under an arrangement, if any, in determining the level of effort required in an arrangement and the period over which the Company expects to complete its aggregate performance obligations.

At the inception of an arrangement that includes options for a customer to purchase additional licenses at agreed upon prices in the future, the Company evaluates whether each option is substantive. Factors that the Company considers in evaluating whether an option is substantive include the overall objective of the arrangement, if the exercise of that option represents a separate buying decision, and if the services or products subject to the option are essential to the functionality of the current deliverables. When a license option is considered substantive, the Company does not consider the option or item underlying the option to be a deliverable at the inception of the arrangement, and the associated option fees are not included in the allocable arrangement consideration, assuming the option is not priced at a significant and incremental discount. When an option is not considered substantive, the Company would consider the option, including other deliverables contingent upon the exercise of the option, to be a deliverable at the inception of the arrangement and a corresponding amount would be included in the allocable arrangement consideration. In addition, if the price of the license option includes a significant incremental discount, the discount inherent in the option price would be included as a deliverable at the inception of the arrangement.

Payments received or due for the Company’s achievement of milestones are deferred and recognized as revenue over the estimated period of performance applicable to the arrangement. As any milestones are achieved, the Company will recognize as revenue a portion of the milestone

 

F-12


Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

 

payment that is equal to the percentage of the performance period completed when the milestone is achieved, multiplied by the amount of the milestone payment, upon achievement of such milestone. The Company will recognize the remaining portion of the milestone payment over the remaining performance period under either the proportional performance method, if a pattern of performance is discernable, or on a straight-line basis.

Royalty revenue, if any, is recognized based on contractual terms when reported sales are reliably measurable and collectibility is reasonably assured, provided that there are no performance obligations then remaining. To date, none of the Company’s product candidates have been approved and, therefore, the Company has not earned any royalty revenue from product sales.

In the event that the agreement were to be terminated and the Company had no further performance obligations at that time, the Company would recognize as revenue any portion of the upfront payment and other payments that had not previously been recorded as revenue and were classified as deferred revenue at the date of such termination.

Amounts received prior to satisfying the revenue recognition criteria listed above are recorded as deferred revenue in the Company’s consolidated balance sheets. Amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as current deferred revenue. Amounts not expected to be recognized as revenue within 12 months of the balance sheet date are classified as non-current deferred revenue.

Research and Development Costs

Research and development costs are expensed as incurred. Research and development expenses include salaries, stock-based compensation and benefits of employees, third-party license fees and other operational costs related to the Company’s research and development activities, including allocated facility-related expenses and external costs of outside vendors engaged to conduct both preclinical studies and clinical trials.

Research Contract Costs and Accruals

The Company has entered into various research and development contracts with research institutions and other companies. These agreements are generally cancelable, and related payments are recorded as research and development expenses as incurred. The Company records accruals for estimated ongoing research costs. When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of the studies, including the phase or completion of events, invoices received and contracted costs. Significant judgments and estimates are made in determining the accrued balances at the end of any reporting period. Actual results could differ from the Company’s estimates. The Company’s historical accrual estimates have not been materially different from the actual costs.

Nonrefundable prepayments for goods or services that will be used or rendered for future research and development activities are deferred and capitalized. Such amounts are recognized as an expense as the goods are delivered or the related services are performed, or until it is no longer expected that the goods will be delivered or the services rendered.

Patent Costs

All patent-related costs incurred in connection with filing and prosecuting patent applications are expensed as incurred due to the uncertainty about the recovery of the expenditure. Amounts incurred

 

F-13


Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

 

are classified as general and administrative expenses in the accompanying statements of operations and comprehensive loss.

Stock-Based Compensation

The Company measures all stock options and other stock-based awards granted to employees and directors based on the fair value on the date of the grant and recognizes compensation expense of those awards, over the requisite service period, which is generally the vesting period of the respective award. Generally, the Company issues stock options and restricted stock awards with only service-based vesting conditions and records the expense for these awards using the straight-line method.

The Company measures stock-based awards granted to non-employee consultants based on the fair value of the award on the date on which the related service is complete. Compensation expense is recognized over the period during which services are rendered by such consultants and non-employees until completed. At the end of each reporting period prior to completion of the service, the fair value of these awards is remeasured using the then-current fair value of the Company’s common stock and updated assumption inputs in the Black-Scholes option-pricing model.

The Company classifies stock-based compensation expense in its statement of operations and comprehensive loss in the same manner in which the award recipient’s payroll costs are classified or in which the award recipients’ service payments are classified.

The fair value of each stock option grant is estimated using the Black- Scholes option-pricing model. The Company has historically been a private company and lacks company-specific historical and implied volatility information. Therefore, it estimates its expected stock volatility based on the historical volatility of a publicly traded set of peer companies. The expected term of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options. The expected term of stock options granted to non-employees is equal to the contractual term of the option award. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.

Segment Data

The Company manages its operations as a single segment for the purposes of assessing performance and making decisions. The Company’s singular focus is using its specialized knowledge of the biological pathways critical to the TME for the development of next-generation cancer therapies. All of the Company’s tangible assets are held in the United States, and all collaboration revenue is derived from the Company’s collaboration partner in the United States.

Income Taxes

The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the financial statements or in the Company’s tax returns. Deferred taxes are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse.

 

F-14


Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

 

Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. The Company assesses the likelihood that its deferred tax assets will be and, to the extent it believes, based upon the weight of available evidence, that it is more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense. Potential for recovery of deferred tax assets is evaluated by analyzing carryback capacity in periods with taxable income, reversal of existing taxable temporary differences and estimating the future taxable profits expected and considering prudent and feasible tax planning strategies.

The Company accounts for uncertainty in income taxes recognized in the financial statements by applying a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed more-likely-than-not to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties.

Comprehensive Loss

Comprehensive loss includes net loss as well as other changes in stockholders’ deficit that result from transactions and economic events other than those with stockholders. The Company’s only element of other comprehensive loss in all periods presented was unrealized gains (losses) on marketable securities.

Net Income (Loss) per Share

The Company follows the two-class method when computing net income (loss) per share as the Company has issued shares that meet the definition of participating securities. The two-class method determines net income (loss) per share for each class of common and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires income available to common stockholders for the period to be allocated between common and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed.

Basic net income (loss) per share attributable to common stockholders is computed by dividing the net income (loss) attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period. Diluted net income (loss) attributable to common stockholders is computed by adjusting net income (loss) attributable to common stockholders to reallocate undistributed earnings based on the potential impact of dilutive securities. Diluted net income (loss) per share attributable to common stockholders is computed by dividing the diluted net income (loss) attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period, including potential dilutive common shares. For purpose of this calculation, outstanding options to purchase common stock or redeemable convertible preferred stock are considered potential dilutive common shares.

The Company’s redeemable convertible preferred stock contractually entitles the holders of such shares to participate in dividends but contractually does not require the holders of such stock to

 

F-15


Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

 

participate in losses of the Company. Accordingly, in periods in which the Company reports a net loss attributable to common stockholders, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders, since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.

Recently Adopted Accounting Pronouncements

In August 2014, the “FASB issued Accounting Standards Update (“ASU”) No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40) (“ASU 2014-15”). The amendments in this update explicitly require a company’s management to assess an entity’s ability to continue as a going concern and to provide related footnote disclosures in certain circumstances. The new standard is effective for annual periods ending after December 15, 2016 and for interim periods thereafter. The Company adopted ASU 2014-15 as of the required effective date of December 31, 2016. This guidance relates to footnote disclosure only, and its adoption had no impact on the Company’s financial position, results of operations or cash flows.

In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes (“ASU 2015-17”). ASU 2015-17 requires deferred tax liabilities and assets to be classified as non-current in the consolidated balance sheet. ASU 2015-17 is required to be adopted for annual periods beginning after December 15, 2016, including interim periods within those fiscal years. The amendment may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. The Company elected to early adopt this guidance retrospectively to all periods presented, and its adoption as of January 1, 2016 had no impact on the Company’s financial position, results of operations or cash flows.

In March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). ASU 2016-09 includes multiple provisions intended to simplify various aspects of the accounting for share-based payments, including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross share compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. The Company elected to early adopt the standard on January 1, 2016. The Company elected to account for forfeitures as they occur rather than apply an estimated forfeiture rate to share-based compensation expense. The adoption of ASU 2016-09 had no impact on the Company’s financial position, results of operations or cash flows.

Recently Issued Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which supersedes existing revenue recognition guidance under GAAP. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The standard defines a five-step process to achieve this principle, and will require companies to use more judgment and make more estimates than under the current guidance. The Company expects that these judgments and estimates will include identifying performance obligations in the customer contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. ASU 2014-09 also requires additional disclosure about the nature, amount,

 

F-16


Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

 

timing and uncertainty of revenue and cash flows arising from customer contracts. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delays the effective date of ASU 2014-09 such that the standard is effective for public entities for annual periods beginning after December 15, 2017 and for interim periods within those fiscal years. Early adoption of the standard is permitted for annual periods beginning after December 15, 2016. The FASB subsequently issued amendments to ASU No. 2014-09 that have the same effective date and transition date, all of which collectively are herein referred to as “ASC 606”.

The Company has substantially completed its assessment of the impact that ASC 606 will have on its consolidated financial statements. While its assessment is preliminary, the Company expects the adoption will have a material impact on its consolidated financial statements, in particular, related to the pattern and timing of its revenue recognition of amounts from its collaboration agreement with Novartis. Under ASC 606, the Company will recognize revenue using the cost-to-cost method, which it believes best depicts the transfer of control to the customer. In contrast, under the existing revenue recognition standard, the Company is recognizing revenue on a straight-line basis over the estimated period of performance. Under the cost-to-cost method, the extent of progress towards completion is measured based on the ratio of actual costs incurred to the total estimated costs expected upon satisfying the identified performance obligation. Under this method, revenue will be recorded as a percentage of the estimated transaction price based on the extent of progress towards completion. In addition, under ASC 606, the estimated transaction price will include variable consideration for payments expected to be earned, including for milestone payments, which, under the existing standard, the Company was precluded from including in the estimated transaction price until such payments were determinable and due. The estimate of the Company’s measure of progress and estimate of variable consideration to be included in the transaction price will be updated at each reporting date as a change in estimate. The amount of transaction price allocated to the satisfied portion of the performance obligation, based on the Company’s measure of progress, will be recognized immediately on a cumulative catch-up basis, resulting in an adjustment to revenue in the period of change. The amount related to the unsatisfied portion will be recognized as that portion is satisfied over time.

Under ASC 606, the Company will recognize revenue from its collaboration agreement with Novartis (see Note 8) earlier during the performance period as a result of applying the cost-to-cost method, in contrast to recognizing revenue on a straight-line basis over the estimated ten-year performance period under the existing standard.

The Company currently expects that under ASC 606 it will account for (i) the license it conveyed with respect to CD73 and (ii) its obligations to perform research on CD73 and other specified targets as a single performance obligation under the collaboration agreement with Novartis, just as it accounted for those items as a single unit of accounting under the existing standard. In addition, Novartis’ right to purchase exclusive options to obtain certain development, manufacturing and commercialization rights are expected to continue to be accounted for separately as they do not represent material rights, based on the criteria of ASC 606. Upon the exercise of any purchased option by Novartis, the contract promises associated with an option target would use a separate cost-to-cost model for purposes of revenue recognition under ASC 606.

The Company plans to adopt ASC 606 using the modified retrospective transition method, which will result in an adjustment to accumulated deficit in its consolidated balance sheet as of the January 1, 2018 effective date to reflect the cumulative effect of applying the standard. The Company currently expects that the cumulative-effect adjustment will result in a reduction in deferred revenue of

 

F-17


Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

 

approximately $14,000 and a corresponding decrease in accumulated deficit, each recorded as of January 1, 2018. As the modified retrospective transition method does not result in a recast of the prior year consolidated financial statements, ASC 606 requires the Company to provide additional disclosures during the year of adoption of the amount by which each financial statement line item is affected by adoption of the new standard and explanations of the reasons for significant changes.

In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”). ASU 2016-02 will require lessees to recognize most leases on their balance sheet as a right-of-use asset and a lease liability. Leases will be classified as either operating or finance, and classification will be based on criteria similar to current lease accounting, but without explicit bright lines. The guidance is effective for annual reporting periods beginning after December 15, 2018 and interim periods within those fiscal years, and early adoption is permitted. The Company is currently evaluating the impact that the adoption of ASU 2016-02 will have on its consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), to address diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The standard is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. The Company will adopt ASU 2016-15 as of the required effective date of January 1, 2018 and will reflect the adoption retrospectively to all periods presented. The Company does not expect that the adoption of ASU 2016-15 will have any impact on its consolidated financial statements.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230) (“ASU 2016-18”), which requires that amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years and should be applied using a retrospective transition method to each period presented. Early adoption is permitted. The Company will adopt ASU 2016-18 as of the required effective date of January 1, 2018 and will reflect the adoption retrospectively to all periods presented. Upon adoption, the Company’s consolidated statements of cash flows will include restricted cash with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on such statements.

In May 2017, the FASB issued ASU No. 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017-09”), which clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. The standard is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The Company will adopt ASU 2017-09 as of the required effective date of January 1, 2018. The adoption of ASU 2017-09 will have an impact on the accounting for the modification of stock-based awards, if any, after the date of adoption.

In July 2017, the FASB issued ASU 2017-11, Earnings Per Share, Distinguishing Liabilities from Equity, Derivatives and Hedging—(Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial

 

F-18


Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

 

Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception (“ASU 2017-11”). This guidance is intended to reduce the complexity associated with accounting for certain financial instruments with characteristics of liabilities and equity. Specifically, a down round feature would no longer cause a freestanding equity-linked financial instrument (or an embedded conversion option) to be considered “not indexed to an entity’s own stock” and therefore accounted for as a derivative liability at fair value with changes in fair value recognized in current earnings. Down round features are most often found in warrants and conversion options embedded in debt or preferred equity instruments. In addition, the guidance re-characterized the indefinite deferral of certain provisions on distinguishing liabilities from equity to a scope exception with no accounting effect. This guidance becomes effective January 1, 2019. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of ASU 2017-11 will have on its consolidated financial statements.

 

3. Marketable Securities

As of December 31, 2016, the fair value of available-for-sale marketable securities by type of security was as follows:

 

     December 31, 2016  
     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Fair
Value
 

Marketable securities:

          

U.S. government agency bonds

   $ 16,777      $ —        $ (55   $ 16,722  

Corporate bonds

     52,732        —          (298     52,434  
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 69,509      $ —        $ (353   $ 69,156  
  

 

 

    

 

 

    

 

 

   

 

 

 

The amortized cost and fair value of the Company’s available-for-sale securities by contractual maturity are summarized as follows:

 

     December 31, 2016  
     Amortized Cost      Fair Value  

Maturing in one year or less

   $ 25,863      $ 25,835  

Maturing after one year but less than two years

     30,163        30,008  

Maturing after two years but less than three years

     13,483        13,313  
  

 

 

    

 

 

 
   $ 69,509      $ 69,156  
  

 

 

    

 

 

 

As of December 31, 2017, the fair value of available-for-sale marketable securities by type of security was as follows:

 

     December 31, 2017  
     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Fair
Value
 

Marketable securities:

          

U.S. government agency bonds

   $ 7,300      $ —        $ (38   $ 7,262  

Corporate bonds

     33,800        —          (208     33,592  
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 41,100      $ —        $ (246   $ 40,854  
  

 

 

    

 

 

    

 

 

   

 

 

 

 

F-19


Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

 

The amortized cost and fair value of the Company’s available-for-sale securities by contractual maturity are summarized as follows:

 

     December 31, 2017  
     Amortized Cost      Fair Value  

Maturing in one year or less

   $ 27,769      $ 27,672  

Maturing after one year but less than two years

     13,331        13,182  
  

 

 

    

 

 

 
   $ 41,100      $ 40,854  
  

 

 

    

 

 

 

The cost of securities sold is determined based on the specific identification method for purposes of recording realized gains and losses. During the years ended December 31, 2016 and 2017, realized gains (losses) on sales of marketable securities were $13 and ($2), respectively. There were no marketable securities that required adjustment for other-than-temporary declines in fair value during the years ended December 31, 2016 and 2017.

The aggregate fair value of securities held by the Company in an unrealized loss position for less than twelve months as of December 31, 2016 and 2017 was $24,660 and $27,672, respectively. The aggregate fair value of securities held by the Company in an unrealized loss position for more than twelve months as of December 31, 2016 and 2017 was $43,321 and $13,182, respectively. The Company determined that there was no material change in the credit risk of these investments. As a result, the Company determined it did not hold any investments with an other-than-temporary decline in fair value as of December 31, 2016 and 2017.

 

4. Fair Value of Financial Assets

The following tables present information about the Company’s financial assets that are measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values:

 

     Fair Value Measurements as of
December 31, 2016 using:
 
     Level 1      Level 2      Level 3      Total  

Cash equivalents:

           

Money market funds

   $ 2,643      $ —        $ —        $ 2,643  

Marketable securities:

           

U.S. government agency bonds

     —          16,722          —          16,722  

Corporate bonds

     —          52,434          —          52,434  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 2,643      $ 69,156      $ —        $ 71,799  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Fair Value Measurements as of
December 31, 2017 using:
 
     Level 1      Level 2      Level 3      Total  

Cash equivalents:

           

Money market funds

   $ 17,409      $ —        $ —        $ 17,409  

Marketable securities:

           

U.S. government agency bonds

     —          7,262        —          7,262  

Corporate bonds

     —          33,592        —          33,592  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 17,409      $ 40,854      $ —        $ 58,263  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

F-20


Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

 

As of December 31, 2016 and 2017, the Company’s cash equivalents were invested in money market funds and were valued based on Level 1 inputs. As of December 31, 2016 and 2017, the Company’s marketable securities consisted of U.S. government agency bonds and corporate bonds and were valued based on Level 2 inputs. In determining the fair value of its U.S. government agency bonds and corporate bonds, the Company relied on quoted prices for similar securities in active markets or other inputs that are observable or can be corroborated by observable market data. During the years ended December 31, 2016 and 2017, there were no transfers between Level 1, Level 2 and Level 3.

 

5. Property and Equipment, Net

Property and equipment, net consisted of the following:

 

     December 31,  
     2016      2017  

Laboratory equipment

   $ 1,121      $ 2,469  

Leasehold improvements

     225        5,472  

Computer equipment

     104        133  

Furniture and office equipment

     59        646  

Construction in progress

     2,846        13  
  

 

 

    

 

 

 
     4,355        8,733  

Less: Accumulated depreciation and amortization

     (478      (1,407
  

 

 

    

 

 

 
   $ 3,877      $ 7,326  
  

 

 

    

 

 

 

For the year ended December 31, 2016 and 2017, depreciation and amortization expense was $331 and $964, respectively.

During the year ended December 31, 2017, the Company recorded a loss on disposal of property and equipment of $35. No gain or loss was recorded on the disposal of property and equipment during the year ended December 31, 2016.

 

6. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following:

 

     December 31,  
     2016      2017  

Prepaid income taxes

   $ 7,673      $ 6,657  

Prepaid expenses

     985        1,005  

Interest receivable on marketable securities

     366        274  
  

 

 

    

 

 

 
   $ 9,024      $ 7,936  
  

 

 

    

 

 

 

Prepaid income taxes consist of amounts receivable under refund claims filed with the Internal Revenue Service and state taxing authorities as well as tax amounts prepaid prior to the Company’s decision to change its tax accounting method for advance payments from customers (see Note 14).

 

F-21


Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

 

7. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following:

 

     December 31,  
     2016      2017  

Accrued external research and development costs

   $ 1,425      $ 3,005  

Amounts due to related party (Note 16)

     3,437        3,437  

Accrued payroll and payroll-related costs

     1,022        1,955  

Accrued professional fees

     342        874  

Other

     110        572  
  

 

 

    

 

 

 
   $ 6,336      $ 9,843  
  

 

 

    

 

 

 

Accrued payroll and payroll-related costs at December 31, 2017 included $187 of severance costs associated with the termination of an executive officer in September 2017, payments of which will be made through June 2018.

 

8. Collaboration Agreement with Novartis

Overview

In January 2016, the Company entered into a collaboration agreement with Novartis, which was subsequently amended in May 2016, July 2017 and September 2017 (the “Novartis Collaboration”). Pursuant to the Novartis Collaboration, the Company granted Novartis a worldwide exclusive license to research, develop, manufacture and commercialize antibodies that target CD73, along with the right to purchase exclusive option rights (each an “Option”) for up to four specified targets (each an “Option Target”) to obtain certain development, manufacturing and commercialization rights. Novartis may exercise up to three purchased Options. Under the Novartis Collaboration, Novartis has the ability to exclusively license the development and manufacturing rights for up to four targets (inclusive of CD73), while the Company retains the U.S. commercial rights to two of such targets. The Novartis Collaboration is governed by a joint steering committee that will be co-chaired by a chairperson designated by each of the Company and Novartis.

Novartis is a related party (see Note 16).

Research on Targets

Under the Novartis Collaboration, the Company is responsible for performing preclinical research through the first investigational new drug application (“IND”) acceptance on antibodies that bind to CD73 and each Option Target, pursuant to a research plan directed toward each target. The Company is responsible for all costs and expenses incurred by or on its behalf in connection with such research. Novartis also has the right, but not the obligation, to conduct research at its own cost on antibodies that bind to CD73 in accordance with the terms of the Novartis Collaboration.

Development and Commercialization of CD73 Products

Novartis has the sole right to develop and commercialize CD73 antibody candidates and corresponding licensed products worldwide pursuant to a development plan and a commercialization

 

F-22


Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

 

plan, respectively. Novartis is obligated to use commercially reasonable efforts to develop the CD73 antibody candidates and corresponding licensed products, to obtain regulatory approval of such products, including within certain defined markets, and to commercialize such products following regulatory approval. Novartis is responsible for all costs and expenses of such development and commercialization and is obligated to provide the Company with updates on its development and commercialization activities through the joint steering committee, joint development committee and joint commercialization committee.

Option Targets

Prior to filing an IND for an Option Target, Novartis may purchase the Option to obtain certain development, manufacturing and commercialization rights for antibodies that bind to each of the Option Targets. To the extent Novartis does not elect to purchase an Option to an Option Target, the Option for such Option Target will expire and all rights to such Option Target under the Novartis Collaboration will terminate. Novartis may exercise up to a total of three purchased Options. Each exercised Option will be designated as either a regional or global option, with each such designation determining the development and commercialization rights between the parties with respect to such Option Target, corresponding antibody candidates and licensed products, as summarized below. The Company has the ability to designate the first Option as either regional or global and one of the remaining two Options, with Novartis designating the other remaining Option. Following Novartis’ exercise of an Option with respect to an Option Target, the Company will grant to Novartis licenses that are necessary to effectuate the development, manufacturing or commercialization rights associated with a regional or global option, as described below.

In December 2016, Novartis purchased the Option for antibodies that bind to CD47, and as of December 31, 2016 and 2017, there were three remaining Options that may be purchased by Novartis. In March 2018 (unaudited), Novartis notified the Company of its decision to not exercise its Option related to CD47 (see Note 19).

Development and Commercialization of Regional Licensed Products

To the extent an exercised Option is designated as regional, the Company is primarily responsible for the early clinical development of each corresponding regional antibody candidate and regional licensed product at its own cost. Unless the Company chooses to opt out of its development right, it will collaborate with Novartis on the further clinical development of regional antibody candidates and regional licensed products. Pursuant to a regional development plan for each regional licensed product, the Company will be responsible for development activities related to obtaining regulatory approval in the United States, with Novartis responsible for development activities related to obtaining regulatory approval elsewhere in the world. The development costs of such later clinical development activities will be split evenly among the parties. Thereafter, the Company is responsible for the commercialization of regional licensed products in the United States, and Novartis is responsible for the commercialization of regional licensed products outside of the United States, each pursuant to a commercialization plan. Each party must use commercially reasonable efforts to commercialize such products within their respective territories. The Company is obligated to work with Novartis to agree to a global commercialization strategy with respect to the regional licensed products prior to commercialization.

 

F-23


Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

 

Development and Commercialization of Global Licensed Products

To the extent an exercised Option is designated as global, the Company is primarily responsible for the early clinical development of each global antibody candidate and global licensed product at the Company’s own cost, and Novartis is solely responsible for the later worldwide clinical development of global antibody candidates and global licensed products, pursuant to a development plan for such global licensed product, at its own cost. Novartis is solely responsible for the worldwide commercialization of global licensed products and must use commercially reasonable efforts to commercialize such products, pursuant to a commercialization plan, at its own cost. Novartis agrees to provide the Company with development and commercialization updates regarding global licensed products through the joint steering committee, joint development committee and joint commercialization committee.

Exclusivity

Neither the Company nor Novartis may, alone or with any affiliate or third party, (i) research or develop any antibody that specifically binds to an Option Target for a specified period of time outside of the Novartis Collaboration or (ii) develop or commercialize any antibody that specifically binds to CD73 or any Option Target that subsequently becomes a licensed target for a specified period of time outside the Novartis Collaboration.

Financial Terms

Upon entering into the Novartis Collaboration in January 2016, Novartis made an upfront payment to the Company of $70,000. In addition, Novartis is obligated to pay the Company a fee to the extent it desires to purchase each Option for each Option Target and another fee to exercise such purchased Option, which entitles the Company to an aggregate of up to $92,500 in option purchase and option exercise payments, of which $5,000 had been received as of December 31, 2017. The Company is also eligible to receive payments on a target-by-target basis upon the achievement of specified development and sales milestones as well as tiered royalties on annual net sales by Novartis of licensed products ranging from high single-digit to mid-teens percentages upon successful commercialization of any products. Under the Novartis Collaboration, the maximum aggregate amount of potential option purchase, option exercise and milestone payments the Company was entitled to was up to $1,387,500, of which $35,000 had been received as of December 31, 2017. Such amount of potential option purchase, option exercise and milestone payments assumed that Novartis purchased, and exercised, all of the Options available to it pursuant to the Novartis Collaboration as well as the successful clinical development of and achievement of all sales milestones for all targets covered by the Novartis Collaboration. In February 2018, the Company received an additional milestone payment of $45,000 from Novartis (see Note 18). In March 2018 (unaudited), Novartis notified the Company of its decision not to exercise its Option related to CD47 (see Note 19). The Company is required to pay Novartis tiered royalties ranging from high single-digit to mid-teens percentages on annual net sales by the Company of regional licensed products in the United States. The royalty payments are subject to reduction under specified conditions set forth in the Novartis Collaboration.

In January 2016, the Company also received an equity investment of $13,500 from Novartis in exchange for 2,000,000 shares of the Company’s Series A-1 redeemable convertible preferred stock (“Series A-1 preferred stock”). The shares of Series A-1 preferred stock were issued at a price of $6.75 per share, which was determined by the Company to be fair value based, in part, on a third-party

 

F-24


Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

 

valuation of the Company’s Series A-1 preferred stock performed as of the stock issuance date. The equity investment of $13,500 was considered to be distinct from the Novartis Collaboration. Accordingly, the Company recorded the issuance of the Series A-1 preferred stock based on the $13,500 aggregate fair value of the Series A-1 preferred stock on the issuance date, net of issuance costs of $93 (see Note 9).

Termination

Unless terminated earlier, the Novartis Collaboration will continue in effect until neither the Company nor Novartis is researching, developing, manufacturing or commercializing any antibody candidates or licensed products under the Novartis Collaboration. Novartis may terminate the Novartis Collaboration on a target-by-target basis for any reason upon prior notice to the Company within a specified time period. However, Novartis cannot terminate the Novartis Collaboration with respect to CD73 for a certain period of time following the effective date. Either party may terminate the Novartis Collaboration in full, or on a target-by-target basis, if an undisputed material breach is not cured within a certain period of time or upon notice of insolvency of the other party. To the extent Novartis terminates for convenience, for the Company’s material breach or insolvency, Novartis will grant the Company, on mutually agreeable financial terms, an exclusive, worldwide, irrevocable, perpetual and royalty-bearing license with respect to intellectual property controlled by Novartis that is reasonably necessary to research, develop, manufacture or commercialize certain products.

Revenue Recognition Related to the Novartis Collaboration

The Company determined that the deliverables under the Novartis Collaboration included (i) the worldwide exclusive license to CD73 antibody candidates, which was delivered to Novartis in January 2016 upon entering into the agreement, and (ii) the Company’s research and development and joint steering committee participation obligations under the agreement. The Company also determined that none of these deliverables have standalone value due to the specialized nature of the services to be provided by the Company in connection with the Novartis Collaboration. Therefore, at the inception of the arrangement, the Company concluded that the deliverables were not separable and, accordingly, the Company treats the license and undelivered services as a single unit of accounting and recognizes revenue on a straight-line basis over the period that the Company expects to complete its performance obligations under the agreement, which was estimated to be ten years. Accordingly, the Company is recognizing the upfront payment of $70,000 received from Novartis, net of its estimate of aggregate payments of $3,437 to be made to Novartis for the reimbursement of manufacturing costs incurred during the CD73 research period as required by the Novartis Collaboration, over the estimated ten-year period of performance.

In May 2017, the Company received a milestone payment of $30,000 from Novartis upon initiation of the first good laboratory practice (“GLP”) toxicology study for SRF373. Upon achieving the milestone, the Company recognized as revenue $3,969, which represented the percentage of the performance period completed when the milestone was achieved, multiplied by the amount of the payment. The remaining $26,031 is being recognized as revenue on a straight-line basis over the remaining period that the Company expects to complete its performance obligations under the Novartis Collaboration, as described above.

In December 2016, Novartis purchased an exclusive option right to antibodies that bind to CD47 for $5,000. At that time, the Company concluded that license and other obligations underlying the

 

F-25


Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

 

exclusive option right held by Novartis represented separate and additional deliverables that Novartis may receive from the Company in future periods. Accordingly, in December 2016, the Company recorded $5,000 of deferred revenue (non-current) for the option purchase payment and will not commence recognizing any revenue related to the payment until either (i) Novartis elects not to exercise its option or (ii) Novartis exercises its option and the Company commences its performance obligations with respect CD47 under the arrangement. In March 2018 (unaudited), Novartis notified the Company of its decision not to exercise its option related to CD47 (see Note 19).

For the years ended December 31, 2016 and 2017, the Company recognized $6,632 and $12,826, respectively, of collaboration revenue under the Novartis Collaboration. As of December 31, 2016, deferred revenue recorded in connection with the Novartis Collaboration totaled $64,931, of which $6,781 and $58,150 were classified as current and non-current, respectively. As of December 31, 2017, deferred revenue recorded in connection with the Novartis Collaboration totaled $82,105, of which $9,837 and $72,268 were classified as current and non-current, respectively.

 

9. Redeemable Convertible Preferred Stock

As of December 31, 2016 and 2017, the Company’s certificate of incorporation, as amended and restated, authorized the Company to issue 37,100,000 shares of $0.0001 par value preferred stock.

The Company has issued Series A and Series A-1 redeemable convertible preferred stock (together, the “Redeemable Convertible Preferred Stock”). The Redeemable Convertible Preferred Stock is classified outside of stockholders’ deficit because the shares contain redemption features that are not solely within the control of the Company.

In November 2014, the Company issued 10,017,799 shares of Series A redeemable convertible preferred stock (the “Series A preferred stock”) at an issuance price of $1.00 per share for cash proceeds of $9,970, net of issuance costs of $47. At that same time, convertible promissory notes in the amount of $1,000 and accrued interest of $14 were converted into 1,013,630 shares of Series A preferred stock. The Series A preferred stock purchase agreement, as amended, provided for the issuance of up to 24,068,571 additional shares of Series A preferred stock in one or more closings upon the achievement of specified milestones, as determined by the Company’s board of directors. The Company determined that these future tranche rights did not meet the definition of a freestanding financial instrument because, while separately exercisable, they were not legally detachable. Further, the Company determined that the embedded future tranche obligation did not require bifurcation for accounting purposes as it was clearly and closely related to the economic characteristics and risks of the initial preferred stock and would not meet the definition of a derivative on a standalone basis.

In December 2015, the Company issued 11,532,857 shares of Series A preferred stock in a second closing at an issuance price of $1.00 per share for cash proceeds of $11,504, net of issuance costs of $28.

In January 2016, the Company issued 12,535,714 shares of Series A preferred stock in a third and final closing at an issuance price of $1.00 per share for cash proceeds of $12,531, net of issuance costs of $4.

In January 2016, the Company issued 2,000,000 shares of Series A-1 preferred stock at an issuance price of $6.75 per share for cash proceeds of $13,407, net of issuance costs of $93.

 

F-26


Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

 

Upon issuance of each series of Redeemable Convertible Preferred Stock, the Company assessed the embedded conversion features of the stock and determined that such features did not require the Company to separately account for such features. The Company also concluded that no beneficial conversion feature existed because the conversion price of each series of Redeemable Convertible Preferred Stock was higher than the fair values of the Company’s common stock on the respective commitment dates.

As of each balance sheet date, Redeemable Convertible Preferred Stock consisted of the following:

 

     December 31, 2016  
     Preferred
Shares
Authorized
     Preferred
Shares
Issued and
Outstanding
     Carrying
Value
     Liquidation
Preference
     Common
Stock Issuable
Upon
Conversion
 

Series A preferred stock

     35,100,000        35,100,000      $ 35,047      $ 35,100        35,100,000  

Series A-1 preferred stock

     2,000,000        2,000,000        13,430        13,500        2,000,000  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     37,100,000        37,100,000      $ 48,477      $ 48,600        37,100,000  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     December 31, 2017  
     Preferred
Shares
Authorized
     Preferred
Shares
Issued and
Outstanding
     Carrying
Value
     Liquidation
Preference
     Common
Stock Issuable
Upon
Conversion
 

Series A preferred stock

     35,100,000        35,100,000      $ 35,064      $ 35,100        35,100,000  

Series A-1 preferred stock

     2,000,000        2,000,000        13,453        13,500        2,000,000  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     37,100,000        37,100,000      $ 48,517      $ 48,600        37,100,000  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The holders of the Redeemable Convertible Preferred Stock have the following rights and preferences:

Voting Rights

The holders of Redeemable Convertible Preferred Stock are entitled to vote, together with the holders of common stock, on all matters submitted to stockholders for a vote and have the right to vote the number of shares equal to the number of shares of common stock into which such Redeemable Convertible Preferred Stock could convert on the record date for determination of stockholders entitled to vote. The holders of Redeemable Convertible Preferred Stock, exclusively and as a separate class, are entitled to elect four directors of the Company.

Dividends

The holders of Redeemable Convertible Preferred Stock are entitled to receive noncumulative dividends when and if declared by the board of directors.

The Company may not declare or pay any dividends on shares of any other class or series of capital stock of the Company unless the holders of the Redeemable Convertible Preferred Stock then outstanding first receive a dividend on each outstanding share of Redeemable Convertible Preferred

 

F-27


Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

 

Stock in an amount at least equal to (i) in the case of a dividend on common stock or any class or series of stock that is convertible into common stock, that dividend per share of Redeemable Convertible Preferred Stock as would equal the product of (A) the dividend payable on each share of such class or series determined, if applicable, as if all shares of such class or series had been converted into common stock and (B) the number of shares of common stock issuable upon conversion of each share of Redeemable Convertible Preferred Stock, or (ii) in the case of a dividend on any class or series that is not convertible into common stock, at a rate per share of Redeemable Convertible Preferred Stock determined by (A) dividing the amount of the dividend payable on each share of such class or series of capital stock by the Original Issue Price (as specified below) of such class or series of capital stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination of or other similar recapitalization affecting such shares) and (B) multiplying such fraction by an amount equal to the Original Issue Price of each series of Redeemable Convertible Preferred Stock. If the Company declares or pays on the same date a dividend on shares of more than one class or series of capital stock of the Company, the dividend payable to the holders of the Redeemable Convertible Preferred Stock will be calculated based upon the dividend on the class or series of capital stock that would result in the highest Redeemable Convertible Preferred Stock dividend. No dividends have been declared or paid by the Company through December 31, 2017.

The Original Issue Price of Series A preferred stock is $1.00 per share, and the Original Issue Price of Series A-1 preferred stock is $6.75 per share, each subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Redeemable Convertible Preferred Stock.

Liquidation Preference

In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company or Deemed Liquidation Event (as defined below), holders of Redeemable Convertible Preferred Stock are entitled to receive, prior and in preference to any distributions to the holders of common stock, an amount per share equal to (i) in the case of Series A-1 preferred stock, the greater of (A) the Series A-1 preferred stock Original Issue Price, plus any dividends declared but unpaid thereon, or (B) such amount per share as would have been payable had all shares of Series A-1 Preferred Stock been converted into common stock and (ii) in the case of the Series A preferred stock, the Series A preferred stock Original Issue Price, plus any dividends declared but unpaid thereon. In the event that proceeds are not sufficient to permit payment in full to the holders of the Redeemable Convertible Preferred Stock, the proceeds will be ratably distributed among the holders of Redeemable Convertible Preferred Stock on a pari passu basis. After payments have been made in full to the holders of Redeemable Convertible Preferred Stock, then, to the extent available, the remaining assets of the Company available for distribution to its stockholders will be distributed among the holders of Redeemable Convertible Preferred Stock and common stock pro rata based on the number of shares held by each holder, treating all securities as if they had been converted into common stock prior to any dissolution, liquidation or winding up of the Company or Deemed Liquidation Event.

Unless the holders of at least 61% of the then outstanding shares of the Redeemable Convertible Preferred Stock, voting together as a single class on an as-converted to common stock basis, elect otherwise, a Deemed Liquidation Event includes a merger or consolidation (other than one in which stockholders of the Company own a majority by voting power of the outstanding shares of the surviving

 

F-28


Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

 

or acquiring corporation) or a sale, lease, transfer, exclusive license or other disposition of all or substantially all of the assets of the Company.

Conversion

Each share of Redeemable Convertible Preferred Stock is convertible into common stock, at the option of the holder at any time, or will automatically be converted into shares of common stock, at the applicable conversion price then in effect upon (i) the closing of a firm commitment underwritten public offering with a price of at least 300% of the Series A preferred stock Original Issue Price per share resulting in proceeds of not less than $35,000, net of underwriting discounts and commissions, or (ii) upon the vote or written consent of the holders of at least 61% of the outstanding shares of the Redeemable Convertible Preferred Stock, voting together as a single class on an as-converted to common stock basis.

The conversion ratio of each series of Redeemable Convertible Preferred Stock is determined by dividing the Original Issue Price of each series by the Conversion Price of each series. As of December 31, 2016 and 2017, the Conversion Price is $1.00 per share for Series A preferred stock and $1.00 per share for Series A-1 preferred stock, each subject to adjustment as set forth in the Company’s certificate of incorporation, as amended and restated. As a result, as of December 31, 2016 and 2017, each outstanding share of Series A and A-1 preferred stock was convertible into common stock on a one-for-one basis.

Redemption Rights

At the written election of at least 61% of the holders of the outstanding Redeemable Convertible Preferred Stock, voting together as a single class on an as-converted to common stock basis, the shares of Redeemable Convertible Preferred Stock outstanding are redeemable at any time on or after January 8, 2020 in three equal annual installments commencing 60 days after receipt of the required vote, in an amount equal to the Original Issue Price per share of each series of Redeemable Convertible Preferred Stock, plus all declared but unpaid dividends.

The carrying value of the Redeemable Convertible Preferred Stock is being accreted to its redemption value through January 8, 2020. Such accretion amounts relate solely to the original issuance costs of the Redeemable Convertible Preferred Stock.

 

10. Stockholders’ Deficit

Common Stock

As of December 31, 2016 and 2017, the Company’s certificate of incorporation, as amended and restated, authorized the Company to issue 53,000,000 shares of $0.0001 par value common stock.

Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders. Common stockholders are entitled to receive dividends, as may be declared by the board of directors, if any, subject to the preferential dividend rights of the Redeemable Convertible Preferred Stock. When dividends are declared on shares of common stock, the Company must declare at the same time a dividend payable to the holders of Redeemable Convertible Preferred Stock equivalent to the dividend amount they would receive if each preferred share were converted into common stock. The Company may not pay dividends to common stockholders until all dividends

 

F-29


Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

 

accrued or declared but unpaid on the Redeemable Convertible Preferred Stock have been paid in full. No dividends have been declared or paid by the Company through December 31, 2017.

As of December 31, 2016 and 2017, the Company had reserved 44,279,485 and 45,547,885 shares, respectively, of common stock for the conversion of the outstanding shares of Redeemable Convertible Preferred Stock (see Note 9), the exercise of outstanding stock options and the number of shares remaining available for future grant under the Company’s 2014 Stock Incentive Plan (see Note 11).

 

11. Stock-Based Awards

2014 Stock Incentive Plan

The Company’s 2014 Stock Incentive Plan (the “2014 Plan”) provides for the Company to grant incentive stock options or nonqualified stock options, restricted stock awards, unrestricted stock awards or restricted stock units to employees, directors and consultants of the Company. The 2014 Plan is administered by the board of directors, or at the discretion of the board of directors, by a committee of the board of directors. The exercise prices, vesting and other restrictions are determined at the discretion of the board of directors, or their committee if so delegated, except that the exercise price per share of the stock options may not be less than 100% of the fair market value of a share of the Company’s common stock on the date of grant and the term of the stock options may not be greater than ten years.

The total number of shares of common stock that may be issued under the 2014 Plan was 7,977,646 shares as of December 31, 2016. In March 2017, the Company effected an increase in the number of common shares reserved for issuance under the 2014 Plan from 7,977,646 shares to 9,877,646 shares. As of December 31, 2016 and 2017, there were 1,439,783 and 1,612,599 shares, respectively, available for future issuance under the 2014 Plan.

Stock options granted under the 2014 Plan to employees generally vest over four years and expire after ten years.

The exercise price for stock options granted is not less than the fair value of common shares as determined by the board of directors as of the date of grant. The board of directors values the Company’s common stock taking into consideration the most recently available third-party valuation of common shares as well as additional factors, which may have changed since the date of the most recent contemporaneous valuation through the date of grant.

Stock Option Valuation

The assumptions that the Company used to determine the fair value of the stock options granted to employees and directors were as follows, presented on a weighted average basis:

 

     Year Ended
December 31,
 
     2016      2017  

Risk-free interest rate

     1.73      2.04

Expected term (in years)

     6.25        6.25  

Expected volatility

     76.39      78.60

Expected dividend yield

     0.0      0.0

 

F-30


Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

 

Stock Options

The following table summarizes the Company’s stock option activity since January 1, 2017:

 

     Number of
Shares
    Weighted
Average
Exercise
Price
     Weighted
Average
Remaining
Contractual Term
     Aggregate
Intrinsic
Value
 
                  (in years)         

Outstanding as of December 31, 2016

     5,739,702     $ 1.18        9.18      $ 4,021  

Granted

     2,464,591       2.41        

Exercised

     (631,600     0.16        

Forfeited

     (737,407     1.64        
  

 

 

         

Outstanding as of December 31, 2017

     6,835,286     $ 1.67        8.69      $ 14,361  
  

 

 

         

Options exercisable at December 31, 2017

     2,065,119     $ 1.03        8.03      $ 5,666  

The weighted average grant-date fair value per share of stock options granted during the years ended December 31, 2016 and 2017 was $1.25 and $1.69, respectively.

The aggregate fair value of stock options vested during the years ended December 31, 2016 and 2017 was $933 and $2,828, respectively.

The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock for those stock options that had exercise prices lower than the fair value of the Company’s common stock. The aggregate intrinsic value of stock options exercised during the years ended December 31, 2016 and 2017 was $46 and $1,876, respectively.

As of December 31, 2016 and 2017, there were outstanding stock options held by non-employees for the purchase of 854,563 and 813,226 shares of common stock, respectively, with service-based vesting conditions.

Restricted Common Stock

The Company has granted restricted common stock with service-based vesting conditions. The purchase price of the restricted common stock is determined by the Company’s board of directors. Unvested shares of restricted common stock may not be sold or transferred by the holder. These restrictions lapse according to the service-based vesting conditions of each award. The Company has the option to repurchase the restricted stock at the original purchase price if the grantee terminates its working relationship with the Company prior to the stock becoming vested.

In May 2015, the Company issued to an executive officer 770,161 shares of restricted common stock, which are restricted as to sale or transferability until vested, over a four-year vesting period. As consideration for the award, the executive officer made an upfront cash payment of $62 and issued to the Company a promissory note for $62, which bore interest at a rate of 1.53% per annum and was due and payable in May 2020, unless earlier due upon specified events. At that time, the Company concluded that the promissory note was a recourse note with respect to half of the amount, or $31, and was a non-recourse note for the remaining amount.

 

F-31


Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

 

Upon issuance of the award, the Company recorded the $62 of upfront cash received as a liability in the consolidated balance sheet as it represented a deposit for the exercise price. The deposit liability is reclassified to additional paid-in capital over vesting term of the award as the restrictions of the award lapse. The Company determined upon issuance that the non-recourse portion of the note of $31 was not substantive and, as a result, the amount is being recognized as stock-based compensation expense over the vesting term of the award. The recourse portion of the note of $31 was recorded as a note receivable from officer within stockholders’ deficit in the accompanying consolidated balance sheet. In October 2017, the promissory note was repaid in full by the executive officer.

The following table summarizes the Company’s restricted stock activity since January 1, 2017:

 

     Number
of
Shares
    Weighted Average
Grant-Date
Fair Value
 

Unvested restricted common stock as of December 31, 2016

     956,003     $ 0.20  

Issued

     —      

Vested

     (770,143     0.19  

Forfeited and repurchased

     —      
  

 

 

   

Unvested restricted common stock as of December 31, 2017

     185,860     $ 0.19  
  

 

 

   

The aggregate intrinsic value of restricted stock awards that vested during the years ended December 31, 2016 and 2017 was $1,079 and $1,834, respectively.

Stock-Based Compensation

The Company recorded stock-based compensation expense related to stock options and restricted stock awards in the following expense categories of its statements of operations and comprehensive loss:

 

     Year Ended
December 31,
 
         2016              2017      

Research and development expenses

   $ 852      $ 1,917  

General and administrative expenses

     493        2,792  
  

 

 

    

 

 

 
   $ 1,345      $ 4,709  
  

 

 

    

 

 

 

In connection with the termination of an executive officer in September 2017, the Company accelerated the vesting of 304,856 unvested restricted shares and unvested options to purchase 150,341 shares of common stock held by such executive officer. The modification of these awards resulted in the recognition of $1,881 of stock-based compensation expense during the year ended December 31, 2017, which was classified as general and administrative expense.

As of December 31, 2017, the Company had an aggregate of $6,632 of unrecognized stock-based compensation cost, which is expected to be recognized over a weighted average period of 3.16 years.

 

F-32


Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

 

12. Net Loss per Share and Unaudited Pro Forma Net Loss per Share

Net Loss per Share

Basic and diluted net loss per share attributable to common stockholders was calculated as follows:

 

     Year Ended
December 31,
 
     2016     2017  

Numerator:

    

Net loss

   $ (17,453   $ (45,377

Accretion of redeemable convertible preferred stock to redemption value

     (41     (40
  

 

 

   

 

 

 

Net loss attributable to common stockholders

   $ (17,494   $ (45,417
  

 

 

   

 

 

 

Denominator:

    

Weighted average commons shares outstanding—basic and diluted

     5,266,614       5,444,583  
  

 

 

   

 

 

 

Net loss per share attributable to common stockholders—basic and diluted

   $ (3.32   $ (8.34
  

 

 

   

 

 

 

The Company’s potential dilutive securities, which include stock options, unvested restricted common stock and redeemable convertible preferred stock, have been excluded from the computation of diluted net loss per share attributable to common stockholders whenever the effect of including them would be to reduce the net loss per share. In periods where there is a net loss, the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same. The following potential common shares, presented based on amounts outstanding at each period end, were excluded from the calculation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect:

 

     Year Ended
December 31,
 
     2016      2017  

Redeemable convertible preferred stock (as converted to common stock)

     37,100,000        37,100,000  

Outstanding options to purchase common stock

     5,739,702        6,835,286  

Unvested restricted common stock

     956,003        185,860  
  

 

 

    

 

 

 
     43,795,705        44,121,146  
  

 

 

    

 

 

 

Unaudited Pro Forma Net Loss per Share

The unaudited pro forma basic and diluted net loss per share attributable to common stockholders for the year ended December 31, 2017 gives effect to adjustments arising upon the closing of a qualified initial public offering. The unaudited pro forma net loss attributable to common stockholders used in the calculation of unaudited basic and diluted pro forma net loss per share attributable to common stockholders does not include the effects of the accretion of redeemable convertible preferred stock to redemption value because the calculation assumes that the conversion of the redeemable

 

F-33


Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

 

convertible preferred stock into common stock had occurred on the later of January 1, 2017 or the issuance date of the redeemable convertible preferred stock.

The unaudited pro forma basic and diluted weighted average common shares outstanding used in the calculation of unaudited pro forma basic and diluted net loss per share attributable to common stockholders for the year ended December 31, 2017 gives effect to the automatic conversion upon a qualified initial public offering of all outstanding shares of redeemable convertible preferred stock as of December 31, 2017 into shares of common stock as if the conversion had occurred on the later of January 1, 2017 or the issuance date of the redeemable convertible preferred stock.

Pro forma basic and diluted net loss per share attributable to common stockholders was calculated as follows:

 

     Year Ended
December 31, 2017
 

Numerator:

  

Net loss attributable to common stockholders

   $ (45,417

Accretion of redeemable convertible preferred stock to redemption value

     40  
  

 

 

 

Pro forma net loss attributable to common stockholders

   $ (45,377
  

 

 

 

Denominator:

  

Weighted average common shares outstanding—basic and diluted

     5,444,583  

Pro forma adjustment to reflect the automatic conversion of preferred stock into common stock upon the closing of the proposed initial public offering

     37,100,000  
  

 

 

 

Pro forma weighted average common shares outstanding—basic and diluted

     42,544,583  
  

 

 

 

Pro forma net loss per share attributable to common stockholders—basic and diluted

   $ (1.07
  

 

 

 

 

13. License Agreements

H2L2 License Agreement

In April 2014, the Company entered a license agreement with Harbour Antibodies H2L2 BV (“H2L2”). Pursuant to the H2L2 agreement, H2L2 granted the Company a worldwide, non-exclusive license under H2L2’s technology to (i) make, use, manufacture, import and export (but not sell) H2L2 mice, which are capable of generating fully human antibodies, for research, development, clinical and manufacturing purposes and (ii) to make, use, sell, offer for sale, import and export antibodies discovered or generated using H2L2 technology, and products incorporating such antibodies. Such licenses are sublicensable only to the Company’s affiliates or third-party contractors, other than in the case of the license to sell antibody products, which the Company may license to any third party.

Under the agreement, the Company is obligated to pay to H2L2 a low five-digit dollar amount as an upfront license fee for each antibody program that it initiates using the H2L2 mice. In addition, the Company may be obligated to pay up to an aggregate of $1,035 in milestone payments to H2L2 if it develops an antibody product through Phase 3 clinical trials and regulatory approval. The Company is required to pay H2L2 a one-time sales performance payment of a low seven-digit dollar amount for

 

F-34


Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

 

each antibody product that is commercialized and achieves worldwide gross sales in excess of a low eight-digit dollar amount. If the Company enters into an agreement with a third party to further research or commercialize an antibody product developed under the H2L2 agreement, then the Company is obligated to pay H2L2 a one-time payment of the lesser of (i) a low double-digit percentage of the upfront fee paid to the Company by the third party or (ii) a low six-digit dollar amount.

Unless earlier terminated, the H2L2 agreement will expire in 2019. Either party may terminate this agreement upon an uncured material breach by the other party. The Company may also terminate the agreement at will upon providing prior written notice to H2L2.

During the years ended December 31, 2016 and 2017, the Company recognized research and development expense under the agreement of $270 and $0, respectively.

Harbour License Agreement

In September 2015, the Company entered into an exclusive license agreement with Harbour Antibodies B.V. (“Harbour”) to receive an exclusive license to Harbour’s materials and patent rights directed to CD47. Pursuant to the agreement, Harbour granted to the Company a worldwide, royalty-bearing exclusive license, with the right to sublicense, to exploit products that incorporate Harbour’s materials or that would infringe Harbour’s patent rights. The Company is obligated to use commercially reasonable efforts to develop and commercialize such licensed products.

In consideration for the license, the Company paid Harbour a one-time upfront payment of $125 and is required to pay a nominal annual maintenance fee during the term of the agreement. In addition, the Company is obligated to pay up to an aggregate of $4,750 upon the achievement of specified development and commercial milestones for each product licensed under the agreement. The Company is also obligated pay Harbour royalties of a low single-digit percentage on the worldwide net sales of any licensed product on a country-by-country basis.

The Harbour CD47 exclusive license agreement will expire on the last to expire royalty term on licensed product-by-licensed product basis, unless terminated earlier by the parties. The Company may terminate the agreement for any reason on with proper prior notice to Harbour. Harbour may terminate if the Company fails to pay an amount due after Harbour provides the Company written notice or upon the Company’s uncured material breach, subject to completion of a dispute resolution process and subsequent cure.

During the years ended December 31, 2016 and 2017, the Company recognized research and development expense under the agreement of $60 and $10, respectively.

Adimab Development and Option Agreement

In July 2014, the Company entered a development and option agreement with Adimab LLC (“Adimab”) for the discovery and optimization of proprietary antibodies as potential therapeutic product candidates. Under the Adimab agreement, the Company will select biological targets against which Adimab will use its proprietary platform technology to research and develop antibody proteins using a mutually agreed upon research plan.

 

 

F-35


Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

 

Adimab granted the Company an exclusive option to obtain a non-exclusive, worldwide, fully paid-up, sublicensable license under Adimab’s platform patents and other Adimab technology solely to research up to ten antibodies, chosen by the Company against a specific biological target for a specified period of time (the “Research Option”). In addition, Adimab granted the Company an exclusive option to obtain a worldwide, royalty-bearing, sublicensable license under Adimab platform patents and other Adimab technology to exploit, including commercially, up to 20 antibodies against specific biological targets (the “Commercialization Option”). Upon the exercise of a Commercialization Option, and payment of the option fee to Adimab, Adimab will assign the Company the patents that cover the antibodies selected by such Commercialization Option. The Company will be required to use commercially reasonable efforts to develop, seek market approval of, and commercialize at least one antibody against the target covered by the Commercialization Option in specified markets upon the exercise of a Commercialization Option.

Under the agreement, the Company is obligated to make milestone payments and to pay specified fees upon the exercise of the Research or Commercialization Options under the agreement. During the discovery term, the Company may be obligated to pay Adimab up to $250 for technical milestones achieved against each biological target. Upon exercise of a Research Option, the Company is obligated to pay a nominal research maintenance fee on each of the next four anniversaries of the exercise. Upon the exercise of each Commercialization Option, the Company will be required to pay an option exercise fee of a low seven-digit dollar amount, and the Company may be responsible for milestone payments of up to an aggregate of $13,000 for each licensed product that receives marketing approval. For any licensed product that is commercialized, the Company is obligated to pay Adimab tiered royalties of a low to mid single-digit percentage on worldwide net sales of such product. The Company may also partially exercise a Commercialization Option with respect to ten antibodies against a biological target by paying 65% of the option fee and later either (i) paying the balance and choosing up to 20 antibodies for commercialization or (ii) foregoing the Commercialization Option entirely.

The Adimab agreement will remain in effect until (a) the earlier of (i) the expiration of the Research and Commercialization Options (if they expire without exercise) and (ii) 12 months from the effective date without the Company providing materials that pass Adimab’s quality control; or (b) if a Research Option is exercised but the Commercialization Option is not, then upon the expiration of the last to expire research license term; or (c) upon commercialization of a product, until the end of the royalty term, which will vary on a product-by-product and country-by-country basis, ending on the later of (y) the expiration of the last valid claim covering the licensed product in such country as the product is manufactured or sold, or (z) ten after the first commercial sale of the licensed product in such country.

Either party may terminate the Adimab agreement for material breach if such breach remains uncured for a period of time, and may terminate the Adimab agreement for material breach on a target-by-target basis for those biological targets for which the Research or Commercialization Options have been exercised. The Company may also terminate the Adimab agreement for any reason on prior notice to Adimab. If Adimab is bankrupt, the Company will be entitled to a complete duplicate of, or complete access to, all rights and licenses granted under or pursuant to the Adimab agreement.

During the years ended December 31, 2016 and 2017, the Company recognized research and development expense under the agreement of $1,181 and $2,172, respectively.

 

F-36


Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

 

14. Income Taxes

2017 U.S. Tax Reform

On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act (“TCJA”) that significantly reforms the Internal Revenue Code of 1986, as amended. The TCJA, among other things, contains significant changes to corporate taxation, including reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, effective as of January 1, 2018; limitation of the tax deduction for interest expense; limitation of the deduction for net operating losses to 80% of annual taxable income and elimination of net operating loss carrybacks, in each case, for losses arising in taxable years beginning after December 31, 2017 (though any such tax losses may be carried forward indefinitely); and modifying or repealing many business deductions and credits, including reducing the business tax credit for certain clinical testing expenses incurred in the testing of certain drugs for rare diseases or conditions generally referred to as “orphan drugs”.

The staff of the Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 to address the application of GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the TCJA. In connection with the initial analysis of the impact of the TCJA, the Company remeasured its deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21% for federal tax purposes. The remeasurement of the Company’s deferred tax assets and liabilities was offset by a change in the valuation allowance.

The Company is still in the process of analyzing the impact to the Company of the TCJA and its analysis is not yet complete. Where the Company has been able to make reasonable estimates of the effects related to the TCJA, the Company has recorded provisional amounts. The ultimate impact to the Company’s consolidated financial statements of the TCJA may differ from the provisional amounts due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued, and actions the Company may take as a result of the TCJA. The accounting is expected to be complete when the Company’s 2017 U.S. corporate income tax return is filed in 2018.

Income Taxes

During the preparation of its consolidated financial statements for the three months and the year ended December 31, 2017, the Company made the decision to change the tax accounting method it uses for advance payments received from customers, which includes certain payments that the Company has received and may receive in the future under the Novartis Collaboration (see Note 8). As the Company is changing from one acceptable tax accounting method to another acceptable tax accounting method, this change qualifies for automatic approval by the U.S. Internal Revenue Service. The Company’s consolidated financial statements for the year ended December 31, 2017 reflect the impact of this change.

The Company will use the cumulative catch-up approach for the transition from the former tax accounting method to the new tax accounting method, which resulted in a catch-up adjustment referred to as an Internal Revenue Code §481(a) adjustment. Under this approach, the Company computed a §481(a) adjustment as of the first day of the year of change (i.e., January 1, 2017) as if the new method of accounting had been used previously. The tax law permits a positive adjustment (i.e., one resulting in an increase to taxable income) to be recognized in the tax returns over a period of four years.

 

F-37


Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

 

Prior to the Company’s decision to change the tax accounting method it uses for advance payments, the Company expected to be in a taxable income position for the year ended December 31, 2017 because (i) its 2017 income for tax purposes would have exceeded deductible expenses for that same year, resulting in a net taxable income position for 2017, and (ii) such amount of net taxable income for 2017 would have exceeded the amount of the Company’s net operating loss carryforwards as of December 31, 2016. As a result of the tax accounting method change, the Company will report less income for tax purposes for the year ended December 31, 2017 related to advance payments and will no longer be in a taxable income position for the year ended December 31, 2017. Accordingly, for the year ended December 31, 2016 and 2017, the Company recorded no income tax benefits for the net losses incurred or for the research and development tax credits generated in each year due to its uncertainty of realizing a benefit from those items.

A reconciliation of the U.S. federal statutory income tax rate to the Company’s effective income tax rate is as follows:

 

     Year Ended
December 31,
 
         2016             2017      

Federal statutory income tax rate

     (35.0 )%      (35.0 )% 

State taxes, net of federal benefit

     (5.2     (5.2

Research and development tax credits

     (1.2     (0.9

Stock-based compensation

     2.4       2.6  

Other

     0.2       0.3  

Tax rate reduction due to Tax Cuts and Jobs Act

     —         19.6  

Increase in deferred tax asset valuation allowance

     38.8       18.6  
  

 

 

   

 

 

 

Effective income tax rate

     —       —  
  

 

 

   

 

 

 

Net deferred tax assets consisted of the following:

 

     December 31,  
     2016     2017  

Deferred tax assets:

    

Net operating loss carryforwards

   $ 3,454     $ 5,618  

Research and development tax credit carryforwards

     571       1,013  

Deferred revenue

     6,173       21,065  

Deferred rent

     990       1,390  

Intangible assets

     421       623  

Accrued expenses

     506       67  

Stock-based compensation

     224       620  

Other

     373       345  
  

 

 

   

 

 

 

Total deferred tax assets

     12,712       30,741  

Valuation allowance

     (11,531     (19,956
  

 

 

   

 

 

 

Deferred tax assets

     1,181       10,785  
  

 

 

   

 

 

 

Deferred tax liabilities:

    

Depreciation

     (1,181     (1,651

Advance payment tax accounting method change

     —         (9,134
  

 

 

   

 

 

 

Total deferred tax liabilities

     (1,181     (10,785
  

 

 

   

 

 

 

Net deferred tax assets

   $ —       $ —    
  

 

 

   

 

 

 

 

F-38


Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

 

As of December 31, 2017, the Company had federal and state net operating loss carryforwards of $20,757 and $19,922, respectively, and federal and state research and development tax credit carryforwards of $743 and $249, respectively, available to reduce future income tax liabilities. The federal and state net operating loss carryforwards each begin to expire in 2034. The federal and state research and development tax credit carryforwards begin to expire in 2034 and 2030, respectively.

Utilization of the Company’s net operating loss (“NOL”) carryforwards and research and development (“R&D”) credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations that have occurred previously or that could occur in the future in accordance with Section 382 of the Internal Revenue Code of 1986 (“Section 382”) as well as similar state provisions. These ownership changes may limit the amount of NOL and R&D credit carryforwards that can be utilized annually to offset future taxable income and taxes, respectively. In general, an ownership change as defined by Section 382 results from transactions increasing the ownership of certain shareholders or public groups in the stock of a corporation by more than 50% over a three-year period. Since its formation, the Company has raised capital through the issuance of capital stock on several occasions. These financings, combined with the purchasing shareholders’ subsequent disposition of those shares, could result in a change of control as defined by Section 382. The Company conducted an analysis under Section 382 to determine if historical changes in ownership through February 1, 2016 would limit or otherwise restrict its ability to utilize its NOL and R&D credit carryforwards. As a result of this analysis, the Company does not believe there are any significant limitations on its ability to utilize these carryforwards generated through February 1, 2016. However, changes in ownership occurring after February 1, 2016 could affect the limitation in future years, and any limitation may result in expiration of a portion of the NOL or R&D credit carryforwards before utilization.

The Company evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax assets as of December 31, 2017. Management considered the Company’s cumulative net losses and concluded as of December 31, 2017 that it was more likely than not that the Company would not realize the benefits of the deferred tax assets. Accordingly, a full valuation allowance was established against the net deferred tax assets as of December 31, 2017.

Changes in the valuation allowance for deferred tax assets during the year ended December 31, 2016 and 2017 were primarily due to increases in deferred revenue and net operating loss carryforwards, partially offset in 2017 by a decrease in deferred tax assets resulting from the decreased federal corporate tax rate, and were as follows:

 

     Year Ended
December 31,
 
     2016     2017  

Valuation allowance at beginning of year

   $ (4,636   $ (11,531

Increases recorded to income tax provision

     (7,408     (17,302

Decreases recorded as a benefit to income tax provision

     513       8,877  
  

 

 

   

 

 

 

Valuation allowance at end of year

   $ (11,531   $ (19,956
  

 

 

   

 

 

 

The Company has not recorded any amounts for unrecognized tax benefits as of December 31, 2016 and 2017.

 

 

F-39


Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

 

The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal and state jurisdictions, where applicable. There are currently no pending tax examinations. The Company’s tax years are still open under statute from 2014 to the present. The Company’s policy is to record interest and penalties related to income taxes as part of its income tax provision. As of December 31, 2016 and 2017, the Company had no accrued interest or penalties related to uncertain tax positions and no amounts have been recognized in the Company’s statements of operations and comprehensive loss.

 

15. Commitments and Contingencies

Lease Agreements

In May 2016, the Company entered into an operating lease agreement for its corporate headquarters in Cambridge, Massachusetts, with a ten-year term that expires in February 2027. Rental payments related to the lease commenced in April 2017. In connection with this lease, the Company was entitled to cash incentives from the landlord to be used for the construction of leasehold improvements within the facility. As of December 31, 2016 and 2017, the Company became entitled to $2,426 and $4,803 of such incentives, respectively, which were recorded as deferred rent on the consolidated balance sheets and are being amortized to rent expense over the lease term.

In November 2014, the Company entered into an operating sublease agreement with CoStim Pharmaceuticals, Inc. (“CoStim”), a subsidiary of Novartis, for office and laboratory space that expires in March 2018 (see Note 16). The Company began to sublease this space to a third-party tenant in April 2017. Sublease payments received from the third-party tenant for the year ended December 31, 2017 totaled $305 and were recorded as a reduction of rent expense.

The Company recognizes rent expense on a straight-line basis over the lease period and has recorded deferred rent for rent expense incurred but not yet paid. During the years ended December 31, 2016 and 2017, the Company recognized total rent expense of $449 and $1,194, respectively, related to office and laboratory space under the leases.

Future minimum lease payments for the Company’s operating leases as of December 31, 2017 were as follows:

 

Year Ending December 31,

      

2018

   $ 2,497  

2019

     2,472  

2020

     2,546  

2021

     2,622  

2022

     2,701  

Thereafter

     11,962  
  

 

 

 
   $ 24,800  
  

 

 

 

Manufacturing and Research Agreements

The Company has entered into agreements with external contract manufacturing organizations and contract research organizations engaged to manufacture clinical trial materials as well as to

 

F-40


Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

 

conduct discovery research and preclinical development activities. As of December 31, 2017, the Company had committed to minimum payments under these arrangements totaling $14,511, of which $13,320 is due in 2018 and $1,191 is due in 2019.

License Agreements

The Company has entered into license agreements with various parties under which it is obligated to make contingent and non-contingent payments (see Note 13).

Indemnification Agreements

In the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors, lessors, business partners and other parties with respect to certain matters including, but not limited to, losses arising out of breach of such agreements or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with members of its board of directors and its officers that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is, in many cases, unlimited. To date, the Company has not incurred any material costs as a result of such indemnifications. The Company is not aware of any claims under indemnification arrangements that would have a material effect on its financial position, results of operations or cash flows, and it has not accrued any liabilities related to such obligations in its financial statements as of December 31, 2017.

Legal Proceedings

The Company is not currently party to any material legal proceedings. At each reporting date, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. The Company expenses as incurred the costs related to its legal proceedings.

 

16. Related Party Transactions

Novartis Institutes for BioMedical Research, Inc.

Novartis is a related party because it is a principal stockholder of the Company. In January 2016, the Company entered into the Novartis Collaboration (see Note 8) and sold 2,000,000 shares of its Series A-1 preferred stock to Novartis. During the year ended December 31, 2016, the Company received cash payments totaling $83,500 from Novartis. During the year ended December 31, 2016, the Company recognized $6,632 of collaboration revenue under the Novartis Collaboration and recorded $13,500 as the fair value of the Series A-1 preferred stock issued to Novartis (see Note 9). As of December 31, 2016, amounts due from Novartis totaled $5,000 as a result of the Company’s achievement of a specified milestone under the Novartis Collaboration. As of December 31, 2017, no amounts were due from Novartis. In February 2018, the Company received an additional milestone payment of $45,000 from Novartis upon the achievement of a specified milestone (see Note 18).

As of December 31, 2016 and 2017, amounts due to Novartis by the Company totaled $3,437 related to the reimbursement of manufacturing costs incurred by Novartis, which was recorded as a reduction of the total arrangement consideration expected under the Novartis Collaboration and

 

F-41


Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

 

affected the net amount of collaboration revenue recognized in those same fiscal years and recorded as deferred revenue as of December 31, 2016 and 2017. During the years ended December 31, 2016 and 2017, the Company made no cash payments to Novartis.

Unrelated to the Novartis Collaboration, the Company subleases office and laboratory space from CoStim, a subsidiary of Novartis (see Note 15). Payments made by the Company to CoStim for this sublease during the years ended December 31, 2016 and 2017 totaled $557 and $569, respectively. As of December 31, 2016 and 2017, no amounts were due by the Company to CoStim for this sublease.

Research Agreement with Vaccinex, Inc.

On November 30, 2017, the Company entered into an agreement with Vaccinex, Inc. (“Vaccinex”) whereby Vaccinex will use its technology to assist the Company with identifying and selecting experimental human monoclonal antibodies against targets selected by the Company. The Company’s Chief Executive Officer is a member of the board of directors of Vaccinex. During the year ended December 31, 2017, the Company paid Vaccinex an aggregate of $250 as a technology access fee upon entering into the agreement. The amount of the payment was recognized as research and development expense during the year ended December 31, 2017. No amounts were due by the Company to Vaccinex as of December 31, 2017.

Note Receivable from Officer

In May 2015, an executive officer of the Company entered into a promissory note for $62 payable to Company, which bore interest at a rate of 1.53% per annum and was due and payable in May 2020, unless earlier due upon specified events (see Note 11). In October 2017, the promissory note was repaid in full by the executive officer.

 

17. 401(k) Savings Plan

The Company has a defined contribution savings plan under Section 401(k) of the Internal Revenue Code. This plan covers substantially all employees who meet minimum age and service requirements. The Company matches 50% of employees’ contributions to the 401(k) Plan up to 6% of compensation. The Company’s contributions made under the 401(k) Savings Plan for the years ended December 31, 2016 and 2017 totaled $0 and $207, respectively.

 

18. Subsequent Events

For its consolidated financial statements as of December 31, 2017 and for the year then ended, the Company evaluated subsequent events through March 5, 2018, the date on which those financial statements were issued.

Achievement of Milestone under the Novartis Collaboration

In January 2018, the Company became entitled to a milestone payment of $45,000 from Novartis upon Novartis’ receipt of the first final audited GLP toxicology study report for SRF373. The milestone payment was received in February 2018.

 

 

F-42


Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

 

Increases in Shares Available for Issuance and Grants of Stock Options under the 2014 Plan

On February 5, 2018, the Company granted options to purchase an aggregate of 1,378,500 shares of common stock, at an exercise price of $4.37 per share, to employees and directors as compensation for future services to the Company. The options vest over terms of three or four years.

On February 12, 2018, the Company effected an increase in the total number of shares of the Company’s common stock reserved for issuance under the 2014 Plan from 9,877,646 shares to 9,897,646 shares.

On March 2, 2018, the Company effected an increase in the total number of shares of the Company’s common stock reserved for issuance under the 2014 Plan from 9,897,646 shares to 11,197,646 shares.

On March 2, 2018, the Company granted options to purchase an aggregate of 1,276,500 shares of common stock, at an exercise price of $5.86 per share, to employees as compensation for future services to the Company. The options vest for over four years.

 

19. Subsequent Events (Unaudited)

Increase in Shares Available for Issuance under the 2014 Plan

On March 9, 2018, the Company effected an increase in the total number of shares of the Company’s common stock reserved for issuance under the 2014 Plan from 11,197,646 shares to 11,448,207 shares.

Collaboration Agreement with Novartis

In March 2018, Novartis notified the Company of its decision not to exercise its purchased Option related to CD47 (see Note 8). In March 2018, the Company and Novartis also mutually agreed to cease development of one of the undisclosed programs subject to the Collaboration Agreement. Accordingly, as of March 23, 2018, Novartis had two Options remaining eligible for purchase, each of which can be exercised. As a result, the maximum aggregate amount of potential option purchase, option exercise and milestone payments that the Company is entitled to receive under the Collaboration Agreement was reduced from $1,387,500 to $1,167,500.

 

F-43


Table of Contents

 

 

             Shares

Common Stock

 

 

 

 

LOGO

 

 

 

Goldman Sachs & Co. LLC   Cowen   Evercore ISI

Through and including                     , 2018 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

 

 

 


Table of Contents

PART II

Information Not Required in Prospectus

Item 13. Other Expenses of Issuance and Distribution.

The following table sets forth the fees and expenses, other than underwriting discounts and commissions, payable in connection with the registration of the common stock hereunder. All amounts are estimates except the SEC registration fee, FINRA filing fee and Nasdaq Global Market listing fee.

 

     Amount  

SEC registration fee

   $ 9,338  

FINRA filing fee

     11,750  

The Nasdaq Global Market listing fee

     *        

Printing expenses

     *        

Legal fees and expenses

     *        

Accountants’ fees and expenses

     *        

Transfer agent and registrar fees and expenses

     *        

Miscellaneous

     *        
  

 

 

 

Total

   $       *        
  

 

 

 

 

* To be filed by amendment.

Item 14. Indemnification of Directors and Officers.

Section 145 of the Delaware General Corporation Law, or the DGCL, authorizes a corporation to indemnify its directors and officers against liabilities arising out of actions, suits and proceedings to which they are made or threatened to be made a party by reason of the fact that they have served or are currently serving as a director or officer to a corporation. The indemnity may cover expenses (including attorneys’ fees) judgments, fines and amounts paid in settlement actually and reasonably incurred by the director or officer in connection with any such action, suit or proceeding if the director or officer acted in good faith and in a manner the director or officer reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe the director or officer’s conduct was unlawful. Section 145 permits corporations to pay expenses (including attorneys’ fees) incurred by directors and officers in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that such director or officer is not entitled to be indemnified by the corporation as authorized in Section 145. In addition, Section 145 provides that a corporation has the power to purchase and maintain insurance on behalf of its directors and officers against any liability asserted against them and incurred by them in their capacity as a director or officer, or arising out of their status as such, whether or not the corporation would have the power to indemnify the director or officer against such liability under Section 145.

We have adopted provisions in both our certificate of incorporation and bylaws to be in effect upon the completion of this offering that limit or eliminate the personal liability of our directors to the fullest extent permitted by the DGCL, as it now exists or may in the future be amended. Consequently, a director will not be personally liable to us or our stockholders for monetary damages or breach of fiduciary duty as a director, except for liability for:

 

    any breach of the director’s duty of loyalty to us or our stockholders;

 

    any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;

 

II-1


Table of Contents
    any unlawful payments related to dividends or unlawful stock purchases, redemptions or other distributions; or

 

    any transaction from which the director derived an improper personal benefit.

These limitations of liability do not alter director liability under the federal securities laws and do not affect the availability of equitable remedies such as an injunction or rescission.

In addition, our bylaws provide that:

 

    we will indemnify our directors, officers and, in the discretion of our board of directors, certain employees to the fullest extent permitted by the DGCL, as it now exists or may in the future be amended; and

 

    we will advance reasonable expenses, including attorneys’ fees, to our directors and, in the discretion of our board of directors, to our officers and certain employees, in connection with legal proceedings relating to their service for or on behalf of us, subject to limited exceptions.

We have entered into indemnification agreements with each of our directors and intend to enter into such agreements with certain of our executive officers. These agreements provide that we will indemnify each of our directors, certain of our executive officers and, at times, their affiliates to the fullest extent permitted by Delaware law. We will advance expenses, including attorneys’ fees (but excluding judgments, fines and settlement amounts), to each indemnified director, executive officer or affiliate in connection with any proceeding in which indemnification is available and we will indemnify our directors and officers for any action or proceeding arising out of that person’s services as a director or officer brought on behalf of us or in furtherance of our rights. Additionally, certain of our directors or officers may have certain rights to indemnification, advancement of expenses or insurance provided by their affiliates or other third parties, which indemnification relates to and might apply to the same proceedings arising out of such director’s or officer’s services as a director referenced herein. Nonetheless, we have agreed in the indemnification agreements that our obligations to those same directors or officers are primary and any obligation of such affiliates or other third parties to advance expenses or to provide indemnification for the expenses or liabilities incurred by those directors are secondary.

We also maintain general liability insurance which covers certain liabilities of our directors and officers arising out of claims based on acts or omissions in their capacities as directors or officers, including liabilities under the Securities Act.

The underwriting agreement filed as Exhibit 1.1 to this registration statement provides for indemnification of us and our directors and officers by the underwriters against certain liabilities under the Securities Act and the Exchange Act.

Item 15. Recent Sales of Unregistered Securities.

In the three years preceding the filing of this registration statement, we have issued the following securities that were not registered under the Securities Act:

1. We have granted stock options to purchase an aggregate of 11,329,793 shares of our common stock, with exercise prices ranging from $0.16 to $5.86 per share, to employees, directors and consultants pursuant to our 2014 Stock Option and Grant Plan.

2. We have issued an aggregate of 837,103 shares of common stock to employees, directors and consultants for cash consideration in the aggregate amount of $262,217 upon the exercise of stock options.

 

II-2


Table of Contents

3. We have issued an aggregate of 770,161 shares of restricted common stock to employees for consideration in the aggregate amount of $123,226. We have repurchased none of such shares.

4. Between November 2014 and February 2016, we issued and sold to investors an aggregate of 35,100,000 shares of our Series A preferred stock, for aggregate consideration of $35.1 million.

5. In January 2016, we issued and sold to an investor 2,000,000 shares of our Series A-1 preferred stock, for aggregate consideration of $13.5 million.

We deemed the grants and exercises of stock options described in paragraphs (1), (2) and (3) above as exempt pursuant to Section 4(a)(2) of the Securities Act or in reliance on Rule 701 of the Securities Act as offers and sales of securities under compensatory benefit plans and contracts relating to compensation in compliance with Rule 701. Each of the recipients of securities in any transaction exempt from registration either received or had adequate access, through employment, business or other relationships, to information about us.

We deemed the offer, sale and issuance of the securities described in paragraphs (4) and (5) above to be exempt from registration under the Securities Act, in reliance on Section 4(a)(2) of the Securities Act, regarding transactions by an issuer not involving a public offering. The purchasers received written disclosures that the securities had not been registered under the Securities Act and that any resale must be made pursuant to a registration statement or an available exemption from such registration.

All certificates representing the securities issued in the transactions described in this Item 15 included appropriate legends setting forth that the securities had not been offered or sold pursuant to a registration statement and describing the applicable restrictions on transfer of the securities. There were no underwriters employed in connection with any of the transactions set forth in this Item 15.

Item 16. Exhibits and Financial Statement Schedules.

(a) Exhibits:

 

Exhibit
Number

  

Description of Exhibit

  1.1*    Form of Underwriting Agreement
  3.1    Third Amended and Restated Certificate of Incorporation of the Registrant, as amended on January 29, 2016
  3.2    Form of Amended and Restated Certificate of Incorporation of the Registrant (to be effective upon completion of this offering)
  3.3    Amended and Restated Bylaws of the Registrant, as currently in effect
  3.4    Form of Amended and Restated Bylaws of the Registrant (to be effective upon the completion of this offering)
  4.1    Specimen Common Stock Certificate
  4.2    Amended and Restated Investors’ Rights Agreement among the Registrant and certain of its stockholders, dated November 6, 2014, as amended on January 9, 2016
  4.3*    Subscription Agreement between the Registrant and Novartis Institutes for Biomedical Research, Inc., dated                     , 2018.
  5.1*    Opinion of Goodwin Procter LLP

 

II-3


Table of Contents

Exhibit
Number

  

Description of Exhibit

10.1#    2014 Stock Option and Grant Plan, as amended, and forms of award agreements thereunder
10.2#    2018 Stock Option and Incentive Plan
10.3#    Form of Incentive Stock Option Agreement under the Registrant’s 2018 Stock Option and Incentive Plan
10.4#    Form of Non-Qualified Stock Option Agreement for Company Employees under the Registrant’s 2018 Stock Option and Incentive Plan
10.5#    Form of Non-Qualified Stock Option Agreement for Non-Employee Directors under the Registrant’s 2018 Stock Option and Incentive Plan
10.6#    Form of Restricted Stock Award Agreement under the Registrant’s 2018 Stock Option and Incentive Plan
10.7#    Form of Restricted Stock Unit Award Agreement for Company Employees under the Registrant’s 2018 Stock Option and Incentive Plan
10.8#    Form of Restricted Stock Unit Award Agreement for Non-Employee Directors under the Registrant’s 2018 Stock Option and Incentive Plan
10.9#    2018 Employee Stock Purchase Plan
10.10#    Senior Executive Cash Incentive Bonus Plan
10.11#   

Employment Agreement between Scott C. Chappel, Ph.D. and the Registrant (to be entered into in connection with this offering)

10.12#   

Employment Agreement between Vito J. Palombella, Ph.D. and the Registrant (to be entered into in connection with this offering)

10.13#   

Employment Agreement between Robert W. Ross, M.D. and the Registrant (to be entered into in connection with this offering)

10.14#   

Employment Agreement between Daniel S. Lynch and the Registrant, dated November 23, 2016

10.15#   

Employment Agreement between J. Jeffrey Goater and the Registrant (to be entered into in connection with this offering)

10.16#    Separation Agreement between Detlev Biniszkiewicz, Ph.D. and the Registrant, dated September 27, 2017
10.17    Lease by and between the Registrant and BMR-Hampshire LLC, dated May 13, 2016, as amended on February 28, 2017
10.18    Collaboration Agreement between Novartis Institutes for BioMedical Research, Inc. and the Registrant, dated January 9, 2016, as amended on May 6, 2016, as further amended on July  14, 2017, and as further amended on September 18, 2017
10.19    Exclusive License Agreement between Harbour Antibodies B.V. and the Registrant, dated September 23, 2015, as amended on January 4, 2016
10.20    Development and Option Agreement between Adimab, LLC and the Registrant, dated July 3, 2014, as amended on December 18, 2015, as further amended August  31, 2016, as further amended June 23, 2017, and as further amended on September 20, 2017
10.21#    Form of Director Indemnification Agreement
10.22#    Form of Officer Indemnification Agreement

 

II-4


Table of Contents

Exhibit
Number

  

Description of Exhibit

21.1    List of Subsidiaries of the Registrant
23.1    Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm
23.2*    Consent of Goodwin Procter LLP (included in Exhibit 5.1)
24.1    Power of Attorney (included on the signature page hereto)

 

* To be included by amendment.
Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential treatment pursuant to Rule 406 under the Securities Act of 1933, as amended. Omitted material for which confidential treatment has been requested has been filed separately with the Securities and Exchange Commission.
# Indicates a management contract or any compensatory plan, contract or arrangement.

(b) Financial Statements Schedules:

No financial statement schedules have been provided because the information required to be set forth therein is not applicable or is presented in the financial statements or notes thereto.

Item 17. Undertakings.

Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, or the Act, may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is therefore unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

The Registrant hereby undertakes that:

(a) The Registrant will provide to the underwriter at the closing as specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.

(b) For purposes of determining any liability under the Securities Act of 1933, as amended, the information omitted from a form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in the form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933, as amended, shall be deemed to be part of this registration statement as of the time it was declared effective.

(c) For the purpose of determining any liability under the Securities Act of 1933, as amended, 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-5


Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, 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 the City of Cambridge, Commonwealth of Massachusetts, on the 23rd day of March, 2018.

 

SURFACE ONCOLOGY, INC.

By:

 

/s/ J. JEFFREY GOATER

 

J. Jeffrey Goater

Chief Executive Officer

Power of Attorney and Signatures

Each individual whose signature appears below hereby constitutes and appoints each of J. Jeffrey Goater and Daniel S. Lynch as such person’s true and lawful attorney-in-fact and agent with full power of substitution and resubstitution, for such person in such person’s name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement (or any Registration Statement for the same offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933), and to file the same, with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission granting unto each said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that any said attorney-in-fact and agent, or any substitute or substitutes of any of them, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement and Power of Attorney has been signed by the following person in the capacities and on the date indicated.

 

Name

  

Title

 

Date

/s/ J. JEFFREY GOATER

J. Jeffrey Goater

  

Chief Executive Officer

(Principal Executive, Financial and Accounting Officer)

  March 23, 2018

/s/ DANIEL S. LYNCH

Daniel S. Lynch

  

Chairman of the Board

  March 23, 2018

/s/ DAVID S. GRAYZEL

David S. Grayzel, M.D.

  

Director

  March 23, 2018

/s/ GEOFFREY MCDONOUGH

Geoffrey McDonough, M.D.

  

Director

  March 23, 2018

/s/ ARMEN B. SHANAFELT

Armen B. Shanafelt, Ph.D.

  

Director

  March 23, 2018

/s/ ELLIOTT SIGAL

Elliott Sigal, M.D., Ph.D.

  

Director

  March 23, 2018

/s/ LAURIE D. STELZER

Laurie D. Stelzer

  

Director

  March 23, 2018

 

II-6


EX-3.1

Exhibit 3.1

Delaware

The First State

I, JEFFREY W. BULLOCK, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE RESTATED CERTIFICATE OF “SURFACE ONCOLOGY, INC.”, FILED IN THIS OFFICE ON THE EIGHTH DAY OF JANUARY, A.D. 2016, AT 12:26 O’CLOCK P.M.

A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE COUNTY RECORDER OF DEEDS.

 

5524749 8100

SR# 20160120082

 

LOGO

   LOGO
     Jeffrey W. Bullock, Secretary of State
You may verify this certificate online at corp.delaware.gov/authver.shtml   

 

Authentication: 201640940

Date: 01-08-16

 

Page 1


State of Delaware

Secretary of State

Division of Corporations

Delivered 12:26 PM 01/08/2016

FILED 12:26 PM 01/08/2016

SR 20160120082 - File Number 5524749

THIRD AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF

SURFACE ONCOLOGY, INC.

(Pursuant to Sections 242 and 245 of the

General Corporation Law of the State of Delaware)

Surface Oncology, Inc., a corporation organized and existing under and by virtue of the provisions of the General Corporation Law of the State of Delaware (the “General Corporation Law”),

DOES HEREBY CERTIFY:

1. That the name of this corporation is Surface Oncology, Inc. and that this corporation was originally incorporated pursuant to the General Corporation Law on April 29, 2014 under the name Surface Oncology, Inc. The original certificate of incorporation was amended pursuant to the General Corporation Law through the filing of a Certificate of Amendment dated as of September 5, 2014. The certificate of incorporation was amended and restated on each of November 5, 2014 and November 21, 2014.

2. That the Board of Directors duly adopted resolutions proposing to amend and restate the Certificate of Incorporation of this corporation, declaring said amendment and restatement to be advisable and in the best interests of this corporation and its stockholders, and authorizing the appropriate officers of this corporation to solicit the consent of the stockholders therefor, which resolution setting forth the proposed amendment and restatement is as follows:

RESOLVED, that the Certificate of Incorporation of this corporation be amended and restated in its entirety to read as follows:

FIRST: The name of this corporation is Surface Oncology, Inc. (the “Corporation”).

SECOND: The address of the registered office of the Corporation in the State of Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle, 19801. The name of its registered agent at such address is The Corporation Trust Company.

THIRD: The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law.

FOURTH: The total number of shares of all classes of stock which the Corporation shall have authority to issue is (i) 50,100,000 shares of Common Stock, $0.0001 par value per share (“Common Stock”) and (ii) 37,100,000 shares of Preferred Stock, $0.0001 par value per share (“Preferred Stock”).

The following is a statement of the designations and the powers, privileges and rights, and the qualifications, limitations or restrictions thereof in respect of each class of capital stock of the Corporation.

 

1


A. COMMON STOCK

1. General. The voting, dividend and liquidation rights of the holders of the Common Stock are subject to and qualified by the rights, powers and preferences of the holders of the Preferred Stock set forth herein.

2. Voting. The holders of the Common Stock are entitled to one vote for each share of Common Stock held at all meetings of stockholders (and written actions in lieu of meetings); provided, however, that except as otherwise required by law, holders of Common Stock, as such, shall not be entitled to vote on any amendment to this Third Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”) that relates solely to the terms of one or more outstanding series of Preferred Stock, if the holders of such affected series are entitled, either separately or together with the holders of one or more other such series, to vote thereon pursuant to the Certificate of Incorporation or pursuant to the General Corporation Law. There shall be no cumulative voting. The number of authorized shares of Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by (in addition to any vote of the holders of one or more series of Preferred Stock that may be required by the terms of the Certificate of Incorporation) the affirmative vote of the holders of shares of capital stock of the Corporation representing a majority of the votes represented by all outstanding shares of capital stock of the Corporation entitled to vote, irrespective of the provisions of Section 242(b)(2) of the General Corporation Law.

B. PREFERRED STOCK

2,000,000 shares of the authorized and unissued Preferred Stock of the Corporation are hereby designated “Series A-1 Preferred Stock” and 35,100,000 shares of the authorized and unissued Preferred Stock of the Corporation are hereby designated “Series A Preferred Stock,” in each case with the following rights, preferences, powers, privileges and restrictions, qualifications and limitations. Unless otherwise indicated, references to “sections” or “subsections” in this Part B of this Article Fourth refer to sections and subsections of Part B of this Article Fourth.

1. Dividends.

1.1 The Corporation shall not declare, pay or set aside any dividends on shares of any other class or series of capital stock of the Corporation (other than dividends on shares of Common Stock payable in shares of Common Stock) unless (in addition to the obtaining of any consents required elsewhere in the Certificate of Incorporation) the holders of the Preferred Stock then outstanding shall first receive, or simultaneously receive, a dividend on each outstanding share of Preferred Stock in an amount at least equal to (i) in the case of a dividend on Common Stock or any class or series that is convertible into Common Stock, that dividend per share of Preferred Stock as would equal the product of (A) the dividend payable on each share of such class or series determined, if applicable, as if all shares of such class or series had been converted into Common Stock and (B) the number of shares of Common Stock issuable upon conversion of a share of Preferred Stock, in each case calculated on the record date for determination of holders entitled to receive such dividend or (ii) in the case of a dividend on any class or series that is not convertible into Common Stock, at a rate per share of Preferred Stock determined by (A) dividing the amount of the dividend payable on each share of such class or series of capital stock by the original issuance price of such class or series of capital stock

 

2


(subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to such class or series) and (B) multiplying such fraction by an amount equal to the Applicable Original Issue Price (as defined below); provided that, if the Corporation declares, pays or sets aside, on the same date, a dividend on shares of more than one class or series of capital stock of the Corporation, the dividend payable to the holders of Preferred Stock pursuant to this Section 1 shall be calculated based upon the dividend on the class or series of capital stock that would result in the highest Preferred Stock dividend. The “Series A-1 Original Issue Price” shall mean $6.75 per share, subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series A-1 Preferred Stock. The “Series A Original Issue Price” shall mean $1.00 per share, subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series A Preferred Stock. The “Applicable Original Issue Price” shall mean the Series A-1 Original Issue Price or the Series A Original Issue Price, as applicable. The Corporation shall not declare, reserve, set aside or pay any dividends to the holders of shares of Common Stock except in accordance with this Section 1.

2. Liquidation, Dissolution or Winding Up; Certain Mergers, Consolidations and Asset Sales.

2.1 Preferential Payments to Holders of Preferred Stock. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event, the holders of shares of Series A-1 Preferred Stock and Series A Preferred Stock then outstanding, on a pari passu basis, shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders before any payment shall be made to the holders of Common Stock by reason of their ownership thereof, an amount per share equal to (i) in the case of the Series A-1 Preferred Stock, the greater of (x) the Series A-1 Original Issue Price, plus any dividends declared but unpaid thereon, or (y) such amount per share as would have been payable had all shares of Series A-1 Preferred Stock been converted into Common Stock pursuant to Section 4 immediately prior to such liquidation, dissolution, winding up or Deemed Liquidation Event (the amount payable pursuant to this sentence is hereinafter referred to as the “Series A-1 Liquidation Amount”), and (ii) in the case of the Series A Preferred Stock, the Series A Original Issue Price, plus any dividends declared but unpaid thereon. If upon any such liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event, the assets of the Corporation available for distribution to its stockholders shall be insufficient to pay the holders of shares of Series A-1 Preferred Stock and the Series A Preferred Stock the full amount to which they shall be entitled under this Subsection 2.1, the holders of shares of Series A-1 Preferred Stock and Series A Preferred Stock shall share ratably in any distribution of the assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full.

2.2 Distribution of Remaining Assets. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event, after the payment of all preferential amounts required to be paid to the holders of shares of Preferred Stock, the remaining assets of the Corporation available for distribution to its stockholders shall be distributed among the holders of the shares of Series A Preferred Stock and Common Stock, pro rata based on the number of shares held by each such holder, treating for

 

3


this purpose all such securities as if they had been converted to Common Stock pursuant to the terms of the Certificate of Incorporation immediately prior to such liquidation, dissolution or winding up of the Corporation. The aggregate amount which a holder of a share of Series A Preferred Stock is entitled to receive under Subsections 2.1 and 2.2 is hereinafter referred to as the “Series A Liquidation Amount.”

2.3 Deemed Liquidation Events.

2.3.1 Definition. Each of the following events shall be considered a “Deemed Liquidation Event” unless the holders of at least sixty-one percent (61%) of the outstanding shares of Preferred Stock (voting together on an as-converted to Common Stock basis) (the “Required Holders”) elect otherwise by written notice sent to the Corporation at least ten (10) business days prior to the effective date of any such event:

(a) a merger or consolidation in which

 

  (i) the Corporation is a constituent party or

 

  (ii) a subsidiary of the Corporation is a constituent party and the Corporation issues shares of its capital stock pursuant to such merger or consolidation,

except any such merger or consolidation involving the Corporation or a subsidiary in which the shares of capital stock of the Corporation outstanding immediately prior to such merger or consolidation continue to represent, or are converted into or exchanged for shares of capital stock that represent, immediately following such merger or consolidation, at least a majority, by voting power, of the capital stock of (1) the surviving or resulting corporation; or (2) if the surviving or resulting corporation is a wholly owned subsidiary of another corporation immediately following such merger or consolidation, the parent corporation of such surviving or resulting corporation; or

(b) the sale, lease, transfer, exclusive license or other disposition, in a single transaction or series of related transactions, by the Corporation or any subsidiary of the Corporation of all or substantially all the assets of the Corporation and its subsidiaries taken as a whole or the sale or disposition (whether by merger, consolidation or otherwise) of one or more subsidiaries of the Corporation if substantially all of the assets of the Corporation and its subsidiaries taken as a whole are held by such subsidiary or subsidiaries, except where such sale, lease, transfer, exclusive license or other disposition is to a wholly owned subsidiary of the Corporation.

2.3.2 Effecting a Deemed Liquidation Event.

(a) The Corporation shall not have the power to effect a Deemed Liquidation Event referred to in Subsection 2.3.1(a)(i) unless the agreement or plan of merger or consolidation for such transaction (the “Merger Agreement”) provides that the consideration payable to the stockholders of the Corporation shall be allocated among the holders of capital stock of the Corporation in accordance with Subsections 2.1 and 2.2.

 

4


(b) In the event of a Deemed Liquidation Event referred to in Subsection 2.3.1(a)(ii) or 2.3.1(b), if the Corporation does not effect a dissolution of the Corporation under the General Corporation Law within ninety (90) days after such Deemed Liquidation Event, then (i) the Corporation shall send a written notice to each holder of Preferred Stock no later than the ninetieth (90th) day after the Deemed Liquidation Event advising such holders of their right (and the requirements to be met to secure such right) pursuant to the terms of the following clause; (ii) to require the redemption of such shares of Preferred Stock, and (iii) if the Required Holders so request in a written instrument delivered to the Corporation not later than one hundred twenty (120) days after such Deemed Liquidation Event, the Corporation shall use the consideration received by the Corporation for such Deemed Liquidation Event (net of any retained liabilities associated with the assets sold or technology licensed, as determined in good faith by the Board of Directors of the Corporation), together with any other assets of the Corporation available for distribution to its stockholders, all to the extent permitted by Delaware law governing distributions to stockholders (the “Available Proceeds”), on the one hundred fiftieth (150th) day after such Deemed Liquidation Event, to redeem all outstanding shares of Preferred Stock at a price per share equal to the applicable Liquidation Amount. Notwithstanding the foregoing, in the event of a redemption pursuant to the preceding sentence, if the Available Proceeds are not sufficient to redeem all outstanding shares of Preferred Stock, the Corporation shall ratably redeem each holder’s shares of Preferred Stock to the fullest extent of such Available Proceeds, and shall redeem the remaining shares as soon as it may lawfully do so under Delaware law governing distributions to stockholders. The provisions of Section 6 shall apply, with such necessary changes in the details thereof as are necessitated by the context, to the redemption of the Preferred Stock pursuant to this Subsection 2.3.2(b). Prior to the distribution or redemption provided for in this Subsection 2.3.2(b), the Corporation shall not expend or dissipate the consideration received for such Deemed Liquidation Event, except to discharge expenses incurred in connection with such Deemed Liquidation Event or in the ordinary course of business.

2.3.3 Amount Deemed Paid or Distributed. The amount deemed paid or distributed to the holders of capital stock of the Corporation upon any such merger, consolidation, sale, transfer, exclusive license, other disposition or redemption shall be the cash or the value of the property, rights or securities paid or distributed to such holders by the Corporation or the acquiring person, firm or other entity. The value of such property, rights or securities shall be determined in good faith by the Board of Directors of the Corporation.

2.3.4 Allocation of Escrow and Contingent Consideration. In the event of a Deemed Liquidation Event pursuant to Subsection 2.3.1(a)(i), if any portion of the consideration payable to the stockholders of the Corporation is payable only upon satisfaction of contingencies (the “Additional Consideration”), the Merger Agreement shall provide that (a) the portion of such consideration that is not Additional Consideration (such portion, the “Initial Consideration”) shall be allocated among the holders of capital stock of the Corporation in accordance with Subsections 2.1 and 2.2 as if the Initial Consideration were the only consideration payable in connection with such Deemed Liquidation Event; and (b) any Additional Consideration which becomes payable to the stockholders of the Corporation upon satisfaction of such contingencies shall be allocated among the holders of capital stock of the Corporation in accordance with Subsections 2.1 and 2.2 after taking into account the previous payment of the Initial Consideration as part of the same transaction. For the purposes of this Subsection 2.3.4, consideration placed into escrow or retained as holdback to be available for satisfaction of indemnification or similar obligations in connection with such Deemed Liquidation Event shall be deemed to be Additional Consideration.

 

5


3. Voting.

3.1 General. On any matter presented to the stockholders of the Corporation for their action or consideration at any meeting of stockholders of the Corporation (or by written consent of stockholders in lieu of meeting), each holder of outstanding shares of Preferred Stock shall be entitled to cast the number of votes equal to the number of whole shares of Common Stock into which the shares of Preferred Stock held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter. Except as provided by law or by the other provisions of the Certificate of Incorporation, holders of Preferred Stock shall vote together with the holders of Common Stock as a single class.

3.2 Election of Directors. The holders of record of the shares of Series A Preferred Stock and Series A-1 Preferred Stock, exclusively and as a separate class, shall be entitled to elect four (4) directors of the Corporation (the “Preferred Directors”) and the holders of record of the shares of Common Stock, exclusively and as a separate class, shall be entitled to elect one (1) director of the Corporation. Any director elected as provided in the preceding sentence may be removed with or without cause by, and only by, the affirmative vote of the holders of the shares of the class or series of capital stock entitled to elect such director or directors, given either at a special meeting of such stockholders duly called for that purpose or pursuant to a written consent of stockholders. If the holders of shares of Preferred Stock or Common Stock, as the case may be, fail to elect a sufficient number of directors to fill all directorships for which they are entitled to elect directors, voting exclusively and as a separate class, pursuant to the first sentence of this Subsection 3.2, then any directorship not so filled shall remain vacant until such time as the holders of the Preferred Stock or Common Stock, as the case may be, elect a person to fill such directorship by vote or written consent in lieu of a meeting; and no such directorship may be filled by stockholders of the Corporation other than by the stockholders of the Corporation that are entitled to elect a person to fill such directorship, voting exclusively and as a separate class. The holders of record of the shares of Common Stock and of any other class or series of voting stock (including the Preferred Stock), exclusively and voting together as a single class, shall be entitled to elect the balance of the total number of directors of the Corporation. At any meeting held for the purpose of electing a director, the presence in person or by proxy of the holders of a majority of the outstanding shares of the class or series entitled to elect such director shall constitute a quorum for the purpose of electing such director. Except as otherwise provided in this Subsection 3.2, a vacancy in any directorship filled by the holders of any class or series shall be filled only by vote or written consent in lieu of a meeting of the holders of such class or series or by any remaining director or directors elected by the holders of such class or series pursuant to this Subsection 3.2.

3.3 Preferred Stock Protective Provisions. At any time when shares of Preferred Stock are outstanding, the Corporation shall not, either directly or indirectly by amendment, merger, consolidation or otherwise, do any of the following without (in addition to any other vote required by law or the Certificate of Incorporation) the written consent or affirmative vote of the Required Holders, given in writing or by vote at a meeting, and any such act or transaction entered into without such consent or vote shall be null and void ab initio, and of no force or effect:

 

6


3.3.1 liquidate, dissolve or wind-up the business and affairs of the Corporation, effect any merger or consolidation or any other Deemed Liquidation Event, or consent to any of the foregoing;

3.3.2 amend, alter or repeal any provision of the Certificate of Incorporation or Bylaws of the Corporation;

3.3.3 create, or authorize the creation of, or issue or obligate itself to issue shares of, any additional class or series of capital stock, or any other securities convertible into any additional class or series of capital stock, or increase the authorized number of shares of Series A Preferred Stock or Series A-1 Preferred Stock or increase the authorized number of shares of any additional class or series of capital stock unless the same ranks junior to the Series A Preferred Stock and Series A-1 Preferred Stock with respect to the distribution of assets on the liquidation, dissolution or winding up of the Corporation, the payment of dividends and rights of redemption;

3.3.4 (i) reclassify, alter or amend any existing security of the Corporation that is pari passu with the Series A Preferred Stock or Series A-1 Preferred Stock in respect of the distribution of assets on the liquidation, dissolution or winding up of the Corporation, the payment of dividends or rights of redemption, if such reclassification, alteration or amendment would render such other security senior to the Series A Preferred Stock or the Series A-1 Preferred Stock in respect of any such right, preference, or privilege or (ii) reclassify, alter or amend any existing security of the Corporation that is junior to the Series A Preferred Stock and the Series A-1 Preferred Stock in respect of the distribution of assets on the liquidation, dissolution or winding up of the Corporation, the payment of dividends or rights of redemption, if such reclassification, alteration or amendment would render such other security senior to or pari passu with the Series A Preferred Stock or Series A-1 Preferred Stock in respect of any such right, preference or privilege;

3.3.5 purchase or redeem (or permit any subsidiary to purchase or redeem) or pay or declare any dividend or make any distribution on, any shares of capital stock of the Corporation other than (i) redemptions of or dividends or distributions on the Series A Preferred Stock or Series A-1 Preferred Stock as expressly authorized herein, (ii) dividends or other distributions payable on the Common Stock solely in the form of additional shares of Common Stock and (iii) repurchases of stock from former employees, officers, directors, consultants or other persons who performed services for the Corporation or any subsidiary in connection with the cessation of such employment or service at the lower of the original purchase price or the then-current fair market value thereof;

3.3.6 create, or authorize the creation of, or issue, or authorize the issuance of any debt security if the aggregate indebtedness of the Corporation for borrowed money following such action would exceed $250,000;

3.3.7 create, or hold capital stock in, any subsidiary or sell, transfer or otherwise dispose of any capital stock of any direct or indirect subsidiary of the Corporation, or permit any direct or indirect subsidiary to sell, lease, transfer, exclusively license or otherwise dispose (in a single transaction or series of related transactions) of all or substantially all of the assets of such subsidiary;

 

7


3.3.8 enter into or be a party to any transaction with any director, officer, or employee of the Corporation or any “associate” (as defined in Rule 12b-2 promulgated under the Exchange Act) of any such director, officer, or employee, except for transactions contemplated by the Stock Purchase Agreement (as defined below) or transactions made in the ordinary course of business and pursuant to reasonable requirements of the Corporation’s business and upon fair and reasonable terms that are approved by a majority of the Board of Directors;

3.3.9 guarantee, directly or indirectly, or permit any subsidiary to guarantee, directly or indirectly, any indebtedness except for trade accounts of the Company or any subsidiary arising in the ordinary course of business;

3.3.10 grant, agree to or execute, or permit any subsidiary to any grant, agree to or execute, a security interest in the assets of the Corporation outside of the ordinary course of business;

3.3.11 make, agree to or execute any loan or advance to any officer, director, employee, consultant or any other person, or any subsidiary or other corporation, partnership, person, individual or other entity, except advances and similar expenditures in the ordinary course of business or under the terms of an employee stock or option plan approved by the Board of Directors;

3.3.12 hire, terminate or materially change the compensation of the Corporation’s Chief Executive Officer or other principal executive officer;

3.3.13 increase or decrease the authorized number of directors constituting the Board of Directors; or

3.3.14 exclusively license any assets of the Corporation.

4. Optional Conversion.

The holders of the Preferred Stock shall have conversion rights as follows (the “Conversion Rights”):

4.1 Right to Convert.

4.1.1 Conversion Ratio. Each share of Preferred Stock shall be convertible, at the option of the holder thereof, at any time and from time to time, and without the payment of additional consideration by the holder thereof, into such number of fully paid and non-assessable shares of Common Stock as is determined by dividing the Series A Original Issue Price by the Applicable Conversion Price (as defined below) in effect at the time of conversion; provided, however, that, in the case of the Series A Preferred Stock, in no event shall such optional conversion right be exercisable until (i) each of the Milestone Closings (as defined in that certain Series A Preferred Stock Purchase Agreement, dated November 6, 2014, among this Corporation and the Purchasers named therein, as may be amended, restated or otherwise modified from time to time (the “Stock Purchase Agreement”)) has been consummated, or (ii) the Required Holders make a written election to terminate clause (i) of this Subsection 4.1.1. The “Series A-1 Conversion Price” shall initially be equal to $1.00. The “Series A Conversion

 

8


Price” shall initially be equal to $1.00. The “Applicable Conversion Price” shall mean the Series A-1 Conversion Price or the Series A Conversion Price, as applicable. Such initial Applicable Conversion Price, and the rate at which shares of Preferred Stock may be converted into shares of Common Stock, shall be subject to adjustment as provided below.

4.1.2 Termination of Conversion Rights. In the event of a notice of redemption of any shares of Preferred Stock pursuant to Section 6, the Conversion Rights of the shares designated for redemption shall terminate at the close of business on the last full day preceding the date fixed for redemption, unless the redemption price is not fully paid on such redemption date, in which case the Conversion Rights for such shares shall continue until such price is paid in full. In the event of a liquidation, dissolution or winding up of the Corporation or a Deemed Liquidation Event, the Conversion Rights shall terminate at the close of business on the last full day preceding the date fixed for the payment of any such amounts distributable on such event to the holders of Preferred Stock.

4.2 Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of the Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the fair market value of a share of Common Stock as determined in good faith by the Board of Directors of the Corporation. Whether or not fractional shares would be issuable upon such conversion shall be determined on the basis of the total number of shares of Preferred Stock the holder is at the time converting into Common Stock and the aggregate number of shares of Common Stock issuable upon such conversion.

4.3 Mechanics of Conversion.

4.3.1 Notice of Conversion. In order for a holder of Preferred Stock to voluntarily convert shares of Preferred Stock into shares of Common Stock, such holder shall (a) provide written notice to the Corporation’s transfer agent at the office of the transfer agent for the Preferred Stock (or at the principal office of the Corporation if the Corporation serves as its own transfer agent) that such holder elects to convert all or any number of such holder’s shares of Preferred Stock and, if applicable, any event on which such conversion is contingent and (b), if such holder’s shares are certificated, surrender the certificate or certificates for such shares of Preferred Stock (or, if such registered holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate), at the office of the transfer agent for the Preferred Stock (or at the principal office of the Corporation if the Corporation serves as its own transfer agent). Such notice shall state such holder’s name or the names of the nominees in which such holder wishes the shares of Common Stock to be issued. If required by the Corporation, any certificates surrendered for conversion shall be endorsed or accompanied by a written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or his, her or its attorney duly authorized in writing. The close of business on the date of receipt by the transfer agent (or by the Corporation if the Corporation serves as its own transfer agent) of such notice and, if applicable, certificates (or lost certificate affidavit and agreement) shall be the time of conversion (the “Conversion Time”), and the shares of Common Stock issuable upon conversion of the specified shares shall be deemed to be outstanding of record as of such date. The Corporation shall, as soon as practicable after the Conversion Time (i) issue and deliver to such holder of Preferred Stock, or

 

9


to his, her or its nominees, a certificate or certificates for the number of full shares of Common Stock issuable upon such conversion in accordance with the provisions hereof and a certificate for the number (if any) of the shares of Preferred Stock represented by the surrendered certificate that were not converted into Common Stock, (ii) pay in cash such amount as provided in Subsection 4.2 in lieu of any fraction of a share of Common Stock otherwise issuable upon such conversion and (iii) pay all declared but unpaid dividends on the shares of Preferred Stock converted.

4.3.2 Reservation of Shares. The Corporation shall at all times when the Preferred Stock shall be outstanding, reserve and keep available out of its authorized but unissued capital stock, for the purpose of effecting the conversion of the Preferred Stock, such number of its duly authorized shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Preferred Stock, the Corporation shall take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to the Certificate of Incorporation. Before taking any action which would cause an adjustment reducing the Applicable Conversion Price below the then-applicable par value of the shares of Common Stock issuable upon conversion of the Preferred Stock, the Corporation will take any corporate action which may, in the opinion of its counsel, be necessary in order that the Corporation may validly and legally issue fully paid and non-assessable shares of Common Stock at such adjusted Applicable Conversion Price.

4.3.3 Effect of Conversion. All shares of Preferred Stock which shall have been surrendered for conversion as herein provided shall no longer be deemed to be outstanding and all rights with respect to such shares shall immediately cease and terminate at the Conversion Time, except only the right of the holders thereof to receive shares of Common Stock in exchange therefor, to receive payment in lieu of any fraction of a share otherwise issuable upon such conversion as provided in Subsection 4.2 and to receive payment of any dividends declared but unpaid thereon. Any shares of Preferred Stock so converted shall be retired and cancelled and may not be reissued as shares of such series, and the Corporation may thereafter take such appropriate action (without the need for stockholder action) as may be necessary to reduce the authorized number of shares of Preferred Stock accordingly.

4.3.4 No Further Adjustment. Upon any such conversion, no adjustment to the Applicable Conversion Price shall be made for any declared but unpaid dividends on the Preferred Stock surrendered for conversion or on the Common Stock delivered upon conversion.

4.3.5 Taxes. The Corporation shall pay any and all issue and other similar taxes that may be payable in respect of any issuance or delivery of shares of Common Stock upon conversion of shares of Preferred Stock pursuant to this Section 4. The Corporation shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of shares of Common Stock in a name other than that in which the shares of Preferred Stock so converted were registered, and no such issuance or delivery shall be made unless and until the person or entity requesting such issuance has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid.

 

10


4.4 Adjustments to Applicable Conversion Price for Diluting Issues.

4.4.1 Special Definitions. For purposes of this Article Fourth, the following definitions shall apply:

(a) “Option” shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities.

(b) “Original Issue Date” shall mean the date on which the first share of Series A-1 Preferred Stock was issued.

(c) “Convertible Securities” shall mean any evidences of indebtedness, shares or other securities directly or indirectly convertible into or exchangeable for Common Stock, but excluding Options.

(d) “Additional Shares of Common Stock” shall mean all shares of Common Stock issued (or, pursuant to Subsection 4.4.3 below, deemed to be issued) by the Corporation after the Original Issue Date, other than (1) the following shares of Common Stock and (2) shares of Common Stock deemed issued pursuant to the following Options and Convertible Securities (clauses (1) and (2), collectively, “Exempted Securities”):

 

  

(i)     shares of Common Stock, Options or Convertible Securities issued as a dividend or distribution on Preferred Stock;

  

(ii)    shares of Common Stock, Options or Convertible Securities issued by reason of a dividend, stock split, split-up or other distribution on shares of Common Stock that is covered by Subsection 4.5, 4.6, 4.7 or 4.8;

  

(iii)  shares of Common Stock or Options issued to employees or directors of, or consultants or advisors to, the Corporation or any of its subsidiaries pursuant to a plan, agreement or arrangement approved by the Board of Directors of the Corporation, including a majority of the Preferred Directors;

  

(iv)   shares of Common Stock or Convertible Securities actually issued upon the exercise of Options or shares of Common Stock actually issued upon the conversion or exchange of Convertible Securities, in each case provided such issuance is pursuant to the terms of such Option or Convertible Security;

 

11


  

(v)    shares of Common Stock, Preferred Stock or Convertible Securities issued pursuant to the Stock Purchase Agreement (as defined above);

  

(vi)   shares of Common Stock, Options or Convertible Securities issued to banks, equipment lessors or other financial institutions, or to real property lessors, pursuant to a debt financing, equipment leasing or real property leasing transaction approved by the Board of Directors of the Corporation, including a majority of the Preferred Directors; or

  

(vii) shares of Common Stock, Options or Convertible Securities issued to suppliers or third party service providers in connection with the provision of goods or services pursuant to transactions approved by the Board of Directors of the Corporation, including a majority of the Preferred Directors.

4.4.2 No Adjustment of Applicable Conversion Price. No adjustment in the Applicable Conversion Price shall be made as the result of the issuance or deemed issuance of Additional Shares of Common Stock if the Corporation receives written notice from the Required Holders agreeing that no such adjustment shall be made as the result of the issuance or deemed issuance of such Additional Shares of Common Stock.

4.4.3 Deemed Issue of Additional Shares of Common Stock.

(a) If the Corporation at any time or from time to time after the Original Issue Date shall issue any Options or Convertible Securities (excluding Options or Convertible Securities which are themselves Exempted Securities) or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares of Common Stock (as set forth in the instrument relating thereto, assuming the satisfaction of any conditions to exercisability, convertibility or exchangeability but without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date.

 

12


(b) If the terms of any Option or Convertible Security, the issuance of which resulted in an adjustment to the Applicable Conversion Price pursuant to the terms of Subsection 4.4.4, are revised as a result of an amendment to such terms or any other adjustment pursuant to the provisions of such Option or Convertible Security (but excluding automatic adjustments to such terms pursuant to anti-dilution or similar provisions of such Option or Convertible Security) to provide for either (1) any increase or decrease in the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any such Option or Convertible Security or (2) any increase or decrease in the consideration payable to the Corporation upon such exercise, conversion and/or exchange, then, effective upon such increase or decrease becoming effective, the Applicable Conversion Price computed upon the original issue of such Option or Convertible Security (or upon the occurrence of a record date with respect thereto) shall be readjusted to such Applicable Conversion Price as would have obtained had such revised terms been in effect upon the original date of issuance of such Option or Convertible Security. Notwithstanding the foregoing, no readjustment pursuant to this clause (b) shall have the effect of increasing the Applicable Conversion Price to an amount which exceeds the lower of (i) the Applicable Conversion Price in effect immediately prior to the original adjustment made as a result of the issuance of such Option or Convertible Security, or (ii) the Applicable Conversion Price that would have resulted from any issuances of Additional Shares of Common Stock (other than deemed issuances of Additional Shares of Common Stock as a result of the issuance of such Option or Convertible Security) between the original adjustment date and such readjustment date.

(c) If the terms of any Option or Convertible Security (excluding Options or Convertible Securities which are themselves Exempted Securities), the issuance of which did not result in an adjustment to the Applicable Conversion Price pursuant to the terms of Subsection 4.4.4 (either because the consideration per share (determined pursuant to Subsection 4.4.5) of the Additional Shares of Common Stock subject thereto was equal to or greater than the Applicable Conversion Price then in effect, or because such Option or Convertible Security was issued before the Original Issue Date), are revised after the Original Issue Date as a result of an amendment to such terms or any other adjustment pursuant to the provisions of such Option or Convertible Security (but excluding automatic adjustments to such terms pursuant to anti-dilution or similar provisions of such Option or Convertible Security) to provide for either (1) any increase in the number of shares of Common Stock issuable upon the exercise, conversion or exchange of any such Option or Convertible Security or (2) any decrease in the consideration payable to the Corporation upon such exercise, conversion or exchange, then such Option or Convertible Security, as so amended or adjusted, and the Additional Shares of Common Stock subject thereto (determined in the manner provided in Subsection 4.4.3(a) shall be deemed to have been issued effective upon such increase or decrease becoming effective.

(d) Upon the expiration or termination of any unexercised Option or unconverted or unexchanged Convertible Security (or portion thereof) which resulted (either upon its original issuance or upon a revision of its terms) in an adjustment to the Applicable Conversion Price pursuant to the terms of Subsection 4.4.4, the Applicable Conversion Price shall be readjusted to such Applicable Conversion Price as would have obtained had such Option or Convertible Security (or portion thereof) never been issued.

 

13


(e) If the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any Option or Convertible Security, or the consideration payable to the Corporation upon such exercise, conversion and/or exchange, is calculable at the time such Option or Convertible Security is issued or amended but is subject to adjustment based upon subsequent events, any adjustment to the Applicable Conversion Price provided for in this Subsection 4.4.3 shall be effected at the time of such issuance or amendment based on such number of shares or amount of consideration without regard to any provisions for subsequent adjustments (and any subsequent adjustments shall be treated as provided in clauses (b) and (c) of this Subsection 4.4.3). If the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any Option or Convertible Security, or the consideration payable to the Corporation upon such exercise, conversion and/or exchange, cannot be calculated at all at the time such Option or Convertible Security is issued or amended, any adjustment to the Applicable Conversion Price that would result under the terms of this Subsection 4.4.3 at the time of such issuance or amendment shall instead be effected at the time such number of shares and/or amount of consideration is first calculable (even if subject to subsequent adjustments), assuming for purposes of calculating such adjustment to the Applicable Conversion Price that such issuance or amendment took place at the time such calculation can first be made.

4.4.4 Adjustment of Applicable Conversion Price Upon Issuance of Additional Shares of Common Stock. In the event the Corporation shall at any time after the Original Issue Date issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Subsection 4.4.3), without consideration or for a consideration per share less than the Series A Conversion Price in effect immediately prior to such issue, then the Applicable Conversion Price shall be reduced, concurrently with such issue, to a price (calculated to the nearest one-hundredth of a cent) determined in accordance with the following formula:

CP2 = CP1* (A + B) ÷ (A + C).

For purposes of the foregoing formula, the following definitions shall apply:

(a) “CP2” shall mean the Applicable Conversion Price in effect immediately after such issue of Additional Shares of Common Stock

(b) “CP1” shall mean the Applicable Conversion Price in effect immediately prior to such issue of Additional Shares of Common Stock;

(c) “A” shall mean the number of shares of Common Stock outstanding immediately prior to such issue of Additional Shares of Common Stock (treating for this purpose as outstanding all shares of Common Stock issuable upon exercise of Options outstanding immediately prior to such issue or upon conversion or exchange of Convertible Securities (including the Preferred Stock) outstanding (assuming exercise of any outstanding Options therefor) immediately prior to such issue);

(d) “B” shall mean the number of shares of Common Stock that would have been issued if such Additional Shares of Common Stock had been issued at a price per share equal to CP1 (determined by dividing the aggregate consideration received by the Corporation in respect of such issue by CP1); and

 

14


(e) “C” shall mean the number of such Additional

Shares of Common Stock issued in such transaction.

4.4.5 Determination of Consideration. For purposes of this Subsection 4.4, the consideration received by the Corporation for the issue of any Additional Shares of Common Stock shall be computed as follows:

(a) Cash and Property: Such consideration shall:

 

  (i) insofar as it consists of cash, be computed at the aggregate amount of cash received by the Corporation, excluding amounts paid or payable for accrued interest;

 

  (ii) insofar as it consists of property other than cash, be computed at the fair market value thereof at the time of such issue, as determined in good faith by the Board of Directors of the Corporation; and

 

  (iii) in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (i) and (ii) above, as determined in good faith by the Board of Directors of the Corporation.

(b) Options and Convertible Securities. The consideration per share received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Subsection 4.4.3, relating to Options and Convertible Securities, shall be determined by dividing:

 

  (i) The total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, by

 

15


  (ii) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities.

4.4.6 Multiple Closing Dates. In the event the Corporation shall issue on more than one date Additional Shares of Common Stock that are a part of one transaction or a series of related transactions and that would result in an adjustment to the Applicable Conversion Price pursuant to the terms of Subsection 4.4.4, and such issuance dates occur within a period of no more than ninety (90) days from the first such issuance to the final such issuance, then, upon the final such issuance, the Applicable Conversion Price shall be readjusted to give effect to all such issuances as if they occurred on the date of the first such issuance (and without giving effect to any additional adjustments as a result of any such subsequent issuances within such period).

4.5 Adjustment for Stock Splits and Combinations. If the Corporation shall at any time or from time to time after the Original Issue Date effect a subdivision of the outstanding Common Stock, the Applicable Conversion Price in effect immediately before that subdivision shall be proportionately decreased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be increased in proportion to such increase in the aggregate number of shares of Common Stock outstanding. If the Corporation shall at any time or from time to time after the Original Issue Date combine the outstanding shares of Common Stock, the Applicable Conversion Price in effect immediately before the combination shall be proportionately increased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be decreased in proportion to such decrease in the aggregate number of shares of Common Stock outstanding. Any adjustment under this subsection shall become effective at the close of business on the date the subdivision or combination becomes effective.

4.6 Adjustment for Certain Dividends and Distributions. In the event the Corporation at any time or from time to time after the Original Issue Date shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable on the Common Stock in additional shares of Common Stock, then and in each such event the Applicable Conversion Price in effect immediately before such event shall be decreased as of the time of such issuance or, in the event such a record date shall have been fixed, as of the close of business on such record date, by multiplying the Applicable Conversion Price then in effect by a fraction:

 

16


(1) the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and

(2) the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution.

Notwithstanding the foregoing (a) if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Applicable Conversion Price shall be recomputed accordingly as of the close of business on such record date and thereafter the Applicable Conversion Price shall be adjusted pursuant to this subsection as of the time of actual payment of such dividends or distributions; and (b) that no such adjustment shall be made if the holders of Preferred Stock simultaneously receive a dividend or other distribution of shares of Common Stock in a number equal to the number of shares of Common Stock as they would have received if all outstanding shares of Preferred Stock had been converted into Common Stock on the date of such event.

4.7 Adjustments for Other Dividends and Distributions. In the event the Corporation at any time or from time to time after the Original Issue Date shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities of the Corporation (other than a distribution of shares of Common Stock in respect of outstanding shares of Common Stock) or in other property and the provisions of Section 1 do not apply to such dividend or distribution, then and in each such event the holders of Preferred Stock shall receive, simultaneously with the distribution to the holders of Common Stock, a dividend or other distribution of such securities or other property in an amount equal to the amount of such securities or other property as they would have received if all outstanding shares of Preferred Stock had been converted into Common Stock on the date of such event.

4.8 Adjustment for Merger or Reorganization, etc. Subject to the provisions of Subsection 2.3, if there shall occur any reorganization, recapitalization, reclassification, consolidation or merger involving the Corporation in which the Common Stock (but not the Preferred Stock) is converted into or exchanged for securities, cash or other property (other than a transaction covered by Subsections 4.4, 4.6 or 4.7), then, following any such reorganization, recapitalization, reclassification, consolidation or merger, each share of Preferred Stock shall thereafter be convertible in lieu of the Common Stock into which it was convertible prior to such event into the kind and amount of securities, cash or other property which a holder of the number of shares of Common Stock of the Corporation issuable upon conversion of one share of Preferred Stock immediately prior to such reorganization, recapitalization, reclassification, consolidation or merger would have been entitled to receive pursuant to such transaction; and, in such case, appropriate adjustment (as determined in good faith by the Board of Directors of the Corporation) shall be made in the application of the provisions in this Section 4 with respect to the rights and interests thereafter of the holders of the Preferred Stock, to the end that the provisions set forth in this Section 4 (including provisions with respect to changes in and other adjustments of the Applicable Conversion Price) shall thereafter be applicable, as nearly as reasonably may be, in relation to any securities or other property thereafter deliverable upon the conversion of the Preferred Stock.

 

17


4.9 Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Applicable Conversion Price pursuant to this Section 4, the Corporation at its expense shall, as promptly as reasonably practicable but in any event not later than ten (10) days thereafter, compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of Preferred Stock, a certificate setting forth such adjustment or readjustment (including the kind and amount of securities, cash or other property into which the Preferred Stock is convertible) and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, as promptly as reasonably practicable after the written request at any time of any holder of Preferred Stock (but in any event not later than ten (10) days thereafter), furnish or cause to be furnished to such holder a certificate setting forth (i) the Applicable Conversion Price then in effect, and (ii) the number of shares of Common Stock and the amount, if any, of other securities, cash or property which then would be received upon the conversion of Preferred Stock.

4.10 Notice of Record Date. In the event:

(a) the Corporation shall take a record of the holders of its Common Stock (or other capital stock or securities at the time issuable upon conversion of the Preferred Stock) for the purpose of entitling or enabling them to receive any dividend or other distribution, or to receive any right to subscribe for or purchase any shares of capital stock of any class or any other securities, or to receive any other security; or

(b) of any capital reorganization of the Corporation, any reclassification of the Common Stock of the Corporation, or any Deemed Liquidation Event; or

(c) of the voluntary or involuntary dissolution, liquidation or winding-up of the Corporation,

then, and in each such case, the Corporation will send or cause to be sent to the holders of the Preferred Stock a notice specifying, as the case may be, (i) the record date for such dividend, distribution or right, and the amount and character of such dividend, distribution or right, or (ii) the effective date on which such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up is proposed to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or such other capital stock or securities at the time issuable upon the conversion of the Preferred Stock) shall be entitled to exchange their shares of Common Stock (or such other capital stock or securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up, and the amount per share and character of such exchange applicable to the Preferred Stock and the Common Stock. Such notice shall be sent at least ten (10) days prior to the record date or effective date for the event specified in such notice.

5. Mandatory Conversion.

5.1 Trigger Events. Upon either (a) the closing of the sale of shares of Common Stock to the public at a price of at least 300% of the Series A Original Issue Price, in a firm-commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, resulting in at least $35,000,000 of proceeds, net of the underwriting discount and commissions, to the Corporation (a “Qualified IPO”) or (b) the

 

18


date and time, or the occurrence of an event, specified by vote or written consent of the Required Holders (the time of such closing or the date and time specified or the time of the event specified in such vote or written consent is referred to herein as the “Mandatory Conversion Time”), then (i) all outstanding shares of Preferred Stock shall automatically be converted into shares of Common Stock, at the then effective conversion rate as calculated pursuant to Subsection 4.1.1 and (ii) such shares may not be reissued by the Corporation.

5.2 Procedural Requirements. All holders of record of shares of Preferred Stock shall be sent written notice of the Mandatory Conversion Time and the place designated for mandatory conversion of all such shares of Preferred Stock pursuant to this Section 5. Such notice need not be sent in advance of the occurrence of the Mandatory Conversion Time. Upon receipt of such notice, each holder of shares of Preferred Stock in certificated form shall surrender his, her or its certificate or certificates for all such shares (or, if such holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate) to the Corporation at the place designated in such notice. If so required by the Corporation, any certificates surrendered for conversion shall be endorsed or accompanied by written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or by his, her or its attorney duly authorized in writing. All rights with respect to the Preferred Stock converted pursuant to Subsection 5.1, including the rights, if any, to receive notices and vote (other than as a holder of Common Stock), will terminate at the Mandatory Conversion Time (notwithstanding the failure of the holder or holders thereof to surrender any certificates at or prior to such time), except only the rights of the holders thereof, upon surrender of any certificate or certificates of such holders (or lost certificate affidavit and agreement) therefor, to receive the items provided for in the next sentence of this Subsection 5.2. As soon as practicable after the Mandatory Conversion Time and, if applicable, the surrender of any certificate or certificates (or lost certificate affidavit and agreement) for Preferred Stock, the Corporation shall (a) issue and deliver to such holder, or to his, her or its nominees, a certificate or certificates for the number of full shares of Common Stock issuable on such conversion in accordance with the provisions hereof and (b) pay cash as provided in Subsection 4.2 in lieu of any fraction of a share of Common Stock otherwise issuable upon such conversion and the payment of any declared but unpaid dividends on the shares of Preferred Stock converted. Such converted Preferred Stock shall be retired and cancelled and may not be reissued as shares of such series, and the Corporation may thereafter take such appropriate action (without the need for stockholder action) as may be necessary to reduce the authorized number of shares of Preferred Stock accordingly.

5A. Special Mandatory Conversion.

5A.1. Trigger Event. In the event that any holder of Series A Preferred Stock is a Defaulting Purchaser under (and as defined in) Section 1.4 of the Stock Purchase Agreement at any Milestone Closing (as defined in the Stock Purchase Agreement), then in connection with such Milestone Closing with respect to which such holder is a Defaulting Purchaser, each four (4) shares of Series A Preferred Stock held by such holder shall automatically, and without any further action on the part of such holder, be converted into one (1) share of Common Stock, effective upon, subject to, and concurrently with, the consummation of such Milestone Closing, unless applicability of this Section 5A with respect to such holder and such Milestone Closing is

 

19


waived by the Required Holders prior to such Milestone Closing; provided, however, that in the event that a Milestone Closing occurs due to a Milestone Closing Election (as defined in the Stock Purchase Agreement), then in connection with such Milestone Closing with respect to which to such holder is a Defaulting Purchaser, each one (1) share of Series A Preferred Stock held by such holder shall automatically, and without any further action on the part of such holder, be converted into one (1) share of Common Stock, effective upon, subject to, and concurrently with, the consummation of such Milestone Closing. For purposes of determining the number of shares of Series A Preferred Stock owned by a holder and the number of shares of Series A Preferred Stock which such holder is obligated to purchase under the Stock Purchase Agreement at such Milestone Closing, all shares of Series A Preferred Stock held by Affiliates (as defined below) of such holder shall be aggregated with such holder’s shares, and all shares of Series A Preferred Stock to be sold at such Milestone Closing and purchased by Affiliates of such holder, shall be aggregated with the shares of Series A Preferred Stock purchased by such holder at such Milestone Closing (provided that no shares or securities shall be attributed to more than one entity or person within any such group of affiliated entities or persons). Such conversion is referred to as a “Special Mandatory Conversion.”

5A.2. Procedural Requirements. Upon a Special Mandatory Conversion, each holder of shares of Series A Preferred Stock converted pursuant to Subsection 5A.1 shall be sent written notice of such Special Mandatory Conversion and the place designated for mandatory conversion of all such shares of Series A Preferred Stock pursuant to this Section 5A. Upon receipt of such notice, each holder of such shares of Series A Preferred Stock in certificated form shall surrender his, her or its certificate or certificates for all such shares (or, if such holder alleges that any such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate) to the Corporation at the place designated in such notice. If so required by the Corporation, any certificates surrendered for conversion shall be endorsed or accompanied by written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or by his, her or its attorney duly authorized in writing. All rights with respect to the Series A Preferred Stock converted pursuant to Subsection 5A.1, including the rights, if any, to receive notices and vote (other than as a holder of Common Stock), will terminate at the time of the Special Mandatory Conversion (notwithstanding the failure of the holder or holders thereof to surrender any certificates for such shares at or prior to such time), except only the rights of the holders thereof, upon surrender of any certificate or certificates of such holders therefor (or lost certificate affidavit and agreement), to receive the items provided for in the next sentence of this Subsection 5A.2. As soon as practicable after the Special Mandatory Conversion and, if applicable, the surrender of any certificate or certificates (or lost certificate affidavit and agreement) for Series A Preferred Stock so converted, the Corporation shall (a) issue and deliver to such holder, or to his, her or its nominees, a certificate or certificates for the number of full shares of Common Stock issuable on such conversion in accordance with the provisions hereof and (b) pay cash as provided in Subsection 4.2 in lieu of any fraction of a share of Common Stock otherwise issuable upon such conversion and the payment of any declared but unpaid dividends on the shares of Series A Preferred Stock converted. Such converted Series A Preferred Stock shall be retired and cancelled and may not be reissued as shares of such series, and the Corporation may thereafter take such appropriate action (without the need for stockholder action) as may be necessary to reduce the authorized number of shares of Series A Preferred Stock accordingly.

 

20


5A.3 Definitions. For purposes of this Section 5A,Affiliate” shall mean, with respect to any holder of shares of Series A Preferred Stock, any other individual, corporation, partnership, trust, limited liability company, association or other entity (each, a “Person”) which, directly or indirectly, controls, is controlled by, or is under common control with such Person, including, without limitation, any general partner, managing member, limited partner, member, employee, officer or director of such Person or any venture capital fund now or hereafter existing that is controlled by one or more general partners or managing members of, or shares the same management company with, such Person. For purposes of this definition, the term “control” when used with respect to any Person means the power to direct the management or policies of such Person, directly or indirectly, whether through ownership of voting securities, by contract or otherwise, and the terms “controlling” and “controlled” shall have meanings correlative to the foregoing.

6. Redemption.

6.1 General. Unless prohibited by Delaware law governing distributions to stockholders, shares of Preferred Stock shall be redeemed by the Corporation at a price equal to the Applicable Original Issue Price per share, plus all declared but unpaid dividends thereon (the “Redemption Price”), in three (3) annual installments commencing not more than sixty (60) days after receipt by the Corporation from the Required Holders of written notice requesting redemption of all shares of Preferred Stock at any time on or after January 8, 2020 (the “Redemption Request”). Upon receipt of a Redemption Request, the Corporation shall apply all of its assets to any such redemption, and to no other corporate purpose, except to the extent prohibited by Delaware law governing distributions to stockholders. The date of each such installment shall be referred to as a “Redemption Date.” On each Redemption Date, the Corporation shall redeem, on a pro rata basis in accordance with the number of shares of Preferred Stock owned by each holder, that number of outstanding shares of Preferred Stock determined by dividing (i) the total number of shares of Preferred Stock outstanding immediately prior to such Redemption Date by (ii) the number of remaining Redemption Dates (including the Redemption Date to which such calculation applies). If on any Redemption Date Delaware law governing distributions to stockholders prevents the Corporation from redeeming all shares of Preferred Stock to be redeemed, the Corporation shall ratably redeem the maximum number of shares that it may redeem consistent with such law, and shall redeem the remaining shares as soon as it may lawfully do so under such law.

6.2 Redemption Notice. The Corporation shall send written notice of the mandatory redemption (the “Redemption Notice”) to each holder of record of Preferred Stock not less than forty (40) days prior to each Redemption Date. Each Redemption Notice shall state:

(a) the number of shares of Preferred Stock held by the holder that the Corporation shall redeem on the Redemption Date specified in the Redemption Notice;

(b) the Redemption Date and the Redemption Price;

(c) the date upon which the holder’s right to convert such shares terminates (as determined in accordance with Subsection 4.1); and

 

21


(d) for holders of shares in certificated form, that the holder is to surrender to the Corporation, in the manner and at the place designated, his, her or its certificate or certificates representing the shares of Preferred Stock to be redeemed.

6.3 Surrender of Certificates; Payment. On or before the applicable Redemption Date, each holder of shares of Preferred Stock to be redeemed on such Redemption Date, unless such holder has exercised his, her or its right to convert such shares as provided in Section 4, shall, if a holder of shares in certificated form, surrender the certificate or certificates representing such shares (or, if such registered holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate) to the Corporation, in the manner and at the place designated in the Redemption Notice, and thereupon the Redemption Price for such shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof. In the event less than all of the shares of Preferred Stock represented by a certificate are redeemed, a new certificate, instrument, or book entry representing the unredeemed shares of Preferred Stock shall promptly be issued to such holder.

6.4 Rights Subsequent to Redemption. If the Redemption Notice shall have been duly given, and if on the applicable Redemption Date the Redemption Price payable upon redemption of the shares of Preferred Stock to be redeemed on such Redemption Date is paid or tendered for payment or deposited with an independent payment agent so as to be available therefor in a timely manner, then notwithstanding that any certificates evidencing any of the shares of Preferred Stock so called for redemption shall not have been surrendered, dividends with respect to such shares of Preferred Stock shall cease to accrue after such Redemption Date and all rights with respect to such shares shall forthwith after the Redemption Date terminate, except only the right of the holders to receive the Redemption Price without interest upon surrender of any such certificate or certificates therefor.

6.5 Failure to Redeem. If the Corporation for any reason, including because Delaware law governing distributions to stockholders prevents the Corporation from redeeming all shares of Preferred Stock to be redeemed, fails to redeem any of the shares of Preferred Stock in accordance with Subsection 6.1 on or prior to the redemption dates determined in accordance with Subsection 6.1, then, notwithstanding any provision to the contrary contained herein or in any contract or agreement to which the Corporation is a party, after the 90th consecutive day on which a default under this Section 6 by the Corporation is uncured, (i) the number of directors constituting the Board of Directors shall be increased by such number as is required, after taking into account clause (ii) of this sentence, to allow the Required Holders to elect a majority of the number of directors constituting the Board of Directors, and (ii) the Required Holders shall have the right, by written consent or at any special or annual meeting of the stockholders of the Corporation, voting together as a separate class to the exclusion of the holders of Common Stock, to elect directors of the Corporation to fill such newly created directorships. Such right and the terms of any such director so elected shall continue until the Corporation is no longer in default of its obligation to redeem shares of Preferred Stock pursuant to Subsection 6.1. Each director elected by the holders of shares of Preferred Stock pursuant to this Subsection 6.5 (each, an “Additional Director”) shall continue to serve as such director until a default under this Section 6 shall cease to exist, at which time the

 

22


term of each such director shall end and the number of directors constituting the Board of Directors shall thereupon be reduced by the number of Additional Directors. As long as a default under this Section 6 shall exist, any vacancy in the office of an Additional Director shall be filled by the vote or written consent of the Required Holders entitled to have originally voted for the removed director’s election, voting together as a separate class to the exclusion of the holders of Common Stock.

7. Redeemed or Otherwise Acquired Shares. Any shares of Preferred Stock that are redeemed or otherwise acquired by the Corporation or any of its subsidiaries shall be automatically and immediately cancelled and retired and shall not be reissued, sold or transferred. Neither the Corporation nor any of its subsidiaries may exercise any voting or other rights granted to the holders of Preferred Stock following redemption.

8. Waiver. Any of the rights, powers, preferences and other terms of the Preferred Stock set forth herein may be waived on behalf of all holders of Preferred Stock by the affirmative written consent or vote of the Required Holders.

9. Notices. Any notice required or permitted by the provisions of this Article Fourth to be given to a holder of shares of Preferred Stock shall be mailed, postage prepaid, to the post office address last shown on the records of the Corporation, or given by electronic communication in compliance with the provisions of the General Corporation Law, and shall be deemed sent upon such mailing or electronic transmission.

FIFTH: Subject to any additional vote required by the Certificate of Incorporation or Bylaws, in furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, repeal, alter, amend and rescind any or all of the Bylaws of the Corporation.

SIXTH: Subject to any additional vote required by the Certificate of Incorporation, the number of directors of the Corporation shall be determined in the manner set forth in the Bylaws of the Corporation.

SEVENTH: Elections of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide.

EIGHTH: Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws of the Corporation may provide. The books of the Corporation may be kept outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation.

NINTH: To the fullest extent permitted by law, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. If the General Corporation Law or any other law of the State of Delaware is amended after approval by the stockholders of this Article Ninth to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the General Corporation Law as so amended.

 

23


Any repeal or modification of the foregoing provisions of this Article Ninth by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of, or increase the liability of any director of the Corporation with respect to any acts or omissions of such director occurring prior to, such repeal or modification.

TENTH: To the fullest extent permitted by applicable law, the Corporation is authorized to provide indemnification of (and advancement of expenses to) directors, officers and agents of the Corporation (and any other persons to which General Corporation Law permits the Corporation to provide indemnification) through Bylaw provisions, agreements with such agents or other persons, vote of stockholders or disinterested directors or otherwise, in excess of the indemnification and advancement otherwise permitted by Section 145 of the General Corporation Law.

Any amendment, repeal or modification of the foregoing provisions of this Article Tenth shall not adversely affect any right or protection of any director, officer or other agent of the Corporation existing at the time of such amendment, repeal or modification.

ELEVENTH: The Corporation renounces, to the fullest extent permitted by law, any interest or expectancy of the Corporation in, or in being offered an opportunity to participate in, any Excluded Opportunity. An “Excluded Opportunity” is any matter, transaction or interest that is presented to, or acquired, created or developed by, or which otherwise comes into the possession of (i) any director of the Corporation who is not an employee of the Corporation or any of its subsidiaries, or (ii) any holder of Preferred Stock or any partner, member, director, stockholder, employee or agent of any such holder, other than someone who is an employee of the Corporation or any of its subsidiaries (collectively, “Covered Persons”), unless such matter, transaction or interest is presented to, or acquired, created or developed by, or otherwise comes into the possession of, a Covered Person expressly and solely in such Covered Person’s capacity as a director of the Corporation.

TWELFTH: Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery in the State of Delaware shall be the sole and exclusive forum for any stockholder (including a beneficial owner) to bring (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of fiduciary duty owed by any director, officer or other employee of the Corporation to the Corporation or the Corporation’s stockholders, (iii) any action asserting a claim against the Corporation, its directors, officers or employees arising pursuant to any provision of the Delaware General Corporation Law or the Corporation’s certificate of incorporation or bylaws or (iv) any action asserting a claim against the Corporation, its directors, officers or employees governed by the internal affairs doctrine, except for, as to each of (i) through (iv) above, any claim as to which the Court of Chancery determines that there is an indispensable party not subject to the jurisdiction of the Court of Chancery (and the indispensable party does not consent to the personal jurisdiction of the Court of Chancery within ten days following such determination), which is vested in the exclusive jurisdiction of a court or forum other than the Court of Chancery, or for which the Court of Chancery does not have subject matter jurisdiction. If any provision or provisions of this Article Twelfth shall be held to be invalid, illegal or unenforceable as applied to any person or entity or circumstance for any reason whatsoever, then, to the fullest extent permitted by law, the validity, legality and enforceability of such provisions in any other circumstance and of the remaining provisions of this Article Twelfth

 

24


(including, without limitation, each portion of any sentence of this Article Twelfth containing any such provision held to be invalid, illegal or unenforceable that is not itself held to be invalid, illegal or unenforceable) and the application of such provision to other persons or entities and circumstances shall not in any way be affected or impaired thereby.

*     *     *

3. That the foregoing amendment and restatement was approved by the holders of the requisite number of shares of this corporation in accordance with Section 228 of the General Corporation Law.

4. That this Third Amended and Restated Certificate of Incorporation, which restates and integrates and further amends the provisions of this Corporation’s Certificate of Incorporation, has been duly adopted in accordance with Sections 242 and 245 of the General Corporation Law.

 

25


IN WITNESS WHEREOF, this Third Amended and Restated Certificate of Incorporation has been executed by a duly authorized officer of this corporation on this 8th day of January, 2016.

 

SURFACE ONCOLOGY, INC.
By:  

/s/ Detlev Biniszkiewicz

Name:   Detlev Biniszkiewicz
Title:   President and CEO


  Delaware   

Page 1

  The First State   

I, JEFFREY W. BULLOCK, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT OF “SURFACE ONCOLOGY, INC.”, FILED IN THIS OFFICE ON THE TWENTY-NINTH DAY OF JANUARY, A.D. 2016, AT 9:35 O’CLOCK A.M.

A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE COUNTY RECORDER OF DEEDS.

 

 

LOGO

   LOGO

5524749 8100

     Authentication: 201748696
SR# 20160470192      Date: 01-29-16
          

You may verify this certificate online at corp.delaware.gov/authver.shtml

  


CERTIFICATE OF AMENDMENT

TO THE

THIRD AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF

SURFACE ONCOLOGY, INC.

(Pursuant to Section 242 of the

General Corporation Law of the State of Delaware)

Surface Oncology, Inc. (the “Corporation”), a corporation organized and existing under and by virtue of the provisions of the General Corporation Law of the State of Delaware (the “General Corporation Law”),

DOES HEREBY CERTIFY:

1. That the name of this corporation is Surface Oncology, Inc., and that this corporation was originally incorporated pursuant to the General Corporation law on April 29, 2014.

2. That the Third Amended and Restated Certificate of Incorporation of this corporation was filed with the Secretary of State of the State of Delaware on January 8, 2016.

3. That the Board of Directors duly adopted resolutions proposing to amend the Third Amended and Restated Certificate of Incorporation of this corporation, declaring said amendment to be advisable and in the best interests of this corporation and its stockholders, and authorizing the appropriate officers of this corporation to solicit the consent of the stockholders therefor.

4. That the Third Amended and Restated Certificate of Incorporation is hereby amended by deleting the first paragraph of Article FOURTH of the Third Amended and Restated Certificate of Incorporation in its present form and substituting therefore the paragraph set forth below:

 

  FOURTH: The total number of shares of all classes of stock which the Corporation shall have authority to issue is (i) 53,000,000 shares of Common Stock, $0.0001 par value per share (“Common Stock”) and (ii) 37,100,000 shares of Preferred Stock, $0.0001 par value per share (“Preferred Stock”).

5. That the foregoing amendment was approved by the holders of the requisite number of shares of this corporation in accordance with Section 228 of the General Corporation Law.

* * * * *

 

   

State of Delaware

   

Secretary of State

   

Division of Corporations

   

Delivered 09:35 AM 01/29/2016

   

FILED 09:35 AM 01/29/2016

   

SR 20160470192 - File Number 5524749


IN WITNESS WHEREOF, the undersigned authorized officer of the Corporation has executed this Certificate of Amendment to Certificate of Incorporation as of January 29, 2016.

 

SURFACE ONCOLOGY, INC.
By:   /s/ Detlev Biniszkiewicz
Name:   Detlev Biniszkiewicz
Title:   President and Chief Executive Officer

EX-3.2

Exhibit 3.2

AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF

SURFACE ONCOLOGY, INC.

Surface Oncology, Inc., a corporation organized and existing under the laws of the State of Delaware (the “Corporation”), hereby certifies as follows:

1. The name of the Corporation is Surface Oncology, Inc. The date of the filing of its original Certificate of Incorporation with the Secretary of State of the State of Delaware was April 29, 2014 (the “Original Certificate”).

2. This Amended and Restated Certificate of Incorporation (the “Certificate”) amends, restates and integrates the provisions of the Third Amended and Restated Certificate of Incorporation that was filed with the Secretary of State of the State of Delaware on January 8, 2016 (as amended, the “Amended and Restated Certificate”), and was duly adopted in accordance with the provisions of Sections 228, 242 and 245 of the General Corporation Law of the State of Delaware (the “DGCL”).

3. The text of the Amended and Restated Certificate is hereby amended and restated in its entirety to provide as herein set forth in full.

ARTICLE I

The name of the Corporation is Surface Oncology, Inc.

ARTICLE II

The address of the Corporation’s registered office in the State of Delaware is c/o The Corporation Trust Company, 1209 Orange Street in the City of Wilmington, County of New Castle, 19801. The name of its registered agent at such address is The Corporation Trust Company.

ARTICLE III

The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the DGCL.


ARTICLE IV

CAPITAL STOCK

The total number of shares of capital stock which the Corporation shall have authority to issue is one hundred fifty-five million (155,000,000) shares, of which (i) one hundred fifty million (150,000,000) shares shall be a class designated as common stock, par value $0.0001 per share (the “Common Stock”), and (ii) five million (5,000,000) shares shall be a class designated as undesignated preferred stock, par value $0.0001 per share (the “Undesignated Preferred Stock”).

Except as otherwise provided in any certificate of designations of any series of Undesignated Preferred Stock, the number of authorized shares of the class of Common Stock or Undesignated Preferred Stock may from time to time be increased or decreased (but not below the number of shares of such class outstanding) by the affirmative vote of the holders of a majority in voting power of the outstanding shares of capital stock of the Corporation irrespective of the provisions of Section 242(b)(2) of the DGCL.

The powers, preferences and rights of, and the qualifications, limitations and restrictions upon, each class or series of stock shall be determined in accordance with, or as set forth below in, this Article IV.

A. COMMON STOCK

Subject to all the rights, powers and preferences of the Undesignated Preferred Stock and except as provided by law or in this Certificate (or in any certificate of designations of any series of Undesignated Preferred Stock):

(a) the holders of the Common Stock shall have the exclusive right to vote for the election of directors of the Corporation (the “Directors”) and on all other matters requiring stockholder action, each outstanding share entitling the holder thereof to one vote on each matter properly submitted to the stockholders of the Corporation for their vote; provided, however, that, except as otherwise required by law, holders of Common Stock, as such, shall not be entitled to vote on any amendment to this Certificate (or on any amendment to a certificate of designations of any series of Undesignated Preferred Stock) that alters or changes the powers, preferences, rights or other terms of one or more outstanding series of Undesignated Preferred Stock if the holders of such affected series of Undesignated Preferred Stock are entitled to vote, either separately or together with the holders of one or more other such series, on such amendment pursuant to this Certificate (or pursuant to a certificate of designations of any series of Undesignated Preferred Stock) or pursuant to the DGCL;

(b) dividends may be declared and paid or set apart for payment upon the Common Stock out of any assets or funds of the Corporation legally available for the payment of dividends, but only when and as declared by the Board of Directors or any authorized committee thereof; and

 

3


(c) upon the voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the net assets of the Corporation shall be distributed pro rata to the holders of the Common Stock.

B. UNDESIGNATED PREFERRED STOCK

The Board of Directors or any authorized committee thereof is expressly authorized, to the fullest extent permitted by law, to provide by resolution or resolutions for, out of the unissued shares of Undesignated Preferred Stock, the issuance of the shares of Undesignated Preferred Stock in one or more series of such stock, and by filing a certificate of designations pursuant to applicable law of the State of Delaware, to establish or change from time to time the number of shares of each such series, and to fix the designations, powers, including voting powers, full or limited, or no voting powers, preferences and the relative, participating, optional or other special rights of the shares of each series and any qualifications, limitations and restrictions thereof.

ARTICLE V

STOCKHOLDER ACTION

1. Action without Meeting. Any action required or permitted to be taken by the stockholders of the Corporation at any annual or special meeting of stockholders of the Corporation must be effected at a duly called annual or special meeting of stockholders and may not be taken or effected by a written consent of stockholders in lieu thereof.

2. Special Meetings. Except as otherwise required by statute and subject to the rights, if any, of the holders of any series of Undesignated Preferred Stock, special meetings of the stockholders of the Corporation may be called only by the Board of Directors acting pursuant to a resolution approved by the affirmative vote of a majority of the Directors then in office, and special meetings of stockholders may not be called by any other person or persons. Only those matters set forth in the notice of the special meeting may be considered or acted upon at a special meeting of stockholders of the Corporation.

ARTICLE VI

DIRECTORS

1. General. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors except as otherwise provided herein or required by law.

2. Election of Directors. Election of Directors need not be by written ballot unless the By-laws of the Corporation (the “By-laws”) shall so provide.

 

4


3. Number of Directors; Term of Office. The number of Directors of the Corporation shall be fixed solely and exclusively by resolution duly adopted from time to time by the Board of Directors. The Directors, other than those who may be elected by the holders of any series of Undesignated Preferred Stock, shall be classified, with respect to the term for which they severally hold office, into three classes. The initial Class I Directors of the Corporation shall be J. Jeffrey Goater and David S. Grayzel, M.D.; the initial Class II Directors of the Corporation shall be Daniel S. Lynch and Armen B. Shanafelt, Ph.D.; and the initial Class III Directors of the Corporation shall be Geoffrey McDonough, M.D., Elliot Sigal, M.D. and Laurie D. Stelzer. The initial Class I Directors shall serve for a term expiring at the annual meeting of stockholders to be held in 2019, the initial Class II Directors shall serve for a term expiring at the annual meeting of stockholders to be held in 2020, and the initial Class III Directors shall serve for a term expiring at the annual meeting of stockholders to be held in 2021. At each annual meeting of stockholders, Directors elected to succeed those Directors whose terms expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election. Notwithstanding the foregoing, the Directors elected to each class shall hold office until their successors are duly elected and qualified or until their earlier resignation, death or removal.

Notwithstanding the foregoing, whenever, pursuant to the provisions of Article IV of this Certificate, the holders of any one or more series of Undesignated Preferred Stock shall have the right, voting separately as a series or together with holders of other such series, to elect Directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the terms of this Certificate and any certificate of designations applicable to such series.

4. Vacancies. Subject to the rights, if any, of the holders of any series of Undesignated Preferred Stock to elect Directors and to fill vacancies in the Board of Directors relating thereto, any and all vacancies in the Board of Directors, however occurring, including, without limitation, by reason of an increase in the size of the Board of Directors, or the death, resignation, disqualification or removal of a Director, shall be filled solely and exclusively by the affirmative vote of a majority of the remaining Directors then in office, even if less than a quorum of the Board of Directors, and not by the stockholders. Any Director appointed in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of Directors in which the new directorship was created or the vacancy occurred and until such Director’s successor shall have been duly elected and qualified or until his or her earlier resignation, death or removal. Subject to the rights, if any, of the holders of any series of Undesignated Preferred Stock to elect Directors, when the number of Directors is increased or decreased, the Board of Directors shall, subject to Article VI.3 hereof, determine the class or classes to which the increased or decreased number of Directors shall be apportioned; provided, however, that no decrease in the number of Directors shall shorten the term of any incumbent Director. In the event of a vacancy in the Board of Directors, the remaining Directors, except as otherwise provided by law, shall exercise the powers of the full Board of Directors until the vacancy is filled.

 

5


5. Removal. Subject to the rights, if any, of any series of Undesignated Preferred Stock to elect Directors and to remove any Director whom the holders of any such series have the right to elect, any Director (including persons elected by Directors to fill vacancies in the Board of Directors) may be removed from office (i) only with cause and (ii) only by the affirmative vote of the holders of 75% or more of the outstanding shares of capital stock then entitled to vote at an election of Directors. At least forty-five (45) days prior to any annual or special meeting of stockholders at which it is proposed that any Director be removed from office, written notice of such proposed removal and the alleged grounds thereof shall be sent to the Director whose removal will be considered at the meeting.

ARTICLE VII

LIMITATION OF LIABILITY

A Director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a Director, except for liability (a) for any breach of the Director’s duty of loyalty to the Corporation or its stockholders, (b) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (c) under Section 174 of the DGCL or (d) for any transaction from which the Director derived an improper personal benefit. If the DGCL is amended after the effective date of this Certificate to authorize corporate action further eliminating or limiting the personal liability of Directors, then the liability of a Director of the Corporation shall be eliminated or limited to the fullest extent permitted by the DGCL, as so amended.

Any amendment, repeal or modification of this Article VII by either of (i) the stockholders of the Corporation or (ii) an amendment to the DGCL, shall not adversely affect any right or protection existing at the time of such amendment, repeal or modification with respect to any acts or omissions occurring before such amendment, repeal or modification of a person serving as a Director at the time of such amendment, repeal or modification.

ARTICLE VIII

AMENDMENT OF BY-LAWS

1. Amendment by Directors. Except as otherwise provided by law, the By-laws of the Corporation may be amended or repealed by the Board of Directors by the affirmative vote of a majority of the Directors then in office.

2. Amendment by Stockholders. The By-laws of the Corporation may be amended or repealed at any annual meeting of stockholders, or special meeting of stockholders called for such purpose, by the affirmative vote of at least 75% of the outstanding shares of capital stock entitled to vote on such amendment or repeal, voting together as a single class; provided, however, that if the Board of Directors recommends that stockholders approve such amendment or repeal at such meeting of stockholders, such amendment or repeal shall only require the affirmative vote of the majority of the outstanding shares of capital stock entitled to vote on such amendment or repeal, voting together as a single class.

 

6


ARTICLE IX

AMENDMENT OF CERTIFICATE OF INCORPORATION

The Corporation reserves the right to amend or repeal this Certificate in the manner now or hereafter prescribed by statute and this Certificate, and all rights conferred upon stockholders herein are granted subject to this reservation. Whenever any vote of the holders of capital stock of the Corporation is required to amend or repeal any provision of this Certificate, and in addition to any other vote of holders of capital stock that is required by this Certificate or by law, such amendment or repeal shall require the affirmative vote of the majority of the outstanding shares of capital stock entitled to vote on such amendment or repeal, and the affirmative vote of the majority of the outstanding shares of each class entitled to vote thereon as a class, at a duly constituted meeting of stockholders called expressly for such purpose; provided, however, that the affirmative vote of not less than 75% of the outstanding shares of capital stock entitled to vote on such amendment or repeal, and the affirmative vote of not less than 75% of the outstanding shares of each class entitled to vote thereon as a class, shall be required to amend or repeal any provision of Article V, Article VI, Article VII, Article VIII or Article IX of this Certificate.

[End of Text]

 

7


THIS AMENDED AND RESTATED CERTIFICATE OF INCORPORATION is executed as of this          day of                 , 2018.

 

SURFACE ONCOLOGY, INC.
By:    
Name:    
Title:    

EX-3.3

Exhibit 3.3

AMENDED AND RESTATED BY-LAWS

of

SURFACE ONCOLOGY, INC.

(the “Corporation”)

1. Stockholders

(a) Annual Meeting. The annual meeting of stockholders shall be held for the election of directors each year at such place, date and time as shall be designated by the Board of Directors. Any other proper business may be transacted at the annual meeting. If no date for the annual meeting is established or said meeting is not held on the date established as provided above, a special meeting in lieu thereof may be held or there may be action by written consent of the stockholders on matters to be voted on at the annual meeting, and such special meeting or written consent shall have for the purposes of these By-laws or otherwise all the force and effect of an annual meeting.

(b) Special Meetings. Special meetings of stockholders may be called by the Chief Executive Officer, if one is elected, or, if there is no Chief Executive Officer, a President, or by the Board of Directors, but such special meetings may not be called by any other person or persons. The call for the meeting shall state the place, date, hour and purposes of the meeting. Only the purposes specified in the notice of special meeting shall be considered or dealt with at such special meeting.

(c) Notice of Meetings. Whenever stockholders are required or permitted to take any action at a meeting, a notice stating the place, if any, date and hour of the meeting, the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present and vote at such meeting, and, in the case of a special meeting, the purpose or purposes of the meeting, shall be given by the Secretary (or other person authorized by these By-laws or by law) not less than ten (10) nor more than sixty (60) days before the meeting to each stockholder entitled to vote thereat and to each stockholder who, under the Certificate of Incorporation or under these By-laws is entitled to such notice. If mailed, notice is given when deposited in the mail, postage prepaid, directed to such stockholder at such stockholder’s address as it appears in the records of the Corporation. Without limiting the manner by which notice otherwise may be effectively given to stockholders, any notice to stockholders may be given by electronic transmission in the manner provided in Section 232 of the Delaware General Corporation Law (the “DGCL”).

If a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place, if any, and the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such adjourned meeting are announced at the meeting at which the adjournment is taken, except that 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, notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.


(d) Quorum. The holders of a majority in interest of all stock issued, outstanding and entitled to vote at a meeting, present in person or represented by proxy, shall constitute a quorum. Any meeting may be adjourned from time to time by a majority of the votes properly cast upon the question, whether or not a quorum is present. The stockholders present at a duly constituted meeting may continue to transact business until adjournment notwithstanding the withdrawal of enough stockholders to reduce the voting shares below a quorum.

(e) Voting and Proxies. Except as otherwise provided by the Certificate of Incorporation or by law, each stockholder entitled to vote at any meeting of stockholders shall be entitled to one vote for each share of stock held by such stockholder which has voting power upon the matter in question. Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for such stockholder by either written proxy or by a transmission permitted by Section 212(c) of the DGCL, but no proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period or is irrevocable and coupled with an interest. Proxies shall be filed with the Secretary of the meeting, or of any adjournment thereof. Except as otherwise limited therein, proxies shall entitle the persons authorized thereby to vote at any adjournment of such meeting.

(f) Action at Meeting. When a quorum is present, any matter before the meeting shall be decided by vote of the holders of a majority of the shares of stock voting on such matter except where a larger vote is required by law, by the Certificate of Incorporation or by these By-laws. Any election of directors by stockholders shall be determined by a plurality of the votes cast, except where a larger vote is required by law, by the Certificate of Incorporation or by these By-laws. The Corporation shall not directly or indirectly vote any share of its own stock; provided, however, that the Corporation may vote shares which it holds in a fiduciary capacity to the extent permitted by law.

(g) Presiding Officer. Meetings of stockholders shall be presided over by the Chairman of the Board, if one is elected, or in his or her absence, the Vice Chairman of the Board, if one is elected, or if neither is elected or in their absence, a President. The Board of Directors shall have the authority to appoint a temporary presiding officer to serve at any meeting of the stockholders if the Chairman of the Board, the Vice Chairman of the Board or a President is unable to do so for any reason.

(h) Conduct of Meetings. The Board of Directors may adopt by resolution such rules and regulations for the conduct of the meeting of stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board of Directors, the presiding officer of any meeting of stockholders 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 appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the presiding officer of the meeting, may include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) rules and procedures for

 

2


maintaining order at the meeting and the safety of those present; (iii) limitations on attendance at or participation in the meeting to stockholders of record of the Corporation, their duly authorized and constituted proxies or such other persons as the chairman of the meeting shall determine; (iv) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (v) limitations on the time allotted to questions or comments by participants. Unless and to the extent determined by the Board of Directors or the presiding officer of the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure.

(i) Action without a Meeting. Unless otherwise provided in the Certificate of Incorporation, any action required or permitted by law to be taken at any annual or special meeting of stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, 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 and shall be delivered to the Corporation by delivery to its registered office, by hand or by certified mail, return receipt requested, or to the Corporation’s principal place of business or to the officer of the Corporation having custody of the minute book. Every written consent shall bear the date of signature and no written consent shall be effective unless, within sixty (60) days of the earliest dated consent delivered pursuant to these By-laws, written consents signed by a sufficient number of stockholders entitled to take action are delivered to the Corporation in the manner set forth in these By-laws. 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.

(j) Stockholder Lists. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Nothing contained in this Section 1(j) shall require the Corporation to include electronic mail addresses or other electronic contact information on such list. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, for a period of at least ten (10) days prior to the meeting in the manner provided by law. The list shall also be open to the examination of any stockholder during the whole time of the meeting as provided by law.

2. Directors

(a) Powers. The business of the Corporation shall be managed by or under the direction of a Board of Directors who may exercise all the powers of the Corporation except as otherwise provided by law, by the Certificate of Incorporation or by these By-laws. In the event of a vacancy in the Board of Directors, the remaining directors, except as otherwise provided by law, may exercise the powers of the full Board until the vacancy is filled.

(b) Number and Qualification. Unless otherwise provided in the Certificate of Incorporation or in these By-laws, the number of directors which shall constitute the whole board shall be determined from time to time by resolution of the Board of Directors. Directors need not be stockholders.

 

3


(c) Vacancies; Reduction of Board. A majority of the directors then in office, although less than a quorum, or a sole remaining Director, may fill vacancies in the Board of Directors occurring for any reason and newly created directorships resulting from any increase in the authorized number of directors. In lieu of filling any vacancy, the Board of Directors may reduce the number of directors.

(d) Tenure. Except as otherwise provided by law, by the Certificate of Incorporation or by these By-laws, directors shall hold office until their successors are elected and qualified or until their earlier resignation or removal. Any director may resign at any time upon notice given in writing or by electronic transmission to the Corporation. Such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event.

(e) Removal. To the extent permitted by law, a director may be removed from office with or without cause by vote of the holders of a majority of the shares of stock entitled to vote in the election of directors.

(f) Meetings. Regular meetings of the Board of Directors may be held without notice at such time, date and place as the Board of Directors may from time to time determine. Special meetings of the Board of Directors may be called, orally or in writing, by the Chief Executive Officer, if one is elected, or, if there is no Chief Executive Officer, the President, or by two or more Directors, designating the time, date and place thereof. Directors may participate in meetings of the Board of Directors by means of conference telephone or other communications equipment by means of which all directors participating in the meeting can hear each other, and participation in a meeting in accordance herewith shall constitute presence in person at such meeting.

(g) Notice of Meetings. Notice of the time, date and place of all special meetings of the Board of Directors shall be given to each director by the Secretary, or Assistant Secretary, or in case of the death, absence, incapacity or refusal of such persons, by the officer or one of the directors calling the meeting. Notice shall be given to each director in person, by telephone, or by facsimile, electronic mail or other form of electronic communications, sent to such director’s business or home address at least twenty-four (24) hours in advance of the meeting, or by written notice mailed to such director’s business or home address at least forty-eight (48) hours in advance of the meeting.

(h) Quorum. At any meeting of the Board of Directors, a majority of the total number of directors shall constitute a quorum for the transaction of business. Less than a quorum may adjourn any meeting from time to time and the meeting may be held as adjourned without further notice.

(i) Action at Meeting. At any meeting of the Board of Directors at which a quorum is present, unless otherwise provided in the following sentence, a majority of the directors present may take any action on behalf of the Board of Directors, unless a larger number is required by law, by the Certificate of Incorporation or by these By-laws. So long as there are two (2) or fewer Directors, any action to be taken by the Board of Directors shall require the approval of all Directors.

 

4


(j) Action by Consent. Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if all members of the Board of Directors consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmission or transmissions are filed with the records of the meetings of the Board of Directors. 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.

(k) Committees. The Board of Directors may, by resolution passed by a majority of the whole Board of Directors, establish one or more committees, each committee to consist of one or more directors. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member.

Any such committee, to the extent permitted by law and to the extent 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 the following: (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 provision of these By-laws.

Except as the Board of Directors may otherwise determine, any such committee may make rules for the conduct of its business, but in the absence of such rules its business shall be conducted so far as possible in the same manner as is provided in these By-laws for the Board of Directors. All members of such committees shall hold their committee offices at the pleasure of the Board of Directors, and the Board may abolish any committee at any time.

3. Officers

(a) Enumeration. The officers of the Corporation shall consist of one or more Presidents (who, if there is more than one, shall be referred to as Co-Presidents), a Treasurer, a Secretary, and such other officers, including, without limitation, a Chief Executive Officer and one or more Vice Presidents (including Executive Vice Presidents or Senior Vice Presidents), Assistant Vice Presidents, Assistant Treasurers and Assistant Secretaries, as the Board of Directors may determine. The Board of Directors may elect from among its members a Chairman of the Board and a Vice Chairman of the Board.

 

5


(b) Election. The Presidents, Treasurer and Secretary shall be elected annually by the Board of Directors at their first meeting following the annual meeting of stockholders. Other officers may be chosen by the Board of Directors at such meeting or at any other meeting.

(c) Qualification. No officer need be a stockholder or Director. Any two or more offices may be held by the same person. Any officer may be required by the Board of Directors to give bond for the faithful performance of such officer’s duties in such amount and with such sureties as the Board of Directors may determine.

(d) Tenure. Except as otherwise provided by the Certificate of Incorporation or by these By-laws, each of the officers of the Corporation shall hold office until the first meeting of the Board of Directors following the next annual meeting of stockholders and until such officer’s successor is elected and qualified or until such officer’s earlier resignation or removal. Any officer may resign by delivering his or her written resignation to the Corporation, and such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event.

(e) Removal. The Board of Directors may remove any officer with or without cause by a vote of a majority of the directors then in office.

(f) Vacancies. Any vacancy in any office may be filled for the unexpired portion of the term by the Board of Directors.

(g) Chairman of the Board and Vice Chairman. Unless otherwise provided by the Board of Directors, the Chairman of the Board of Directors, if one is elected, shall preside, when present, at all meetings of the stockholders and the Board of Directors. The Chairman of the Board shall have such other powers and shall perform such duties as the Board of Directors may from time to time designate.

Unless otherwise provided by the Board of Directors, in the absence of the Chairman of the Board, the Vice Chairman of the Board, if one is elected, shall preside, when present, at all meetings of the stockholders and the Board of Directors. The Vice Chairman of the Board shall have such other powers and shall perform such duties as the Board of Directors may from time to time designate.

(h) Chief Executive Officer. The Chief Executive Officer, if one is elected, shall have such powers and shall perform such duties as the Board of Directors may from time to time designate.

(i) Presidents. The Presidents shall, subject to the direction of the Board of Directors, each have general supervision and control of the Corporation’s business and any action that would typically be taken by a President may be taken by any Co-President. If there is no Chairman of the Board or Vice Chairman of the Board, a President shall preside, when present, at all meetings of stockholders and the Board of Directors. The Presidents shall have such other powers and shall perform such duties as the Board of Directors may from time to time designate.

 

6


(j) Vice Presidents and Assistant Vice Presidents. Any Vice President (including any Executive Vice President or Senior Vice President) and any Assistant Vice President shall have such powers and shall perform such duties as the Board of Directors may from time to time designate.

(k) Treasurer and Assistant Treasurers. The Treasurer shall, subject to the direction of the Board of Directors, have general charge of the financial affairs of the Corporation and shall cause to be kept accurate books of account. The Treasurer shall have custody of all funds, securities, and valuable documents of the Corporation, except as the Board of Directors may otherwise provide. The Treasurer shall have such other powers and shall perform such duties as the Board of Directors may from time to time designate.

Any Assistant Treasurer shall have such powers and perform such duties as the Board of Directors may from time to time designate.

(l) Secretary and Assistant Secretaries. The Secretary shall record the proceedings of all meetings of the stockholders and the Board of Directors (including committees of the Board) in books kept for that purpose. In the absence of the Secretary from any such meeting an Assistant Secretary, or if such person is absent, a temporary secretary chosen at the meeting, shall record the proceedings thereof. The Secretary shall have charge of the stock ledger (which may, however, be kept by any transfer or other agent of the Corporation) and shall have such other duties and powers as may be designated from time to time by the Board of Directors.

Any Assistant Secretary shall have such powers and perform such duties as the Board of Directors may from time to time designate.

(m) Other Powers and Duties. Subject to these By-laws, each officer of the Corporation shall have in addition to the duties and powers specifically set forth in these By-laws, such duties and powers as are customarily incident to such officer’s office, and such duties and powers as may be designated from time to time by the Board of Directors.

4. Capital Stock

(a) Certificates of Stock. Each stockholder shall be entitled to a certificate of the capital stock of the Corporation in such form as may from time to time be prescribed by the Board of Directors. Such certificate shall be signed by a President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary. Such signatures may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed on such certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the time of its issue. Every certificate for shares of stock which are subject to any restriction on transfer and every certificate issued when the Corporation is authorized to issue more than one class or series of stock shall contain such legend with respect thereto as is required by law. The Corporation shall be permitted to issue fractional shares.

 

7


(b) Transfers. Subject to any restrictions on transfer, shares of stock may be transferred on the books of the Corporation by the surrender to the Corporation or its transfer agent of the certificate therefor properly endorsed or accompanied by a written assignment or power of attorney properly executed, with transfer stamps (if necessary) affixed, and with such proof of the authenticity of signature as the Corporation or its transfer agent may reasonably require.

(c) Record Holders. Except as may otherwise be required by law, by the Certificate of Incorporation or by these By-laws, the Corporation shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to vote with respect thereto, regardless of any transfer, pledge or other disposition of such stock, until the shares have been transferred on the books of the Corporation in accordance with the requirements of these By-laws.

It shall be the duty of each stockholder to notify the Corporation of such stockholder’s post office address.

(d) Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not precede the date on which it is established, and which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, more than ten (10) days after the date on which the record date for stockholder consent without a meeting is established, nor more than sixty (60) days prior to any other action. In such case only stockholders of record on such record date shall be so entitled notwithstanding any transfer of stock on the books of the Corporation after the record date.

If no record date is fixed, (i) 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, (ii) 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 necessary, 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 to its registered office in this state, to its principal place of business, or to an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded, and (iii) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.

(e) Lost Certificates. The Corporation may issue a new certificate of stock in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate.

 

8


5. Indemnification

(a) Definitions. For purposes of this Section 5:

(i) “Corporate Status” describes the status of a person who is serving or has served (A) as a Director of the Corporation, (B) as an Officer of the Corporation, (C) as a Non-Officer Employee of the Corporation, or (D) as a director, partner, trustee, officer, employee or agent of any other corporation, partnership, limited liability company, joint venture, trust, employee benefit plan, foundation, association, organization or other legal entity for which such person is or was serving at the request of the Corporation. For purposes of this Section 5(a)(i), a Director, Officer or Non-Officer Employee of the Corporation who is serving or has served as a director, partner, trustee, officer, employee or agent of a Subsidiary shall be deemed to be serving at the request of the Corporation. Notwithstanding the foregoing, “Corporate Status” shall not include the status of a person who is serving or has served as a director, officer, employee or agent of a constituent corporation absorbed in a merger or consolidation transaction with the Corporation with respect to such person’s activities prior to said transaction, unless specifically authorized by the Board of Directors or the stockholders of the Corporation;

(ii) “Director” means any person who serves or has served the Corporation as a director on the Board of Directors of the Corporation;

(iii) “Disinterested Director” means, with respect to each Proceeding in respect of which indemnification is sought hereunder, a Director of the Corporation who is not and was not a party to such Proceeding;

(iv) “Expenses” means all reasonable attorneys fees, retainers, court costs, transcript costs, fees of expert witnesses, private investigators and professional advisors (including, without limitation, accountants and investment bankers), travel expenses, duplicating costs, printing and binding costs, costs of preparation of demonstrative evidence and other courtroom presentation aids and devices, costs incurred in connection with document review, organization, imaging and computerization, telephone charges, postage, delivery service fees, and all other disbursements, costs or expenses of the type customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, settling or otherwise participating in, a Proceeding;

(v) “Liabilities” means judgments, damages, liabilities, losses, penalties, excise taxes, fines and amounts paid in settlement;

(vi) “Non-Officer Employee” means any person who serves or has served as an employee or agent of the Corporation, but who is not or was not a Director or Officer;

 

9


(vii) “Officer” means any person who serves or has served the Corporation as an officer of the Corporation appointed by the Board of Directors of the Corporation;

(viii) “Proceeding” means any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, inquiry, investigation, administrative hearing or other proceeding, whether civil, criminal, administrative, arbitrative or investigative; and

(ix) “Subsidiary” shall mean any corporation, partnership, limited liability company, joint venture, trust or other entity of which the Corporation owns (either directly or through or together with another Subsidiary of the Corporation) either (i) a general partner, managing member or other similar interest or (ii) (A) 50% or more of the voting power of the voting capital equity interests of such corporation, partnership, limited liability company, joint venture or other entity, or (B) 50% or more of the outstanding voting capital stock or other voting equity interests of such corporation, partnership, limited liability company, joint venture or other entity.

(b) Indemnification of Directors and Officers. Subject to the operation of Section 5(d) of these By-laws, each Director and Officer shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the DGCL, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment), and to the extent authorized in subsections (i) through (iv) of this Section 5(b).

(i) Actions, Suits and Proceedings Other than By or In the Right of the Corporation. Each Director and Officer shall be indemnified and held harmless by the Corporation against any and all Expenses and Liabilities that are incurred or paid by such Director or Officer or on such Director’s or Officer’s behalf in connection with any Proceeding or any claim, issue or matter therein (other than an action by or in the right of the Corporation), which such Director or Officer is, or is threatened to be made, a party to or participant in by reason of such Director’s or Officer’s Corporate Status, if such Director or Officer acted in good faith and in a manner such Director or Officer reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful.

(ii) Actions, Suits and Proceedings By or In the Right of the Corporation. Each Director and Officer shall be indemnified and held harmless by the Corporation against any and all Expenses that are incurred by such Director or Officer or on such Director’s or Officer’s behalf in connection with any Proceeding or any claim, issue or matter therein by or in the right of the Corporation, which such Director or Officer is, or is threatened to be made, a party to or participant in by reason of such Director’s or Officer’s Corporate Status, if such Director or Officer acted in good faith and in a manner such Director or Officer reasonably believed to be in or not opposed to the best interests of the Corporation; provided, however, that no indemnification shall be

 

10


made under this Section 5(b)(ii) in respect of any claim, issue or matter as to which such Director or Officer shall have been finally adjudged by a court of competent jurisdiction to be liable to the Corporation, unless, and only to the extent that, the Court of Chancery or another court in which such Proceeding was brought shall determine upon application that, despite adjudication of liability, but in view of all the circumstances of the case, such Director or Officer is fairly and reasonably entitled to indemnification for such Expenses that such court deems proper.

(iii) Survival of Rights. The rights of indemnification provided by this Section 5(b) shall continue as to a Director or Officer after he or she has ceased to be a Director or Officer and shall inure to the benefit of his or her heirs, executors, administrators and personal representatives.

(iv) Actions by Directors or Officers. Notwithstanding the foregoing, the Corporation shall indemnify any Director or Officer seeking indemnification in connection with a Proceeding initiated by such Director or Officer only if such Proceeding (including any parts of such Proceeding not initiated by such Director or Officer) was authorized in advance by the Board of Directors of the Corporation, unless such Proceeding was brought to enforce such Officer’s or Director’s rights to indemnification or, in the case of Directors, advancement of Expenses under these By-laws in accordance with the provisions set forth herein.

(c) Indemnification of Non-Officer Employees. Subject to the operation of Section 5(d) of these By-laws, each Non-Officer Employee may, in the discretion of the Board of Directors of the Corporation, be indemnified by the Corporation to the fullest extent authorized by the DGCL, as the same exists or may hereafter be amended, against any or all Expenses and Liabilities that are incurred by such Non-Officer Employee or on such Non-Officer Employee’s behalf in connection with any threatened, pending or completed Proceeding, or any claim, issue or matter therein, which such Non-Officer Employee is, or is threatened to be made, a party to or participant in by reason of such Non-Officer Employee’s Corporate Status, if such Non-Officer Employee acted in good faith and in a manner such Non-Officer Employee reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful. The rights of indemnification provided by this Section 5(c) shall exist as to a Non-Officer Employee after he or she has ceased to be a Non-Officer Employee and shall inure to the benefit of his or her heirs, personal representatives, executors and administrators. Notwithstanding the foregoing, the Corporation may indemnify any Non-Officer Employee seeking indemnification in connection with a Proceeding initiated by such Non-Officer Employee only if such Proceeding was authorized in advance by the Board of Directors of the Corporation.

(d) Determination. Unless ordered by a court, no indemnification shall be provided pursuant to this Section 5 to a Director, to an Officer or to a Non-Officer Employee unless a determination shall have been made that such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal Proceeding, such person had no reasonable cause to believe his or her conduct was unlawful. Such determination shall be made by (i) a majority vote of the Disinterested Directors, even though less than a quorum of the Board of Directors, (ii) a

 

11


committee comprised of Disinterested Directors, such committee having been designated by a majority vote of the Disinterested Directors (even though less than a quorum), (iii) if there are no such Disinterested Directors, or if a majority of Disinterested Directors so directs, by independent legal counsel in a written opinion, or (iv) by the stockholders of the Corporation.

(e) Advancement of Expenses to Directors Prior to Final Disposition.

(i) The Corporation shall advance all Expenses incurred by or on behalf of any Director in connection with any Proceeding in which such Director is involved by reason of such Director’s Corporate Status within thirty (30) days after the receipt by the Corporation of a written statement from such Director requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by such Director and shall be preceded or accompanied by an undertaking by or on behalf of such Director to repay any Expenses so advanced if it shall ultimately be determined that such Director is not entitled to be indemnified against such Expenses. Notwithstanding the foregoing, the Corporation shall advance all Expenses incurred by or on behalf of any Director seeking advancement of expenses hereunder in connection with a Proceeding initiated by such Director only if such Proceeding (including any parts of such Proceeding not initiated by such Director) was (A) authorized by the Board of Directors of the Corporation, or (B) brought to enforce such Director’s rights to indemnification or advancement of Expenses under these By-laws.

(ii) If a claim for advancement of Expenses hereunder by a Director is not paid in full by the Corporation within thirty (30) days after receipt by the Corporation of documentation of Expenses and the required undertaking, such Director may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and if successful in whole or in part, such Director shall also be entitled to be paid the expenses of prosecuting such claim. The failure of the Corporation (including its Board of Directors or any committee thereof, independent legal counsel, or stockholders) to make a determination concerning the permissibility of such advancement of Expenses under this Section 5 shall not be a defense to an action brought by a Director for recovery of the unpaid amount of an advancement claim and shall not create a presumption that such advancement is not permissible. The burden of proving that a Director is not entitled to an advancement of expenses shall be on the Corporation.

(iii) In any suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that the Director has not met any applicable standard for indemnification set forth in the DGCL.

(f) Advancement of Expenses to Officers and Non-Officer Employees Prior to Final Disposition.

(i) The Corporation may, at the discretion of the Board of Directors of the Corporation, advance any or all Expenses incurred by or on behalf of any Officer or any Non-Officer Employee in connection with any Proceeding in which such person is

 

12


involved by reason of his or her Corporate Status as an Officer or Non-Officer Employee upon the receipt by the Corporation of a statement or statements from such Officer or Non-Officer Employee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by such Officer or Non-Officer Employee and shall be preceded or accompanied by an undertaking by or on behalf of such person to repay any Expenses so advanced if it shall ultimately be determined that such Officer or Non-Officer Employee is not entitled to be indemnified against such Expenses.

(ii) In any suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that the Officer or Non-Officer Employee has not met any applicable standard for indemnification set forth in the DGCL.

(g) Contractual Nature of Rights.

(i) The provisions of this Section 5 shall be deemed to be a contract between the Corporation and each Director and Officer entitled to the benefits hereof at any time while this Section 5 is in effect, in consideration of such person’s past or current and any future performance of services for the Corporation. Neither amendment, repeal or modification of any provision of this Section 5 nor the adoption of any provision of the Certificate of Incorporation inconsistent with this Section 5 shall eliminate or reduce any right conferred by this Section 5 in respect of any act or omission occurring, or any cause of action or claim that accrues or arises or any state of facts existing, at the time of or before such amendment, repeal, modification or adoption of an inconsistent provision (even in the case of a proceeding based on such a state of facts that is commenced after such time), and all rights to indemnification and advancement of Expenses granted herein or arising out of any act or omission shall vest at the time of the act or omission in question, regardless of when or if any proceeding with respect to such act or omission is commenced. The rights to indemnification and to advancement of expenses provided by, or granted pursuant to, this Section 5 shall continue notwithstanding that the person has ceased to be a director or officer of the Corporation and shall inure to the benefit of the estate, heirs, executors, administrators, legatees and distributees of such person.

(ii) If a claim for indemnification hereunder by a Director or Officer is not paid in full by the Corporation within sixty (60) days after receipt by the Corporation of a written claim for indemnification, such Director or Officer may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim, and if successful in whole or in part, such Director or Officer shall also be entitled to be paid the expenses of prosecuting such claim. The failure of the Corporation (including its Board of Directors or any committee thereof, independent legal counsel, or stockholders) to make a determination concerning the permissibility of such indemnification under this Section 5 shall not be a defense to an action brought by a Director or Officer for recovery of the unpaid amount of an indemnification claim and shall not create a presumption that such indemnification is not permissible. The burden of proving that a Director or Officer is not entitled to indemnification shall be on the Corporation.

 

13


(iii) In any suit brought by a Director or Officer to enforce a right to indemnification hereunder, it shall be a defense that such Director or Officer has not met any applicable standard for indemnification set forth in the DGCL.

(h) Non-Exclusivity of Rights. The rights to indemnification and advancement of Expenses set forth in this Section 5 shall not be exclusive of any other right which any Director, Officer, or Non-Officer Employee may have or hereafter acquire under any statute, provision of the Certificate or these By-laws, agreement, vote of stockholders or Disinterested Directors or otherwise.

(i) Insurance. The Corporation may maintain insurance, at its expense, to protect itself and any Director, Officer or Non-Officer Employee against any liability of any character asserted against or incurred by the Corporation or any such Director, Officer or Non-Officer Employee, or arising out of any such person’s Corporate Status, whether or not the Corporation would have the power to indemnify such person against such liability under the DGCL or the provisions of this Section 5.

(j) Other Indemnification. The Corporation’s obligation, if any, to indemnify or provide advancement of Expenses to any person under this Section 5 as a result of such person serving, at the request of the Corporation, as a director, partner, trustee, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise shall be reduced by any amount such person may collect as indemnification or advancement of Expenses from such other corporation, partnership, joint venture, trust, employee benefit plan or enterprise (the “Primary Indemnitor”). Any indemnification or advancement of Expenses under this Section 5 owed by the Corporation as a result of a person serving, at the request of the Corporation, as a director, partner, trustee, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise shall only be in excess of, and shall be secondary to, the indemnification or advancement of Expenses available from the applicable Primary Indemnitor(s) and any applicable insurance policies.

6. Miscellaneous Provisions

(a) Fiscal Year. Except as otherwise determined by the Board of Directors, the fiscal year of the Corporation shall end on December 31 of each year.

(b) Seal. The Board of Directors shall have power to adopt and alter the seal of the Corporation.

(c) Execution of Instruments. Subject to any limitations which may be set forth in a resolution of the Board of Directors, all deeds, leases, transfers, contracts, bonds, notes and other obligations to be entered into by the Corporation in the ordinary course of its business without director action may be executed on behalf of the Corporation by, a President, or by any other officer, employee or agent of the Corporation as the Board of Directors may authorize.

(d) Voting of Securities. Unless the Board of Directors otherwise provides, a President, any Vice President or the Treasurer may waive notice of and act on behalf of this Corporation, or appoint another person or persons to act as proxy or attorney in fact for this Corporation with or without discretionary power and/or power of substitution, at any meeting of stockholders or shareholders of any other corporation or organization, any of whose securities are held by this Corporation.

 

14


(e) Resident Agent. The Board of Directors may appoint a resident agent upon whom legal process may be served in any action or proceeding against the Corporation.

(f) Corporate Records. The original or attested copies of the Certificate of Incorporation, By-laws and records of all meetings of the incorporators, stockholders and the Board of Directors and the stock and transfer records, which shall contain the names of all stockholders, their record addresses and the amount of stock held by each, shall be kept at the principal office of the Corporation, at the office of its counsel, or at an office of its transfer agent.

(g) Certificate of Incorporation. All references in these By-laws to the Certificate of Incorporation shall be deemed to refer to the Certificate of Incorporation of the Corporation, as amended and in effect from time to time.

(h) Amendments. These By-laws may be altered, amended or repealed, and new By-laws may be adopted, by the stockholders or by the Board of Directors; provided, that (a) the Board of Directors may not alter, amend or repeal any provision of these By-laws which by law, by the Certificate of Incorporation or by these By-laws requires action by the stockholders and (b) any alteration, amendment or repeal of these By-laws by the Board of Directors and any new By-law adopted by the Board of Directors may be altered, amended or repealed by the stockholders.

(i) Waiver of Notice. Whenever notice is required to be given under any provision of these By-laws, a written waiver, signed by the person entitled to notice, or a waiver by electronic transmission by the person entitled to notice, whether before or after the time of the event for which notice is to be given, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person 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. Neither the business to be transacted at, nor the purpose of, any meeting needs to be specified in any written waiver or any waiver by electronic transmission.

Adopted November 5, 2014

 

15


EX-3.4

Exhibit 3.4

AMENDED AND RESTATED

BY-LAWS

OF

SURFACE ONCOLOGY, INC.

(the “Corporation”)

ARTICLE I

Stockholders

SECTION 1. Annual Meeting. The annual meeting of stockholders (any such meeting being referred to in these By-laws as an “Annual Meeting”) shall be held at the hour, date and place within or without the United States which is fixed by the Board of Directors, which time, date and place may subsequently be changed at any time by vote of the Board of Directors. If no Annual Meeting has been held for a period of thirteen (13) months after the Corporation’s last Annual Meeting, a special meeting in lieu thereof may be held, and such special meeting shall have, for the purposes of these By-laws or otherwise, all the force and effect of an Annual Meeting. Any and all references hereafter in these By-laws to an Annual Meeting or Annual Meetings also shall be deemed to refer to any special meeting(s) in lieu thereof.


SECTION 2. Notice of Stockholder Business and Nominations.

(a) Annual Meetings of Stockholders.

(1) Nominations of persons for election to the Board of Directors of the Corporation and the proposal of other business to be considered by the stockholders may be brought before an Annual Meeting (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the Corporation who was a stockholder of record at the time of giving of notice provided for in this By-law, who is entitled to vote at the meeting, who is present (in person or by proxy) at the meeting and who complies with the notice procedures set forth in this By-law as to such nomination or business. For the avoidance of doubt, the foregoing clause (ii) shall be the exclusive means for a stockholder to bring nominations or business properly before an Annual Meeting (other than matters properly brought under Rule 14a-8 (or any successor rule) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), and such stockholder must comply with the notice and other procedures set forth in Article I, Section 2(a)(2) and (3) of this By-law to bring such nominations or business properly before an Annual Meeting. In addition to the other requirements set forth in this By-law, for any proposal of business to be considered at an Annual Meeting, it must be a proper subject for action by stockholders of the Corporation under Delaware law.

(2) For nominations or other business to be properly brought before an Annual Meeting by a stockholder pursuant to clause (ii) of Article I, Section 2(a)(1) of this By-law, the stockholder must (i) have given Timely Notice (as defined below) thereof in writing to the Secretary of the Corporation, (ii) have provided any updates or supplements to such notice at the times and in the forms required by this By-law and (iii) together with the beneficial owner(s), if any, on whose behalf the nomination or business proposal is made, have acted in accordance with the representations set forth in the Solicitation Statement (as defined below) required by this By-law. To be timely, a stockholder’s written notice shall be received by 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 one-year anniversary of the preceding year’s Annual Meeting; provided, however, that in the event the Annual Meeting is first convened more than thirty (30) days before or more than sixty (60) days after such anniversary date, or if no Annual Meeting were held in the preceding year, notice by the stockholder to be timely must be received by the Secretary of the Corporation not later than the close of business on the later of the ninetieth (90th) day prior to the scheduled date of such Annual Meeting or the tenth (10th) day following the day on which public announcement of the date of such meeting is first made (such notice within such time periods shall be referred to as “Timely Notice”). Notwithstanding anything to the contrary provided herein, for the first Annual Meeting following the initial public offering of common stock of the Corporation, a stockholder’s notice shall be timely if received by the Secretary at the principal executive offices of the Corporation not later than the close of business on the later of the ninetieth (90th) day prior to the scheduled date of such Annual Meeting or the tenth (10th) day following the day on which public announcement of the date of such Annual Meeting is first made or sent by the Corporation. Such stockholder’s Timely Notice shall set forth:

 

2


(A) as to each person whom the stockholder proposes 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 Exchange Act (including such person’s 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, and any material interest in such business of each Proposing Person (as defined below);

(C) (i) the name and address of the stockholder giving the notice, as they appear on the Corporation’s books, and the names and addresses of the other Proposing Persons (if any) and (ii) as to each Proposing Person, the following information: (a) the class or series and number of all shares of capital stock of the Corporation which are, directly or indirectly, owned beneficially or of record by such Proposing Person or any of its affiliates or associates (as such terms are defined in Rule 12b-2 promulgated under the Exchange Act), including any shares of any class or series of capital stock of the Corporation as to which such Proposing Person or any of its affiliates or associates has a right to acquire beneficial ownership at any time in the future, (b) all Synthetic Equity Interests (as defined below) in which such Proposing Person or any of its affiliates or associates, directly or indirectly, holds an interest including a description of the material terms of each such Synthetic Equity Interest, including without limitation, identification of the counterparty to each such Synthetic Equity Interest and disclosure, for each such Synthetic Equity Interest, as to (x) whether or not such Synthetic Equity Interest conveys any voting rights, directly or indirectly, in such shares to such Proposing Person, (y) whether or not such Synthetic Equity Interest is required to be, or is capable of being, settled through delivery of such shares and (z) whether or not such Proposing Person and/or, to the extent known, the counterparty to such Synthetic Equity Interest has entered into other transactions that hedge or mitigate the economic effect of such Synthetic Equity Interest, (c) any proxy (other than a revocable proxy given in response to a public proxy solicitation made pursuant to, and in accordance with, the Exchange Act), agreement, arrangement, understanding or relationship pursuant to which such Proposing Person has or shares a right to, directly or indirectly, vote any shares of any class or series of capital stock of the Corporation, (d) any rights to dividends or other distributions on the shares of any class or series of capital stock of the Corporation, directly or indirectly, owned beneficially by such Proposing Person that are separated or separable from the underlying shares of the Corporation, and (e) any performance-related fees (other than an asset based fee) that such Proposing Person, directly or indirectly, is entitled to based on any increase or decrease in the value of shares of any class or series of capital stock of the Corporation or any Synthetic Equity Interests (the disclosures to be made pursuant to the foregoing clauses (a) through (e) are referred to, collectively, as “Material Ownership Interests”) and (iii) a description of the material terms of all

 

3


agreements, arrangements or understandings (whether or not in writing) entered into by any Proposing Person or any of its affiliates or associates with any other person for the purpose of acquiring, holding, disposing or voting of any shares of any class or series of capital stock of the Corporation;

(D) (i) a description of all agreements, arrangements or understandings by and among any of the Proposing Persons, or by and among any Proposing Persons and any other person (including with any proposed nominee(s)), pertaining to the nomination(s) or other business proposed to be brought before the meeting of stockholders (which description shall identify the name of each other person who is party to such an agreement, arrangement or understanding), and (ii) identification of the names and addresses of other stockholders (including beneficial owners) known by any of the Proposing Persons to support such nominations or other business proposal(s), and to the extent known the class and number of all shares of the Corporation’s capital stock owned beneficially or of record by such other stockholder(s) or other beneficial owner(s); and

(E) a statement whether or not the stockholder giving the notice and/or the other Proposing Person(s), if any, will deliver a proxy statement and form of proxy to holders of, in the case of a business proposal, at least the percentage of voting power of all of the shares of capital stock of the Corporation required under applicable law to approve the proposal or, in the case of a nomination or nominations, at least the percentage of voting power of all of the shares of capital stock of the Corporation reasonably believed by such Proposing Person to be sufficient to elect the nominee or nominees proposed to be nominated by such stockholder (such statement, the “Solicitation Statement”).

For purposes of this Article I of these By-laws, the term “Proposing Person” shall mean the following persons: (i) the stockholder of record providing the notice of nominations or business proposed to be brought before a stockholders’ meeting, and (ii) the beneficial owner(s), if different, on whose behalf the nominations or business proposed to be brought before a stockholders’ meeting is made. For purposes of this Section 2 of Article I of these By-laws, the term “Synthetic Equity Interest” shall mean any transaction, agreement or arrangement (or series of transactions, agreements or arrangements), including, without limitation, any derivative, swap, hedge, repurchase or so-called “stock borrowing” agreement or arrangement, the purpose or effect of which is to, directly or indirectly: (a) give a person or entity economic benefit and/or risk similar to ownership of shares of any class or series of capital stock of the Corporation, in whole or in part, including due to the fact that such transaction, agreement or arrangement provides, directly or indirectly, the opportunity to profit or avoid a loss from any increase or decrease in the value of any shares of any class or series of capital stock of the Corporation, (b) mitigate loss to, reduce the economic risk of or manage the risk of share price changes for, any person or entity with respect to any shares of any class or series of capital stock of the Corporation, (c) otherwise provide in any manner the opportunity to profit or avoid a loss from any decrease in the value of any shares of any class or series of capital stock of the Corporation, or (d) increase or decrease the voting power of any person or entity with respect to any shares of any class or series of capital stock of the Corporation.

 

4


(3) A stockholder providing Timely Notice of nominations or business proposed to be brought before an Annual Meeting shall further update and supplement such notice, if necessary, so that the information (including, without limitation, the Material Ownership Interests information) provided or required to be provided in such notice pursuant to this By-law shall be true and correct as of the record date for the meeting and as of the date that is ten (10) business days prior to such Annual Meeting, and such update and supplement shall be received by the Secretary at the principal executive offices of the Corporation not later than the close of business on the fifth (5th) business day after the record date for the Annual Meeting (in the case of the update and supplement required to be made as of the record date), and not later than the close of business on the eighth (8th) business day prior to the date of the Annual Meeting (in the case of the update and supplement required to be made as of ten (10) business days prior to the meeting).

(4) Notwithstanding anything in the second sentence of Article I, Section 2(a)(2) of this By-law 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 ten (10) days before the last day a stockholder may deliver a notice of nomination in accordance with the second sentence of Article I, Section 2(a)(2), a stockholder’s notice required by this By-law shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be received by the Secretary 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.

(b) General.

(1) Only such persons who are nominated in accordance with the provisions of this By-law shall be eligible for election and to serve as directors and only such business shall be conducted at an Annual Meeting as shall have been brought before the meeting in accordance with the provisions of this By-law or in accordance with Rule 14a-8 under the Exchange Act. The Board of Directors or a designated committee thereof shall have the power to determine whether a nomination or any business proposed to be brought before the meeting was made in accordance with the provisions of this By-law. If neither the Board of Directors nor such designated committee makes a determination as to whether any stockholder proposal or nomination was made in accordance with the provisions of this By-law, the presiding officer of the Annual Meeting shall have the power and duty to determine whether the stockholder proposal or nomination was made in accordance with the provisions of this By-law. If the Board of Directors or a designated committee thereof or the presiding officer, as applicable, determines that any stockholder proposal or nomination was not made in accordance with the provisions of this By-law, such proposal or nomination shall be disregarded and shall not be presented for action at the Annual Meeting.

 

5


(2) Except as otherwise required by law, nothing in this Article I, Section 2 shall obligate the Corporation or the Board of Directors to include in any proxy statement or other stockholder communication distributed on behalf of the Corporation or the Board of Directors information with respect to any nominee for director or any other matter of business submitted by a stockholder.

(3) Notwithstanding the foregoing provisions of this Article I, Section 2, if the nominating or proposing stockholder (or a qualified representative of the stockholder) does not appear at the Annual Meeting to present a nomination or any business, such nomination or business shall be disregarded, notwithstanding that proxies in respect of such vote may have been received by the Corporation. For purposes of this Article I, Section 2, to be considered a qualified representative of the proposing stockholder, a person must be authorized by a written instrument executed by such stockholder or an electronic transmission delivered by such stockholder to act for such stockholder as proxy at the meeting of stockholders and such person must produce such written instrument or electronic transmission, or a reliable reproduction of the written instrument or electronic transmission, to the presiding officer at the meeting of stockholders.

(4) For purposes of this By-law, “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 Exchange Act.

(5) Notwithstanding the foregoing provisions of this By-law, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this By-law. Nothing in this By-law shall be deemed to affect any rights of (i) stockholders to have proposals included in the Corporation’s proxy statement pursuant to Rule 14a-8 (or any successor rule), as applicable, under the Exchange Act and, to the extent required by such rule, have such proposals considered and voted on at an Annual Meeting or (ii) the holders of any series of Undesignated Preferred Stock to elect directors under specified circumstances.

SECTION 3. Special Meetings. Except as otherwise required by statute and subject to the rights, if any, of the holders of any series of Undesignated Preferred Stock, special meetings of the stockholders of the Corporation may be called only by the Board of Directors acting pursuant to a resolution approved by the affirmative vote of a majority of the Directors then in office. The Board of Directors may postpone or reschedule any previously scheduled special meeting of stockholders. Only those matters set forth in the notice of the special meeting may be considered or acted upon at a special meeting of stockholders of the Corporation. Nominations of persons for election to the Board of Directors of the Corporation and stockholder proposals of other business shall not be brought before a special meeting of stockholders to be considered by the stockholders unless such special meeting is held in lieu of an annual meeting of stockholders in accordance with Article I, Section 1 of these By-laws, in which case such special meeting in lieu thereof shall be deemed an Annual Meeting for purposes of these By-laws and the provisions of Article I, Section 2 of these By-laws shall govern such special meeting.

 

6


SECTION 4. Notice of Meetings; Adjournments.

(a) A notice of each Annual Meeting stating the hour, date and place, if any, of such Annual Meeting and the means of remote communication, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such meeting, shall be given not less than ten (10) days nor more than sixty (60) days before the Annual Meeting, to each stockholder entitled to vote thereat by delivering such notice to such stockholder or by mailing it, postage prepaid, addressed to such stockholder at the address of such stockholder as it appears on the Corporation’s stock transfer books. Without limiting the manner by which notice may otherwise be given to stockholders, any notice to stockholders may be given by electronic transmission in the manner provided in Section 232 of the Delaware General Corporation Law (“DGCL”).

(b) Notice of all special meetings of stockholders shall be given in the same manner as provided for Annual Meetings, except that the notice of all special meetings shall state the purpose or purposes for which the meeting has been called.

(c) Notice of an Annual Meeting or special meeting of stockholders need not be given to a stockholder if a waiver of notice is executed, or waiver of notice by electronic transmission is provided, before or after such meeting by such stockholder or if such stockholder attends such meeting, unless such attendance is for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting was not lawfully called or convened.

(d) The Board of Directors may postpone and reschedule any previously scheduled Annual Meeting or special meeting of stockholders and any record date with respect thereto, regardless of whether any notice or public disclosure with respect to any such meeting has been sent or made pursuant to Section 2 of this Article I of these By-laws or otherwise. In no event shall the public announcement of an adjournment, postponement or rescheduling of any previously scheduled meeting of stockholders commence a new time period for the giving of a stockholder’s notice under this Article I of these By-laws.

(e) When any meeting is convened, the presiding officer may adjourn the meeting if (i) no quorum is present for the transaction of business, (ii) the Board of Directors determines that adjournment is necessary or appropriate to enable the stockholders to consider fully information which the Board of Directors determines has not been made sufficiently or timely available to stockholders, or (iii) the Board of Directors determines that adjournment is otherwise in the best interests of the Corporation. When any Annual Meeting or special meeting of stockholders is adjourned to another hour, date or place, notice need not be given of the adjourned meeting other than an announcement at the meeting at which the adjournment is taken of the hour, date and place, if any, to which the meeting is adjourned and the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such adjourned meeting; provided, however, that if the adjournment is for more than thirty (30) days from the meeting date, or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned 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 such adjourned meeting shall be given to each stockholder of record entitled to vote thereat and each stockholder who, by law or under the Certificate of Incorporation of the Corporation (as the same may hereafter be amended and/or restated, the “Certificate”) or these By-laws, is entitled to such notice.

 

7


SECTION 5. Quorum. A majority of the shares entitled to vote, present in person or represented by proxy, shall constitute a quorum at any meeting of stockholders. If less than a quorum is present at a meeting, the holders of voting stock representing a majority of the voting power present at the meeting or the presiding officer may adjourn the meeting from time to time, and the meeting may be held as adjourned without further notice, except as provided in Section 4 of this Article I. At such adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally noticed. The stockholders present at a duly constituted meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum.

SECTION 6. Voting and Proxies. Stockholders shall have one vote for each share of stock entitled to vote owned by them of record according to the stock ledger of the Corporation as of the record date, unless otherwise provided by law or by the Certificate. Stockholders may vote either (i) in person, (ii) by written proxy or (iii) by a transmission permitted by Section 212(c) of the DGCL. Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission permitted by Section 212(c) of the DGCL may be substituted for or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission. Proxies shall be filed in accordance with the procedures established for the meeting of stockholders. Except as otherwise limited therein or as otherwise provided by law, proxies authorizing a person to vote at a specific meeting shall entitle the persons authorized thereby to vote at any adjournment of such meeting, but they shall not be valid after final adjournment of such meeting. A proxy with respect to stock held in the name of two or more persons shall be valid if executed by or on behalf of any one of them unless at or prior to the exercise of the proxy the Corporation receives a specific written notice to the contrary from any one of them.

SECTION 7. Action at Meeting. When a quorum is present at any meeting of stockholders, any matter before any such meeting (other than an election of a director or directors) shall be decided by a majority of the votes properly cast for and against such matter, except where a larger vote is required by law, by the Certificate or by these By-laws. Any election of directors by stockholders shall be determined by a plurality of the votes properly cast on the election of directors.

SECTION 8. Stockholder Lists. The Secretary or an Assistant Secretary (or the Corporation’s transfer agent or other person authorized by these By-laws or by law) shall prepare and make, at least ten (10) days before every Annual Meeting or special meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of

 

8


each stockholder. Such list shall be open to the examination of any stockholder, for a period of at least ten (10) days prior to the meeting in the manner provided by law. The list shall also be open to the examination of any stockholder during the whole time of the meeting as provided by law.

SECTION 9. Presiding Officer. The Board of Directors shall designate a representative to preside over all Annual Meetings or special meetings of stockholders, provide that if the Board of Directors does not so designate such a presiding officer, then the Chairman of the Board, if one is elected, shall preside over such meetings. If the Board of Directors does not so designate such a presiding officer and there is no Chairman of the Board or the Chairman of the Board is unable to so preside or is absent, then the Chief Executive Officer, if one is elected, shall preside over such meetings, provided further that if there is no Chief Executive Officer or the Chief Executive Officer is unable to so preside or is absent, then the President shall preside over such meetings. The presiding officer at any Annual Meeting or special meeting of stockholders shall have the power, among other things, to adjourn such meeting at any time and from time to time, subject to Sections 4 and 5 of this Article I. The order of business and all other matters of procedure at any meeting of the stockholders shall be determined by the presiding officer.

SECTION 10. Inspectors of Elections. The Corporation shall, in advance of any meeting of stockholders, appoint one or more inspectors to act at the meeting and make a written report thereof. The Corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the presiding officer shall appoint one or more inspectors to act at the meeting. Any inspector may, but need not, be an officer, employee or agent of the Corporation. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. The inspectors shall perform such duties as are required by the DGCL, including the counting of all votes and ballots. The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of the duties of the inspectors. The presiding officer may review all determinations made by the inspectors, and in so doing the presiding officer shall be entitled to exercise his or her sole judgment and discretion and he or she shall not be bound by any determinations made by the inspectors. All determinations by the inspectors and, if applicable, the presiding officer, shall be subject to further review by any court of competent jurisdiction.

ARTICLE II

Directors

SECTION 1. Powers. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors except as otherwise provided by the Certificate or required by law.

 

9


SECTION 2. Number and Terms. The number of directors of the Corporation shall be fixed solely and exclusively by resolution duly adopted from time to time by the Board of Directors. The directors shall hold office in the manner provided in the Certificate.

SECTION 3. Qualification. No director need be a stockholder of the Corporation.

SECTION 4. Vacancies. Vacancies in the Board of Directors shall be filled in the manner provided in the Certificate.

SECTION 5. Removal. Directors may be removed from office only in the manner provided in the Certificate.

SECTION 6. Resignation. A director may resign at any time by giving written notice to the Chairman of the Board, if one is elected, the President or the Secretary. A resignation shall be effective upon receipt, unless the resignation otherwise provides.

SECTION 7. Regular Meetings. The regular annual meeting of the Board of Directors shall be held, without notice other than this Section 7, on the same date and at the same place as the Annual Meeting following the close of such meeting of stockholders. Other regular meetings of the Board of Directors may be held at such hour, date and place as the Board of Directors may by resolution from time to time determine and publicize by means of reasonable notice given to any director who is not present at the meeting at which such resolution is adopted.

SECTION 8. Special Meetings. Special meetings of the Board of Directors may be called, orally or in writing, by or at the request of a majority of the directors, the Chairman of the Board, if one is elected, or the President. The person calling any such special meeting of the Board of Directors may fix the hour, date and place thereof.

SECTION 9. Notice of Meetings. Notice of the hour, date and place of all special meetings of the Board of Directors shall be given to each director by the Secretary or an Assistant Secretary, or in case of the death, absence, incapacity or refusal of such persons, by the Chairman of the Board, if one is elected, or the President or such other officer designated by the Chairman of the Board, if one is elected, or the President. Notice of any special meeting of the Board of Directors shall be given to each director in person, by telephone, or by facsimile, electronic mail or other form of electronic communication, sent to his or her business or home address, at least twenty-four (24) hours in advance of the meeting, or by written notice mailed to his or her business or home address, at least forty-eight (48) hours in advance of the meeting. Such notice shall be deemed to be delivered when hand-delivered to such address, read to such director by telephone, deposited in the mail so addressed, with postage thereon prepaid if mailed, dispatched or transmitted if sent by facsimile transmission or by electronic mail or other form of electronic communications. A written waiver of notice signed before or after a meeting by a director and filed with the records of the meeting shall be deemed to be equivalent to notice of the meeting. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting at the

 

10


beginning of the meeting to the transaction of any business because such meeting is not lawfully called or convened. Except as otherwise required by law, by the Certificate or by these By-laws, neither the business to be transacted at, nor the purpose of, any meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting.

SECTION 10. Quorum. At any meeting of the Board of Directors, a majority of the total number of directors shall constitute a quorum for the transaction of business, but if less than a quorum is present at a meeting, a majority of the directors present may adjourn the meeting from time to time, and the meeting may be held as adjourned without further notice. Any business which might have been transacted at the meeting as originally noticed may be transacted at such adjourned meeting at which a quorum is present. For purposes of this section, the total number of directors includes any unfilled vacancies on the Board of Directors.

SECTION 11. Action at Meeting. At any meeting of the Board of Directors at which a quorum is present, the vote of a majority of the directors present shall constitute action by the Board of Directors, unless otherwise required by law, by the Certificate or by these By-laws.

SECTION 12. Action by Consent. Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if all members of the Board of Directors consent thereto in writing or by electronic transmission and the writing or writings or electronic transmission or transmissions are filed with the records of the meetings of the Board of Directors. 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. Such consent shall be treated as a resolution of the Board of Directors for all purposes.

SECTION 13. Manner of Participation. Directors may participate in meetings of the Board of Directors by means of conference telephone or other communications equipment by means of which all directors participating in the meeting can hear each other, and participation in a meeting in accordance herewith shall constitute presence in person at such meeting for purposes of these By-laws.

SECTION 14. Presiding Director. The Board of Directors shall designate a representative to preside over all meetings of the Board of Directors, provided that if the Board of Directors does not so designate such a presiding director or such designated presiding director is unable to so preside or is absent, then the Chairman of the Board, if one is elected, shall preside over all meetings of the Board of Directors. If both the designated presiding director, if one is so designated, and the Chairman of the Board, if one is elected, are unable to preside or are absent, the Board of Directors shall designate an alternate representative to preside over a meeting of the Board of Directors.

SECTION 15. Committees. The Board of Directors, by vote of a majority of the directors then in office, may elect one or more committees, including, without limitation, a Compensation Committee, a Nominating & Corporate Governance Committee and an Audit Committee, and may delegate thereto some or all of its powers except those which by law, by the Certificate or by these By-laws may not be delegated. Except as the Board of Directors may

 

11


otherwise determine, any such committee may make rules for the conduct of its business, but unless otherwise provided by the Board of Directors or in such rules, its business shall be conducted so far as possible in the same manner as is provided by these By-laws for the Board of Directors. All members of such committees shall hold such offices at the pleasure of the Board of Directors. The Board of Directors may abolish any such committee at any time. Any committee to which the Board of Directors delegates any of its powers or duties shall keep records of its meetings and shall report its action to the Board of Directors.

SECTION 16. Compensation of Directors. Directors shall receive such compensation for their services as shall be determined by a majority of the Board of Directors, or a designated committee thereof, provided that directors who are serving the Corporation as employees and who receive compensation for their services as such, shall not receive any salary or other compensation for their services as directors of the Corporation.

ARTICLE III

Officers

SECTION 1. Enumeration. The officers of the Corporation shall consist of a President, a Treasurer, a Secretary and such other officers, including, without limitation, a Chairman of the Board of Directors, a Chief Executive Officer and one or more Vice Presidents (including Executive Vice Presidents or Senior Vice Presidents), Assistant Vice Presidents, Assistant Treasurers and Assistant Secretaries, as the Board of Directors may determine.

SECTION 2. Election. At the regular annual meeting of the Board of Directors following the Annual Meeting, the Board of Directors shall elect the President, the Treasurer and the Secretary. Other officers may be elected by the Board of Directors at such regular annual meeting of the Board of Directors or at any other regular or special meeting.

SECTION 3. Qualification. No officer need be a stockholder or a director. Any person may occupy more than one office of the Corporation at any time.

SECTION 4. Tenure. Except as otherwise provided by the Certificate or by these By-laws, each of the officers of the Corporation shall hold office until the regular annual meeting of the Board of Directors following the next Annual Meeting and until his or her successor is elected and qualified or until his or her earlier resignation or removal.

SECTION 5. Resignation. Any officer may resign by delivering his or her written resignation to the Corporation addressed to the President or the Secretary, and such resignation shall be effective upon receipt, unless the resignation otherwise provides.

SECTION 6. Removal. Except as otherwise provided by law, the Board of Directors may remove any officer with or without cause by the affirmative vote of a majority of the directors then in office.

 

12


SECTION 7. Absence or Disability. In the event of the absence or disability of any officer, the Board of Directors may designate another officer to act temporarily in place of such absent or disabled officer.

SECTION 8. Vacancies. Any vacancy in any office may be filled for the unexpired portion of the term by the Board of Directors.

SECTION 9. President. The President shall, subject to the direction of the Board of Directors, have such powers and shall perform such duties as the Board of Directors may from time to time designate.

SECTION 10. Chairman of the Board. The Chairman of the Board, if one is elected, shall have such powers and shall perform such duties as the Board of Directors may from time to time designate.

SECTION 11. Chief Executive Officer. The Chief Executive Officer, if one is elected, shall have such powers and shall perform such duties as the Board of Directors may from time to time designate.

SECTION 12. Vice Presidents and Assistant Vice Presidents. Any Vice President (including any Executive Vice President or Senior Vice President) and any Assistant Vice President shall have such powers and shall perform such duties as the Board of Directors or the Chief Executive Officer may from time to time designate.

SECTION 13. Treasurer and Assistant Treasurers. The Treasurer shall, subject to the direction of the Board of Directors and except as the Board of Directors or the Chief Executive Officer may otherwise provide, have general charge of the financial affairs of the Corporation and shall cause to be kept accurate books of account. The Treasurer shall have custody of all funds, securities, and valuable documents of the Corporation. He or she shall have such other duties and powers as may be designated from time to time by the Board of Directors or the Chief Executive Officer. Any Assistant Treasurer shall have such powers and perform such duties as the Board of Directors or the Chief Executive Officer may from time to time designate.

SECTION 14. Secretary and Assistant Secretaries. The Secretary shall record all the proceedings of the meetings of the stockholders and the Board of Directors (including committees of the Board of Directors) in books kept for that purpose. In his or her absence from any such meeting, a temporary secretary chosen at the meeting shall record the proceedings thereof. The Secretary shall have charge of the stock ledger (which may, however, be kept by any transfer or other agent of the Corporation). The Secretary shall have custody of the seal of the Corporation, and the Secretary, or an Assistant Secretary shall have authority to affix it to any instrument requiring it, and, when so affixed, the seal may be attested by his or her signature or that of an Assistant Secretary. The Secretary shall have such other duties and powers as may be designated from time to time by the Board of Directors or the Chief Executive Officer. In the absence of the Secretary, any Assistant Secretary may perform his or her duties and responsibilities. Any Assistant Secretary shall have such powers and perform such duties as the Board of Directors or the Chief Executive Officer may from time to time designate.

 

13


SECTION 15. Other Powers and Duties. Subject to these By-laws and to such limitations as the Board of Directors may from time to time prescribe, the officers of the Corporation shall each have such powers and duties as generally pertain to their respective offices, as well as such powers and duties as from time to time may be conferred by the Board of Directors or the Chief Executive Officer.

ARTICLE IV

Capital Stock

SECTION 1. Certificates of Stock. Each stockholder shall be entitled to a certificate of the capital stock of the Corporation in such form as may from time to time be prescribed by the Board of Directors. Such certificate shall be signed by any of the Chairman of the Board, the President or a Vice President and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation. The Corporation seal and the signatures by the Corporation’s officers, the transfer agent or the registrar may be facsimiles. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed on such certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he or she were such officer, transfer agent or registrar at the time of its issue. Every certificate for shares of stock which are subject to any restriction on transfer and every certificate issued when the Corporation is authorized to issue more than one class or series of stock shall contain such legend with respect thereto as is required by law. Notwithstanding anything to the contrary provided in these Bylaws, the Board of Directors of the Corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares (except that the foregoing shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation), and by the approval and adoption of these Bylaws the Board of Directors has determined that all classes or series of the Corporation’s stock may be uncertificated, whether upon original issuance, re-issuance, or subsequent transfer.

SECTION 2. Transfers. Subject to any restrictions on transfer and unless otherwise provided by the Board of Directors, shares of stock that are represented by a certificate may be transferred on the books of the Corporation by the surrender to the Corporation or its transfer agent of the certificate theretofore properly endorsed or accompanied by a written assignment or power of attorney properly executed, with transfer stamps (if necessary) affixed, and with such proof of the authenticity of signature as the Corporation or its transfer agent may reasonably require. Shares of stock that are not represented by a certificate may be transferred on the books of the Corporation by submitting to the Corporation or its transfer agent such evidence of transfer and following such other procedures as the Corporation or its transfer agent may require.

 

14


SECTION 3. Record Holders. Except as may otherwise be required by law, by the Certificate or by these By-laws, the Corporation shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to vote with respect thereto, regardless of any transfer, pledge or other disposition of such stock, until the shares have been transferred on the books of the Corporation in accordance with the requirements of these By-laws.

SECTION 4. Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may 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 record date: (a) in the case of determination of stockholders entitled to vote at any meeting of stockholders, shall, unless otherwise required by law, not be more than sixty (60) nor less than ten (10) days before the date of such meeting and (b) in the case of any other action, shall not be more than sixty (60) days prior to such other action. If no record date is fixed: (i) 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; and (ii) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.

SECTION 5. Replacement of Certificates. In case of the alleged loss, destruction or mutilation of a certificate of stock of the Corporation, a duplicate certificate may be issued in place thereof, upon such terms as the Board of Directors may prescribe.

ARTICLE V

Indemnification

SECTION 1. Definitions. For purposes of this Article:

(a) “Corporate Status” describes the status of a person who is serving or has served (i) as a Director of the Corporation, (ii) as an Officer of the Corporation, (iii) as a Non-Officer Employee of the Corporation, or (iv) as a director, partner, trustee, officer, employee or agent of any other corporation, partnership, limited liability company, joint venture, trust, employee benefit plan, foundation, association, organization or other legal entity which such person is or was serving at the request of the Corporation. For purposes of this Section 1(a), a Director, Officer or Non-Officer Employee of the Corporation who is serving or has served as a director, partner, trustee, officer, employee or agent of a Subsidiary shall be deemed to be serving at the request of the Corporation. Notwithstanding the foregoing, “Corporate Status” shall not include the status of a person who is serving or has served as a director, officer, employee or agent of a constituent corporation absorbed in a merger or consolidation transaction with the Corporation with respect to such person’s activities prior to said transaction, unless specifically authorized by the Board of Directors or the stockholders of the Corporation;

 

15


(b) “Director” means any person who serves or has served the Corporation as a director on the Board of Directors of the Corporation;

(c) “Disinterested Director” means, with respect to each Proceeding in respect of which indemnification is sought hereunder, a Director of the Corporation who is not and was not a party to such Proceeding;

(d) “Expenses” means all attorneys’ fees, retainers, court costs, transcript costs, fees of expert witnesses, private investigators and professional advisors (including, without limitation, accountants and investment bankers), travel expenses, duplicating costs, printing and binding costs, costs of preparation of demonstrative evidence and other courtroom presentation aids and devices, costs incurred in connection with document review, organization, imaging and computerization, telephone charges, postage, delivery service fees, and all other disbursements, costs or expenses of the type customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, settling or otherwise participating in, a Proceeding;

(e) “Liabilities” means judgments, damages, liabilities, losses, penalties, excise taxes, fines and amounts paid in settlement;

(f) “Non-Officer Employee” means any person who serves or has served as an employee or agent of the Corporation, but who is not or was not a Director or Officer;

(g) “Officer” means any person who serves or has served the Corporation as an officer of the Corporation appointed by the Board of Directors of the Corporation;

(h) “Proceeding” means any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, inquiry, investigation, administrative hearing or other proceeding, whether civil, criminal, administrative, arbitrative or investigative; and

(i) “Subsidiary” shall mean any corporation, partnership, limited liability company, joint venture, trust or other entity of which the Corporation owns (either directly or through or together with another Subsidiary of the Corporation) either (i) a general partner, managing member or other similar interest or (ii) (A) fifty percent (50%) or more of the voting power of the voting capital equity interests of such corporation, partnership, limited liability company, joint venture or other entity, or (B) fifty percent (50%) or more of the outstanding voting capital stock or other voting equity interests of such corporation, partnership, limited liability company, joint venture or other entity.

 

16


SECTION 2. Indemnification of Directors and Officers.

(a) Subject to the operation of Section 4 of this Article V of these By-laws, each Director and Officer shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the DGCL, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment), and to the extent authorized in this Section 2.

(1) Actions, Suits and Proceedings Other than By or In the Right of the Corporation. Each Director and Officer shall be indemnified and held harmless by the Corporation against any and all Expenses and Liabilities that are incurred or paid by such Director or Officer or on such Director’s or Officer’s behalf in connection with any Proceeding or any claim, issue or matter therein (other than an action by or in the right of the Corporation), which such Director or Officer is, or is threatened to be made, a party to or participant in by reason of such Director’s or Officer’s Corporate Status, if such Director or Officer acted in good faith and in a manner such Director or Officer reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful.

(2) Actions, Suits and Proceedings By or In the Right of the Corporation. Each Director and Officer shall be indemnified and held harmless by the Corporation against any and all Expenses that are incurred by such Director or Officer or on such Director’s or Officer’s behalf in connection with any Proceeding or any claim, issue or matter therein by or in the right of the Corporation, which such Director or Officer is, or is threatened to be made, a party to or participant in by reason of such Director’s or Officer’s Corporate Status, if such Director or Officer acted in good faith and in a manner such Director or Officer reasonably believed to be in or not opposed to the best interests of the Corporation; provided, however, that no indemnification shall be made under this Section 2(a)(2) in respect of any claim, issue or matter as to which such Director or Officer shall have been finally adjudged by a court of competent jurisdiction to be liable to the Corporation, unless, and only to the extent that, the Court of Chancery or another court in which such Proceeding was brought shall determine upon application that, despite adjudication of liability, but in view of all the circumstances of the case, such Director or Officer is fairly and reasonably entitled to indemnification for such Expenses that such court deems proper.

(3) Survival of Rights. The rights of indemnification provided by this Section 2 shall continue as to a Director or Officer after he or she has ceased to be a Director or Officer and shall inure to the benefit of his or her heirs, executors, administrators and personal representatives.

(4) Actions by Directors or Officers. Notwithstanding the foregoing, the Corporation shall indemnify any Director or Officer seeking indemnification in connection with a Proceeding initiated by such Director or Officer only if such Proceeding (including any parts of such Proceeding not initiated by such Director or

 

17


Officer) was authorized in advance by the Board of Directors of the Corporation, unless such Proceeding was brought to enforce such Officer’s or Director’s rights to indemnification or, in the case of Directors, advancement of Expenses under these By-laws in accordance with the provisions set forth herein.

SECTION 3. Indemnification of Non-Officer Employees. Subject to the operation of Section 4 of this Article V of these By-laws, each Non-Officer Employee may, in the discretion of the Board of Directors of the Corporation, be indemnified by the Corporation to the fullest extent authorized by the DGCL, as the same exists or may hereafter be amended, against any or all Expenses and Liabilities that are incurred by such Non-Officer Employee or on such Non-Officer Employee’s behalf in connection with any threatened, pending or completed Proceeding, or any claim, issue or matter therein, which such Non-Officer Employee is, or is threatened to be made, a party to or participant in by reason of such Non-Officer Employee’s Corporate Status, if such Non-Officer Employee acted in good faith and in a manner such Non-Officer Employee reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful. The rights of indemnification provided by this Section 3 shall exist as to a Non-Officer Employee after he or she has ceased to be a Non-Officer Employee and shall inure to the benefit of his or her heirs, personal representatives, executors and administrators. Notwithstanding the foregoing, the Corporation may indemnify any Non-Officer Employee seeking indemnification in connection with a Proceeding initiated by such Non-Officer Employee only if such Proceeding was authorized in advance by the Board of Directors of the Corporation.

SECTION 4. Determination. Unless ordered by a court, no indemnification shall be provided pursuant to this Article V to a Director, to an Officer or to a Non-Officer Employee unless a determination shall have been made that such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal Proceeding, such person had no reasonable cause to believe his or her conduct was unlawful. Such determination shall be made by (a) a majority vote of the Disinterested Directors, even though less than a quorum of the Board of Directors, (b) a committee comprised of Disinterested Directors, such committee having been designated by a majority vote of the Disinterested Directors (even though less than a quorum), (c) if there are no such Disinterested Directors, or if a majority of Disinterested Directors so directs, by independent legal counsel in a written opinion, or (d) by the stockholders of the Corporation.

SECTION 5. Advancement of Expenses to Directors Prior to Final Disposition.

(a) The Corporation shall advance all Expenses incurred by or on behalf of any Director in connection with any Proceeding in which such Director is involved by reason of such Director’s Corporate Status within thirty (30) days after the receipt by the Corporation of a written statement from such Director requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by such Director and shall be preceded or accompanied by an undertaking by or on behalf of such Director to repay any Expenses so advanced if it shall ultimately be determined that such Director is not entitled to be indemnified

 

18


against such Expenses. Notwithstanding the foregoing, the Corporation shall advance all Expenses incurred by or on behalf of any Director seeking advancement of expenses hereunder in connection with a Proceeding initiated by such Director only if such Proceeding (including any parts of such Proceeding not initiated by such Director) was (i) authorized by the Board of Directors of the Corporation, or (ii) brought to enforce such Director’s rights to indemnification or advancement of Expenses under these By-laws.

(b) If a claim for advancement of Expenses hereunder by a Director is not paid in full by the Corporation within thirty (30) days after receipt by the Corporation of documentation of Expenses and the required undertaking, such Director may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and if successful in whole or in part, such Director shall also be entitled to be paid the expenses of prosecuting such claim. The failure of the Corporation (including its Board of Directors or any committee thereof, independent legal counsel, or stockholders) to make a determination concerning the permissibility of such advancement of Expenses under this Article V shall not be a defense to an action brought by a Director for recovery of the unpaid amount of an advancement claim and shall not create a presumption that such advancement is not permissible. The burden of proving that a Director is not entitled to an advancement of expenses shall be on the Corporation.

(c) In any suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that the Director has not met any applicable standard for indemnification set forth in the DGCL.

SECTION 6. Advancement of Expenses to Officers and Non-Officer Employees Prior to Final Disposition.

(a) The Corporation may, at the discretion of the Board of Directors of the Corporation, advance any or all Expenses incurred by or on behalf of any Officer or any Non-Officer Employee in connection with any Proceeding in which such person is involved by reason of his or her Corporate Status as an Officer or Non-Officer Employee upon the receipt by the Corporation of a statement or statements from such Officer or Non-Officer Employee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by such Officer or Non-Officer Employee and shall be preceded or accompanied by an undertaking by or on behalf of such person to repay any Expenses so advanced if it shall ultimately be determined that such Officer or Non-Officer Employee is not entitled to be indemnified against such Expenses.

(b) In any suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that the Officer or Non-Officer Employee has not met any applicable standard for indemnification set forth in the DGCL.

 

19


SECTION 7. Contractual Nature of Rights.

(a) The provisions of this Article V shall be deemed to be a contract between the Corporation and each Director and Officer entitled to the benefits hereof at any time while this Article V is in effect, in consideration of such person’s past or current and any future performance of services for the Corporation. Neither amendment, repeal or modification of any provision of this Article V nor the adoption of any provision of the Certificate of Incorporation inconsistent with this Article V shall eliminate or reduce any right conferred by this Article V in respect of any act or omission occurring, or any cause of action or claim that accrues or arises or any state of facts existing, at the time of or before such amendment, repeal, modification or adoption of an inconsistent provision (even in the case of a proceeding based on such a state of facts that is commenced after such time), and all rights to indemnification and advancement of Expenses granted herein or arising out of any act or omission shall vest at the time of the act or omission in question, regardless of when or if any proceeding with respect to such act or omission is commenced. The rights to indemnification and to advancement of expenses provided by, or granted pursuant to, this Article V shall continue notwithstanding that the person has ceased to be a director or officer of the Corporation and shall inure to the benefit of the estate, heirs, executors, administrators, legatees and distributes of such person.

(b) If a claim for indemnification hereunder by a Director or Officer is not paid in full by the Corporation within sixty (60) days after receipt by the Corporation of a written claim for indemnification, such Director or Officer may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim, and if successful in whole or in part, such Director or Officer shall also be entitled to be paid the expenses of prosecuting such claim. The failure of the Corporation (including its Board of Directors or any committee thereof, independent legal counsel, or stockholders) to make a determination concerning the permissibility of such indemnification under this Article V shall not be a defense to an action brought by a Director or Officer for recovery of the unpaid amount of an indemnification claim and shall not create a presumption that such indemnification is not permissible. The burden of proving that a Director or Officer is not entitled to indemnification shall be on the Corporation.

(c) In any suit brought by a Director or Officer to enforce a right to indemnification hereunder, it shall be a defense that such Director or Officer has not met any applicable standard for indemnification set forth in the DGCL.

SECTION 8. Non-Exclusivity of Rights. The rights to indemnification and to advancement of Expenses set forth in this Article V shall not be exclusive of any other right which any Director, Officer, or Non-Officer Employee may have or hereafter acquire under any statute, provision of the Certificate or these By-laws, agreement, vote of stockholders or Disinterested Directors or otherwise.

SECTION 9. Insurance. The Corporation may maintain insurance, at its expense, to protect itself and any Director, Officer or Non-Officer Employee against any liability of any character asserted against or incurred by the Corporation or any such Director, Officer or Non-Officer Employee, or arising out of any such person’s Corporate Status, whether or not the Corporation would have the power to indemnify such person against such liability under the DGCL or the provisions of this Article V.

 

20


SECTION 10. Other Indemnification. The Corporation’s obligation, if any, to indemnify or provide advancement of Expenses to any person under this Article V as a result of such person serving, at the request of the Corporation, as a director, partner, trustee, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise shall be reduced by any amount such person may collect as indemnification or advancement of Expenses from such other corporation, partnership, joint venture, trust, employee benefit plan or enterprise (the “Primary Indemnitor”). Any indemnification or advancement of Expenses under this Article V owed by the Corporation as a result of a person serving, at the request of the Corporation, as a director, partner, trustee, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise shall only be in excess of, and shall be secondary to, the indemnification or advancement of Expenses available from the applicable Primary Indemnitor(s) and any applicable insurance policies.

ARTICLE VI

Miscellaneous Provisions

SECTION 1. Fiscal Year. The fiscal year of the Corporation shall be determined by the Board of Directors.

SECTION 2. Seal. The Board of Directors shall have power to adopt and alter the seal of the Corporation.

SECTION 3. Execution of Instruments. All deeds, leases, transfers, contracts, bonds, notes and other obligations to be entered into by the Corporation in the ordinary course of its business without director action may be executed on behalf of the Corporation by the Chairman of the Board, if one is elected, the President or the Treasurer or any other officer, employee or agent of the Corporation as the Board of Directors or the executive committee of the Board may authorize.

SECTION 4. Voting of Securities. Unless the Board of Directors otherwise provides, the Chairman of the Board, if one is elected, the President or the Treasurer may waive notice of and act on behalf of the Corporation, or appoint another person or persons to act as proxy or attorney in fact for the Corporation with or without discretionary power and/or power of substitution, at any meeting of stockholders or shareholders of any other corporation or organization, any of whose securities are held by the Corporation.

SECTION 5. Resident Agent. The Board of Directors may appoint a resident agent upon whom legal process may be served in any action or proceeding against the Corporation.

SECTION 6. Corporate Records. The original or attested copies of the Certificate, By-laws and records of all meetings of the incorporators, stockholders and the Board of Directors and the stock transfer books, which shall contain the names of all stockholders, their record

 

21


addresses and the amount of stock held by each, may be kept outside the State of Delaware and shall be kept at the principal office of the Corporation, at an office of its counsel, at an office of its transfer agent or at such other place or places as may be designated from time to time by the Board of Directors.

SECTION 7. Certificate. All references in these By-laws to the Certificate shall be deemed to refer to the Fourth Amended and Restated Certificate of Incorporation of the Corporation, as amended and/or restated and in effect from time to time.

SECTION 8. Exclusive Jurisdiction of Delaware Courts. Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Corporation to the Corporation or the Corporation’s stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law or the Certificate or By-laws, or (iv) any action asserting a claim against the Corporation governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Corporation shall be deemed to have notice of and consented to the provisions of this Section 8.

SECTION 9. Amendment of By-laws.

(a) Amendment by Directors. Except as provided otherwise by law, these By-laws may be amended or repealed by the Board of Directors by the affirmative vote of a majority of the directors then in office.

(b) Amendment by Stockholders. These By-laws may be amended or repealed at any Annual Meeting, or special meeting of stockholders called for such purpose in accordance with these By-Laws, by the affirmative vote of at least seventy-five percent (75%) of the outstanding shares entitled to vote on such amendment or repeal, voting together as a single class; provided, however, that if the Board of Directors recommends that stockholders approve such amendment or repeal at such meeting of stockholders, such amendment or repeal shall only require the affirmative vote of the majority of the outstanding shares entitled to vote on such amendment or repeal, voting together as a single class. Notwithstanding the foregoing, stockholder approval shall not be required unless mandated by the Certificate, these By-laws, or other applicable law.

SECTION 10. Notices. If mailed, notice to stockholders shall be deemed given when deposited in the mail, postage prepaid, directed to the stockholder at such stockholder’s address as it appears on the records of the Corporation. Without limiting the manner by which notice otherwise may be given to stockholders, any notice to stockholders may be given by electronic transmission in the manner provided in Section 232 of the DGCL.

 

22


SECTION 11. Waivers. A written waiver of any notice, signed by a stockholder or director, or waiver by electronic transmission by such person, whether given before or after the time of the event for which notice is to be given, shall be deemed equivalent to the notice required to be given to such person. Neither the business to be transacted at, nor the purpose of, any meeting need be specified in such a waiver.

Adopted March 14, 2018 and effective as of ___________, 2018.

 

23


EX-4.1

Exhibit 4.1

 

LOGO


--------------------------------------------------------------------------------------------------------------------------------------------------

SURFACE ONCOLOGY, INC.

THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH SHAREHOLDER WHO SO REQUESTS, A SUMMARY OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OF THE COMPANY AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND RIGHTS, AND THE VARIATIONS IN RIGHTS, PREFERENCES AND LIMITATIONS DETERMINED FOR EACH SERIES, WHICH ARE FIXED BY THE CERTIFICATE OF INCORPORATION OF THE COMPANY, AS AMENDED, AND THE RESOLUTIONS OF THE BOARD OF DIRECTORS OF THE COMPANY, AND THE AUTHORITY OF THE BOARD OF DIRECTORS TO DETERMINE VARIATIONS FOR FUTURE SERIES. SUCH REQUEST MAY BE MADE TO THE OFFICE OF THE SECRETARY OF THE COMPANY OR TO THE TRANSFER AGENT. THE BOARD OF DIRECTORS MAY REQUIRE THE OWNER OF A LOST OR DESTROYED STOCK CERTIFICATE, OR HIS LEGAL REPRESENTATIVES, TO GIVE THE COMPANY A BOND TO INDEMNIFY IT AND ITS TRANSFER AGENTS AND REGISTRARS AGAINST ANY CLAIM THAT MAY BE MADE AGAINST THEM ON ACCOUNT OF THE ALLEGED LOSS OR DESTRUCTION OF ANY SUCH CERTIFICATE.

 

 

The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations:

   

TEN COM

 

- as tenants in common

  

UNIF GIFT MIN ACT

   -..............................................Custodian..........................................
                                           (Cust)                                                                         (Minor)                 

TEN ENT

 

- as tenants by the entireties

      under Uniform Gifts to Minors Act.................................................
                                                                                                                               (State)

JT TEN

 

- as joint tenants with right of survivorship

  

UNIF TRF MIN ACT

   -..............................................Custodian (until age.......................... )    
   

  and not as tenants in common

                                       (Cust)
          ...............................under Uniform Transfers to Minors Act...........
                          (Minor)                                                                                                               (State)

Additional abbreviations may also be used though not in the above list.

 

    

PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE

 

For value received,                                                          hereby sell, assign and transfer unto

 

    

 

 

(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING POSTAL ZIP CODE, OF ASSIGNEE)

 

 

 

 

                                                                                                                                                                                                                                                          Shares

of the common stock represented by the within Certificate, and do hereby irrevocably constitute and appoint

                                                                                                                                                                                                                                                          Attorney

to transfer the said stock on the books of the within-named Company with full power of substitution in the premises.

 

Dated:                                                       20                                       

Signature(s) Guaranteed: Medallion Guarantee Stamp

THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (Banks, Stockbrokers, Savings and Loan Associations and Credit Unions) WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM, PURSUANT TO S.E.C. RULE 17Ad-15.

 

Signature:                                                                                       

   

 

Signature:                                                                                       

   
                      Notice: The signature to this assignment  must correspond with the name
                                    as written upon the face of the certificate, in every particular,
                                    without alteration or enlargement, or any change whatever.
   
   
   
   

 

LOGO  

The IRS requires that the named transfer agent (“we”) report the cost basis of certain shares or units acquired after January 1, 2011. If your shares or units are covered by the legislation, and you requested to sell or transfer the shares or units using a specific cost basis calculation method, then we have processed as you requested. If you did not specify a cost basis calculation method, then we have defaulted to the first in, first out (FIFO) method. Please consult your tax advisor if you need additional information about cost basis.

 

If you do not keep in contact with the issuer or do not have any activity in your account for the time period specified by state law, your property may become subject to state unclaimed property laws and transferred to the appropriate state.

   LOGO

EX-4.2

Exhibit 4.2

SURFACE ONCOLOGY, INC.

INVESTORS’ RIGHTS AGREEMENT

THIS INVESTORS’ RIGHTS AGREEMENT (this “Agreement”), is made as of the 6th day of November, 2014, by and among SURFACE ONCOLOGY, INC., a Delaware corporation (the “Company”), and each of the investors listed on Schedule A hereto, each of which is referred to in this Agreement as an “Investor”.

RECITALS

WHEREAS, the Company and the Investors are parties to the Series A Preferred Stock Purchase Agreement of even date herewith (the “Purchase Agreement”); and

WHEREAS, in order to induce the Company to enter into the Purchase Agreement and to induce the Investors to invest funds in the Company pursuant to the Purchase Agreement, the Investors and the Company hereby agree that this Agreement shall govern the rights of the Investors to cause the Company to register shares of Common Stock issuable to the Investors, to receive certain information from the Company, and to participate in future equity offerings by the Company, and shall govern certain other matters as set forth in this Agreement.

NOW, THEREFORE, the parties hereby agree as follows:

1. Definitions. For purposes of this Agreement:

1.1 “Affiliate” means, with respect to any specified Person, any other Person who, directly or indirectly, controls, is controlled by, or is under common control with such Person, including, without limitation, any general partner, managing member, limited partner, member, employee, officer or director of such Person or any venture capital fund now or hereafter existing that is controlled by one or more general partners or managing members of, or shares the same management company with, such Person. For purposes of this definition, the term “control” when used with respect to any Person means the power to direct the management or policies of such Person, directly or indirectly, whether through ownership of voting securities, by contract or otherwise, and the terms “controlling” and “controlled” shall have meanings correlative to the foregoing.

1.2 “Amgen” means Amgen Investments Ltd.

1.3 “Common Stock” means shares of the Company’s common stock, par value $0.0001 per share.

1.4 “Competitor” means a Person engaged, directly or indirectly (including through any partnership, limited liability company, corporation, joint venture or similar arrangement (whether now existing or formed hereafter)), in (i) developing or commercializing one or more products or product candidates, or (ii) conducting or supervising a drug discovery program against a target, which in either case (i) or (ii) is the subject of a discovery or development program conducted or supervised by the Company in the field of oncology, but shall not include any financial investment firm or collective investment vehicle that, together with its Affiliates, holds less than twenty percent (20%) of the outstanding equity of any Competitor and does not, nor do any of its Affiliates, have a right to designate any members of the Board of Directors of any Competitor. The Company and each of the Investors acknowledge that none of the Investors shall be deemed to be a Competitor by virtue of its (or any of its Affiliates’) status as an Investor in, or collaboration or licensing partner with, the Company, and that Novartis shall not be deemed to be a Competitor solely by virtue of the actions or investments of Novartis Venture Fund.


1.5 “Current Investor” means each Investor holding (i) Registrable Securities or (ii) shares of Common Stock issued or issuable (directly or indirectly) upon conversion of the Series A Preferred Stock, regardless of whether such shares of Common Stock are Registrable Securities.

1.6 “Damages” means any loss, damage, claim or liability (joint or several) to which a party hereto may become subject under the Securities Act, the Exchange Act, or other federal or state law, insofar as such loss, damage, claim or liability (or any action in respect thereof) arises out of or is based upon: (i) any untrue statement or alleged untrue statement of a material fact contained in any registration statement of the Company, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto; (ii) an omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading; or (iii) any violation or alleged violation by the indemnifying party (or any of its agents or Affiliates) of the Securities Act, the Exchange Act, any state securities law, or any rule or regulation promulgated under the Securities Act, the Exchange Act, or any state securities law.

1.7 “Derivative Securities” means any securities or rights convertible into, or exercisable or exchangeable for (in each case, directly or indirectly), Common Stock, including options and warrants.

1.8 “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

1.9 “Excluded Registration” means (i) a registration relating to the sale of securities to employees of the Company or a subsidiary pursuant to a stock option, stock purchase, or similar plan; (ii) a registration relating to an SEC Rule 145 transaction; (iii) a registration on any form that does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities; or (iv) a registration in which the only Common Stock being registered is Common Stock issuable upon conversion of debt securities that are also being registered.

1.10 “FOIA Party” means a Person that, in the reasonable determination of the Board of Directors, may be subject to, and thereby required to disclose non-public information furnished by or relating to the Company under, the Freedom of Information Act, 5 U.S.C. 552 (“FOIA”), any state public records access law, any state or other jurisdiction’s laws similar in intent or effect to FOIA, or any other similar statutory or regulatory requirement.

1.11 “Form S-1” means such form under the Securities Act as in effect on the date hereof or any successor registration form under the Securities Act subsequently adopted by the SEC.

1.12 “Form S-3” means such form under the Securities Act as in effect on the date hereof or any registration form under the Securities Act subsequently adopted by the SEC that permits incorporation of substantial information by reference to other documents filed by the Company with the SEC.

1.13 “GAAP” means generally accepted accounting principles in the United States.

1.14 “Holder” means any holder of Registrable Securities who is a party to this Agreement.

 

2


1.15 “Immediate Family Member” means a child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including, adoptive relationships, of a natural person referred to herein.

1.16 “Initiating Holders” means, collectively, Holders who properly initiate a registration request under this Agreement.

1.17 “IPO” means the Company’s first underwritten public offering of its Common Stock under the Securities Act.

1.18 “Key Employee” means any executive-level employee (including, division director and vice president-level positions) as well as any employee who, either alone or in concert with others, develops, invents, programs, or designs any Company Intellectual Property (as defined in the Purchase Agreement).

1.19 “Major Investor” means any Investor that, individually or together with such Investor’s Affiliates, holds at least the number of shares of Registrable Securities (as adjusted for any stock split, stock dividend, combination, or other recapitalization or reclassification effected after the date hereof) at and following each Closing, as described below. For the avoidance of doubt, any Investor that no longer holds shares of Series A Preferred Stock as a result of a Special Mandatory Conversion pursuant to Article Fourth Section B, Subsection 5A of the Restated Certificate shall not be considered to be a Major Investor.

 

Closing    Number of shares of Registrable
Securities required to be a Major
Investor

Initial Closing*

   500,000

First Milestone Closing*

   1,000,000

Second Milestone Closing*

   2,000,000

 

* as defined in the Purchase Agreement

1.20 “NEA” means New Enterprise Associates 14, L.P.

1.21 “New Securities” means, collectively, equity securities of the Company, whether or not currently authorized, as well as rights, options, or warrants to purchase such equity securities, or securities of any type whatsoever that are, or may become, convertible or exchangeable into or exercisable for such equity securities; other than shares of Series A Preferred Stock to be purchased by the Investors pursuant to the Purchase Agreement, including at the Milestone Closings (as defined therein).

1.22 “Person” means any individual, corporation, partnership, trust, limited liability company, association or other entity.

1.23 “Registrable Securities” means (i) the Common Stock issuable or issued upon conversion of the Series A Preferred Stock (other than any Common Stock so issued pursuant to Article Fourth Section B, Subsection 5A of the Restated Certificate); (ii) any Common Stock, or any Common Stock issued or issuable (directly or indirectly) upon conversion and/or exercise of any other securities of

 

3


the Company, acquired by the Investors after the date hereof (other than any Common Stock issued pursuant to any “special mandatory conversion” or “pay-to-play” provision similar to Article Fourth Section B, Subsection 5A of the Restated Certificate); and (iii) any Common Stock issued as (or issuable upon the conversion or exercise of any warrant, right, or other security that is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, the shares referenced in clause (i) above; excluding in all cases, however, any Registrable Securities sold by a Person in a transaction in which the applicable rights under this Agreement are not assigned pursuant to Subsection 6.1, and excluding for purposes of Section 2 any shares for which registration rights have terminated pursuant to Subsection 2.13 of this Agreement. Notwithstanding the parentheticals in clauses (i) and (ii) above, and solely for the purposes of Section 2, Subsection 3.1 (including the definition of “Current Investor” as used in Subsection 3.1), Subsection 3.7, and Subsection 6.1 of this Agreement, any Common Stock issued pursuant to Article Fourth Section B, Subsection 5A of the Restated Certificate in connection with a Milestone Closing Election (as defined in the Purchase Agreement) shall be considered Registrable Securities.

1.24 “Registrable Securities then outstanding” means the number of shares determined by adding the number of shares of outstanding Common Stock that are Registrable Securities and the number of shares of Common Stock issuable (directly or indirectly) pursuant to then exercisable and/or convertible securities that are Registrable Securities.

1.25 “Restated Certificate” means the Company’s Amended and Restated Certificate of Incorporation, as may be further amended or restated from time to time.

1.26 “Restricted Securities” means the securities of the Company required to be notated with the legend set forth in Subsection 2.12(b) hereof.

1.27 “SEC” means the Securities and Exchange Commission.

1.28 “SEC Rule 144” means Rule 144 promulgated by the SEC under the Securities Act.

1.29 “SEC Rule 145” means Rule 145 promulgated by the SEC under the Securities Act.

1.30 “Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

1.31 “Selling Expenses” means all underwriting discounts, selling commissions, and stock transfer taxes applicable to the sale of Registrable Securities, and fees and disbursements of counsel for any Holder, except for the fees and disbursements of the Selling Holder Counsel borne and paid by the Company as provided in Subsection 2.6.

1.32 “Series A Director” means any director of the Company that the holders of record of the Series A Preferred Stock are entitled to elect pursuant to the Restated Certificate.

1.33 “Series A Preferred Stock” means, shares of the Company’s Series A Preferred Stock, par value $0.0001 per share.

 

4


2. Registration Rights. The Company covenants and agrees as follows:

2.1 Demand Registration.

(a) Form S-1 Demand. If at any time after the earlier of (i) five (5) years after the date of this Agreement or (ii) one hundred eighty (180) days after the effective date of the registration statement for the IPO, the Company receives a request from Holders of, if the NEA Purchase (as defined in the Purchase Agreement) has occurred, at least sixty-one percent (61%) of the Registrable Securities then outstanding, or if the NEA Purchase has not occurred, at least fifty-one percent (51%) of the Registrable Securities then outstanding, that the Company file a Form S-1 registration statement with respect to at least thirty-three and one-third percent (33 1/3%) of the Registrable Securities then outstanding (or a lesser percent if the anticipated aggregate offering price, net of Selling Expenses, would exceed $10 million), then the Company shall (x) within ten (10) days after the date such request is given, give notice thereof (the “Demand Notice”) to all Holders other than the Initiating Holders; and (y) as soon as practicable, and in any event within sixty (60) days after the date such request is given by the Initiating Holders, file a Form S-1 registration statement under the Securities Act covering all Registrable Securities that the Initiating Holders requested to be registered and any additional Registrable Securities requested to be included in such registration by any other Holders, as specified by notice given by each such Holder to the Company within twenty (20) days of the date the Demand Notice is given, and in each case, subject to the limitations of Subsections 2.1(c) and 2.3.

(b) Form S-3 Demand. If at any time when it is eligible to use a Form S-3 registration statement, the Company receives a request from Holders of at least 25 percent (25%) of the Registrable Securities then outstanding that the Company file a Form S-3 registration statement with respect to outstanding Registrable Securities of such Holders having an anticipated aggregate offering price, net of Selling Expenses, of at least $3 million, then the Company shall (i) within ten (10) days after the date such request is given, give a Demand Notice to all Holders other than the Initiating Holders; and (ii) as soon as practicable, and in any event within forty-five (45) days after the date such request is given by the Initiating Holders, file a Form S-3 registration statement under the Securities Act covering all Registrable Securities requested to be included in such registration by any other Holders, as specified by notice given by each such Holder to the Company within twenty (20) days of the date the Demand Notice is given, and in each case, subject to the limitations of Subsections 2.1(c) and 2.3.

(c) Notwithstanding the foregoing obligations, if the Company furnishes to Holders requesting a registration pursuant to this Subsection 2.1 a certificate signed by the Company’s chief executive officer stating that in the good faith judgment of the Company’s Board of Directors it would be materially detrimental to the Company and its stockholders for such registration statement to either become effective or remain effective for as long as such registration statement otherwise would be required to remain effective, because such action would (i) materially interfere with a significant acquisition, corporate reorganization, or other similar transaction involving the Company; (ii) require premature disclosure of material information that the Company has a bona fide business purpose for preserving as confidential; or (iii) render the Company unable to comply with requirements under the Securities Act or Exchange Act, then the Company shall have the right to defer taking action with respect to such filing, and any time periods with respect to filing or effectiveness thereof shall be tolled correspondingly, for a period of not more than ninety (90) days after the request of the Initiating Holders is given; provided, however, that the Company may not invoke this right more than twice in any twelve (12) month period; and provided further that the Company shall not register any securities for its own account or that of any other stockholder during such ninety (90) day period other than an Excluded Registration.

(d) The Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to Subsection 2.1(a)(i) during the period that is sixty (60) days before the Company’s good faith estimate of the date of filing of, and ending on a date that is one hundred eighty (180) days after the effective date of, a Company-initiated registration, provided that the Company is actively employing in good faith commercially reasonable efforts to cause such registration statement to

 

5


become effective; (ii) after the Company has effected one registration pursuant to Subsection 2.1(a); or (iii) if the Initiating Holders propose to dispose of shares of Registrable Securities that may be immediately registered on Form S-3 pursuant to a request made pursuant to Subsection 2.1(b). The Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to Subsection 2.1(b) (i) during the period that is thirty (30) days before the Company’s good faith estimate of the date of filing of, and ending on a date that is ninety (90) days after the effective date of, a Company-initiated registration, provided that the Company is actively employing in good faith commercially reasonable efforts to cause such registration statement to become effective; or (ii) if the Company has effected two registrations pursuant to Subsection 2.1(b) within the twelve (12) month period immediately preceding the date of such request. A registration shall not be counted as “effected” for purposes of this Subsection 2.1(d) until such time as the applicable registration statement has been declared effective by the SEC, unless the Initiating Holders withdraw their request for such registration, elect not to pay the registration expenses therefor, and forfeit their right to one demand registration statement pursuant to Subsection 2.6, in which case such withdrawn registration statement shall be counted as “effected” for purposes of this Subsection 2.1(d).

2.2 Company Registration. If the Company proposes to register (including, for this purpose, a registration effected by the Company for stockholders other than the Holders) any of its Common Stock under the Securities Act in connection with the public offering of such securities solely for cash (other than in an Excluded Registration), the Company shall, at such time, promptly give each Holder notice of such registration. Upon the request of each Holder given within twenty (20) days after such notice is given by the Company, the Company shall, subject to the provisions of Subsection 2.3, cause to be registered all of the Registrable Securities that each such Holder has requested to be included in such registration. The Company shall have the right to terminate or withdraw any registration initiated by it under this Subsection 2.2 before the effective date of such registration, whether or not any Holder has elected to include Registrable Securities in such registration. The expenses (other than Selling Expenses) of such withdrawn registration shall be borne by the Company in accordance with Subsection 2.6.

2.3 Underwriting Requirements.

(a) If, pursuant to Subsection 2.1, the Initiating Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to Subsection 2.1, and the Company shall include such information in the Demand Notice. The underwriter(s) will be selected by the Company and shall be reasonably acceptable to a majority in interest of the Initiating Holders. In such event, the right of any Holder to include such Holder’s Registrable Securities in such registration shall be conditioned upon such Holder’s participation in such underwriting and the inclusion of such Holder’s 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 as provided in Subsection 2.4(e)) enter into an underwriting agreement in customary form with the underwriter(s) selected for such underwriting. Notwithstanding any other provision of this Subsection 2.3, if the managing underwriter(s) advise(s) the Initiating Holders in writing that marketing factors require a limitation on the number of shares to be underwritten, then the Initiating Holders shall so advise all Holders of Registrable Securities that otherwise would be underwritten pursuant hereto, and the number of Registrable Securities that may be included in the underwriting shall be allocated among such Holders of Registrable Securities, including the Initiating Holders, in proportion (as nearly as practicable) to the number of Registrable Securities owned by each Holder or in such other proportion as shall mutually be agreed to by all such selling Holders; provided, however, that the number of Registrable Securities held by the Holders to be included in such underwriting shall not be reduced unless all other securities are first entirely excluded from the underwriting. To facilitate the allocation of shares in accordance with the above provisions, the Company or the underwriters may round the number of shares allocated to any Holder to the nearest one hundred (100) shares.

 

6


(b) In connection with any offering involving an underwriting of shares of the Company’s capital stock pursuant to Subsection 2.2, the Company shall not be required to include any of the Holders’ Registrable Securities in such underwriting unless the Holders accept the terms of the underwriting as agreed upon between the Company and its underwriters, and then only in such quantity as the underwriters in their sole discretion determine will not jeopardize the success of the offering by the Company. If the total number of securities, including Registrable Securities, requested by stockholders to be included in such offering exceeds the number of securities to be sold (other than by the Company) that the underwriters in their reasonable discretion determine is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, which the underwriters and the Company in their sole discretion determine will not jeopardize the success of the offering. If the underwriters determine that less than all of the Registrable Securities requested to be registered can be included in such offering, then the Registrable Securities that are included in such offering shall be allocated among the selling Holders in proportion (as nearly as practicable to) the number of Registrable Securities owned by each selling Holder or in such other proportions as shall mutually be agreed to by all such selling Holders. To facilitate the allocation of shares in accordance with the above provisions, the Company or the underwriters may round the number of shares allocated to any Holder to the nearest one hundred (100) shares. Notwithstanding the foregoing, in no event shall (i) the number of Registrable Securities included in the offering be reduced unless all other securities (other than securities to be sold by the Company) are first entirely excluded from the offering, or (ii) the number of Registrable Securities included in the offering be reduced below thirty percent (30%) of the total number of securities included in such offering, unless such offering is the IPO, in which case the selling Holders may be excluded further if the underwriters make the determination described above and no other stockholder’s securities are included in such offering. For purposes of the provision in this Subsection 2.3(b) concerning apportionment, for any selling Holder that is a partnership, limited liability company, or corporation, the partners, members, retired partners, retired members, stockholders, and Affiliates of such Holder, or the estates and Immediate Family Members of any such partners, retired partners, members, and retired members 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 number of Registrable Securities owned by all Persons included in such “selling Holder,” as defined in this sentence.

(c) For purposes of Subsection 2.1, a registration shall not be counted as “effected” if, as a result of an exercise of the underwriters’ cutback provisions in Subsection 2.3(a), fewer than fifty percent (50%) of the total number of Registrable Securities that Holders have requested to be included in such registration statement are actually included.

2.4 Obligations of the Company. Whenever required under this Section 2 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible:

(a) prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its commercially reasonable efforts to cause such registration statement to become effective and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for a period of up to one hundred twenty (120) days or, if earlier, until the distribution contemplated in the registration statement has been completed; provided, however, that (i) such one hundred twenty (120) day period shall be extended for a period of time equal to the period the Holder refrains, at the request of an underwriter of Common Stock (or other securities) of the Company, from selling any securities included in such

 

7


registration, and (ii) in the case of any registration of Registrable Securities on Form S-3 that are intended to be offered on a continuous or delayed basis, subject to compliance with applicable SEC rules, such one hundred twenty (120) day period shall be extended for up to sixty (60) days, if necessary, to keep the registration statement effective until all such Registrable Securities are sold;

(b) prepare and file with the SEC such amendments and supplements to such registration statement, and the prospectus used in connection with such registration statement, as may be necessary to comply with the Securities Act in order to enable the disposition of all securities covered by such registration statement;

(c) furnish to the selling Holders such numbers of copies of a prospectus, including a preliminary prospectus, as required by the Securities Act, and such other documents as the Holders may reasonably request in order to facilitate their disposition of their Registrable Securities;

(d) use its commercially reasonable 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 selling Holders; provided that the Company shall not be required to qualify to do business or to file a general consent to service of process in any such states or jurisdictions, unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act;

(e) in the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the underwriter(s) of such offering;

(f) use its commercially reasonable efforts to cause all such Registrable Securities covered by such registration statement to be listed on a national securities exchange or trading system and each securities exchange and trading system (if any) on which similar securities issued by the Company are then listed;

(g) provide a transfer agent and registrar for all Registrable Securities registered pursuant to this Agreement and provide a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration;

(h) promptly make available for inspection by the selling Holders, any managing underwriter(s) participating in any disposition pursuant to such registration statement, and any attorney or accountant or other agent retained by any such underwriter or selected by the selling Holders, all financial and other records, pertinent corporate documents, and properties of the Company, and cause the Company’s officers, directors, employees, and independent accountants to supply all information reasonably requested by any such seller, underwriter, attorney, accountant, or agent, in each case, as necessary or advisable to verify the accuracy of the information in such registration statement and to conduct appropriate due diligence in connection therewith;

(i) notify each selling Holder, promptly after the Company receives notice thereof, of the time when such registration statement has been declared effective or a supplement to any prospectus forming a part of such registration statement has been filed; and

(j) after such registration statement becomes effective, notify each selling Holder of any request by the SEC that the Company amend or supplement such registration statement or prospectus.

 

8


In addition, the Company shall ensure that, at all times after any registration statement covering a public offering of securities of the Company under the Securities Act shall have become effective, its insider trading policy shall provide that the Company’s directors may implement a trading program under Rule 10b5-1 of the Exchange Act.

2.5 Furnish Information. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 2 with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as is reasonably required to effect the registration of such Holder’s Registrable Securities.

2.6 Expenses of Registration. All expenses (other than Selling Expenses) incurred in connection with registrations, filings, or qualifications pursuant to Section 2, including all registration, filing, and qualification fees; printers’ and accounting fees; fees and disbursements of counsel for the Company; and the reasonable fees and disbursements, not to exceed $30,000, of one counsel for the selling Holders (“Selling Holder Counsel”), shall be borne and paid by the Company; provided, however, that the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Subsection 2.1 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered (in which case all selling Holders shall bear such expenses pro rata based upon the number of Registrable Securities that were to be included in the withdrawn registration), unless the Holders of a majority of the Registrable Securities agree to forfeit their right to one registration pursuant to Subsections 2.1(a) or 2.1(b), as the case may be; provided further that if, at the time of such withdrawal, the Holders shall have learned of a material adverse change in the condition, business, or prospects of the Company from that known to the Holders at the time of their request and have withdrawn the request with reasonable promptness after learning of such information, then the Holders shall not be required to pay any of such expenses and shall not forfeit their right to one registration pursuant to Subsections 2.1(a) or 2.1(b). All Selling Expenses relating to Registrable Securities registered pursuant to this Section 2 shall be borne and paid by the Holders pro rata on the basis of the number of Registrable Securities registered on their behalf.

2.7 Delay of Registration. No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any registration pursuant to this Agreement as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 2.

2.8 Indemnification. If any Registrable Securities are included in a registration statement under this Section 2:

(a) To the extent permitted by law, the Company will indemnify and hold harmless each selling Holder, and the partners, members, officers, directors, and stockholders of each such Holder; legal counsel and accountants for each such Holder; any underwriter (as defined in the Securities Act) for each such Holder; and each Person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Exchange Act, against any Damages, and the Company will pay to each such Holder, underwriter, controlling Person, or other aforementioned Person any legal or other expenses reasonably incurred thereby in connection with investigating or defending any claim or proceeding from which Damages may result, as such expenses are incurred; provided, however, that the indemnity agreement contained in this Subsection 2.8(a) shall not apply to amounts paid in settlement of any such claim or proceeding if such settlement is effected without the consent of the Company, which consent shall not be unreasonably withheld, nor shall the Company be liable for any Damages to the extent that they arise out of or are based upon actions or omissions made in reliance upon and in conformity with written information furnished by or on behalf of any such Holder, underwriter, controlling Person, or other aforementioned Person expressly for use in connection with such registration.

 

9


(b) To the extent permitted by law, each selling Holder, severally and not jointly, will indemnify and hold harmless the Company, and each of its directors, each of its officers who has signed the registration statement, each Person (if any), who controls the Company within the meaning of the Securities Act, legal counsel and accountants for the Company, any underwriter (as defined in the Securities Act), any other Holder selling securities in such registration statement, and any controlling Person of any such underwriter or other Holder, against any Damages, in each case only to the extent that such Damages arise out of or are based upon actions or omissions made in reliance upon and in conformity with written information furnished by or on behalf of such selling Holder expressly for use in connection with such registration; and each such selling Holder will pay to the Company and each other aforementioned Person any legal or other expenses reasonably incurred thereby in connection with investigating or defending any claim or proceeding from which Damages may result, as such expenses are incurred; provided, however, that the indemnity agreement contained in this Subsection 2.8(b) shall not apply to amounts paid in settlement of any such claim or proceeding if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; and provided further that in no event shall the aggregate amounts payable by any Holder by way of indemnity or contribution under Subsections 2.8(b) and 2.8(d) exceed the proceeds from the offering received by such Holder (net of any Selling Expenses paid by such Holder), except in the case of fraud or willful misconduct by such Holder.

(c) Promptly after receipt by an indemnified party under this Subsection 2.8 of notice of the commencement of any action (including any governmental action) for which a party may be entitled to indemnification hereunder, such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Subsection 2.8, give the indemnifying party notice of the commencement thereof. The indemnifying party shall have the right to participate in such action and, to the extent the indemnifying party so desires, participate jointly with any other indemnifying party to which notice has been given, and to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party (together with all other indemnified parties that may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such action.

(d) To provide for just and equitable contribution to joint liability under the Securities Act in any case in which either: (i) any party otherwise entitled to indemnification hereunder makes a claim for indemnification pursuant to this Subsection 2.8 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case, notwithstanding the fact that this Subsection 2.8 provides for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of any party hereto for which indemnification is provided under this Subsection 2.8, then, and in each such case, such parties will contribute to the aggregate losses, claims, damages, liabilities, or expenses to which they may be subject (after contribution from others) in such proportion as is appropriate to reflect the relative fault of each of the indemnifying party and the indemnified party in connection with the statements, omissions, or other actions that resulted in such loss, claim, damage, liability, or expense, as well as to reflect 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 allegedly untrue statement of a material fact, or the omission or alleged omission of a material fact, relates to information supplied by the indemnifying party or by the indemnified party and the parties’ relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission; provided, however, that, in any such case (x) no Holder will be required to contribute any amount in excess of the public offering price of all such Registrable Securities offered and sold by such Holder pursuant to such registration statement, and (y) no Person guilty of fraudulent misrepresentation (within

 

10


the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation; and provided further that in no event shall a Holder’s liability pursuant to this Subsection 2.8(d), when combined with the amounts paid or payable by such Holder pursuant to Subsection 2.8(b), exceed the proceeds from the offering received by such Holder (net of any Selling Expenses paid by such Holder), except in the case of willful misconduct or fraud by such Holder.

(e) 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.

(f) Unless otherwise superseded by an underwriting agreement entered into in connection with the underwritten public offering, the obligations of the Company and Holders under this Subsection 2.8 shall survive the completion of any offering of Registrable Securities in a registration under this Section 2, and otherwise shall survive the termination of this Agreement.

2.9 Reports Under Exchange Act. With a view to making available to the Holders the benefits of SEC Rule 144 and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company shall:

(a) use commercially reasonable efforts to make and keep available adequate current public information, as those terms are understood and defined in SEC Rule 144, at all times after the effective date of the registration statement filed by the Company for the IPO;

(b) use commercially reasonable efforts to file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act (at any time after the Company has become subject to such reporting requirements); and

(c) furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) to the extent accurate, a written statement by the Company that it has complied with the reporting requirements of SEC Rule 144 (at any time after ninety (90) days after the effective date of the registration statement filed by the Company for the IPO), the Securities Act, and the Exchange Act (at any time after the Company has become subject to such reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after the Company so qualifies); (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company; and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC that permits the selling of any such securities without registration (at any time after the Company has become subject to the reporting requirements under the Exchange Act) or pursuant to Form S-3 (at any time after the Company so qualifies to use such form).

2.10 Limitations on Subsequent Registration Rights. From and after the date of this Agreement, the Company shall not, without the prior written consent of, if the NEA Purchase has occurred, the Holders of at least sixty-one percent (61%) of the Registrable Securities then outstanding, or if the NEA Purchase has not occurred, at least fifty-one percent (51%) of the Registrable Securities then outstanding, enter into any agreement with any holder or prospective holder of any securities of the Company that (i) would provide to such holder the right to include securities in any registration on other than either a pro rata basis with respect to the Registrable Securities or on a subordinate basis after all Holders have had the opportunity to include in the registration and offering all shares of Registrable

 

11


Securities that they wish to so include or (ii) allow such holder or prospective holder to initiate a demand for registration of any securities held by such holder or prospective holder; provided that this limitation shall not apply to any additional Investor who becomes a party to this Agreement in accordance with Subsection 6.9.

2.11 “Market Stand-off” Agreement. Each Holder hereby agrees that it will not, without the prior written consent of the managing underwriter, during the period commencing on the date of the final prospectus relating to the registration by the Company of shares of its Common Stock or any other equity securities under the Securities Act on a registration statement on Form S-1 or Form S-3, and ending on the date specified by the Company and the managing underwriter (such period not to exceed one hundred eighty (180) days in the case of the IPO, or such other period as may be requested by the Company or an underwriter to accommodate regulatory restrictions on (1) the publication or other distribution of research reports, and (2) analyst recommendations and opinions, including, but not limited to, the restrictions contained in FINRA Rule 2711(f)(4) or NYSE Rule 472(f)(4), or any successor provisions or amendments thereto), or ninety (90) days in the case of any registration other than the IPO, or such other period as may be requested by the Company or an underwriter to accommodate regulatory restrictions on (1) the publication or other distribution of research reports and (2) analyst recommendations and opinions, including, but not limited to, the restrictions contained in FINRA Rule 2711(f)(4) or NYSE Rule 472(f)(4), or any successor provisions or amendments thereto), (i) lend; offer; pledge; sell; contract to sell; sell any option or contract to purchase; purchase any option or contract to sell; grant any option, right, or warrant to purchase; or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable (directly or indirectly) for Common Stock (whether such shares or any such securities are then owned by the Holder or are thereafter acquired) or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of such securities, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or other securities, in cash, or otherwise. The foregoing provisions of this Subsection 2.11 shall not apply to the sale of any shares to an underwriter pursuant to an underwriting agreement, or the transfer of any shares to any trust for the direct or indirect benefit of the Holder or the immediate family of the Holder, provided that the trustee of the trust agrees to be bound in writing by the restrictions set forth herein, and provided further that any such transfer shall not involve a disposition for value, and shall be applicable to the Holders only if all officers and directors are subject to the same restrictions and the Company uses commercially reasonable efforts to obtain a similar agreement from all stockholders individually owning more than one percent (1%) of the Company’s outstanding Common Stock (after giving effect to conversion into Common Stock of all outstanding Series A Preferred Stock). The underwriters in connection with such registration are intended third-party beneficiaries of this Subsection 2.11 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 Subsection 2.11 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, except that, notwithstanding the foregoing, the Company and the underwriters may, in their sole discretion, waive or terminate these restrictions with respect to up to 100,000 shares of the Common Stock (as adjusted for any stock split, stock dividend, combination, or other recapitalization or reclassification effected after the date hereof), without application of such waiver or termination to all Holders subject to such agreements.

 

12


2.12 Restrictions on Transfer.

(a) The Series A Preferred Stock and the Registrable Securities shall not be sold, pledged, or otherwise transferred, and the Company shall not recognize and shall issue stop-transfer instructions to its transfer agent with respect to any such sale, pledge, or transfer, except upon the conditions specified in this Agreement, which conditions are intended to ensure compliance with the provisions of the Securities Act. A transferring Holder will cause any proposed purchaser, pledgee, or transferee of the Series A Preferred Stock and the Registrable Securities held by such Holder to agree to take and hold such securities subject to the provisions and upon the conditions specified in this Agreement.

(b) Each certificate, instrument, or book entry representing (i) the Series A Preferred Stock, (ii) the Registrable Securities, and (iii) any other securities issued in respect of the securities referenced in clauses (i) and (ii), upon any stock split, stock dividend, recapitalization, merger, consolidation, or similar event, shall (unless otherwise permitted by the provisions of Subsection 2.12(c)) be notated with a legend substantially in the following form:

THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH SHARES MAY NOT BE SOLD, PLEDGED, OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR A VALID EXEMPTION FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT.

THE SECURITIES REPRESENTED HEREBY 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.

The Holders consent to the Company making a notation in its records and giving instructions to any transfer agent of the Restricted Securities in order to implement the restrictions on transfer set forth in this Subsection 2.12.

(c) The holder of such Restricted Securities, by acceptance of ownership thereof, agrees to comply in all respects with the provisions of this Section 2. Before any proposed sale, pledge, or transfer of any Restricted Securities, unless there is in effect a registration statement under the Securities Act covering the proposed transaction, the Holder thereof shall give notice to the Company of such Holder’s intention to effect such sale, pledge, or transfer. Each such notice shall describe the manner and circumstances of the proposed sale, pledge, or transfer in sufficient detail and, if reasonably requested by the Company, shall be accompanied at such Holder’s expense by either (i) a written opinion of legal counsel who shall, and whose legal opinion shall, be reasonably satisfactory to the Company, addressed to the Company, to the effect that the proposed transaction may be effected without registration under the Securities Act; (ii) a “no action” letter from the SEC to the effect that the proposed sale, pledge, or transfer of such Restricted Securities without registration will not result in a recommendation by the staff of the SEC that action be taken with respect thereto; or (iii) any other evidence reasonably satisfactory to counsel to the Company to the effect that the proposed sale, pledge, or transfer of the Restricted Securities may be effected without registration under the Securities Act, whereupon the Holder of such Restricted Securities shall be entitled to sell, pledge, or transfer such Restricted Securities in accordance with the terms of the notice given by the Holder to the Company. The Company will not require such a legal opinion or “no action” letter (x) in any transaction in compliance with SEC Rule 144; or (y) in any transaction in which such Holder distributes Restricted Securities to an Affiliate of such Holder for no consideration; provided that each transferee agrees in writing to be subject to the terms of this Subsection 2.12. Each certificate, instrument, or book entry representing the Restricted Securities transferred as above provided shall be notated with, except if such transfer is made pursuant to SEC Rule 144, the appropriate restrictive legend set forth in Subsection 2.12(b), except that such certificate instrument, or book entry shall not be notated with such restrictive legend if, in the opinion of counsel for such Holder and the Company, such legend is not required in order to establish compliance with any provisions of the Securities Act.

 

13


2.13 Termination of Registration Rights. The right of any Holder to request registration or inclusion of Registrable Securities in any registration pursuant to Subsections 2.1 or 2.2 shall terminate upon the earliest to occur of:

(a) the closing of a Deemed Liquidation Event, as such term is defined in the Restated Certificate;

(b) such time as Rule 144 or another similar exemption under the Securities Act is available for the sale of all of such Holder’s shares without limitation during a three-month period without registration; and

(c) the fifth anniversary of the IPO.

3. Information and Observer Rights.

3.1 Delivery of Financial Statements. For so long as any shares of Preferred Stock shall remain outstanding, the Company shall deliver to each Current Investor:

(a) as soon as practicable, but in any event within one hundred fifty (150) days after the end of each fiscal year of the Company, (i) a balance sheet as of the end of such year, (ii) statements of income and of cash flows for such year, and a comparison between (x) the actual amounts as of and for such fiscal year and (y) the comparable amounts for the prior year and as included in the Budget (as defined in Subsection 3.1(e)) for such year, with an explanation of any material differences between such amounts and a schedule as to the sources and applications of funds for such year, and (iii) a statement of stockholders’ equity as of the end of such year, prepared in accordance with GAAP, and, beginning for the 2017 fiscal year, audited and certified by an independent public accounting firm of nationally or regionally recognized standing selected by the Board of Directors.

(b) as soon as practicable, but in any event within forty-five (45) days after the end of each quarter of each fiscal year of the Company, unaudited statements of income and cash flows for such fiscal quarter, and an unaudited balance sheet and a statement of stockholders’ equity as of the end of such fiscal quarter, all prepared in accordance with GAAP (except that such financial statements may (i) be subject to normal year-end audit adjustments; and (ii) not contain all notes thereto that may be required in accordance with GAAP);

(c) as soon as practicable, but in any event within forty-five (45) days after the end of each quarter of each fiscal year of the Company, a statement showing the number of shares of each class and series of capital stock and securities convertible into or exercisable for shares of capital stock outstanding at the end of the period, the Common Stock issuable upon conversion or exercise of any outstanding securities convertible or exercisable for Common Stock and the exchange ratio or exercise price applicable thereto, and the number of shares of issued stock options and stock options not yet issued but reserved for issuance, if any, all in sufficient detail as to permit the Current Investors to calculate their respective percentage equity ownership in the Company, and certified by the chief financial officer or chief executive officer of the Company as being true, complete, and correct; and

 

14


(d) as soon as practicable, but in any event within thirty (30) days of the end of each month, an unaudited income statement and statement of cash flows for such month, and an unaudited balance sheet and statement of stockholders’ equity as of the end of such month, all prepared in accordance with GAAP (except that such financial statements may (i) be subject to normal year-end audit adjustments and (ii) not contain all notes thereto that may be required in accordance with GAAP).

In addition, the Company shall deliver to each Major Investor, unless the Board of Directors, including each of the Series A Directors, determines otherwise:

(e) as soon as practicable, but in any event thirty (30) days before the end of each fiscal year, a budget and business plan for the next fiscal year (collectively, the “Budget”), approved by the Board of Directors and prepared on a monthly basis, including balance sheets, income statements, and statements of cash flow for such months and, promptly after prepared, any other budgets or revised budgets prepared by the Company; and

(f) such other information relating to the financial condition, business, prospects, or corporate affairs of the Company as any Major Investor may from time to time reasonably request; provided, however, that the Company shall not be obligated under this Subsection 3.1 to provide information (i) that the Company reasonably determines in good faith to be a trade secret or confidential information (unless covered by an enforceable confidentiality agreement, in a form acceptable to the Company); or (ii) the disclosure of which would adversely affect the attorney-client privilege between the Company and its counsel.

If, for any period, the Company has any subsidiary whose accounts are consolidated with those of the Company, then in respect of such period the financial statements delivered pursuant to the foregoing sections shall be the consolidated and consolidating financial statements of the Company and all such consolidated subsidiaries.

Notwithstanding anything else in this Subsection 3.1 to the contrary, the Company may cease providing the information set forth in this Subsection 3.1 during the period starting with the date sixty (60) days before the Company’s good-faith estimate of the date of filing of a registration statement if it reasonably concludes it must do so to comply with the SEC rules applicable to such registration statement and related offering; provided that the Company’s covenants under this Subsection 3.1 shall be reinstated at such time as the Company is no longer actively employing its commercially reasonable efforts to cause such registration statement to become effective.

3.2 Inspection. The Company shall permit each Major Investor (provided that the Board of Directors has not reasonably determined that such Major Investor is a Competitor), at such Major Investor’s expense, to visit and inspect the Company’s properties; examine its books of account and records; and discuss the Company’s affairs, finances, and accounts with its officers, during normal business hours of the Company as may be reasonably requested by the Major Investor; provided, however, that the Company shall not be obligated pursuant to this Subsection 3.2 to provide access to any information that it reasonably and in good faith considers to be a trade secret or confidential information (unless covered by an enforceable confidentiality agreement, in form acceptable to the Company) or the disclosure of which would adversely affect the attorney-client privilege between the Company and its counsel.

3.3 Observer Rights.

(a) For so long as Atlas Venture Fund IX, L.P. or its Affiliates (“Atlas”) is a Major Investor, the Company shall invite a representative of Atlas (the “Atlas Observer”) to attend all meetings of its Board of Directors in a nonvoting observer capacity and, in this respect, shall give such representative copies of all notices, minutes, consents, and other materials that it provides to its directors at the same time and in the same manner as provided to such directors.

 

15


(b) For so long as Amgen or its Affiliates is a Major Investor, the Company shall invite a representative of Amgen (the “Amgen Observer”) to attend all meetings of its Board of Directors in a nonvoting observer capacity and, in this respect, shall give such representative copies of all notices, minutes, consents, and other materials that it provides to its directors at the same time and in the same manner as provided to such directors. Amgen agrees that any information received by the Amgen Observer will not be shared within Amgen other than (i) with investment, legal, finance, tax, accounting and audit personnel thereof solely for the purpose of monitoring its investment in the Company, including without limitation consideration of any potential follow-on investment; provided that in each such case, the recipient shall only receive such information as is pertinent to permit such party to carry out the permitted purposes hereunder, or (ii) as otherwise approved in advance by the Board of Directors.

(c) For so long as Novartis Institutes for BioMedical Research, Inc. or its Affiliates (“Novartis”) is a Major Investor, the Company shall invite a representative of Novartis who is acceptable to the Company’s Board of Directors, which acceptance shall not be unreasonably withheld (the “Novartis Observer” and together with the Atlas Observer and Amgen Observer, the “Board Observers”) to attend all meetings of its Board of Directors in a nonvoting observer capacity and, in this respect, shall give such representative copies of all notices, minutes, consents, and other materials that it provides to its directors at the same time and in the same manner as provided to such directors. The Novartis Observer shall initially be Martin Seidel or Catherine Thut. Novartis agrees that any information received by the Novartis Observer will not be shared within Novartis other than (i) with investment, legal, finance, tax, accounting and audit personnel thereof solely for the purpose of monitoring its investment in the Company, including without limitation consideration of any potential follow-on investment; provided that in each such case, the recipient shall only receive such information as is pertinent to permit such party to carry out the permitted purposes hereunder, or (ii) as otherwise approved in advance by the Board of Directors.

(d) The Board Observers shall agree to hold in confidence and trust and to act in a fiduciary manner with respect to all information provided to them in accordance with this Subsection 3.3. The Company reserves the right to withhold any information and to exclude a Board Observer from any meeting or portion thereof if, after consultation with counsel, (1) the Company determines in good faith that access to such information or attendance at such meeting could adversely affect the attorney-client privilege between the Company and its counsel, (2) the Company determines in good faith that access to such information or attendance at such meeting could result in disclosure of trade secrets or a conflict of interest, or (3) the Board of Directors determines in good faith that a Board Observer or the Investor represented by such Board Observer is a Competitor.

3.4 FIRPTA Compliance.

(a) For so long as NEA or its Affiliates is a Major Investor, the Company shall provide prompt notice to NEA following any “determination date” (as defined in Treasury Regulation Section 1.897-2(c)(1)) on which the Company becomes a United States real property holding corporation. In addition, upon a written request by NEA, the Company shall provide NEA with a written statement informing NEA whether NEA’s interest in the Company constitutes a United States real property interest. The Company’s determination shall comply with the requirements of Treasury Regulation Section 1.897-2(h)(1) or any successor regulation, and the Company shall provide timely notice to the Internal Revenue Service, in accordance with and to the extent required by Treasury Regulation Section 1.897-2(h)(2) or any successor regulation, that such statement has been made. The Company’s written statement to NEA shall be delivered to NEA within 10 days of NEA’s written request therefor. The Company’s obligation to furnish such written statement shall continue notwithstanding the fact that a class of the Company’s stock may be regularly traded on an established securities market or the fact that there is no preferred stock then outstanding.

 

16


(b) For so long as Amgen or its Affiliates is a Major Investor, the Company shall provide prompt notice to Amgen following any “determination date” (as defined in Treasury Regulation Section 1.897-2(c)(1)) on which the Company becomes a United States real property holding corporation. In addition, upon a written request by Amgen, the Company shall provide Amgen with a written statement informing Amgen whether Amgen’s interest in the Company constitutes a United States real property interest. The Company’s determination shall comply with the requirements of Treasury Regulation Section 1.897-2(h)(1) or any successor regulation, and the Company shall provide timely notice to the Internal Revenue Service, in accordance with and to the extent required by Treasury Regulation Section 1.897-2(h)(2) or any successor regulation, that such statement has been made. The Company’s written statement to Amgen shall be delivered to Amgen within 10 days of Amgen’s written request therefor. The Company’s obligation to furnish such written statement shall continue notwithstanding the fact that a class of the Company’s stock may be regularly traded on an established securities market or the fact that there is no preferred stock then outstanding.

3.5 Qualified Small Business Stock. The Company shall use commercially reasonable efforts to cause the shares of Series A Preferred Stock issued pursuant to the Purchase Agreement, as well as any shares into which such shares are converted, within the meaning of Section 1202(f) of the Internal Revenue Code of 1986, as amended (the “Code”), to constitute “qualified small business stock” as defined in Section 1202(c) of the Code; provided, however, that such requirement shall not be applicable if the Board of Directors determines, in its good faith business judgment, that such qualification is inconsistent with the best interests of the Company. The Company shall submit to its stockholders (including the Investors) and to the Internal Revenue Service any reports that may be required under Section 1202(d)(1)(C) of the Code and the regulations promulgated thereunder. In addition, within twenty (20) business days after any Investor’s written request therefor, the Company shall, at its option, either (i) deliver to such Investor a written statement indicating whether (and what portion of) such Investor’s interest in the Company constitutes “qualified small business stock” as defined in Section 1202(c) of the Code or (ii) deliver to such Investor such factual information in the Company’s possession as is reasonably necessary to enable such Investor to determine whether (and what portion of) such Investor’s interest in the Company constitutes “qualified small business stock” as defined in Section 1202(c) of the Code.

3.6 Termination of Certain Covenants. The covenants set forth in Subsection 3.1, Subsection 3.2, Subsection 3.3, Subsection 3.4 and Subsection 3.5 shall terminate and be of no further force or effect (i) immediately before the consummation of the IPO, (ii) when the Company first becomes subject to the periodic reporting requirements of Section 12(g) or 15(d) of the Exchange Act, or (iii) upon a Deemed Liquidation Event, as such term is defined in the Restated Certificate, whichever event occurs first.

3.7 Confidentiality. Each Investor agrees that such Investor will keep confidential and will not disclose, divulge, or use for any purpose (other than to monitor its investment in the Company, including without limitation any potential follow-on investment) any confidential information obtained from the Company pursuant to the terms of this Agreement (including notice of the Company’s intention to file a registration statement), unless such confidential information (a) is known or becomes known to the public in general (other than as a result of a breach of this Subsection 3.7 by such Investor), (b) is or has been independently developed or conceived by the Investor without use of the Company’s confidential information, or (c) is or has been made known or disclosed to the Investor by a third party without a breach of any obligation of confidentiality such third party may have to the Company; provided,

 

17


however, that an Investor may disclose confidential information (i) to its attorneys, accountants, consultants, and other professionals to the extent necessary to obtain their services in connection with monitoring its investment in the Company; (ii) to any prospective purchaser of any Registrable Securities from such Investor, if such prospective purchaser agrees to be bound by the provisions of this Subsection 3.7; (iii) to any Affiliate, partner, member, stockholder, or wholly owned subsidiary of such Investor in the ordinary course of business, provided that such Investor informs such Person that such information is confidential and directs such Person to maintain the confidentiality of such information; or (iv) as may otherwise be required by law, provided that the Investor promptly notifies the Company of such disclosure and takes reasonable steps to minimize the extent of any such required disclosure. In the event that an Investor or any of its Affiliates (other than, in the case of Novartis, Novartis Venture Fund) becomes a Competitor, such Investor shall so inform the Company and, as a condition to the disclosure thereafter of any Confidential Information to such Investor, such Investor and the Company shall negotiate and enter into a supplemental confidentiality and non-use agreement, reasonably satisfactory to the Company. Alternatively, an Investor may elect at any time to negotiate and enter into such supplemental confidentiality and non-use agreement in advance of such Investor or its Affiliates becoming a Competitor, and the Company will cooperate therewith. In the event that the Board of Directors determines in good faith that an Investor or any of its Affiliates (other than, in the case of Novartis, Novartis Venture Fund) has become a Competitor, the Company shall so inform such Investor and, as a condition to the disclosure thereafter of any Confidential Information to such Investor, such Investor and the Company shall negotiate and enter into a supplemental confidentiality and non-use agreement, reasonably satisfactory to the Company.

4. Rights to Future Stock Issuances.

4.1 Right of First Offer. Subject to the terms and conditions of this Subsection 4.1 and applicable securities laws, if the Company proposes to offer or sell any New Securities, the Company shall first offer such New Securities to each Investor. An Investor shall be entitled to apportion the right of first offer hereby granted to it in such proportions as it deems appropriate, among (i) itself, (ii) its Affiliates and (iii) its beneficial interest holders, such as limited partners, members or any other Person having “beneficial ownership,” as such term is defined in Rule 13d-3 promulgated under the Exchange Act, of such Investor (“Investor Beneficial Owners”); provided that each such Affiliate or Investor Beneficial Owner (x) is not a Competitor or FOIA Party, unless such party’s purchase of New Securities is otherwise consented to by the Board of Directors, (y) agrees to enter into this Agreement and each of the Voting Agreement and Right of First Refusal and Co-Sale Agreement of even date herewith among the Company, the Investors and the other parties named therein, as an “Investor” under each such agreement (provided that any Competitor or FOIA Party to whom the foregoing right of first offer is apportioned shall not be entitled to any rights as a Current Investor, Major Investor or Investor, as applicable, under Subsections 3.1, 3.2 and 4.1 hereof but the Investor that so apportioned the right of first offer shall retain all rights hereunder to which it would otherwise be entitled in accordance with the terms hereof), and (z) agrees to purchase at least such number of New Securities as are allocable hereunder to the Investor holding the fewest number of Series A Preferred Stock and any other Derivative Securities.

(a) The Company shall give notice (the “Offer Notice”) to each Investor, stating (i) its bona fide intention to offer such New Securities, (ii) the number of such New Securities to be offered, and (iii) the price and terms, if any, upon which it proposes to offer such New Securities.

(b) By notification to the Company within twenty (20) days after the Offer Notice is given, each Investor may elect to purchase or otherwise acquire, at the price and on the terms specified in the Offer Notice, up to that portion of such New Securities which equals the proportion that the Common Stock then held by such Investor (including the shares of Common Stock then issuable (directly or indirectly) upon conversion and/or exercise, as applicable, of the Series A Preferred Stock and

 

18


any other Derivative Securities then held by such Investor, but not including any shares of Common Stock then held by such Investor that were acquired other than upon the exercise or conversion of Derivative Securities) bears to the total number of shares of Common Stock of the Company then held by all the Investors (including the shares of Common Stock then issuable (directly or indirectly) upon conversion and/or exercise, as applicable, of the Series A Preferred Stock and any other Derivative Securities then held by the Investors, but not including any shares of Common Stock then held by the Investors that were acquired other than upon the exercise or conversion of Derivative Securities) (with such portion being referred to as the “Pro Rata Percentage”). At the expiration of such twenty (20) day period, the Company shall promptly notify each Investor that elects to purchase or acquire all the shares available to it (each, a “Fully Exercising Investor”) of any other Investor’s failure to do likewise. During the ten (10) day period commencing after the Company has given such notice, each Fully Exercising Investor may, by giving notice to the Company, elect to purchase or acquire, in addition to the number of shares specified above, up to that portion of the New Securities for which Investors were entitled to subscribe but that were not subscribed for by the Investors which is equal to the proportion that the Common Stock issued and held, or issuable (directly or indirectly) upon conversion and/or exercise, as applicable, of Series A Preferred Stock and any other Derivative Securities then held, by such Fully Exercising Investor bears to the Common Stock issued and held, or issuable (directly or indirectly) upon conversion and/or exercise, as applicable, of the Series A Preferred Stock and any other Derivative Securities then held by all Fully Exercising Investors who wish to purchase such unsubscribed shares. The closing of any sale pursuant to this Subsection 4.1(b) shall occur within the later of ninety (90) days of the date that the Offer Notice is given and the date of initial sale of New Securities pursuant to Subsection 4.1(c).

(c) If all New Securities referred to in the Offer Notice are not elected to be purchased or acquired as provided in Subsection 4.1(b), the Company may, during the ninety (90) day period following the expiration of the periods provided in Subsection 4.1(b), offer and sell the remaining unsubscribed portion of such New Securities to any Person or Persons at a price not less than, and upon terms no more favorable to the offeree than, those specified in the Offer Notice. If the Company does not enter into an agreement for the sale of the New Securities within such period, or if such agreement is not consummated within thirty (30) days of the execution thereof, the right provided hereunder shall be deemed to be revived and such New Securities shall not be offered unless first reoffered to the Investors in accordance with this Subsection 4.1.

(d) The right of first offer in this Subsection 4.1 shall not be applicable to (i) Exempted Securities (as defined in the Restated Certificate); (ii) shares of Common Stock issued in the IPO, or (iii) shares of Series A Preferred Stock sold pursuant to the Purchase Agreement.

(e) If an Investor fails to purchase, directly or through opportunities permitted by Subsection 4.1, in any transaction subject to this Subsection 4.1, at least its Pro Rata Percentage of the New Securities allocated (or, if less than such Investor’s pro rata amount is offered by the Company, such lesser amount so offered), at an issuance of New Securities subject to this Subsection 4.1, such Investor’s Pro Rata Percentage applicable to the next issuance of New Securities shall be reduced to the amount obtained by multiplying: (x) the Investor’s Pro Rata Percentage (obtained in accordance with Subsection 4.1(b)) by (y) the Participation Percentage (as defined below). For the purposes of this section, the “Participation Percentage” shall be the amount obtained by dividing: (x) the number or amount of New Securities purchased by such Investor at the immediately preceding issuance of New Securities by (y) the number or amount of New Securities that such Investor was entitled to purchase, as determined in accordance with Subsection 4.1(b). For the purposes of clarity, nothing in this Subsection 4.1(e) shall entitle an Investor to purchase more than its Pro Rata Percentage in any offering of New Securities.

 

19


(f) Notwithstanding any provision hereof to the contrary, in lieu of complying with the provisions of this Subsection 4.1, the Company may elect to give notice to the Investors within thirty (30) days after the issuance of New Securities. Such notice shall describe the type, price, and terms of the New Securities. Each Investor shall have twenty (20) days from the date notice is given to elect to purchase up to the number of New Securities that would, if purchased by such Investor, maintain such Investor’s percentage-ownership position, calculated as set forth in Subsection 4.1(b) before giving effect to the issuance of such New Securities. The closing of such sale shall occur within sixty (60) days of the date notice is given to the Investors.

4.2 Termination. The covenants set forth in Subsection 4.1 shall terminate and be of no further force or effect (i) immediately before the consummation of the IPO, (ii) when the Company first becomes subject to the periodic reporting requirements of Section 12(g) or 15(d) of the Exchange Act, or (iii) upon a Deemed Liquidation Event, as such term is defined in the Restated Certificate, whichever event occurs first.

5. Additional Covenants.

5.1 Insurance. The Company shall use its commercially reasonable efforts to obtain, within ninety (90) days of the date hereof, from financially sound and reputable insurers Directors and Officers liability insurance in an amount and on terms and conditions satisfactory to the Board of Directors (including all of the Series A Directors), and will use commercially reasonable efforts to cause such insurance policy to be maintained until such time as the Board of Directors (including all of the Series A Directors) determines that such insurance should be discontinued. Such policy shall not be cancelable by the Company without prior approval by the Board of Directors including (i) all of the Series A Directors and (ii) if the NEA Purchase has occurred, holders of at least sixty-one percent (61%) of the Series A Preferred Stock, or if the NEA Purchase has not occurred, holders of at least fifty-one percent (51%) of the Series A Preferred Stock. Notwithstanding any other provision of this Section 5.1 to the contrary, for so long as any Series A Director (as defined in the Restated Certificate) is serving on the Board of Directors, the Company shall not cease to maintain a Directors and Officers liability insurance policy in an amount of at least two million dollars ($2,000,000) unless approved by all Series A Directors, and the Company shall annually, within one hundred twenty (120) days after the end of each fiscal year of the Company, deliver to each Investor that is then entitled to designate a Series A Director a certification that such a Directors and Officers liability insurance policy remains in effect.

5.2 Employee Agreements. The Company will cause (i) each person now or hereafter employed by it or by any subsidiary (or engaged by the Company or any subsidiary as a consultant/independent contractor) with access to confidential information and/or trade secrets to enter into a nondisclosure and proprietary rights assignment agreement; and (ii) each Key Employee to enter into a one (1) year noncompetition and nonsolicitation agreement, substantially in the form approved by the Board of Directors. In addition, the Company shall not amend, modify, terminate, waive, or otherwise alter, in whole or in part, any of the above-referenced agreements or any restricted stock agreement between the Company and any employee, without the consent of a majority of the Series A Directors.

5.3 Employee Stock. Unless otherwise approved by the Board of Directors, including a majority of the Series A Directors, all future employees and consultants of the Company who purchase, receive options to purchase, or receive awards of shares of the Company’s capital stock after the date hereof shall be required to execute restricted stock or option agreements, as applicable, providing for (i) vesting of shares over a four (4) year period, with the first twenty-five percent (25%) of such shares vesting following twelve (12) months of continued employment or service, and the remaining shares vesting in equal monthly installments over the following thirty-six (36) months, and (ii) a market stand-off provision substantially similar to that in Subsection 2.11. In addition, unless otherwise approved by

 

20


the Board of Directors, including the Series A Directors, the Company shall retain a “right of first refusal” on employee transfers until the Company’s IPO and shall have the right to repurchase unvested shares at cost upon termination of employment of a holder of restricted stock.

5.4 Matters Requiring Investor Director Approval. So long as the holders of Series A Preferred Stock are entitled to elect Series A Directors, the Company hereby covenants and agrees with each of the Investors that it shall not, without approval of the Board of Directors, which approval must include the affirmative vote of a majority of the Series A Directors:

(a) make, or permit any subsidiary to make, any loan or advance to, or own any stock or other securities of, any subsidiary or other corporation, partnership, or other entity unless it is wholly owned by the Company;

(b) make, or permit any subsidiary to make, any loan or advance in excess of $10,000 to any Person, including, without limitation, any employee or director of the Company or any subsidiary, except advances and similar expenditures in the ordinary course of business or under the terms of an employee stock or option plan approved by the Board of Directors;

(c) guarantee, directly or indirectly, or permit any subsidiary to guarantee, directly or indirectly, any indebtedness except for trade accounts of the Company or any subsidiary arising in the ordinary course of business;

(d) make any investment inconsistent with any investment policy approved by the Board of Directors;

(e) incur any aggregate indebtedness in excess of $100,000 that is not already included in a budget approved by the Board of Directors, other than trade credit incurred in the ordinary course of business;

(f) otherwise enter into or be a party to any transaction with any director, officer, or employee of the Company or any “associate” (as defined in Rule 12b-2 promulgated under the Exchange Act) of any such Person, including without limitation any “management bonus” or similar plan providing payments to employees in connection with a Deemed Liquidation Event, as such term is defined in the Company’s Certificate of Incorporation, except for transactions contemplated by this Agreement and the Purchase Agreement, or transactions made in the ordinary course of business and pursuant to reasonable requirements of the Company’s business and upon fair and reasonable terms that are approved by a majority of the Board of Directors;

(g) hire, terminate, or change the compensation of the executive officers, including approving any option grants or stock awards to executive officers;

(h) change the principal business of the Company, enter new lines of business, or exit the current line of business;

(i) sell, assign, license, pledge, or encumber material technology or intellectual property, other than licenses granted in the ordinary course of business; or

(j) enter into any corporate strategic relationship involving the payment, contribution, or assignment by the Company or to the Company of money or assets greater than $100,000.

 

21


5.5 Board Matters. Unless otherwise determined by the vote of a majority of the directors then in office, the Board of Directors shall meet at least quarterly in accordance with an agreed-upon schedule. The Company shall reimburse the nonemployee directors for all reasonable out-of-pocket travel expenses incurred (consistent with the Company’s travel policy) in connection with attending meetings of the Board of Directors. The Company shall cause to be established, as soon as practicable after such request, and will maintain, an audit and compensation committee, each of which shall consist solely of non-management directors. Each of the Series A Directors shall be entitled in such person’s discretion to be a member of any committee of the Board of Directors.

5.6 Successor Indemnification. If the Company or any of its successors or assignees consolidates with or merges into any other Person and is not the continuing or surviving corporation or entity of such consolidation or merger, then to the extent necessary, proper provision shall be made so that the successors and assignees of the Company assume the obligations of the Company with respect to indemnification of members of the Board of Directors as in effect immediately before such transaction, whether such obligations are contained in the Company’s Bylaws, its Restated Certificate, or elsewhere, as the case may be.

5.7 Option Plan. The Company hereby covenants and agrees to take all actions reasonably necessary, prior to each of the First Milestone Closing (as defined in the Purchase Agreement) and the Second Milestone Closing (as defined in the Purchase Agreement), to approve an increase in the aggregate number of shares reserved for issuance under the Company’s 2014 Stock Option & Grant Plan (as amended from time to time) to such number of shares of Common Stock as equals fifteen percent (15%) of the Company’s fully diluted capitalization (including for this purpose all shares of Common Stock reserved for issuance under the Company’s 2014 Stock Option and Grant Plan and regardless of whether such shares are subject to outstanding options or other awards) as determined immediately following such First Milestone Closing or Second Milestone Closing, as applicable.

5.8 Right to Conduct Activities. The Company hereby agrees and acknowledges that each of Atlas, Lilly Ventures Fund I, LLC, Beacon Bioventures Fund IV Limited Partnership, NEA, Amgen and Novartis (each, together with its Affiliates) invests in numerous portfolio companies, some of which may be deemed competitive with the Company’s business (as currently conducted or as currently proposed to be conducted). The parties agree that no Investors or any of their partners, officers or representatives which manage or advise such Investors shall be considered a Competitor of the Company solely as a result of such investment, management or advisory activities for purposes of this Agreement; provided, however, that notwithstanding any other provision of this Agreement, at any time prior to the occurrence of any of the termination events described in clauses (i), (ii) and (iii) of Subsection 5.9, if any Investor knowingly invests in any new portfolio company that, at the time of such initial investment, is a Competitor, such Investor may be deemed to be a Competitor if the Board, after considering the circumstances of such investment, so determines; provided, further, that no Investor may be deemed to be a Competitor solely on the basis of such investment unless such Investor has been provided with a reasonable opportunity to explain to the Board why it believes it should not be considered a Competitor. To facilitate compliance with the foregoing, prior to the occurrence of any of the termination events described in clauses (i), (ii) and (iii) of Subsection 5.9, each Investor shall disclose to the Company any such new investment by such Investor in a new portfolio company that the Investor reasonably believes may be deemed competitive with the Company within thirty (30) days of making such investment, and shall, prior to its purchase of additional shares of Series A Preferred Stock at each Milestone Closing under the Purchase Agreement, certify to the Company that such Investor has complied with its obligations under this Subsection 5.8. The Company agrees that subject to the foregoing, to the extent permitted under applicable law, none of the Investors shall be liable to the Company for any claim arising out of, or based upon, (i) the investment by any of the Investors in any entity competitive with the Company, or (ii) actions taken by any partner, officer or other representative of any of the Investors to

 

22


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) any of the Investors from liability associated with the unauthorized disclosure of the Company’s confidential information obtained pursuant to this Agreement, or (y) any director or officer of the Company from any liability associated with his or her fiduciary duties to the Company.

5.9 Termination of Covenants. The covenants set forth in this Section 5, except Subsections 5.6 and 5.8 (other than as explicitly as set forth otherwise in Subsection 5.8), shall terminate and be of no further force or effect (i) immediately before the consummation of the IPO, (ii) when the Company first becomes subject to the periodic reporting requirements of Section 12(g) or 15(d) of the Exchange Act, or (iii) upon a Deemed Liquidation Event, as such term is defined in the Restated Certificate, whichever event occurs first.

6. Miscellaneous.

6.1 Successors and Assigns. The rights under this Agreement may be assigned (but only with all related obligations) by a Holder to a transferee of Registrable Securities that (i) is an Affiliate of a Holder; (ii) is a Holder’s Immediate Family Member or trust for the benefit of an individual Holder or one or more of such Holder’s Immediate Family Members; or (iii) after such transfer, holds at least 2,000,000 shares of Registrable Securities (subject to appropriate adjustment for stock splits, stock dividends, combinations, and other recapitalizations); provided, however, that (x) the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee and the Registrable Securities with respect to which such rights are being transferred; and (y) such transferee agrees in a written instrument delivered to the Company to be bound by and subject to the terms and conditions of this Agreement, including the provisions of Subsection 2.11. For the purposes of determining the number of shares of Registrable Securities held by a transferee, the holdings of a transferee (1) that is an Affiliate or stockholder of a Holder; (2) who is a Holder’s Immediate Family Member; or (3) that is a trust for the benefit of an individual Holder or such Holder’s Immediate Family Member shall be aggregated together and with those of the transferring Holder; provided further that all transferees who would not qualify individually for assignment of rights shall have a single attorney-in-fact for the purpose of exercising any rights, receiving notices, or taking any action under this Agreement. The terms and conditions of this Agreement inure to the benefit of and are binding upon the respective successors and permitted assignees of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and permitted assignees any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided herein.

6.2 Governing Law. This Agreement and any controversy arising out of or relating to this Agreement shall be governed by and construed in accordance with the internal law of the State of Delaware.

6.3 Counterparts. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Counterparts may be delivered via facsimile, electronic mail (including pdf or any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g., www.docusign.com) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.

6.4 Titles and Subtitles. The titles and subtitles used in this Agreement are for convenience only and are not to be considered in construing or interpreting this Agreement.

 

23


6.5 Notices. All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively given upon the earlier of actual receipt or (i) personal delivery to the party to be notified; (ii) when sent, if sent by electronic mail or facsimile during the recipient’s normal business hours, and if not sent during normal business hours, then on the recipient’s next business day; (iii) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid; or (iv) one (1) business day after the business day of deposit with a nationally recognized overnight courier, freight prepaid, specifying next-day delivery, with written verification of receipt. All communications shall be sent to the respective parties at their addresses as set forth on Schedule A hereto, or to the principal office of the Company and to the attention of the Chief Executive Officer, in the case of the Company, or to such email address, facsimile number, or address as subsequently modified by written notice given in accordance with this Subsection 6.5. If notice is given to the Company, a copy shall also be sent to Goodwin Procter LLP, Exchange Place, Boston, MA 02109, Attn: Kingsley L. Taft, Esq. If notice is given to the Investors, a copy shall also be given to such person or entity listed under the Investor’s name on Schedule A.

6.6 Amendments and Waivers. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance, and either retroactively or prospectively) only with the written consent of (i) the Company and (ii) if the NEA Purchase has occurred, the holders of at least sixty-one percent (61%) of the Registrable Securities then outstanding, or if the NEA Purchase has not occurred, the holders of at least fifty-one percent (51%) of the Registrable Securities then outstanding; provided that the Company may in its sole discretion waive compliance with Subsection 2.12(c) (and the Company’s failure to object promptly in writing after notification of a proposed assignment allegedly in violation of Subsection 2.12(c) shall be deemed to be a waiver); and provided further that any provision hereof may be waived by any waiving party on such party’s own behalf, without the consent of any other party. Notwithstanding the foregoing, (i) this Agreement may not be amended or terminated and the observance of any term hereof may not be waived with respect to any Investor without the written consent of such Investor, unless such amendment, termination, or waiver applies to all Investors in the same fashion (it being agreed that a waiver of the provisions of Section 4 with respect to a particular transaction shall be deemed to apply to all Investors in the same fashion if such waiver does so by its terms, notwithstanding the fact that certain Investors may nonetheless, by agreement with the Company, purchase securities in such transaction), (ii) none of the text of Subsection 3.1 before clause (a) thereunder, Subsections 3.1(a)-(d), or Subsection 3.3 shall be amended or waived with respect to an Investor without the prior written consent of such Investor, (iii) the definitions of “Competitor,” “Registrable Securities,” and “Current Investor” contained herein shall not be amended or changed in a manner that materially and adversely affects an Investor without the consent of such Investor. The Company shall give prompt notice of any amendment or termination hereof or waiver hereunder to any party hereto that did not consent in writing to such amendment, termination, or waiver. Any amendment, termination, or waiver effected in accordance with this Subsection 6.6 shall be binding on all parties hereto, regardless of whether any such party has consented thereto. No waivers of or exceptions to any term, condition, or provision of this Agreement, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of any such term, condition, or provision.

6.7 Severability. In case any one or more of the provisions contained in this Agreement is for any reason held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision of this Agreement, and such invalid, illegal, or unenforceable provision shall be reformed and construed so that it will be valid, legal, and enforceable to the maximum extent permitted by law.

6.8 Aggregation of Stock. All shares of Registrable Securities held or acquired by Affiliates shall be aggregated together for the purpose of determining the availability of any rights under this Agreement and such Affiliated persons may apportion such rights as among themselves in any manner they deem appropriate.

 

24


6.9 Additional Investors. Notwithstanding anything to the contrary contained herein, if the Company issues additional shares of the Company’s Series A Preferred Stock after the date hereof, whether pursuant to the Purchase Agreement or otherwise, any purchaser of such shares of Series A Preferred Stock may become a party to this Agreement by executing and delivering an additional counterpart signature page to this Agreement, and thereafter shall be deemed an “Investor” for all purposes hereunder. No action or consent by the Investors shall be required for such joinder to this Agreement by such additional Investor, so long as such additional Investor has agreed in writing to be bound by all of the obligations as an “Investor” hereunder.

6.10 Entire Agreement. This Agreement (including any Schedules and Exhibits hereto) constitutes the full and entire understanding and agreement among the parties with respect to the subject matter hereof, and any other written or oral agreement relating to the subject matter hereof existing between the parties is expressly canceled.

6.11 Delays or Omissions. No delay or omission to exercise any right, power, or remedy accruing to any party under this Agreement, upon any breach or default of any other party under this Agreement, shall impair any such right, power, or remedy of such nonbreaching or nondefaulting party, nor shall it be construed to be a waiver of or acquiescence to any such breach or default, or to 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. All remedies, whether under this Agreement or by law or otherwise afforded to any party, shall be cumulative and not alternative.

6.12 Acknowledgment. The Company acknowledges that the Investors are in the business of venture capital investing and therefore review the business plans and related proprietary information of many enterprises, including enterprises which may have products or services which compete directly or indirectly with those of the Company. Nothing in this Agreement shall preclude or in any way restrict the Investors from investing or participating in any particular enterprise whether or not such enterprise has products or services which compete with those of the Company.

6.13 Dispute Resolution. The parties (a) hereby irrevocably and unconditionally submit to the jurisdiction of the state courts of Delaware and to the jurisdiction of the United States District Court for the District of Delaware for the purpose of any suit, action or other proceeding arising out of or based upon this Agreement, (b) agree not to commence any suit, action or other proceeding arising out of or based upon this Agreement except in the state courts of Delaware or the United States District Court for the District of Delaware, and (c) hereby waive, and agree not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court.

WAIVER OF JURY TRIAL: EACH PARTY HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, THE OTHER TRANSACTION DOCUMENTS, THE SECURITIES OR THE SUBJECT MATTER HEREOF OR THEREOF. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING, WITHOUT

 

25


LIMITATION, CONTRACT CLAIMS, TORT CLAIMS (INCLUDING NEGLIGENCE), BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. THIS SECTION HAS BEEN FULLY DISCUSSED BY EACH OF THE PARTIES HERETO AND THESE PROVISIONS WILL NOT BE SUBJECT TO ANY EXCEPTIONS. EACH PARTY HERETO HEREBY FURTHER WARRANTS AND REPRESENTS THAT SUCH PARTY HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT SUCH PARTY KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.

[Remainder of Page Intentionally Left Blank]

 

26


IN WITNESS WHEREOF, the parties have executed this Investors’ Rights Agreement as of the date first written above.

 

COMPANY:
SURFACE ONCOLOGY, INC.
By:  

/s/ Joshua Renick

Name:   Joshua Renick
Title:   President

SIGNATURE PAGE TO INVESTORS’ RIGHTS AGREEMENT


IN WITNESS WHEREOF, the parties have executed this Investors’ Rights Agreement as of the date first written above.

 

INVESTOR:
ATLAS VENTURE FUND IX, L.P.
By: Atlas Venture Associates IX, L.P.
Its General Partner
By: Atlas Venture Associates IX, LLC
Its General Partner
By:  

/s/ Frank Castellucci

Name:   Frank Castellucci
Title:   General Counsel

SIGNATURE PAGE TO INVESTORS’ RIGHTS AGREEMENT


IN WITNESS WHEREOF, the parties have executed this Investors’ Rights Agreement as of the date first written above.

 

INVESTOR:
BEACON BIOVENTURES FUND IV LIMITED
PARTNERSHIP
By: Beacon Bioventures Advisors Fund IV Limited
Partnership, its General Partner
By: Impresa Holdings LLC, its General Partner
By: Impresa Management LLC, its Managing
Member

 

By:  

/s/ Mary Bevelock Pendergast

Name: Mary Bevelock Pendergast
Title: Vice President

SIGNATURE PAGE TO INVESTORS’ RIGHTS AGREEMENT


IN WITNESS WHEREOF, the parties have executed this Investors’ Rights Agreement as of the date first written above.

 

INVESTOR:
LILLY VENTURES FUND I, LLC
By:  

/s/ S. Edward Torres

Name: S. Edward Torres
Title: Managing Director

SIGNATURE PAGE TO INVESTORS’ RIGHTS AGREEMENT


IN WITNESS WHEREOF, the parties have executed this Investors’ Rights Agreement as of the date first written above.

 

INVESTOR:
NOVARTIS INSTITUTES FOR BIOMEDICAL RESEARCH, INC.
By:  

/s/ H. Martin Seidel

Name:   H. Martin Seidel
Title:   VP, Global Head of Strategic Alliances

SIGNATURE PAGE TO INVESTORS’ RIGHTS AGREEMENT


IN WITNESS WHEREOF, the parties have executed this Investors’ Rights Agreement as of the date first written above.

 

INVESTOR:
AMGEN INVESTMENTS LTD.
By:  

/s/ Janis C. Naeve

Name:   Janis C. Naeve
Title:   Managing Director, Amgen Ventures

SIGNATURE PAGE TO INVESTORS’ RIGHTS AGREEMENT


SCHEDULE A

Investors

 

Name and Address    Number of Shares Held

Atlas Venture Fund IX, L.P.

c/o Atlas Venture

25 1st Street, Suite 303

Cambridge, MA 02141

   2,200,000

Lilly Ventures Fund I, LLC

115 West Washington Street, Suite 1680S

Indianapolis, IN 46204

   2,200,000

BEACON BIOVENTURES FUND IV LIMITED PARTNERSHIP

One Main Street, 13th Floor

Cambridge, MA 02142

   2,200,000

New Enterprise Associates 14, Limited Partnership

   2,190,000

NEA Ventures 2014, Limited Partnership

c/o NEA

1954 Greenspring Dr. Ste 600

Timonium, MD 21093

   10,000

Novartis Institutes for BioMedical Research

250 Massachusetts Avenue

Cambridge, MA 02139

Attn: General Counsel

   1,571,429

Amgen Investments Ltd.

22 Victoria Street

Hamilton, HM 12

Bermuda

   628,571


AMENDMENT NO. 1

TO

INVESTORS’ RIGHTS AGREEMENT

THIS AMENDMENT NO. 1 TO INVESTORS’ AGREEMENT (this “Amendment”) is made and entered into as of January 9, 2016, by and among Surface Oncology, Inc., a Delaware corporation (the “Company”), and the investors of the Company set forth on the signature pages hereto. Capitalized terms used, but not otherwise defined, herein shall have the meanings ascribed thereto in the IRA (as defined herein).

WITNESSETH

WHEREAS, the Company previously entered into that certain Investors’ Rights Agreement (as amended or otherwise modified from time to time, the “IRA”), dated as of November 6, 2014, by and among the Company and the investors set forth on Schedule A thereto (the “Investors”).

WHEREAS, pursuant to Subsection 6.6 of the IRA, the IRA may be amended by the written consent of (a) the Company; and (b) the holders of at least sixty-one percent (61%) of the Registrable Securities then outstanding (the “Requisite Holders”).

WHEREAS, concurrently with this Amendment, the Company and a certain Investor (the “Series A-1 Investor”) of the Company are entering into the Series A-1 Stock Purchase Agreement (the “Series A-1 Purchase Agreement”) providing for the sale of shares of the Company’s Series A-1 Preferred Stock, par value $0.0001 per share (the “Series A-1 Preferred Stock”), and in connection therewith the Company and the Investors desire to amend certain provisions of the IRA.

NOW, THEREFORE, in consideration of the mutual promises and covenants contained in this Amendment, the Company and the undersigned Investors party hereto, representing the Requisite Holders, hereby agree as follows:

1. Amendment to the Preamble of the IRA. The first paragraph of the IRA is hereby amended and restated to read in its entirety as follows:

“THIS INVESTORS’ RIGHTS AGREEMENT (as amended, this “Agreement”), is made as of the 6th day of November, 2014, by and among SURFACE ONCOLOGY, INC., a Delaware corporation (the “Company”), and each of the investors listed on Schedule A hereto, each of which is referred to in this Agreement as an “Investor.

2. Amendment to Section 1 of the IRA.

2.1 Each reference to “Series A Preferred Stock” in the definition of each of “Current Investor” and “Registrable Securities” shall be deleted in its entirety and replaced with “Preferred Stock.”

 


2.2 The definition of “Restated Certificate” set forth in Section 1.25 of the IRA is hereby amended and restated to read in its entirety as follows:

Restated Certificate” means the Company’s Third Amended and Restated Certificate of Incorporation, as may be further amended or restated from time to time.

” 2.3 The definition of “Series A Director” set forth in Section 1.32 of the IRA is hereby amended and restated to read in its entirety as follows:

Preferred Director” means any director of the Company that the holders of record of the Preferred Stock are entitled to elect pursuant to the Restated Certificate.

2.4 The following new definitions are hereby added to Section 1 of the IRA in proper numerical order:

Preferred Stock” means shares of the Series A Preferred Stock and shares of the Series A-1 Preferred Stock.

Series A-1 Preferred Stock” means shares of the Company’s Series A-1 Preferred Stock, par value $0.0001 per share.

3. Amendment to Subsection 2.1(a) of the IRA. Subsection 2.1(a) of the IRA is hereby amended and restated to read in its entirety as follows:

Form S-1 Demand. If at any time after the earlier of (i) five (5) years after the date of this Agreement or (ii) one hundred eighty (180) days after the effective date of the registration statement for the IPO, the Company receives a request from Holders of at least sixty-one percent (61%) of the Registrable Securities then outstanding that the Company file a Form S-1 registration statement with respect to at least thirty-three and one-third percent (33 1/3%) of the Registrable Securities then outstanding (or a lesser percent if the anticipated aggregate offering price, net of Selling Expenses, would exceed $10 million), then the Company shall (x) within ten (10) days after the date such request is given, give notice thereof (the “Demand Notice”) to all Holders other than the Initiating Holders; and (y) as soon as practicable, and in any event within sixty (60) days after the date such request is given by the Initiating Holders, file a Form S-1 registration statement under the Securities Act covering all Registrable Securities that the Initiating Holders requested to be registered and any additional Registrable Securities requested to be included in such registration by any other Holders, as specified by notice given by each such Holder to the Company within twenty (20) days of the date the Demand Notice is given, and in each case, subject to the limitations of Subsections 2.1(c) and 2.3.”

 

-2-


4. Amendment to Subsection 2.10 of the IRA. Subsection 2.10 of the IRA is hereby amended and restated to read in its entirety as follows:

“2.10 Limitations on 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 sixty-one percent (61%) of the Registrable Securities then outstanding enter into any agreement with any holder or prospective holder of any securities of the Company that (i) would provide to such holder the right to include securities in any registration on other than either a pro rata basis with respect to the Registrable Securities or on a subordinate basis after all Holders have had the opportunity to include in the registration and offering all shares of Registrable Securities that they wish to so include or (ii) allow such holder or prospective holder to initiate a demand for registration of any securities held by such holder or prospective holder; provided that this limitation shall not apply to any additional Investor who becomes a party to this Agreement in accordance with Subsection 6.9.”

5. Amendment to Subsections 2.12, 4.1, 5.4 and 6.9 of the IRA. Each reference to “Series A Preferred Stock” in Subsections 2.12, 4.1, 5.4 and 6.9, of the IRA shall be deleted in its entirety and replaced with “Preferred Stock.”

6. Amendment to Subsection 2.13(b) of the IRA. Subsection 2.13(b) of the IRA is hereby amended and restated to read in its entirety as follows:“(b) such time following the IPO as Rule 144 or another similar exemption under the Securities Act is available for the sale of all of such Holder’s shares without limitation during a three-month period without registration; and”

7. Amendment to Subsection 3.1 and Section 5 of the IRA. Each reference to “Series A Director” in Subsection 3.1 and Section 5 of the IRA shall be deleted in its entirety and replaced with “Preferred Director.”

8. Amendment to Subsection 5.1 of the IRA. The second sentence of Subsection 5.1 of the IRA is hereby amended and restated to read in its entirety as follows:

“Such policy shall not be cancelable by the Company without prior approval by the Board of Directors including (i) all of the Series A Directors and (ii) holders of at least sixty-one percent (61%) of the Preferred Stock.”

9. Amendment to Subsection 5.8 of the IRA. Reference to “Beacon Bioventures Fund IV Limited Partnership” in the Subsection 5.8 of the IRA is hereby deleted in its entirety and replaced with “F-Prime Capital Partners Healthcare Fund IV LP.”

10. Amendment to Subsection 6.6 of the IRA. Clause (ii) of Section 6.6 is hereby amended and restated to read in its entirety as follows:

 

-3-


“(ii) the holders of at least sixty-one percent (61%) of the Registrable Securities then outstanding; provided that the Company may in its sole discretion waive compliance with Subsection 2.12(c) (and the Company’s failure to object promptly in writing after notification of a proposed assignment allegedly in violation of Subsection 2.12(c) shall be deemed to be a waiver); and provided further that any provision hereof may be waived by any waiving party on such party’s own behalf, without the consent of any other party.”

11. Amendment to Schedule A of the IRA. Schedule A of the IRA is hereby deleted in its entirety and replaced with Schedule A attached hereto as Exhibit A.

12. IRA. By execution of this Amendment, the Company and the Requisite Holders executing the same, holding in the aggregate a sufficient number of shares of stock to amend the IRA in accordance with Subsection 6.6 thereof, hereby agree that the provisions set forth in the IRA are hereby amended as set forth herein. The IRA, as amended by this Amendment, contains the entire agreement among the parties with respect to the subject matter thereof and hereof and shall be read and construed together as a single agreement. Except to the extent amended hereby, all of the terms, provisions and conditions of the IRA are hereby ratified and confirmed and shall remain in full force and effect as of the date specified therein.

13. Counterparts. This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Counterparts may be delivered via facsimile, electronic mail (including .pdf) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.

14. Titles and Subtitles. The titles and subtitles used in this Amendment are used for convenience only and are not to be considered in construing or interpreting this Amendment.

15. Severability. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision.

[Remainder of this page is intentionally left blank.]

 

 

-4-


IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 to Investors’ Rights Agreement as of the date first written above.

 

THE COMPANY:
SURFACE ONCOLOGY, INC.
By:  

/s/ Detlev Biniszkiewicz

Name:   Detlev Biniszkiewicz
Title:   President and CEO

[Amendment No. 1 to IRA – Surface Oncology, Inc.]


IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 to Investors’ Rights Agreement as of the date first written above.

 

INVESTORS:
NEW ENTERPRISE ASSOCIATES 14,
LIMITED PARTNERSHIP
By: NEA Partners 14, Limited Partnership, its general partner
By: NEA 14 GP, LTD, its general partner
By:  

/s/ Louis S. Citron

Name: Louis S. Citron
Title: Chief Legal Officer
NEA VENTURES 2014, LIMITED
PARTNERSHIP
By:  

/s/ Louis S. Citron

Name: Louis S. Citron
Title: Vice President

[Amendment No. 1 to IRA – Surface Oncology, Inc.]


IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 to Investors’ Rights Agreement as of the date first written above.

 

INVESTORS:
F-PRIME CAPITAL PARTNERS HEALTHCARE FUND IV LP
By: F-Prime Capital Partners Healthcare Advisors Fund IV LP, its General Partner
By: Impresa Holdings LLC, its General Partner
By: Impresa Management LLC, its Managing Member
By:  

/s/ Mary Bevelock Pendergast

Name:   Mary Bevelock Pendergast
Title:   Vice President

[Amendment No. 1 to IRA – Surface Oncology, Inc.]


IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 to Investors’ Rights Agreement as of the date first written above.

 

INVESTORS:
SIGAL FAMILY INVESTMENTS, LLC
By:  

/s/ Elliot Sigal

Name:   Elliot Sigal
Title:   Manager

[Amendment No. 1 to IRA – Surface Oncology, Inc.]


IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 to Investors’ Rights Agreement as of the date first written above.

 

INVESTORS:
LILLY VENTURES FUND I, LLC
By:  

/s/ S. Edward Torres

  Name: S. Edward Torres
  Title: Managing Director

[Amendment No. 1 to IRA – Surface Oncology, Inc.]


IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 to Investors’ Rights Agreement as of the date first written above.

 

INVESTORS:
ATLAS VENTURE FUND IX, L.P.
By: Atlas Venture Associates IX, L.P.
Its General Partner
By: Atlas Venture Associates IX, LLC
Its General Partner
By:  

/s/ Frank Castellucci

Name:   Frank Castellucci
Title:   Secretary

[Amendment No. 1 to IRA – Surface Oncology, Inc.]


IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 to Investors’ Rights Agreement as of the date first written above.

 

INVESTORS:
AMGEN INVESTMENTS LTD.
By:  

/s/ Janis Naeve

  LOGO
Name:   Janis Naeve  
Title:   Corporate Development Executive Director

[Amendment No. 1 to IRA – Surface Oncology, Inc.]


IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 to Investors’ Rights Agreement as of the date first written above.

 

INVESTORS:
NOVARTIS INSTITUTES FOR BIOMEDICAL RESEARCH, INC.
By:  

/s/ H. Martin Seidel

Name:   H. Martin Seidel
Title:   VP, Global Head of Strategic Alliances

[Amendment No. 1 to IRA – Surface Oncology, Inc.]


EXHIBIT A

SCHEDULE A

INVESTORS

 

Name and Address

   Number of Shares Held  

Atlas Venture Fund IX, L.P.

     4,500,000  

c/o Atlas Venture

25 1st Street, Suite 303

  

Cambridge, MA 02141

  

Lilly Ventures Fund I, LLC

     4,500,000  

115 West Washington Street, Suite 1680S

  

Indianapolis, IN 46204

  

F-PRIME CAPITAL PARTNERS

     4,500,000  

HEALTHCARE FUND IV LP

  

One Main Street, 13th Floor

  

Cambridge, MA 02142

  

New Enterprise Associates 14, Limited Partnership

     4,495,000  

NEA Ventures 2014, Limited Partnership

     5,000  

c/o NEA 1954 Greenspring Dr. Ste 600

  

Timonium, MD 21093

  

Novartis Institutes for BioMedical Research

  

250 Massachusetts Avenue

     5,214,286  

Cambridge, MA 02139

  

Attn: General Counsel

  

Amgen Investments Ltd.

  

22 Victoria Street

     1,285,714  

Hamilton, HM 12

  

Bermuda

  

Sigal Family Investments, LLC

  

32 Brearly Road

     64,286  

Princeton, NJ 08540

  

EX-10.1

Exhibit 10.1

SURFACE ONCOLOGY, INC.

2014 STOCK OPTION AND GRANT PLAN

SECTION 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS

The name of the plan is the Surface Oncology, Inc. 2014 Stock Option and Grant Plan (the “Plan”). The purpose of the Plan is to encourage and enable the officers, employees, directors, Consultants and other key persons of Surface Oncology, Inc., a Delaware corporation (including any successor entity, the “Company”) and its Subsidiaries, upon whose judgment, initiative and efforts the Company largely depends for the successful conduct of its business, to acquire a proprietary interest in the Company.

The following terms shall be defined as set forth below:

Affiliate” of any Person means a Person that directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with the first mentioned Person. A Person shall be deemed to control another Person if such first Person possesses directly or indirectly the power to direct, or cause the direction of, the management and policies of the second Person, whether through the ownership of voting securities, by contract or otherwise.

Award” or “Awards,” except where referring to a particular category of grant under the Plan, shall include Incentive Stock Options, Non-Qualified Stock Options, Restricted Stock Awards, Unrestricted Stock Awards, Restricted Stock Units or any combination of the foregoing.

“Award Agreement” means a written or electronic agreement setting forth the terms and provisions applicable to an Award granted under the Plan. Each Award Agreement may contain terms and conditions in addition to those set forth in the Plan; provided, however, in the event of any conflict in the terms of the Plan and the Award Agreement, the terms of the Plan shall govern.

Board” means the Board of Directors of the Company.

Cause” shall have the meaning as set forth in the Award Agreement(s). In the case that any Award Agreement does not contain a definition of “Cause,” it shall mean (i) the grantee’s dishonest statements or acts with respect to the Company or any Affiliate of the Company, or any current or prospective customers, suppliers vendors or other third parties with which such entity does business; (ii) the grantee’s commission of (A) a felony or (B) any misdemeanor involving moral turpitude, deceit, dishonesty or fraud; (iii) the grantee’s failure to perform his assigned duties and responsibilities to the reasonable satisfaction of the Company which failure continues, in the reasonable judgment of the Company, after written notice given to the grantee by the Company; (iv) the grantee’s gross negligence, willful misconduct or insubordination with respect to the Company or any Affiliate of the Company; or (v) the grantee’s material violation of any provision of any agreement(s) between the grantee and the Company relating to noncompetition, nonsolicitation, nondisclosure and/or assignment of inventions.

 


“Chief Executive Officer” means the Chief Executive Officer of the Company or, if there is no Chief Executive Officer, then the President of the Company.

Code” means the Internal Revenue Code of 1986, as amended, and any successor Code, and related rules, regulations and interpretations.

Committee” means the Committee of the Board referred to in Section 2.

Consultant” means any natural person that provides bona fide services to the Company (including a Subsidiary), and such services are not in connection with the offer or sale of securities in a capital-raising transaction and do not directly or indirectly promote or maintain a market for the Company’s securities.

Disability” means “disability” as defined in Section 422(c) of the Code.

Effective Date” means the date on which the Plan is adopted as set forth on the final page of the Plan.

Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.

Fair Market Value” of the Stock on any given date means the fair market value of the Stock determined in good faith by the Committee based on the reasonable application of a reasonable valuation method not inconsistent with Section 409A of the Code. If the Stock is admitted to trade on a national securities exchange, the determination shall be made by reference to the closing price reported on such exchange. If there is no closing price for such date, the determination shall be made by reference to the last date preceding such date for which there is a closing price. If the date for which Fair Market Value is determined is the first day when trading prices for the Stock are reported on a national securities exchange, the Fair Market Value shall be the “Price to the Public” (or equivalent) set forth on the cover page for the final prospectus relating to the Company’s Initial Public Offering.

“Good Reason” shall have the meaning as set forth in the Award Agreement(s). In the case that any Award Agreement does not contain a definition of “Good Reason,” it shall mean (i) a material diminution in the grantee’s base salary except for across-the-board salary reductions similarly affecting all or substantially all similarly situated employees of the Company or (ii) a change of more than 50 miles in the geographic location at which the grantee provides services to the Company, so long as the grantee provides at least 90 days notice to the Company following the initial occurrence of any such event and the Company fails to cure such event within 30 days thereafter.

Grant Date” means the date that the Committee designates in its approval of an Award in accordance with applicable law as the date on which the Award is granted, which date may not precede the date of such Committee approval.

“Holder” means, with respect to an Award or any Shares, the Person holding such Award or Shares, including the initial recipient of the Award or any Permitted Transferee.

 

2


Incentive Stock Option” means any Stock Option designated and qualified as an “incentive stock option” as defined in Section 422 of the Code.

Initial Public Offering” means the consummation of the first firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act covering the offer and sale by the Company of its equity securities, as a result of or following which the Stock shall be publicly held.

Non-Qualified Stock Option” means any Stock Option that is not an Incentive Stock Option.

Option” or “Stock Option” means any option to purchase shares of Stock granted pursuant to Section 5.

Permitted Transferees” shall mean any of the following to whom a Holder may transfer Shares hereunder (as set forth in Section 9(a)(ii)(A)): the Holder’s child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, any person sharing the Holder’s household (other than a tenant or employee), a trust in which these persons have more than fifty percent of the beneficial interest, a foundation in which these persons control the management of assets, and any other entity in which these persons own more than fifty percent of the voting interests; provided, however, that any such trust does not require or permit distribution of any Shares during the term of the Award Agreement unless subject to its terms. Upon the death of the Holder, the term Permitted Transferees shall also include such deceased Holder’s estate, executors, administrators, personal representatives, heirs, legatees and distributees, as the case may be.

Person” shall mean any individual, corporation, partnership (limited or general), limited liability company, limited liability partnership, association, trust, joint venture, unincorporated organization or any similar entity.

“Restricted Stock Award” means Awards granted pursuant to Section 6 and “Restricted Stock” means Shares issued pursuant to such Awards.

Restricted Stock Unit” means an Award of phantom stock units to a grantee, which may be settled in cash or Shares as determined by the Committee, pursuant to Section 8.

Sale Event” means the consummation of (i) the dissolution or liquidation of the Company, (ii) the sale of all or substantially all of the assets of the Company on a consolidated basis to an unrelated person or entity, (iii) a merger, reorganization or consolidation pursuant to which the holders of the Company’s outstanding voting power immediately prior to such transaction do not own a majority of the outstanding voting power of the surviving or resulting entity (or its ultimate parent, if applicable), (iv) the acquisition of all or a majority of the outstanding voting stock of the Company in a single transaction or a series of related transactions by a Person or group of Persons, or (v) any other acquisition of the business of the Company, as determined by the Board; provided, however, that the Company’s Initial Public Offering, any subsequent public offering or another capital raising event, or a merger effected solely to change the Company’s domicile shall not constitute a “Sale Event.”

 

3


Section 409A” means Section 409A of the Code and the regulations and other guidance promulgated thereunder.

Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations thereunder.

“Service Relationship” means any relationship as a full-time employee, part-time employee, director or other key person (including Consultants) of the Company or any Subsidiary or any successor entity (e.g., a Service Relationship shall be deemed to continue without interruption in the event an individual’s status changes from full-time employee to part-time employee or Consultant).

“Shares” means shares of Stock.

Stock” means the Common Stock, par value $0.0001 per share, of the Company.

Subsidiary” means any corporation or other entity (other than the Company) in which the Company has more than a 50 percent interest, either directly or indirectly.

“Ten Percent Owner” means an employee who owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the Code) more than 10 percent of the combined voting power of all classes of stock of the Company or any parent of the Company or any Subsidiary.

“Termination Event” means the termination of the Award recipient’s Service Relationship with the Company and its Subsidiaries for any reason whatsoever, regardless of the circumstances thereof, and including, without limitation, upon death, disability, retirement, discharge or resignation for any reason, whether voluntarily or involuntarily. The following shall not constitute a Termination Event: (i) a transfer to the service of the Company from a Subsidiary or from the Company to a Subsidiary, or from one Subsidiary to another Subsidiary or (ii) an approved leave of absence for military service or sickness, or for any other purpose approved by the Committee, if the individual’s right to re-employment is guaranteed either by a statute or by contract or under the policy pursuant to which the leave of absence was granted or if the Committee otherwise so provides in writing.

Unrestricted Stock Award” means any Award granted pursuant to Section 7 and “Unrestricted Stock” means Shares issued pursuant to such Awards.

SECTION 2. ADMINISTRATION OF PLAN; COMMITTEE AUTHORITY TO SELECT GRANTEES AND DETERMINE  AWARDS

(a) Administration of Plan. The Plan shall be administered by the Board, or at the discretion of the Board, by a committee of the Board, comprised of not less than two directors. All references herein to the “Committee” shall be deemed to refer to the group then responsible for administration of the Plan at the relevant time (i.e., either the Board of Directors or a committee or committees of the Board, as applicable).

(b) Powers of Committee. The Committee shall have the power and authority to grant Awards consistent with the terms of the Plan, including the power and authority:

 

4


(i) to select the individuals to whom Awards may from time to time be granted;

(ii) to determine the time or times of grant, and the amount, if any, of Incentive Stock Options, Non-Qualified Stock Options, Restricted Stock Awards, Unrestricted Stock Awards, Restricted Stock Units, or any combination of the foregoing, granted to any one or more grantees;

(iii) to determine the number of Shares to be covered by any Award and, subject to the provisions of the Plan, the price, exercise price, conversion ratio or other price relating thereto;

(iv) to determine and, subject to Section 12, to modify from time to time the terms and conditions, including restrictions, not inconsistent with the terms of the Plan, of any Award, which terms and conditions may differ among individual Awards and grantees, and to approve the form of Award Agreements;

(v) to accelerate at any time the exercisability or vesting of all or any portion of any Award;

(vi) to impose any limitations on Awards, including limitations on transfers, repurchase provisions and the like, and to exercise repurchase rights or obligations;

(vii) subject to Section 5(a)(ii) and any restrictions imposed by Section 409A, to extend at any time the period in which Stock Options may be exercised; and

(viii) at any time to adopt, alter and repeal such rules, guidelines and practices for administration of the Plan and for its own acts and proceedings as it shall deem advisable; to interpret the terms and provisions of the Plan and any Award (including Award Agreements); to make all determinations it deems advisable for the administration of the Plan; to decide all disputes arising in connection with the Plan; and to otherwise supervise the administration of the Plan.

All decisions and interpretations of the Committee shall be binding on all persons, including the Company and all Holders.

(c) Award Agreement. Awards under the Plan shall be evidenced by Award Agreements that set forth the terms, conditions and limitations for each Award.

(d) Indemnification. Neither the Board nor the Committee, nor any member of either or any delegate thereof, shall be liable for any act, omission, interpretation, construction or determination made in good faith in connection with the Plan, and the members of the Board and the Committee (and any delegate thereof) shall be entitled in all cases to indemnification and reimbursement by the Company in respect of any claim, loss, damage or expense (including, without limitation, reasonable attorneys’ fees) arising or resulting therefrom to the fullest extent permitted by law and/or under the Company’s governing documents, including its certificate of incorporation or bylaws, or any directors’ and officers’ liability insurance coverage which may be in effect from time to time and/or any indemnification agreement between such individual and the Company.

 

5


(e) Foreign Award Recipients. Notwithstanding any provision of the Plan to the contrary, in order to comply with the laws in other countries in which the Company and any Subsidiary operate or have employees or other individuals eligible for Awards, the Committee, in its sole discretion, shall have the power and authority to: (i) determine which Subsidiaries, if any, shall be covered by the Plan; (ii) determine which individuals, if any, outside the United States are eligible to participate in the Plan; (iii) modify the terms and conditions of any Award granted to individuals outside the United States to comply with applicable foreign laws; (iv) establish subplans and modify exercise procedures and other terms and procedures, to the extent the Committee determines such actions to be necessary or advisable (and such subplans and/or modifications shall be attached to the Plan as appendices); provided, however, that no such subplans and/or modifications shall increase the share limitation contained in Section 3(a) hereof; and (v) take any action, before or after an Award is made, that the Committee determines to be necessary or advisable to obtain approval or comply with any local governmental regulatory exemptions or approvals.

SECTION 3. STOCK ISSUABLE UNDER THE PLAN; MERGERS AND OTHER TRANSACTIONS; SUBSTITUTION

(a) Stock Issuable. The maximum number of Shares reserved and available for issuance under the Plan shall be 3,354,117 Shares, subject to adjustment as provided in Section 3(b). For purposes of this limitation, the Shares underlying any Awards that are forfeited, canceled, reacquired by the Company prior to vesting, satisfied without the issuance of Stock or otherwise terminated (other than by exercise) and Shares that are withheld upon exercise of an Option or settlement of an Award to cover the exercise price or tax withholding shall be added back to the Shares available for issuance under the Plan. Subject to such overall limitations, Shares may be issued up to such maximum number pursuant to any type or types of Award, and no more than 33,541,170 Shares may be issued pursuant to Incentive Stock Options. The Shares available for issuance under the Plan may be authorized but unissued Shares or Shares reacquired by the Company. Beginning on the date that the Company becomes subject to Section 162(m) of the Code, Options with respect to no more than 3,354,117 Shares shall be granted to any one individual in any calendar year period.

(b) Changes in Stock. Subject to Section 3(c) hereof, if, as a result of any reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar change in the Company’s capital stock, the outstanding Shares are increased or decreased or are exchanged for a different number or kind of shares or other securities of the Company, or additional Shares or new or different shares or other securities of the Company or other non-cash assets are distributed with respect to such Shares or other securities, in each case, without the receipt of consideration by the Company, or, if, as a result of any merger or consolidation, or sale of all or substantially all of the assets of the Company, the outstanding Shares are converted into or exchanged for other securities of the Company or any successor entity (or a parent or subsidiary thereof), the Committee shall make an appropriate and proportionate adjustment in (i) the maximum number of Shares reserved for issuance under the Plan, (ii) the number and kind of Shares or other securities subject to any then outstanding

 

6


Awards under the Plan, (iii) the repurchase price, if any, per Share subject to each outstanding Award, and (iv) the exercise price for each Share subject to any then outstanding Stock Options under the Plan, without changing the aggregate exercise price (i.e., the exercise price multiplied by the number of Stock Options) as to which such Stock Options remain exercisable. The Committee shall in any event make such adjustments as may be required by Section 25102(o) of the California Corporation Code and the rules and regulations promulgated thereunder. The adjustment by the Committee shall be final, binding and conclusive. No fractional Shares shall be issued under the Plan resulting from any such adjustment, but the Committee in its discretion may make a cash payment in lieu of fractional shares.

(c) Sale Events.

(i) Options.

(A) In the case of and subject to the consummation of a Sale Event, the Plan and all outstanding Options issued hereunder shall terminate upon the effective time of any such Sale Event unless assumed or continued by the successor entity, or new stock options or other awards of the successor entity or parent thereof are substituted therefor, with an equitable or proportionate adjustment as to the number and kind of shares and, if appropriate, the per share exercise prices, as such parties shall agree (after taking into account any acceleration hereunder and/or pursuant to the terms of any Award Agreement).

(B) In the event of the termination of the Plan and all outstanding Options issued hereunder pursuant to Section 3(c), each Holder of Options shall be permitted, within a period of time prior to the consummation of the Sale Event as specified by the Committee, to exercise all such Options which are then exercisable or will become exercisable as of the effective time of the Sale Event; provided, however, that the exercise of Options not exercisable prior to the Sale Event shall be subject to the consummation of the Sale Event.

(C) Notwithstanding anything to the contrary in Section 3(c)(i)(A), in the event of a Sale Event, the Company shall have the right, but not the obligation, to make or provide for a cash payment to the Holders of Options, without any consent of the Holders, in exchange for the cancellation thereof, in an amount equal to the difference between (A) the value as determined by the Committee of the consideration payable per share of Stock pursuant to the Sale Event (the “Sale Price”) times the number of Shares subject to outstanding Options being cancelled (to the extent then vested and exercisable, including by reason of acceleration in connection with such Sale Event, at prices not in excess of the Sale Price) and (B) the aggregate exercise price of all such outstanding vested and exercisable Options.

 

7


(ii) Restricted Stock and Restricted Stock Unit Awards.

(A) In the case of and subject to the consummation of a Sale Event, all unvested Restricted Stock and unvested Restricted Stock Unit Awards (other than those becoming vested as a result of the Sale Event) issued hereunder shall be forfeited immediately prior to the effective time of any such Sale Event unless assumed or continued by the successor entity, or awards of the successor entity or parent thereof are substituted therefor, with an equitable or proportionate adjustment as to the number and kind of shares subject to such awards as such parties shall agree (after taking into account any acceleration hereunder and/or pursuant to the terms of any Award Agreement).

(B) In the event of the forfeiture of Restricted Stock pursuant to Section 3(c)(ii)(A), such Restricted Stock shall be repurchased from the Holder thereof at a price per share equal to the original per share purchase price paid by the Holder (subject to adjustment as provided in Section 3(b)) for such Shares.

(C) Notwithstanding anything to the contrary in Section 3(c)(ii)(A), in the event of a Sale Event, the Company shall have the right, but not the obligation, to make or provide for a cash payment to the Holders of Restricted Stock or Restricted Stock Unit Awards, without consent of the Holders, in exchange for the cancellation thereof, in an amount equal to the Sale Price times the number of Shares subject to such Awards, to be paid at the time of such Sale Event or upon the later vesting of such Awards.

SECTION 4. ELIGIBILITY

Grantees under the Plan will be such full or part-time officers and other employees, directors, Consultants and key persons of the Company and any Subsidiary who are selected from time to time by the Committee in its sole discretion; provided, however, that Awards shall be granted only to those individuals described in Rule 701(c) of the Securities Act.

SECTION 5. STOCK OPTIONS

Upon the grant of a Stock Option, the Company and the grantee shall enter into an Award Agreement. The terms and conditions of each such Award Agreement shall be determined by the Committee, and such terms and conditions may differ among individual Awards and grantees.

Stock Options granted under the Plan may be either Incentive Stock Options or Non-Qualified Stock Options. Incentive Stock Options may be granted only to employees of the Company or any Subsidiary that is a “subsidiary corporation” within the meaning of Section 424(f) of the Code. To the extent that any Option does not qualify as an Incentive Stock Option, it shall be deemed a Non-Qualified Stock Option.

(a) Terms of Stock Options. The Committee in its discretion may grant Stock Options to those individuals who meet the eligibility requirements of Section 4. Stock Options shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Committee shall deem desirable.

(i) Exercise Price. The exercise price per share for the Shares covered by a Stock Option shall be determined by the Committee at the time of grant but shall not be less than 100 percent of the Fair Market Value on the Grant Date. In the case of an Incentive Stock Option that is granted to a Ten Percent Owner, the exercise price per share for the Shares covered by such Incentive Stock Option shall not be less than 110 percent of the Fair Market Value on the Grant Date.

 

8


(ii) Option Term. The term of each Stock Option shall be fixed by the Committee, but no Stock Option shall be exercisable more than ten years from the Grant Date. In the case of an Incentive Stock Option that is granted to a Ten Percent Owner, the term of such Stock Option shall be no more than five years from the Grant Date.

(iii) Exercisability; Rights of a Stockholder. Stock Options shall become exercisable and/or vested at such time or times, whether or not in installments, as shall be determined by the Committee at or after the Grant Date. The Award Agreement may permit a grantee to exercise all or a portion of a Stock Option immediately at grant; provided that the Shares issued upon such exercise shall be subject to restrictions and a vesting schedule identical to the vesting schedule of the related Stock Option, such Shares shall be deemed to be Restricted Stock for purposes of the Plan, and the optionee may be required to enter into an additional or new Award Agreement as a condition to exercise of such Stock Option. An optionee shall have the rights of a stockholder only as to Shares acquired upon the exercise of a Stock Option and not as to unexercised Stock Options. An optionee shall not be deemed to have acquired any Shares unless and until a Stock Option shall have been exercised pursuant to the terms of the Award Agreement and this Plan and the optionee’s name has been entered on the books of the Company as a stockholder.

(iv) Method of Exercise. Stock Options may be exercised by an optionee in whole or in part, by the optionee giving written or electronic notice of exercise to the Company, specifying the number of Shares to be purchased. Payment of the purchase price may be made by one or more of the following methods (or any combination thereof) to the extent provided in the Award Agreement:

(A) In cash, by certified or bank check, by wire transfer of immediately available funds, or other instrument acceptable to the Committee;

(B) If permitted by the Committee, by the optionee delivering to the Company a promissory note, if the Board has expressly authorized the loan of funds to the optionee for the purpose of enabling or assisting the optionee to effect the exercise of his or her Stock Option; provided, that at least so much of the exercise price as represents the par value of the Stock shall be paid in cash if required by state law;

(C) If permitted by the Committee and the Initial Public Offering has occurred (or the Stock otherwise becomes publicly-traded), through the delivery (or attestation to the ownership) of Shares that have been purchased by the optionee on the open market or that are beneficially owned by the optionee and are not then subject to restrictions under any Company plan. To the extent required to avoid variable accounting treatment under ASC 718 or other applicable accounting rules, such surrendered Shares if originally purchased from the Company shall have been owned by the optionee for at least six months. Such surrendered Shares shall be valued at Fair Market Value on the exercise date;

 

9


(D) If permitted by the Committee and the Initial Public Offering has occurred (or the Stock otherwise becomes publicly-traded), by the optionee delivering to the Company a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company for the purchase price; provided that in the event the optionee chooses to pay the purchase price as so provided, the optionee and the broker shall comply with such procedures and enter into such agreements of indemnity and other agreements as the Committee shall prescribe as a condition of such payment procedure; or

(E) If permitted by the Committee, and only with respect to Stock Options that are not Incentive Stock Options, by a “net exercise” arrangement pursuant to which the Company will reduce the number of Shares issuable upon exercise by the largest whole number of Shares with a Fair Market Value that does not exceed the aggregate exercise price.

Payment instruments will be received subject to collection. No certificates for Shares so purchased will be issued to the optionee or, with respect to uncertificated Stock, no transfer to the optionee on the records of the Company will take place, until the Company has completed all steps it has deemed necessary to satisfy legal requirements relating to the issuance and sale of the Shares, which steps may include, without limitation, (i) receipt of a representation from the optionee at the time of exercise of the Option that the optionee is purchasing the Shares for the optionee’s own account and not with a view to any sale or distribution of the Shares or other representations relating to compliance with applicable law governing the issuance of securities, (ii) the legending of the certificate (or notation on any book entry) representing the Shares to evidence the foregoing restrictions, and (iii) obtaining from optionee payment or provision for all withholding taxes due as a result of the exercise of the Option. The delivery of certificates representing the shares of Stock (or the transfer to the optionee on the records of the Company with respect to uncertificated Stock) to be purchased pursuant to the exercise of a Stock Option will be contingent upon (A) receipt from the optionee (or a purchaser acting in his or her stead in accordance with the provisions of the Stock Option) by the Company of the full purchase price for such Shares and the fulfillment of any other requirements contained in the Award Agreement or applicable provisions of laws and (B) if required by the Company, the optionee shall have entered into any stockholders agreements or other agreements with the Company and/or certain other of the Company’s stockholders relating to the Stock. In the event an optionee chooses to pay the purchase price by previously-owned Shares through the attestation method, the number of Shares transferred to the optionee upon the exercise of the Stock Option shall be net of the number of Shares attested to.

(b) Annual Limit on Incentive Stock Options. To the extent required for “incentive stock option” treatment under Section 422 of the Code, the aggregate Fair Market Value (determined as of the Grant Date) of the Shares with respect to which Incentive Stock Options granted under the Plan and any other plan of the Company or its parent and any Subsidiary that become exercisable for the first time by an optionee during any calendar year shall not exceed $100,000 or such other limit as may be in effect from time to time under Section 422 of the Code. To the extent that any Stock Option exceeds this limit, it shall constitute a Non-Qualified Stock Option.

 

10


(c) Termination. Any portion of a Stock Option that is not vested and exercisable on the date of termination of an optionee’s Service Relationship shall immediately expire and be null and void. Once any portion of the Stock Option becomes vested and exercisable, the optionee’s right to exercise such portion of the Stock Option (or the optionee’s representatives and legatees as applicable) in the event of a termination of the optionee’s Service Relationship shall continue until the earliest of: (i) the date which is: (A) 12 months following the date on which the optionee’s Service Relationship terminates due to death or Disability (or such longer period of time as determined by the Committee and set forth in the applicable Award Agreement), or (B) three months following the date on which the optionee’s Service Relationship terminates if the termination is due to any reason other than death or Disability (or such longer period of time as determined by the Committee and set forth in the applicable Award Agreement), or (ii) the Expiration Date set forth in the Award Agreement; provided that notwithstanding the foregoing, an Award Agreement may provide that if the optionee’s Service Relationship is terminated for Cause, the Stock Option shall terminate immediately and be null and void upon the date of the optionee’s termination and shall not thereafter be exercisable.

SECTION 6. RESTRICTED STOCK AWARDS

(a) Nature of Restricted Stock Awards. The Committee may, in its sole discretion, grant (or sell at par value or such other purchase price determined by the Committee) to an eligible individual under Section 4 hereof a Restricted Stock Award under the Plan. The Committee shall determine the restrictions and conditions applicable to each Restricted Stock Award at the time of grant. Conditions may be based on continuing employment (or other Service Relationship), achievement of pre-established performance goals and objectives and/or such other criteria as the Committee may determine. Upon the grant of a Restricted Stock Award, the Company and the grantee shall enter into an Award Agreement. The terms and conditions of each such Award Agreement shall be determined by the Committee, and such terms and conditions may differ among individual Awards and grantees.

(b) Rights as a Stockholder. Upon the grant of the Restricted Stock Award and payment of any applicable purchase price, a grantee of Restricted Stock shall be considered the record owner of and shall be entitled to vote the Restricted Stock if, and to the extent, such Shares are entitled to voting rights, subject to such conditions contained in the Award Agreement. The grantee shall be entitled to receive all dividends and any other distributions declared on the Shares; provided, however, that the Company is under no duty to declare any such dividends or to make any such distribution. Unless the Committee shall otherwise determine, certificates evidencing the Restricted Stock shall remain in the possession of the Company until such Restricted Stock is vested as provided in subsection (d) below of this Section, and the grantee shall be required, as a condition of the grant, to deliver to the Company a stock power endorsed in blank and such other instruments of transfer as the Committee may prescribe.

(c) Restrictions. Restricted Stock may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of except as specifically provided herein or in the Award Agreement. Except as may otherwise be provided by the Committee either in the Award Agreement or, subject to Section 12 below, in writing after the Award Agreement is issued, if a grantee’s Service Relationship with the Company and any Subsidiary terminates, the Company or its assigns shall have the right, as may be specified in the relevant instrument, to repurchase some or all of the Shares subject to the Award at such purchase price as is set forth in the Award Agreement.

 

11


(d) Vesting of Restricted Stock. The Committee at the time of grant shall specify in the Award Agreement the date or dates and/or the attainment of pre-established performance goals, objectives and other conditions on which the substantial risk of forfeiture imposed shall lapse and the Restricted Stock shall become vested, subject to such further rights of the Company or its assigns as may be specified in the Award Agreement.

SECTION 7. UNRESTRICTED STOCK AWARDS

The Committee may, in its sole discretion, grant (or sell at par value or such other purchase price determined by the Committee) to an eligible person under Section 4 hereof an Unrestricted Stock Award under the Plan. Unrestricted Stock Awards may be granted in respect of past services or other valid consideration, or in lieu of cash compensation due to such grantee.

SECTION 8. RESTRICTED STOCK UNITS

(a) Nature of Restricted Stock Units. The Committee may, in its sole discretion, grant to an eligible person under Section 4 hereof Restricted Stock Units under the Plan. The Committee shall determine the restrictions and conditions applicable to each Restricted Stock Unit at the time of grant. Vesting conditions may be based on continuing employment (or other Service Relationship), achievement of pre-established performance goals and objectives and/or other such criteria as the Committee may determine. Upon the grant of Restricted Stock Units, the grantee and the Company shall enter into an Award Agreement. The terms and conditions of each such Award Agreement shall be determined by the Committee and may differ among individual Awards and grantees. On or promptly following the vesting date or dates applicable to any Restricted Stock Unit, but in no event later than March 15 of the year following the year in which such vesting occurs, such Restricted Stock Unit(s) shall be settled in the form of cash or shares of Stock, as specified in the Award Agreement. Restricted Stock Units may not be sold, assigned, transferred, pledged, or otherwise encumbered or disposed of.

(b) Rights as a Stockholder. A grantee shall have the rights of a stockholder only as to Shares, if any, acquired upon settlement of Restricted Stock Units. A grantee shall not be deemed to have acquired any such Shares unless and until the Restricted Stock Units shall have been settled in Shares pursuant to the terms of the Plan and the Award Agreement, the Company shall have issued and delivered a certificate representing the Shares to the grantee (or transferred on the records of the Company with respect to uncertificated stock), and the grantee’s name has been entered in the books of the Company as a stockholder.

(c) Termination. Except as may otherwise be provided by the Committee either in the Award Agreement or in writing after the Award Agreement is issued, a grantee’s right in all Restricted Stock Units that have not vested shall automatically terminate upon the grantee’s cessation of Service Relationship with the Company and any Subsidiary for any reason.

 

12


SECTION 9. TRANSFER RESTRICTIONS; COMPANY RIGHT OF FIRST REFUSAL; COMPANY REPURCHASE RIGHTS

(a) Restrictions on Transfer.

(i) Non-Transferability of Stock Options. Stock Options and, prior to exercise, the Shares issuable upon exercise of such Stock Option, shall not be transferable by the optionee otherwise than by will, or by the laws of descent and distribution, and all Stock Options shall be exercisable, during the optionee’s lifetime, only by the optionee, or by the optionee’s legal representative or guardian in the event of the optionee’s incapacity. Notwithstanding the foregoing, the Committee, in its sole discretion, may provide in the Award Agreement regarding a given Stock Option that the optionee may transfer by gift, without consideration for the transfer, his or her Non-Qualified Stock Options to his or her family members (as defined in Rule 701 of the Securities Act), to trusts for the benefit of such family members, or to partnerships in which such family members are the only partners (to the extent such trusts or partnerships are considered “family members” for purposes of Rule 701 of the Securities Act), provided that the transferee agrees in writing with the Company to be bound by all of the terms and conditions of this Plan and the applicable Award Agreement, including the execution of a stock power upon the issuance of Shares. Stock Options, and the Shares issuable upon exercise of such Stock Options, shall be restricted as to any pledge, hypothecation, or other transfer, including any short position, any “put equivalent position” (as defined in the Exchange Act) or any “call equivalent position” (as defined in the Exchange Act) prior to exercise.

(ii) Shares. No Shares shall be sold, assigned, transferred, pledged, hypothecated, given away or in any other manner disposed of or encumbered, whether voluntarily or by operation of law, unless (i) the transfer is in compliance with the terms of the applicable Award Agreement, all applicable securities laws (including, without limitation, the Securities Act), and with the terms and conditions of this Section 9, (ii) the transfer does not cause the Company to become subject to the reporting requirements of the Exchange Act, and (iii) the transferee consents in writing to be bound by the provisions of the Plan and the Award Agreement, including this Section 9. In connection with any proposed transfer, the Committee may require the transferor to provide at the transferor’s own expense an opinion of counsel to the transferor, satisfactory to the Committee, that such transfer is in compliance with all foreign, federal and state securities laws (including, without limitation, the Securities Act). Any attempted transfer of Shares not in accordance with the terms and conditions of this Section 9 shall be null and void, and the Company shall not reflect on its records any change in record ownership of any Shares as a result of any such transfer, shall otherwise refuse to recognize any such transfer and shall not in any way give effect to any such transfer of Shares. The Company shall be entitled to seek protective orders, injunctive relief and other remedies available at law or in equity including, without limitation, seeking specific performance or the rescission of any transfer not made in strict compliance with the provisions of this Section 9. Subject to the foregoing general provisions, and unless otherwise provided in the applicable Award Agreement, Shares may be transferred pursuant to the following specific terms and conditions (provided that with respect to any transfer of Restricted Stock, all vesting and forfeiture provisions shall continue to apply with respect to the original recipient):

 

13


(A) Transfers to Permitted Transferees. The Holder may transfer any or all of the Shares to one or more Permitted Transferees; provided, however, that following such transfer, such Shares shall continue to be subject to the terms of this Plan (including this Section 9) and such Permitted Transferee(s) shall, as a condition to any such transfer, deliver a written acknowledgment to that effect to the Company and shall deliver a stock power to the Company with respect to the Shares. Notwithstanding the foregoing, the Holder may not transfer any of the Shares to a Person whom the Company reasonably determines is a direct competitor or a potential competitor of the Company or any of its Subsidiaries.

(B) Transfers Upon Death. Upon the death of the Holder, any Shares then held by the Holder at the time of such death and any Shares acquired after the Holder’s death by the Holder’s legal representative shall be subject to the provisions of this Plan, and the Holder’s estate, executors, administrators, personal representatives, heirs, legatees and distributees shall be obligated to convey such Shares to the Company or its assigns under the terms contemplated by the Plan and the Award Agreement.

(b) Right of First Refusal. In the event that a Holder desires at any time to sell or otherwise transfer all or any part of his or her Shares (other than shares of Restricted Stock which by their terms are not transferrable), the Holder first shall give written notice to the Company of the Holder’s intention to make such transfer. Such notice shall state the number of Shares that the Holder proposes to sell (the “Offered Shares”), the price and the terms at which the proposed sale is to be made and the name and address of the proposed transferee. At any time within 30 days after the receipt of such notice by the Company, the Company or its assigns may elect to purchase all or any portion of the Offered Shares at the price and on the terms offered by the proposed transferee and specified in the notice. The Company or its assigns shall exercise this right by mailing or delivering written notice to the Holder within the foregoing 30-day period. If the Company or its assigns elect to exercise its purchase rights under this Section 9(b), the closing for such purchase shall, in any event, take place within 45 days after the receipt by the Company of the initial notice from the Holder. In the event that the Company or its assigns do not elect to exercise such purchase right, or in the event that the Company or its assigns do not pay the full purchase price within such 45-day period, the Holder shall be required to pay a transaction processing fee of $10,000 to the Company (unless waived by the Committee) and then may, within 60 days thereafter, sell the Offered Shares to the proposed transferee and at the same price and on the same terms as specified in the Holder’s notice. Any Shares not sold to the proposed transferee shall remain subject to the Plan. If the Holder is a party to any stockholders agreements or other agreements with the Company and/or certain other of the Company’s stockholders relating to the Shares, (i) the transferring Holder shall comply with the requirements of such stockholders agreements or other agreements relating to any proposed transfer of the Offered Shares, and (ii) any proposed transferee that purchases Offered Shares shall enter into such stockholders agreements or other agreements with the Company and/or certain of the Company’s stockholders relating to the Offered Shares on the same terms and in the same capacity as the transferring Holder.

 

14


(c) Company’s Right of Repurchase.

(i) Right of Repurchase for Unvested Shares Issued Upon the Exercise of an Option. Upon a Termination Event, the Company or its assigns shall have the right and option to repurchase from a Holder of Shares acquired upon exercise of a Stock Option which are still subject to a risk of forfeiture as of the Termination Event. Such repurchase rights may be exercised by the Company within the later of (A) six months following the date of such Termination Event or (B) seven months after the acquisition of Shares upon exercise of a Stock Option. The repurchase price shall be equal to the lower of the original per share price paid by the Holder, subject to adjustment as provided in Section 3(b) of the Plan, or the current Fair Market Value of such Shares as of the date the Company elects to exercise its repurchase rights.

(ii) Right of Repurchase With Respect to Restricted Stock. Upon a Termination Event, the Company or its assigns shall have the right and option to repurchase from a Holder of Shares received pursuant to a Restricted Stock Award any Shares that are still subject to a risk of forfeiture as of the Termination Event. Such repurchase right may be exercised by the Company within six months following the date of such Termination Event. The repurchase price shall be the lower of the original per share purchase price paid by the Holder, subject to adjustment as provided in Section 3(b) of the Plan, or the current Fair Market Value of such Shares as of the date the Company elects to exercise its repurchase rights.

(iii) Procedure. Any repurchase right of the Company shall be exercised by the Company or its assigns by giving the Holder written notice on or before the last day of the repurchase period of its intention to exercise such repurchase right. Upon such notification, the Holder shall promptly surrender to the Company, free and clear of any liens or encumbrances, any certificates representing the Shares being purchased, together with a duly executed stock power for the transfer of such Shares to the Company or the Company’s assignee or assignees. Upon the Company’s or its assignee’s receipt of the certificates from the Holder, the Company or its assignee or assignees shall deliver to him, her or them a check for the applicable repurchase price; provided, however, that the Company may pay the repurchase price by offsetting and canceling any indebtedness then owed by the Holder to the Company.

(d) Reserved.

(e) Escrow Arrangement.

(i) Escrow. In order to carry out the provisions of this Section 9 of this Plan more effectively, the Company shall hold any Shares issued pursuant to Awards granted under the Plan in escrow together with separate stock powers executed by the Holder in blank for transfer. The Company shall not dispose of the Shares except as otherwise provided in this Plan. In the event of any repurchase by the Company (or any of its assigns), the Company is hereby authorized by the Holder, as the Holder’s attorney-in-fact, to date and complete the stock powers necessary for the transfer of the Shares being purchased and to transfer such Shares in accordance with the terms hereof. At such time as any Shares are no longer subject to the Company’s repurchase and first refusal rights, the Company shall, at the written request of the Holder, deliver to the Holder a certificate representing such Shares with the balance of the Shares to be held in escrow pursuant to this Section.

 

15


(ii) Remedy. Without limitation of any other provision of this Plan or other rights, in the event that a Holder or any other Person is required to sell a Holder’s Shares pursuant to the provisions of Sections 9(b) or (c) hereof and in the further event that he or she refuses or for any reason fails to deliver to the Company or its designated purchaser of such Shares the certificate or certificates evidencing such Shares together with a related stock power, the Company or such designated purchaser may deposit the applicable purchase price for such Shares with a bank designated by the Company, or with the Company’s independent public accounting firm, as agent or trustee, or in escrow, for such Holder or other Person, to be held by such bank or accounting firm for the benefit of and for delivery to him, her, them or it, and/or, in its discretion, pay such purchase price by offsetting any indebtedness then owed by such Holder as provided above. Upon any such deposit and/or offset by the Company or its designated purchaser of such amount and upon notice to the Person who was required to sell the Shares to be sold pursuant to the provisions of Sections 9(b) or (c), such Shares shall at such time be deemed to have been sold, assigned, transferred and conveyed to such purchaser, such Holder shall have no further rights thereto (other than the right to withdraw the payment thereof held in escrow, if applicable), and the Company shall record such transfer in its stock transfer book or in any appropriate manner.

(f) Lockup Provision. If requested by the Company, a Holder shall not sell or otherwise transfer or dispose of any Shares (including, without limitation, pursuant to Rule 144 under the Securities Act) held by him or her for such period following the effective date of a public offering by the Company of Shares as the Company shall specify reasonably and in good faith. If requested by the underwriter engaged by the Company, each Holder shall execute a separate letter confirming his or her agreement to comply with this Section.

(g) Adjustments for Changes in Capital Structure. If, as a result of any reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar change in the Common Stock, the outstanding Shares are increased or decreased or are exchanged for a different number or kind of securities of the Company, the restrictions contained in this Section 9 shall apply with equal force to additional and/or substitute securities, if any, received by Holder in exchange for, or by virtue of his or her ownership of, Shares.

(h) Termination. The terms and provisions of Section 9(b) and Section 9(c) (except for the Company’s right to repurchase Shares still subject to a risk of forfeiture upon a Termination Event) shall terminate upon the closing of the Company’s Initial Public Offering or upon consummation of any Sale Event, in either case as a result of which Shares are registered under Section 12 of the Exchange Act and publicly-traded on any national security exchange.

SECTION 10. TAX WITHHOLDING

(a) Payment by Grantee. Each grantee shall, no later than the date as of which the value of an Award or of any Shares or other amounts received thereunder first becomes includable in the gross income of the grantee for income tax purposes, pay to the Company, or make arrangements satisfactory to the Committee regarding payment of, any Federal, state, or local taxes of any kind required by law to be withheld by the Company with respect to such income. The Company and any Subsidiary shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the grantee. The Company’s obligation to deliver stock certificates (or evidence of book entry) to any grantee is subject to and conditioned on any such tax withholding obligations being satisfied by the grantee.

 

16


(b) Payment in Stock. The Company’s minimum required tax withholding obligation may be satisfied, in whole or in part, by the Company withholding from Shares to be issued pursuant to an Award a number of Shares having an aggregate Fair Market Value (as of the date the withholding is effected) that would satisfy the minimum withholding amount due.

SECTION 11. SECTION 409A AWARDS.

To the extent that any Award is determined to constitute “nonqualified deferred compensation” within the meaning of Section 409A (a “409A Award”), the Award shall be subject to such additional rules and requirements as may be specified by the Committee from time to time. In this regard, if any amount under a 409A Award is payable upon a “separation from service” (within the meaning of Section 409A) to a grantee who is considered a “specified employee” (within the meaning of Section 409A), then no such payment shall be made prior to the date that is the earlier of (i) six months and one day after the grantee’s separation from service, or (ii) the grantee’s death, but only to the extent such delay is necessary to prevent such payment from being subject to interest, penalties and/or additional tax imposed pursuant to Section 409A. The Company makes no representation or warranty and shall have no liability to any grantee under the Plan or any other Person with respect to any penalties or taxes under Section 409A that are, or may be, imposed with respect to any Award.

SECTION 12. AMENDMENTS AND TERMINATION

The Board may, at any time, amend or discontinue the Plan and the Committee may, at any time, amend or cancel any outstanding Award for the purpose of satisfying changes in law or for any other lawful purpose, but no such action shall adversely affect rights under any outstanding Award without the consent of the holder of the Award. The Committee may exercise its discretion to reduce the exercise price of outstanding Stock Options or effect repricing through cancellation of outstanding Stock Options and by granting such holders new Awards in replacement of the cancelled Stock Options. To the extent determined by the Committee to be required either by the Code to ensure that Incentive Stock Options granted under the Plan are qualified under Section 422 of the Code or otherwise, Plan amendments shall be subject to approval by the Company stockholders entitled to vote at a meeting of stockholders. Nothing in this Section 12 shall limit the Board’s or Committee’s authority to take any action permitted pursuant to Section 3(c). The Board reserves the right to amend the Plan and/or the terms of any outstanding Stock Options to the extent reasonably necessary to comply with the requirements of the exemption pursuant to paragraph (f)(4) of Rule 12h-1 of the Exchange Act.

SECTION 13. STATUS OF PLAN

With respect to the portion of any Award that has not been exercised and any payments in cash, Stock or other consideration not received by a grantee, a grantee shall have no rights greater than those of a general creditor of the Company unless the Committee shall otherwise expressly so determine in connection with any Award.

 

17


SECTION 14. GENERAL PROVISIONS

(a) No Distribution; Compliance with Legal Requirements. The Committee may require each person acquiring Shares pursuant to an Award to represent to and agree with the Company in writing that such person is acquiring the Shares without a view to distribution thereof. No Shares shall be issued pursuant to an Award until all applicable securities law and other legal and stock exchange or similar requirements have been satisfied. The Committee may require the placing of such stop-orders and restrictive legends on certificates for Stock and Awards as it deems appropriate.

(b) Delivery of Stock Certificates. Stock certificates to grantees under the Plan shall be deemed delivered for all purposes when the Company or a stock transfer agent of the Company shall have mailed such certificates in the United States mail, addressed to the grantee, at the grantee’s last known address on file with the Company; provided that stock certificates to be held in escrow pursuant to Section 9 of the Plan shall be deemed delivered when the Company shall have recorded the issuance in its records. Uncertificated Stock shall be deemed delivered for all purposes when the Company or a stock transfer agent of the Company shall have given to the grantee by electronic mail (with proof of receipt) or by United States mail, addressed to the grantee, at the grantee’s last known address on file with the Company, notice of issuance and recorded the issuance in its records (which may include electronic “book entry” records).

(c) No Employment Rights. The adoption of the Plan and the grant of Awards do not confer upon any Person any right to continued employment or Service Relationship with the Company or any Subsidiary.

(d) Trading Policy Restrictions. Option exercises and other Awards under the Plan shall be subject to the Company’s insider trading policy-related restrictions, terms and conditions as may be established by the Committee, or in accordance with policies set by the Committee, from time to time.

(e) Designation of Beneficiary. Each grantee to whom an Award has been made under the Plan may designate a beneficiary or beneficiaries to exercise any Award on or after the grantee’s death or receive any payment under any Award payable on or after the grantee’s death. Any such designation shall be on a form provided for that purpose by the Committee and shall not be effective until received by the Committee. If no beneficiary has been designated by a deceased grantee, or if the designated beneficiaries have predeceased the grantee, the beneficiary shall be the grantee’s estate.

(f) Legend. Any certificate(s) representing the Shares shall carry substantially the following legend (and with respect to uncertificated Stock, the book entries evidencing such shares shall contain the following notation):

The transferability of this certificate and the shares of stock represented hereby are subject to the restrictions, terms and conditions (including repurchase and restrictions against transfers) contained in the Surface Oncology, Inc. 2014 Stock Option and Grant Plan and any agreements entered into thereunder by and between the company and the holder of this certificate (a copy of which is available at the offices of the company for examination).

 

18


(g) Information to Holders of Options. In the event the Company is relying on the exemption from the registration requirements of Section 12(g) of the Exchange Act contained in paragraph (f)(1) of Rule 12h-1 of the Exchange Act, the Company shall provide the information described in Rule 701(e)(3), (4) and (5) of the Securities Act to all holders of Options in accordance with the requirements thereunder. The foregoing notwithstanding, the Company shall not be required to provide such information unless the optionholder has agreed in writing, on a form prescribed by the Company, to keep such information confidential.

SECTION 15. EFFECTIVE DATE OF PLAN

The Plan shall become effective upon adoption by the Board and shall be approved by stockholders in accordance with applicable state law and the Company’s articles of incorporation and bylaws within 12 months thereafter. If the stockholders fail to approve the Plan within 12 months after its adoption by the Board of Directors, then any Awards granted or sold under the Plan shall be rescinded and no additional grants or sales shall thereafter be made under the Plan. Subject to such approval by stockholders and to the requirement that no Shares may be issued hereunder prior to such approval, Stock Options and other Awards may be granted hereunder on and after adoption of the Plan by the Board. No grants of Stock Options and other Awards may be made hereunder after the tenth anniversary of the date the Plan is adopted by the Board or the date the Plan is approved by the Company’s stockholders, whichever is earlier.

SECTION 16. GOVERNING LAW

This Plan, all Awards and any controversy arising out of or relating to this Plan and all Awards shall be governed by and construed in accordance with the General Corporation Law of the State of Delaware as to matters within the scope thereof, and as to all other matters shall be governed by and construed in accordance with the internal laws of the Commonwealth of Massachusetts, without regard to conflict of law principles that would result in the application of any law other than the law of the Commonwealth of Massachusetts.

DATE ADOPTED BY THE BOARD OF DIRECTORS: November 5, 2014

DATE APPROVED BY THE STOCKHOLDERS: November 5, 2014

 

19


SURFACE ONCOLOGY, INC.

AMENDMENT NO. 1 TO

2014 STOCK OPTION AND GRANT PLAN

WHEREAS, the Board of Directors of Surface Oncology, Inc. (the “Company”) approved and adopted the 2014 Stock Option and Grant Plan (the “Plan”) of the Company on November 5, 2014, and the stockholders of the Company approved and adopted the Plan on November 5, 2014; and

WHEREAS, the Board of Directors and the stockholders of the Company have determined that it is in the best interest of the Company to amend the Plan as set forth in this Amendment.

NOW, THEREFORE, the Plan is amended as follows:

 

1. Amendment of the Plan

1.01.    Section 3(a) of the Plan is hereby amended and restated in its entirety to read as follows:

Stock Issuable. The maximum number of Shares reserved and available for issuance under the Plan shall be 3,742,353 Shares, subject to adjustment as provided in Section 3(b). For purposes of this limitation, the Shares underlying any Awards that are forfeited, canceled, reacquired by the Company prior to vesting, satisfied without the issuance of Stock or otherwise terminated (other than by exercise) and Shares that are withheld upon exercise of an Option or settlement of an Award to cover the exercise price or tax withholding shall be added back to the Shares available for issuance under the Plan. Subject to such overall limitations, Shares may be issued up to such maximum number pursuant to any type or types of Award, and no more than 37,423,530 Shares may be issued pursuant to Incentive Stock Options. The Shares available for issuance under the Plan may be authorized but unissued Shares or Shares reacquired by the Company. Beginning on the date that the Company becomes subject to Section 162(m) of the Code, Options with respect to no more than 3,742,353 Shares shall be granted to any one individual in any calendar year period.”

 

2. Miscellaneous.

2.01.    Effect. Except as amended hereby, the Plan shall remain in full force and effect.

2.02.    Defined Terms. All capitalized terms used but not specifically defined herein shall have the same meanings given such terms in the Plan unless the context clearly indicates or dictates a contrary meaning.

2.03.    Governing Law. This Amendment shall be governed by and construed in accordance with the General Corporation Law of the State of Delaware as to matters within the scope thereof, and as to all other matters shall be governed by and construed in accordance with the internal laws of the Commonwealth of Massachusetts, without regard to conflict of law principles that would result in the application of any law other than the law of the Commonwealth of Massachusetts.

ADOPTED BY BOARD OF DIRECTORS:    November 21, 2014

APPROVED BY STOCKHOLDERS:     November 21, 2014


SURFACE ONCOLOGY, INC.

AMENDMENT NO. 2 TO

2014 STOCK OPTION AND GRANT PLAN

WHEREAS, the Board of Directors of Surface Oncology, Inc. (the “Company”) approved and adopted the 2014 Stock Option and Grant Plan (the “Plan”) of the Company on November 5, 2014, and the stockholders of the Company approved and adopted the Plan on November 5, 2014; and

WHEREAS, the Board of Directors approved and adopted Amendment No. 1 to the Plan (“Amendment 1”) on November 21, 2014, and the stockholders of the Company approved and adopted Amendment 1 on November 21, 2014; and

WHEREAS, the Board of Directors and the stockholders of the Company have determined that it is in the best interest of the Company to further amend the Plan as set forth in this Amendment.

NOW, THEREFORE, the Plan is amended as follows:

 

1. Amendment of the Plan

1.01.    Section 3(a) of the Plan is hereby amended and restated in its entirety to read as follows:

Stock Issuable. The maximum number of Shares reserved and available for issuance under the Plan shall be 5,771,764 Shares, subject to adjustment as provided in Section 3(b). For purposes of this limitation, the Shares underlying any Awards that are forfeited, canceled, reacquired by the Company prior to vesting, satisfied without the issuance of Stock or otherwise terminated (other than by exercise) and Shares that are withheld upon exercise of an Option or settlement of an Award to cover the exercise price or tax withholding shall be added back to the Shares available for issuance under the Plan. Subject to such overall limitations, Shares may be issued up to such maximum number pursuant to any type or types of Award, and no more than 57,717,640 Shares may be issued pursuant to Incentive Stock Options. The Shares available for issuance under the Plan may be authorized but unissued Shares or Shares reacquired by the Company. Beginning on the date that the Company becomes subject to Section 162(m) of the Code, Options with respect to no more than 5,771,764 Shares shall be granted to any one individual in any calendar year period.”

 

2. Miscellaneous.

2.01.    Effect. Except as amended hereby, the Plan shall remain in full force and effect.

2.02.    Defined Terms. All capitalized terms used but not specifically defined herein shall have the same meanings given such terms in the Plan unless the context clearly indicates or dictates a contrary meaning.

2.03.    Governing Law. This Amendment shall be governed by and construed in accordance with the General Corporation Law of the State of Delaware as to matters within the scope thereof, and as to all other matters shall be governed by and construed in accordance with the internal laws of the Commonwealth of Massachusetts, without regard to conflict of law principles that would result in the application of any law other than the law of the Commonwealth of Massachusetts.

ADOPTED BY BOARD OF DIRECTORS:    December 4, 2015

APPROVED BY STOCKHOLDERS:     December 22, 2015


SURFACE ONCOLOGY, INC.

AMENDMENT NO. 3 TO

2014 STOCK OPTION AND GRANT PLAN

WHEREAS, the Board of Directors of Surface Oncology, Inc. (the “Company”) approved and adopted the 2014 Stock Option and Grant Plan (the “Plan”) of the Company on November 5, 2014, and the stockholders of the Company approved and adopted the Plan on November 5, 2014; and

WHEREAS, the Board of Directors approved and adopted Amendment No. 1 to the Plan (“Amendment 1”) on November 21, 2014, and the stockholders of the Company approved and adopted Amendment 1 on November 21, 2014; and

WHEREAS, the Board of Directors approved and adopted Amendment No. 2 to the Plan (“Amendment 2”) on December 4, 2015, and the stockholders of the Company approved and adopted Amendment 2 on December 22, 2015; and

WHEREAS, the Board of Directors and the stockholders of the Company have determined that it is in the best interest of the Company to further amend the Plan as set forth in this Amendment.

NOW, THEREFORE, the Plan is amended as follows:

 

1. Amendment of the Plan

1.01.    Section 3(a) of the Plan is hereby amended and restated in its entirety to read as follows:

Stock Issuable. The maximum number of Shares reserved and available for issuance under the Plan shall be 7,977,646 Shares, subject to adjustment as provided in Section 3(b). For purposes of this limitation, the Shares underlying any Awards that are forfeited, canceled, reacquired by the Company prior to vesting, satisfied without the issuance of Stock or otherwise terminated (other than by exercise) and Shares that are withheld upon exercise of an Option or settlement of an Award to cover the exercise price or tax withholding shall be added back to the Shares available for issuance under the Plan. Subject to such overall limitations, Shares may be issued up to such maximum number pursuant to any type or types of Award, and no more than 79,776,460 Shares may be issued pursuant to Incentive Stock Options. The Shares available for issuance under the Plan may be authorized but unissued Shares or Shares reacquired by the Company. Beginning on the date that the Company becomes subject to Section 162(m) of the Code, Options with respect to no more than 7,977,646 Shares shall be granted to any one individual in any calendar year period.”

 

2. Miscellaneous.

2.01.    Effect. Except as amended hereby, the Plan shall remain in full force and effect.

2.02.    Defined Terms. All capitalized terms used but not specifically defined herein shall have the same meanings given such terms in the Plan unless the context clearly indicates or dictates a contrary meaning.

2.03.    Governing Law. This Amendment shall be governed by and construed in accordance with the General Corporation Law of the State of Delaware as to matters within the scope thereof, and as to all other matters shall be governed by and construed in accordance with the internal laws of the Commonwealth of Massachusetts, without regard to conflict of law principles that would result in the application of any law other than the law of the Commonwealth of Massachusetts.

ADOPTED BY BOARD OF DIRECTORS: January 27, 2016    

APPROVED BY STOCKHOLDERS:    January 28, 2016


SURFACE ONCOLOGY, INC.

AMENDMENT NO. 4 TO

2014 STOCK OPTION AND GRANT PLAN

WHEREAS, the Board of Directors of Surface Oncology, Inc. (the “Company”) approved and adopted the 2014 Stock Option and Grant Plan (the “Plan”) of the Company on November 5, 2014, and the stockholders of the Company approved and adopted the Plan on November 5, 2014; and

WHEREAS, the Board of Directors approved and adopted Amendment No. 1 to the Plan (“Amendment 1”) on November 21, 2014, and the stockholders of the Company approved and adopted Amendment 1 on November 21, 2014;

WHEREAS, the Board of Directors approved and adopted Amendment No. 2 to the Plan (“Amendment 2”) on December 4, 2015, and the stockholders of the Company approved and adopted Amendment 2 on December 22, 2015;

WHEREAS, the Board of Directors approved and adopted Amendment No. 3 to the Plan (“Amendment 3”) on January 27, 2016, and the stockholders of the Company approved and adopted Amendment 3 on January 28, 2016; and

WHEREAS, the Board of Directors and the stockholders of the Company have determined that it is in the best interest of the Company to further amend the Plan as set forth in this Amendment.

NOW, THEREFORE, the Plan is amended as follows:

 

1. Amendment of the Plan

1.01.    Section 3(a) of the Plan is hereby amended and restated in its entirety to read as follows:

Stock Issuable. The maximum number of Shares reserved and available for issuance under the Plan shall be 9,877,646 Shares, subject to adjustment as provided in Section 3(b). For purposes of this limitation, the Shares underlying any Awards that are forfeited, canceled, reacquired by the Company prior to vesting, satisfied without the issuance of Stock or otherwise terminated (other than by exercise) and Shares that are withheld upon exercise of an Option or settlement of an Award to cover the exercise price or tax withholding shall be added back to the Shares available for issuance under the Plan. Subject to such overall limitations, Shares may be issued up to such maximum number pursuant to any type or types of Award, and no more than 98,776,460 Shares may be issued pursuant to Incentive Stock Options. The Shares available for issuance under the Plan may be authorized but unissued Shares or Shares reacquired by the Company. Beginning on the date that the Company becomes subject to Section 162(m) of the Code, Options with respect to no more than 9,877,646 Shares shall be granted to any one individual in any calendar year period.”

 

2. Miscellaneous.

2.01.    Effect. Except as amended hereby, the Plan shall remain in full force and effect.

2.02.    Defined Terms. All capitalized terms used but not specifically defined herein shall have the same meanings given such terms in the Plan unless the context clearly indicates or dictates a contrary meaning.


2.03.    Governing Law. This Amendment shall be governed by and construed in accordance with the General Corporation Law of the State of Delaware as to matters within the scope thereof, and as to all other matters shall be governed by and construed in accordance with the internal laws of the Commonwealth of Massachusetts, without regard to conflict of law principles that would result in the application of any law other than the law of the Commonwealth of Massachusetts.

ADOPTED BY BOARD OF DIRECTORS: March 30, 2017    

APPROVED BY STOCKHOLDERS:    April 19, 2017


SURFACE ONCOLOGY, INC.

AMENDMENT NO. 5 TO

2014 STOCK OPTION AND GRANT PLAN

WHEREAS, the Board of Directors of Surface Oncology, Inc. (the “Company”) approved and adopted the 2014 Stock Option and Grant Plan (the “Plan”) of the Company on November 5, 2014, and the stockholders of the Company approved and adopted the Plan on November 5, 2014; and

WHEREAS, the Board of Directors approved and adopted Amendment No. 1 to the Plan (“Amendment 1”) on November 21, 2014, and the stockholders of the Company approved and adopted Amendment 1 on November 21, 2014;

WHEREAS, the Board of Directors approved and adopted Amendment No. 2 to the Plan (“Amendment 2”) on December 4, 2015, and the stockholders of the Company approved and adopted Amendment 2 on December 22, 2015;

WHEREAS, the Board of Directors approved and adopted Amendment No. 3 to the Plan (“Amendment 3”) on January 27, 2016, and the stockholders of the Company approved and adopted Amendment 3 on January 28, 2016;

WHEREAS, the Board of Directors approved and adopted Amendment No. 4 to the Plan (“Amendment 4”) on March 30, 2017, and the stockholders of the Company approved and adopted Amendment 4 on April 19, 2017;

WHEREAS, the Board of Directors and the stockholders of the Company have determined that it is in the best interest of the Company to further amend the Plan as set forth in this Amendment.

NOW, THEREFORE, the Plan is amended as follows:

 

1. Amendment of the Plan

1.01. Section 3(a) of the Plan is hereby amended and restated in its entirety to read as follows:

Stock Issuable. The maximum number of Shares reserved and available for issuance under the Plan shall be 9,897,646 Shares, subject to adjustment as provided in Section 3(b). For purposes of this limitation, the Shares underlying any Awards that are forfeited, canceled, reacquired by the Company prior to vesting, satisfied without the issuance of Stock or otherwise terminated (other than by exercise) and Shares that are withheld upon exercise of an Option or settlement of an Award to cover the exercise price or tax withholding shall be added back to the Shares available for issuance under the Plan. Subject to such overall limitations, Shares may be issued up to such maximum number pursuant to any type or types of Award, and no more than 98,976,460 Shares may be issued pursuant to Incentive Stock Options. The Shares available for issuance under the Plan may be authorized but unissued Shares or Shares reacquired by the Company. Beginning on the date that the Company becomes subject to Section 162(m) of the Code, Options with respect to no more than 9,897,646 Shares shall be granted to any one individual in any calendar year period.”


2. Miscellaneous.

2.01. Effect. Except as amended hereby, the Plan shall remain in full force and effect.

2.02. Defined Terms. All capitalized terms used but not specifically defined herein shall have the same meanings given such terms in the Plan unless the context clearly indicates or dictates a contrary meaning.

2.03. Governing Law. This Amendment shall be governed by and construed in accordance with the General Corporation Law of the State of Delaware as to matters within the scope thereof, and as to all other matters shall be governed by and construed in accordance with the internal laws of the Commonwealth of Massachusetts, without regard to conflict of law principles that would result in the application of any law other than the law of the Commonwealth of Massachusetts.

ADOPTED BY BOARD OF DIRECTORS: February 12, 2018

APPROVED BY STOCKHOLDERS: February 12, 2018

 

2


SURFACE ONCOLOGY, INC.

AMENDMENT NO. 6 TO

2014 STOCK OPTION AND GRANT PLAN

WHEREAS, the Board of Directors of Surface Oncology, Inc. (the “Company”) approved and adopted the 2014 Stock Option and Grant Plan (the “Plan”) of the Company on November 5, 2014, and the stockholders of the Company approved and adopted the Plan on November 5, 2014; and

WHEREAS, the Board of Directors approved and adopted Amendment No. 1 to the Plan (“Amendment 1”) on November 21, 2014, and the stockholders of the Company approved and adopted Amendment 1 on November 21, 2014;

WHEREAS, the Board of Directors approved and adopted Amendment No. 2 to the Plan (“Amendment 2”) on December 4, 2015, and the stockholders of the Company approved and adopted Amendment 2 on December 22, 2015;

WHEREAS, the Board of Directors approved and adopted Amendment No. 3 to the Plan (“Amendment 3”) on January 27, 2016, and the stockholders of the Company approved and adopted Amendment 3 on January 28, 2016;

WHEREAS, the Board of Directors approved and adopted Amendment No. 4 to the Plan (“Amendment 4”) on March 30, 2017, and the stockholders of the Company approved and adopted Amendment 4 on April 19, 2017;

WHEREAS, the Board of Directors approved and adopted Amendment No. 5 to the Plan (“Amendment 5”) on February 12, 2018, and the stockholders of the Company approved and adopted Amendment 6 on February 12, 2018;

WHEREAS, the Board of Directors and the stockholders of the Company have determined that it is in the best interest of the Company to further amend the Plan as set forth in this Amendment.

NOW, THEREFORE, the Plan is amended as follows:

 

1. Amendment of the Plan

1.01.    Section 3(a) of the Plan is hereby amended and restated in its entirety to read as follows:

Stock Issuable. The maximum number of Shares reserved and available for issuance under the Plan shall be 11,197,646 Shares, subject to adjustment as provided in Section 3(b). For purposes of this limitation, the Shares underlying any Awards that are forfeited, canceled, reacquired by the Company prior to vesting, satisfied without the issuance of Stock or otherwise terminated (other than by exercise) and Shares that are withheld upon exercise of an Option or settlement of an Award to cover the exercise price or tax withholding shall be added back to the Shares available for issuance under the Plan. Subject to such overall limitations, Shares may be issued up to such maximum number pursuant to any type or types of Award, and no more than 11,197,646 Shares may be issued pursuant to Incentive Stock Options. The Shares available for issuance under the Plan may be authorized but unissued Shares or Shares reacquired by the Company. Beginning on the date that the Company becomes subject to Section 162(m) of the Code, Options with respect to no more than 11,197,646 Shares shall be granted to any one individual in any calendar year period.”


2. Miscellaneous.

2.01.    Effect. Except as amended hereby, the Plan shall remain in full force and effect.

2.02.    Defined Terms. All capitalized terms used but not specifically defined herein shall have the same meanings given such terms in the Plan unless the context clearly indicates or dictates a contrary meaning.

2.03.    Governing Law. This Amendment shall be governed by and construed in accordance with the General Corporation Law of the State of Delaware as to matters within the scope thereof, and as to all other matters shall be governed by and construed in accordance with the internal laws of the Commonwealth of Massachusetts, without regard to conflict of law principles that would result in the application of any law other than the law of the Commonwealth of Massachusetts.

ADOPTED BY BOARD OF DIRECTORS: March 2, 2018

APPROVED BY STOCKHOLDERS: March 2, 2018


SURFACE ONCOLOGY, INC.

AMENDMENT NO. 7 TO

2014 STOCK OPTION AND GRANT PLAN

WHEREAS, the Board of Directors of Surface Oncology, Inc. (the “Company”) approved and adopted the 2014 Stock Option and Grant Plan (the “Plan”) of the Company on November 5, 2014, and the stockholders of the Company approved and adopted the Plan on November 5, 2014; and

WHEREAS, the Board of Directors approved and adopted Amendment No. 1 to the Plan (“Amendment 1”) on November 21, 2014, and the stockholders of the Company approved and adopted Amendment 1 on November 21, 2014;

WHEREAS, the Board of Directors approved and adopted Amendment No. 2 to the Plan (“Amendment 2”) on December 4, 2015, and the stockholders of the Company approved and adopted Amendment 2 on December 22, 2015;

WHEREAS, the Board of Directors approved and adopted Amendment No. 3 to the Plan (“Amendment 3”) on January 27, 2016, and the stockholders of the Company approved and adopted Amendment 3 on January 28, 2016;

WHEREAS, the Board of Directors approved and adopted Amendment No. 4 to the Plan (“Amendment 4”) on March 30, 2017, and the stockholders of the Company approved and adopted Amendment 4 on April 19, 2017;

WHEREAS, the Board of Directors approved and adopted Amendment No. 5 to the Plan (“Amendment 5”) on February 12, 2018, and the stockholders of the Company approved and adopted Amendment 5 on February 12, 2018;

WHEREAS, the Board of Directors approved and adopted Amendment No. 6 to the Plan (“Amendment 6”) on March 2, 2018, and the stockholders of the Company approved and adopted Amendment 6 on March 2, 2018;

WHEREAS, the Board of Directors and the stockholders of the Company have determined that it is in the best interest of the Company to further amend the Plan as set forth in this Amendment.

NOW, THEREFORE, the Plan is amended as follows:

1.    Amendment of the Plan

1.01.    Section 3(a) of the Plan is hereby amended and restated in its entirety to read as follows:

Stock Issuable. The maximum number of Shares reserved and available for issuance under the Plan shall be 11,448,207 Shares, subject to adjustment as provided in Section 3(b). For purposes of this limitation, the Shares underlying any Awards that are forfeited, canceled, reacquired by the Company prior to vesting, satisfied without the issuance of Stock or otherwise terminated (other than by exercise) and Shares that are withheld upon exercise of an Option or settlement of an Award to cover the exercise price or tax withholding shall be added back to the Shares available for issuance under the Plan. Subject to such overall limitations, Shares may be issued up to such maximum number pursuant to any type or types of Award, and no more than 114,482,070 Shares may be issued pursuant to Incentive Stock

 


Options. The Shares available for issuance under the Plan may be authorized but unissued Shares or Shares reacquired by the Company. Beginning on the date that the Company becomes subject to Section 162(m) of the Code, Options with respect to no more than 11,448,207 Shares shall be granted to any one individual in any calendar year period.”

2.    Miscellaneous.

2.01.    Effect. Except as amended hereby, the Plan shall remain in full force and effect.

2.02.    Defined Terms. All capitalized terms used but not specifically defined herein shall have the same meanings given such terms in the Plan unless the context clearly indicates or dictates a contrary meaning.

2.03.    Governing Law. This Amendment shall be governed by and construed in accordance with the General Corporation Law of the State of Delaware as to matters within the scope thereof, and as to all other matters shall be governed by and construed in accordance with the internal laws of the Commonwealth of Massachusetts, without regard to conflict of law principles that would result in the application of any law other than the law of the Commonwealth of Massachusetts.

ADOPTED BY BOARD OF DIRECTORS: March 9, 2018

APPROVED BY STOCKHOLDERS:    March 11, 2018

 

2


INCENTIVE STOCK OPTION GRANT NOTICE

UNDER THE SURFACE ONCOLOGY, INC.

2014 STOCK OPTION AND GRANT PLAN

Pursuant to the Surface Oncology, Inc. 2014 Stock Option and Grant Plan (the “Plan”), Surface Oncology, Inc., a Delaware corporation (together with any successor, the “Company”), has granted to the individual named below, an option (the “Stock Option”) to purchase on or prior to the Expiration Date, or such earlier date as is specified herein, all or any part of the number of shares of Common Stock, par value $0.0001 per share (“Common Stock”), of the Company indicated below (the “Shares”), at the Option Exercise Price per share, subject to the terms and conditions set forth in this Incentive Stock Option Grant Notice (the “Grant Notice”), the attached Incentive Stock Option Agreement (the “Agreement”) and the Plan. This Stock Option is intended to qualify as an “incentive stock option” as defined in Section 422(b) of the Internal Revenue Code of 1986, as amended from time to time (the “Code”). To the extent that any portion of the Stock Option does not so qualify, it shall be deemed a non-qualified stock option.

 

Name of Optionee:                                     (the “Optionee”)
No. of Shares:                         Shares of Common Stock
Grant Date:                                    
Vesting Commencement Date:                                     (the “Vesting Commencement Date”)
Expiration Date:                                     (the “Expiration Date”)
Option Exercise Price/Share:    $                               (the “Option Exercise Price”)
Vesting Schedule:    25 percent of the Shares shall vest and become exercisable on the first anniversary of the Vesting Commencement Date; provided that the Optionee continues to have a Service Relationship with the Company at such time. Thereafter, the remaining 75 percent of the Shares shall vest and become exercisable in 36 equal monthly installments following the first anniversary of the Vesting Commencement Date, provided the Optionee continues to have a Service Relationship with the Company on each vesting date. Notwithstanding anything in the Agreement to the contrary, in the case of a Sale Event, this Stock Option and the Shares shall be treated as provided in Section 3(c) of the Plan.

Attachments: Incentive Stock Option Agreement, 2014 Stock Option and Grant Plan


INCENTIVE STOCK OPTION AGREEMENT

UNDER THE SURFACE ONCOLOGY

2014 STOCK OPTION AND GRANT PLAN

All capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Grant Notice and the Plan.

1. Vesting, Exercisability and Termination.

(a) No portion of this Stock Option may be exercised until such portion shall have vested and become exercisable.

(b) Except as set forth below, and subject to the determination of the Committee in its sole discretion to accelerate the vesting schedule hereunder, this Stock Option shall be vested and exercisable on the respective dates indicated below:

(i) This Stock Option shall initially be unvested and unexercisable.

(ii) This Stock Option shall vest and become exercisable in accordance with the Vesting Schedule set forth in the Grant Notice.

(c) Termination. Except as may otherwise be provided by the Committee, if the Optionee’s Service Relationship is terminated, the period within which to exercise this Stock Option will be subject to earlier termination as set forth below (and if not exercised within such period, shall thereafter terminate subject, in each case, to Section 3(c) of the Plan):

(i) Termination Due to Death or Disability. If the Optionee’s Service Relationship terminates by reason of such Optionee’s death or Disability, this Stock Option may be exercised, to the extent exercisable on the date of such termination, by the Optionee, the Optionee’s legal representative or legatee for a period of 12 months from the date of death or Disability or until the Expiration Date, if earlier.

(ii) Other Termination. If the Optionee’s Service Relationship terminates for any reason other than death or Disability, and unless otherwise determined by the Committee, this Stock Option may be exercised, to the extent exercisable on the date of termination, for a period of 90 days from the date of termination or until the Expiration Date, if earlier; provided however, if the Optionee’s Service Relationship is terminated for Cause, this Stock Option shall terminate immediately upon the date of such termination.

For purposes hereof, the Committee’s determination of the reason for termination of the Optionee’s Service Relationship shall be conclusive and binding on the Optionee and his or her representatives or legatees. Any portion of this Stock Option that is not vested and exercisable on the date of termination of the Service Relationship shall terminate immediately and be null and void.

 

2


(d) It is understood and intended that this Stock Option is intended to qualify as an “incentive stock option” as defined in Section 422 of the Code to the extent permitted under applicable law. Accordingly, the Optionee understands that in order to obtain the benefits of an incentive stock option under Section 422 of the Code, no sale or other disposition may be made of Shares for which incentive stock option treatment is desired within the one-year period beginning on the day after the day of the transfer of such Shares to him or her, nor within the two-year period beginning on the day after Grant Date of this Stock Option and further that this Stock Option must be exercised within three months after termination of employment as an employee (or 12 months in the case of death or disability) to qualify as an incentive stock option. If the Optionee disposes (whether by sale, gift, transfer or otherwise) of any such Shares within either of these periods, he or she will notify the Company within 30 days after such disposition. The Optionee also agrees to provide the Company with any information concerning any such dispositions required by the Company for tax purposes. Further, to the extent this Stock Option and any other incentive stock options of the Optionee having an aggregate Fair Market Value in excess of $100,000 (determined as of the Grant Date) first become exercisable in any year, such options will not qualify as incentive stock options.

2. Exercise of Stock Option.

(a) The Optionee may exercise this Stock Option only in the following manner: Prior to the Expiration Date, the Optionee may deliver a Stock Option exercise notice (an “Exercise Notice”) in the form of Appendix A hereto indicating his or her election to purchase some or all of the Shares with respect to which this Stock Option is then exercisable. Such notice shall specify the number of Shares to be purchased. Payment of the purchase price may be made by one or more of the methods described in Section 5 of the Plan, subject to the limitations contained in such Section of the Plan, including the requirement that the Committee specifically approve in advance certain payment methods.

(b) Notwithstanding any other provision hereof or of the Plan, no portion of this Stock Option shall be exercisable after the Expiration Date.

3. Incorporation of Plan. Notwithstanding anything herein to the contrary, this Stock Option shall be subject to and governed by all the terms and conditions of the Plan.

4. Transferability of Stock Option. This Stock Option is personal to the Optionee and is not transferable by the Optionee in any manner other than by will or by the laws of descent and distribution. The Stock Option may be exercised during the Optionee’s lifetime only by the Optionee (or by the Optionee’s guardian or personal representative in the event of the Optionee’s incapacity). The Optionee may elect to designate a beneficiary by providing written notice of the name of such beneficiary to the Company, and may revoke or change such designation at any time by filing written notice of revocation or change with the Company; such beneficiary may exercise the Optionee’s Stock Option in the event of the Optionee’s death to the extent provided herein. If the Optionee does not designate a beneficiary, or if the designated beneficiary predeceases the Optionee, the legal representative of the Optionee may exercise this Stock Option to the extent provided herein in the event of the Optionee’s death.

 

3


5. Restrictions on Transfer of Shares. The Shares acquired upon exercise of the Stock Option shall be subject to certain transfer restrictions and other limitations including, without limitation, the provisions contained in Section 9 of the Plan.

6. Miscellaneous Provisions.

(a) Equitable Relief. The parties hereto agree and declare that legal remedies may be inadequate to enforce the provisions of this Agreement and that equitable relief, including specific performance and injunctive relief, may be used to enforce the provisions of this Agreement.

(b) Adjustments for Changes in Capital Structure. If, as a result of any reorganization, recapitalization, reincorporation, reclassification, stock dividend, stock split, reverse stock split or other similar change in the Common Stock, the outstanding shares of Common Stock are increased or decreased or are exchanged for a different number or kind of securities of the Company, the restrictions contained in this Agreement shall apply with equal force to additional and/or substitute securities, if any, received by the Optionee in exchange for, or by virtue of his or her ownership of, this Stock Option or Shares acquired pursuant thereto.

(c) Change and Modifications. This Agreement may not be orally changed, modified or terminated, nor shall any oral waiver of any of its terms be effective. This Agreement may be changed, modified or terminated only by an agreement in writing signed by the Company and the Optionee.

(d) Governing Law. This Agreement shall be governed by and construed in accordance with the General Corporation Law of the State of Delaware as to matters within the scope thereof, and as to all other matters shall be governed by and construed in accordance with the internal laws of the Commonwealth of Massachusetts, without regard to conflict of law principles that would result in the application of any law other than the law of the Commonwealth of Massachusetts.

(e) Headings. The headings are intended only for convenience in finding the subject matter and do not constitute part of the text of this Agreement and shall not be considered in the interpretation of this Agreement.

(f) Saving Clause. If any provision(s) of this Agreement shall be determined to be illegal or unenforceable, such determination shall in no manner affect the legality or enforceability of any other provision hereof.

(g) Notices. All notices, requests, consents and other communications shall be in writing and be deemed given when delivered personally, by telex or facsimile transmission or when received if mailed by first class registered or certified mail, postage prepaid. Notices to the Company or the Optionee shall be addressed as set forth underneath their signatures below, or to such other address or addresses as may have been furnished by such party in writing to the other.

(h) Benefit and Binding Effect. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto, their respective successors, assigns, and legal representatives. The Company has the right to assign this Agreement, and such assignee shall become entitled to all the rights of the Company hereunder to the extent of such assignment.

 

4


(i) Counterparts. For the convenience of the parties and to facilitate execution, this Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same document.

(j) Integration. This Agreement constitutes the entire agreement between the parties with respect to this Stock Option and supersedes all prior agreements and discussions between the parties concerning such subject matter.

7. Dispute Resolution.

(a) Except as provided below, any dispute arising out of or relating to the Plan or this Stock Option, this Agreement, or the breach, termination or validity of the Plan, this Stock Option or this Agreement, shall be finally settled by binding arbitration conducted expeditiously in accordance with the J.A.M.S./Endispute Comprehensive Arbitration Rules and Procedures (the “J.A.M.S. Rules”). The arbitration shall be governed by the United States Arbitration Act, 9 U.S.C. Sections 1 16, and judgment upon the award rendered by the arbitrators may be entered by any court having jurisdiction thereof. The place of arbitration shall be Boston, Massachusetts.

(b) The arbitration shall commence within 60 days of the date on which a written demand for arbitration is filed by any party hereto. In connection with the arbitration proceeding, the arbitrator shall have the power to order the production of documents by each party and any third-party witnesses. In addition, each party may take up to three depositions as of right, and the arbitrator may in his or her discretion allow additional depositions upon good cause shown by the moving party. However, the arbitrator shall not have the power to order the answering of interrogatories or the response to requests for admission. In connection with any arbitration, each party to the arbitration shall provide to the other, no later than seven business days before the date of the arbitration, the identity of all persons that may testify at the arbitration and a copy of all documents that may be introduced at the arbitration or considered or used by a party’s witness or expert. The arbitrator’s decision and award shall be made and delivered within six months of the selection of the arbitrator. The arbitrator’s decision shall set forth a reasoned basis for any award of damages or finding of liability. The arbitrator shall not have power to award damages in excess of actual compensatory damages and shall not multiply actual damages or award punitive damages, and each party hereby irrevocably waives any claim to such damages.

(c) The Company, the Optionee, each party to the Agreement and any other holder of Shares issued pursuant to this Agreement (each, a “Party”) covenants and agrees that such party will participate in the arbitration in good faith. This Section 7 applies equally to requests for temporary, preliminary or permanent injunctive relief, except that in the case of temporary or preliminary injunctive relief any party may proceed in court without prior arbitration for the limited purpose of avoiding immediate and irreparable harm.

 

5


(d) Each Party (i) hereby irrevocably submits to the jurisdiction of any United States District Court of competent jurisdiction for the purpose of enforcing the award or decision in any such proceeding, (ii) hereby waives, and agrees not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above named courts, that its property is exempt or immune from attachment or execution (except as protected by applicable law), that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court, and (iii) hereby waives and agrees not to seek any review by any court of any other jurisdiction which may be called upon to grant an enforcement of the judgment of any such court. Each Party hereby consents to service of process by registered mail at the address to which notices are to be given. Each Party agrees that its, his or her submission to jurisdiction and its, his or her consent to service of process by mail is made for the express benefit of each other Party. Final judgment against any Party in any such action, suit or proceeding may be enforced in other jurisdictions by suit, action or proceeding on the judgment, or in any other manner provided by or pursuant to the laws of such other jurisdiction.

[SIGNATURE PAGE FOLLOWS]

 

6


The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned as of the date first above written.

 

SURFACE ONCOLOGY, INC.
By:    
 

Name:

Title:

Address:

     
     
     

The undersigned hereby acknowledges receiving and reviewing a copy of the Plan, including, without limitation, Section 9 thereof, and understands that this Stock Option is subject to the terms of the Plan and of this Agreement. This Agreement is hereby accepted, and the terms and conditions of the Plan, the Grant Notice and this Agreement, SPECIFICALLY INCLUDING THE ARBITRATION PROVISIONS SET FORTH IN SECTION 7 OF THIS AGREEMENT, are hereby agreed to, by the undersigned as of the date first above written.

 

OPTIONEE:
 
Name:  

Address:

     
     
     

 

7


[SPOUSE’S CONSENT1

I acknowledge that I have read the

foregoing Incentive Stock Option Agreement

and understand the contents thereof.

                                                                          ]

  

 

1  A spouse’s consent is recommended only if the Optionee’s state of residence is one of the following community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.

 

8


DESIGNATED BENEFICIARY:
 
Beneficiary’s Address:
 

 

 

 

 

 

9


Appendix A

STOCK OPTION EXERCISE NOTICE

Surface Oncology, Inc.

Attention: [                                             ]

 

 

 

 

Pursuant to the terms of the grant notice and stock option agreement between the undersigned and Surface Oncology, Inc. (the “Company”) dated __________ (the “Agreement”) under the Surface Oncology, Inc. 2014 Stock Option and Grant Plan, I, [Insert Name] ________________, hereby [Circle One] partially/fully exercise such option by including herein payment in the amount of $             representing the purchase price for [Fill in number of Shares] _______ Shares. I have chosen the following form(s) of payment:

 

  [    ]    1.    Cash
  [    ]    2.    Certified or bank check payable to Surface Oncology, Inc.
  [    ]    3.    Other (as referenced in the Agreement and described in the Plan (please describe))
                                                                                                                                                               .

In connection with my exercise of the option as set forth above, I hereby represent and warrant to the Company as follows:

(i) I am purchasing the Shares for my own account for investment only, and not for resale or with a view to the distribution thereof.

(ii) I have had such an opportunity as I have deemed adequate to obtain from the Company such information as is necessary to permit me to evaluate the merits and risks of my investment in the Company and have consulted with my own advisers with respect to my investment in the Company.

(iii) I have sufficient experience in business, financial and investment matters to be able to evaluate the risks involved in the purchase of the Shares and to make an informed investment decision with respect to such purchase.

(iv) I can afford a complete loss of the value of the Shares and am able to bear the economic risk of holding such Shares for an indefinite period of time.

(v) I understand that the Shares may not be registered under the Securities Act of 1933 (it being understood that the Shares are being issued and sold in reliance on the exemption provided in Rule 701 thereunder) or any applicable state securities or “blue sky” laws and may not be sold or otherwise transferred or disposed of in the absence of an effective registration statement under the Securities Act of 1933 and under any applicable state securities or “blue sky” laws (or exemptions from the registration requirement thereof). I further acknowledge that certificates representing Shares will bear restrictive legends reflecting the foregoing and/or that book entries for uncertificated Shares will include similar restrictive notations.

 

10


(vi) I have read and understand the Plan and acknowledge and agree that the Shares are subject to all of the relevant terms of the Plan, including without limitation, the transfer restrictions set forth in Section 9 of the Plan.

(vii) I understand and agree that the Company has a right of first refusal with respect to the Shares pursuant to Section 9(b) of the Plan.

(viii) I understand and agree that the Company has certain repurchase rights with respect to the Shares pursuant to Section 9(c) of the Plan.

(ix) I understand and agree that I may not sell or otherwise transfer or dispose of the Shares for a period of time following the effective date of a public offering by the Company as described in Section 9(f) of the Plan.

 

Sincerely yours,
 

 

Name:
Address:
 
 
 
Date:    

 

11


NON-QUALIFIED STOCK OPTION GRANT NOTICE

UNDER THE SURFACE ONCOLOGY, INC.

2014 STOCK OPTION AND GRANT PLAN

Pursuant to the Surface Oncology, Inc. 2014 Stock Option and Grant Plan (the “Plan”), Surface Oncology, Inc., a Delaware corporation (together with any successor, the “Company”), has granted to the individual named below, an option (the “Stock Option”) to purchase on or prior to the Expiration Date, or such earlier date as is specified herein, all or any part of the number of shares of Common Stock, par value $0.0001 per share (“Common Stock”), of the Company indicated below (the “Shares”), at the Option Exercise Price per share, subject to the terms and conditions set forth in this Non-Qualified Stock Option Grant Notice (the “Grant Notice”), the attached Non-Qualified Stock Option Agreement (the “Agreement”) and the Plan. This Stock Option is not intended to qualify as an “incentive stock option” as defined in Section 422(b) of the Internal Revenue Code of 1986, as amended from time to time (the “Code”).

 

Name of Optionee:

                                    (the “Optionee”)

No. of Shares:

                        Shares of Common Stock

Grant Date:

                                   

Vesting Commencement Date:

                                    (the “Vesting Commencement Date”)

Expiration Date:

                                    (the “Expiration Date”)

Option Exercise Price/Share:

   $                               (the “Option Exercise Price”)

Vesting Schedule:

   25 percent of the Shares shall vest and become exercisable on the first anniversary of the Vesting Commencement Date; provided that the Optionee continues to have a Service Relationship with the Company at such time. Thereafter, the remaining 75 percent of the Shares shall vest and become exercisable in 36 equal monthly installments following the first anniversary of the Vesting Commencement Date, provided the Optionee continues to have a Service Relationship with the Company on each vesting date. Notwithstanding anything in the Agreement to the contrary, in the case of a Sale Event, this Stock Option and the Shares shall be treated as provided in Section 3(c) of the Plan.

Attachments: Non-Qualified Stock Option Agreement, 2014 Stock Option and Grant Plan


NON-QUALIFIED STOCK OPTION AGREEMENT

UNDER THE SURFACE ONCOLOGY, INC.

2014 STOCK OPTION AND GRANT PLAN

All capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Grant Notice and the Plan.

1. Vesting, Exercisability and Termination.

(a) No portion of this Stock Option may be exercised until such portion shall have vested and become exercisable.

(b) Except as set forth below, and subject to the determination of the Committee in its sole discretion to accelerate the vesting schedule hereunder, this Stock Option shall be vested and exercisable on the respective dates indicated below:

(i) This Stock Option shall initially be unvested and unexercisable.

(ii) This Stock Option shall vest and become exercisable in accordance with the Vesting Schedule set forth in the Grant Notice.

(c) Termination. Except as may otherwise be provided by the Committee, if the Optionee’s Service Relationship is terminated, the period within which to exercise this Stock Option will be subject to earlier termination as set forth below (and if not exercised within such period, shall thereafter terminate subject, in each case, to Section 3(c) of the Plan):

(i) Termination Due to Death or Disability. If the Optionee’s Service Relationship terminates by reason of such Optionee’s death or Disability, this Stock Option may be exercised, to the extent exercisable on the date of such termination, by the Optionee, the Optionee’s legal representative or legatee for a period of 12 months from the date of death or Disability or until the Expiration Date, if earlier.

(ii) Other Termination. If the Optionee’s Service Relationship terminates for any reason other than death or Disability, and unless otherwise determined by the Committee, this Stock Option may be exercised, to the extent exercisable on the date of termination, for a period of 90 days from the date of termination or until the Expiration Date, if earlier; provided however, if the Optionee’s Service Relationship is terminated for Cause, this Stock Option shall terminate immediately upon the date of such termination.

For purposes hereof, the Committee’s determination of the reason for termination of the Optionee’s Service Relationship shall be conclusive and binding on the Optionee and his or her representatives or legatees and any Permitted Transferee. Any portion of this Stock Option that is not vested and exercisable on the date of termination of the Service Relationship shall terminate immediately and be null and void.

 

2


2. Exercise of Stock Option.

(a) The Optionee may exercise this Stock Option only in the following manner: Prior to the Expiration Date, the Optionee may deliver a Stock Option exercise notice (an “Exercise Notice”) in the form of Appendix A hereto indicating his or her election to purchase some or all of the Shares with respect to which this Stock Option is then exercisable. Such notice shall specify the number of Shares to be purchased. Payment of the purchase price may be made by one or more of the methods described in Section 5 of the Plan, subject to the limitations contained in such Section of the Plan, including the requirement that the Committee specifically approve in advance certain payment methods.

(b) Notwithstanding any other provision hereof or of the Plan, no portion of this Stock Option shall be exercisable after the Expiration Date.

3. Incorporation of Plan. Notwithstanding anything herein to the contrary, this Stock Option shall be subject to and governed by all the terms and conditions of the Plan.

4. Transferability of Stock Option. This Stock Option is personal to the Optionee and is not transferable by the Optionee in any manner other than by will or by the laws of descent and distribution. The Stock Option may be exercised during the Optionee’s lifetime only by the Optionee (or by the Optionee’s guardian or personal representative in the event of the Optionee’s incapacity). The Optionee may elect to designate a beneficiary by providing written notice of the name of such beneficiary to the Company, and may revoke or change such designation at any time by filing written notice of revocation or change with the Company; such beneficiary may exercise the Optionee’s Stock Option in the event of the Optionee’s death to the extent provided herein. If the Optionee does not designate a beneficiary, or if the designated beneficiary predeceases the Optionee, the legal representative of the Optionee may exercise this Stock Option to the extent provided herein in the event of the Optionee’s death.

5. Restrictions on Transfer of Shares. The Shares acquired upon exercise of the Stock Option shall be subject to certain transfer restrictions and other limitations including, without limitation, the provisions contained in Section 9 of the Plan.

6. Miscellaneous Provisions.

(a) Equitable Relief. The parties hereto agree and declare that legal remedies may be inadequate to enforce the provisions of this Agreement and that equitable relief, including specific performance and injunctive relief, may be used to enforce the provisions of this Agreement.

(b) Adjustments for Changes in Capital Structure. If, as a result of any reorganization, recapitalization, reincorporation, reclassification, stock dividend, stock split, reverse stock split or other similar change in the Common Stock, the outstanding shares of Common Stock are increased or decreased or are exchanged for a different number or kind of securities of the Company, the restrictions contained in this Agreement shall apply with equal force to additional and/or substitute securities, if any, received by the Optionee in exchange for, or by virtue of his or her ownership of, this Stock Option or Shares acquired pursuant thereto.

 

3


(c) Change and Modifications. This Agreement may not be orally changed, modified or terminated, nor shall any oral waiver of any of its terms be effective. This Agreement may be changed, modified or terminated only by an agreement in writing signed by the Company and the Optionee.

(d) Governing Law. This Agreement shall be governed by and construed in accordance with the General Corporation Law of the State of Delaware as to matters within the scope thereof, and as to all other matters shall be governed by and construed in accordance with the internal laws of the Commonwealth of Massachusetts, without regard to conflict of law principles that would result in the application of any law other than the law of the Commonwealth of Massachusetts.

(e) Headings. The headings are intended only for convenience in finding the subject matter and do not constitute part of the text of this Agreement and shall not be considered in the interpretation of this Agreement.

(f) Saving Clause. If any provision(s) of this Agreement shall be determined to be illegal or unenforceable, such determination shall in no manner affect the legality or enforceability of any other provision hereof.

(g) Notices. All notices, requests, consents and other communications shall be in writing and be deemed given when delivered personally, by telex or facsimile transmission or when received if mailed by first class registered or certified mail, postage prepaid. Notices to the Company or the Optionee shall be addressed as set forth underneath their signatures below, or to such other address or addresses as may have been furnished by such party in writing to the other.

(h) Benefit and Binding Effect. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto, their respective successors, assigns, and legal representatives. The Company has the right to assign this Agreement, and such assignee shall become entitled to all the rights of the Company hereunder to the extent of such assignment.

(i) Counterparts. For the convenience of the parties and to facilitate execution, this Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same document.

(j) Integration. This Agreement constitutes the entire agreement between the parties with respect to this Stock Option and supersedes all prior agreements and discussions between the parties concerning such subject matter.

7. Dispute Resolution.

(a) Except as provided below, any dispute arising out of or relating to the Plan or this Stock Option, this Agreement, or the breach, termination or validity of the Plan, this Stock Option or this Agreement, shall be finally settled by binding arbitration conducted expeditiously in accordance with the J.A.M.S./Endispute Comprehensive Arbitration Rules and Procedures (the “J.A.M.S. Rules”). The arbitration shall be governed by the United States Arbitration Act, 9 U.S.C. Sections 1-16, and judgment upon the award rendered by the arbitrators may be entered by any court having jurisdiction thereof. The place of arbitration shall be Boston, Massachusetts.

 

4


(b) The arbitration shall commence within 60 days of the date on which a written demand for arbitration is filed by any party hereto. In connection with the arbitration proceeding, the arbitrator shall have the power to order the production of documents by each party and any third-party witnesses. In addition, each party may take up to three depositions as of right, and the arbitrator may in his or her discretion allow additional depositions upon good cause shown by the moving party. However, the arbitrator shall not have the power to order the answering of interrogatories or the response to requests for admission. In connection with any arbitration, each party to the arbitration shall provide to the other, no later than seven business days before the date of the arbitration, the identity of all persons that may testify at the arbitration and a copy of all documents that may be introduced at the arbitration or considered or used by a party’s witness or expert. The arbitrator’s decision and award shall be made and delivered within six months of the selection of the arbitrator. The arbitrator’s decision shall set forth a reasoned basis for any award of damages or finding of liability. The arbitrator shall not have power to award damages in excess of actual compensatory damages and shall not multiply actual damages or award punitive damages, and each party hereby irrevocably waives any claim to such damages.

(c) The Company, the Optionee, each party to the Agreement and any other holder of Shares issued pursuant to this Agreement (each, a “Party”) covenants and agrees that such party will participate in the arbitration in good faith. This Section 7 applies equally to requests for temporary, preliminary or permanent injunctive relief, except that in the case of temporary or preliminary injunctive relief any party may proceed in court without prior arbitration for the limited purpose of avoiding immediate and irreparable harm.

(d) Each Party (i) hereby irrevocably submits to the jurisdiction of any United States District Court of competent jurisdiction for the purpose of enforcing the award or decision in any such proceeding, (ii) hereby waives, and agrees not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above named courts, that its property is exempt or immune from attachment or execution (except as protected by applicable law), that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court, and (iii) hereby waives and agrees not to seek any review by any court of any other jurisdiction which may be called upon to grant an enforcement of the judgment of any such court. Each Party hereby consents to service of process by registered mail at the address to which notices are to be given. Each Party agrees that its, his or her submission to jurisdiction and its, his or her consent to service of process by mail is made for the express benefit of each other Party. Final judgment against any Party in any such action, suit or proceeding may be enforced in other jurisdictions by suit, action or proceeding on the judgment, or in any other manner provided by or pursuant to the laws of such other jurisdiction.

[SIGNATURE PAGE FOLLOWS]

 

5


The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned as of the date first above written.

 

SURFACE ONCOLOGY, INC.
By:    
  Name:
  Title:
Address:
 
 
 

The undersigned hereby acknowledges receiving and reviewing a copy of the Plan, including, without limitation, Section 9 thereof, and understands that this Stock Option is subject to the terms of the Plan and of this Agreement. This Agreement is hereby accepted, and the terms and conditions of the Plan, the Grant Notice and this Agreement, SPECIFICALLY INCLUDING THE ARBITRATION PROVISIONS SET FORTH IN SECTION 7 OF THIS AGREEMENT, are hereby agreed to, by the undersigned as of the date first above written.

 

OPTIONEE:
 
Name:
Address:
 
 
 

 

6


[SPOUSE’S CONSENT1

I acknowledge that I have read the

foregoing Non-Qualified Stock Option Agreement

and understand the contents thereof.

                                                                          ]

 

 

1  A spouse’s consent is recommended only if the Optionee’s state of residence is one of the following community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.

 

7


DESIGNATED BENEFICIARY:
 
Beneficiary’s Address:
 
 
 

 

 

8


Appendix A

STOCK OPTION EXERCISE NOTICE

Surface Oncology, Inc.

Attention: [                                    ]

                                                     

                                                     

Pursuant to the terms of the grant notice and stock option agreement between the undersigned and Surface Oncology, Inc. (the “Company”) dated                      (the “Agreement”) under the Surface Oncology, Inc. 2014 Stock Option and Grant Plan, I, [Insert Name]                     , hereby [Circle One] partially/fully exercise such option by including herein payment in the amount of $                     representing the purchase price for [Fill in number of Shares]                      Shares. I have chosen the following form(s) of payment:

 

   [    ]    1.    Cash
   [    ]    2.    Certified or bank check payable to Surface Oncology, Inc.
   [    ]    3.    Other (as referenced in the Agreement and described in the Plan (please describe))
                                                                                                                                            .

In connection with my exercise of the option as set forth above, I hereby represent and warrant to the Company as follows:

(i) I am purchasing the Shares for my own account for investment only, and not for resale or with a view to the distribution thereof.

(ii) I have had such an opportunity as I have deemed adequate to obtain from the Company such information as is necessary to permit me to evaluate the merits and risks of my investment in the Company and have consulted with my own advisers with respect to my investment in the Company.

(iii) I have sufficient experience in business, financial and investment matters to be able to evaluate the risks involved in the purchase of the Shares and to make an informed investment decision with respect to such purchase.

(iv) I can afford a complete loss of the value of the Shares and am able to bear the economic risk of holding such Shares for an indefinite period of time.

(v) I understand that the Shares may not be registered under the Securities Act of 1933 (it being understood that the Shares are being issued and sold in reliance on the exemption provided in Rule 701 thereunder) or any applicable state securities or “blue sky” laws and may not be sold or otherwise transferred or disposed of in the absence of an effective registration statement under the Securities Act of 1933 and under any applicable state securities or “blue sky” laws (or exemptions from the registration requirement thereof). I further acknowledge that certificates representing Shares will bear restrictive legends reflecting the foregoing and/or that book entries for uncertificated Shares will include similar restrictive notations.

 

9


(vi) I have read and understand the Plan and acknowledge and agree that the Shares are subject to all of the relevant terms of the Plan, including without limitation, the transfer restrictions set forth in Section 9 of the Plan.

(vii) I understand and agree that the Company has a right of first refusal with respect to the Shares pursuant to Section 9(b) of the Plan.

(viii) I understand and agree that the Company has certain repurchase rights with respect to the Shares pursuant to Section 9(c) of the Plan.

(ix) I understand and agree that I may not sell or otherwise transfer or dispose of the Shares for a period of time following the effective date of a public offering by the Company as described in Section 9(f) of the Plan.

 

Sincerely yours,
 
Name:
Address:
 
 
 
Date:    

 

10


RESTRICTED STOCK AWARD NOTICE

UNDER THE SURFACE ONCOLOGY, INC.

2014 STOCK OPTION AND GRANT PLAN

Pursuant to the Surface Oncology, Inc. 2014 Stock Option and Grant Plan (the “Plan”), Surface Oncology, Inc., a Delaware corporation (together with any successor, the “Company”), hereby grants, sells and issues to the individual named below, the Shares at the Per Share Purchase Price, subject to the terms and conditions set forth in this Restricted Stock Award Notice (the “Award Notice”), the attached Restricted Stock Agreement (the “Agreement”) and the Plan. The Grantee agrees to the provisions set forth herein and acknowledges that each such provision is a material condition of the Company’s agreement to issue and sell the Shares to him or her. The Company hereby acknowledges receipt of $[                ] in full payment for the Shares. All references to share prices and amounts herein shall be equitably adjusted to reflect stock splits, stock dividends, recapitalizations, mergers, reorganizations and similar changes affecting the capital stock of the Company, and any shares of capital stock of the Company received on or in respect of Shares in connection with any such event (including any shares of capital stock or any right, option or warrant to receive the same or any security convertible into or exchangeable for any such shares or received upon conversion of any such shares) shall be subject to this Agreement on the same basis and extent at the relevant time as the Shares in respect of which they were issued, and shall be deemed Shares as if and to the same extent they were issued at the date hereof.

 

Name of Grantee:                                         (the “Grantee”)
No. of Shares:                         Shares of Common Stock (the “Shares”)
Grant Date:                                   ,             
Date of Purchase of Shares:                                   ,             
Vesting Commencement Date:                                   ,              (the “Vesting Commencement Date”)
Per Share Purchase Price:    $                 (the “Per Share Purchase Price”)
Vesting Schedule:    25 percent of the Shares shall vest on the first anniversary of the Vesting Commencement Date; provided that the Grantee continues to have a Service Relationship with the Company at such time. Thereafter, the remaining 75 percent of the Shares shall vest in 36 equal monthly installments following the first anniversary of the Vesting Commencement Date, provided the Grantee continues to have a Service Relationship with the Company at such time. Notwithstanding anything in the Agreement to the contrary in the case of a Sale Event, the Shares of Restricted Stock shall be treated as provided in Section 3(c) of the Plan.

Attachments: Restricted Stock Agreement, 2014 Stock Option and Grant Plan


RESTRICTED STOCK AGREEMENT

UNDER THE SURFACE ONCOLOGY, INC.

2014 STOCK OPTION AND GRANT PLAN

All capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Award Notice and the Plan.

1. Purchase and Sale of Shares; Vesting; Investment Representations.

(a) Purchase and Sale. The Company hereby sells to the Grantee, and the Grantee hereby purchases from the Company, the number of Shares set forth in the Award Notice for the Per Share Purchase Price.

(b) Vesting. Initially, all of the Shares are non-transferable and subject to a substantial risk of forfeiture and are Shares of Restricted Stock. The risk of forfeiture shall lapse with respect to the Shares on the respective dates indicated on the Vesting Schedule set forth in the Award Notice.

(c) Investment Representations. In connection with the purchase and sale of the Shares contemplated by Section 1(a) above, the Grantee hereby represents and warrants to the Company as follows:

(i) The Grantee is purchasing the Shares for the Grantee’s own account for investment only, and not for resale or with a view to the distribution thereof.

(ii) The Grantee has had such an opportunity as he or she has deemed adequate to obtain from the Company such information as is necessary to permit him or her to evaluate the merits and risks of the Grantee’s investment in the Company and has consulted with the Grantee’s own advisers with respect to the Grantee’s investment in the Company.

(iii) The Grantee has sufficient experience in business, financial and investment matters to be able to evaluate the risks involved in the purchase of the Shares and to make an informed investment decision with respect to such purchase.

(iv) The Grantee can afford a complete loss of the value of the Shares and is able to bear the economic risk of holding such Shares for an indefinite period.

(v) The Grantee understands that the Shares are not registered under the Act (it being understood that the Shares are being issued and sold in reliance on the exemption provided in Rule 701 thereunder) or any applicable state securities or “blue sky” laws and may not be sold or otherwise transferred or disposed of in the absence of an effective registration statement under the Act and under any applicable state securities or “blue sky” laws (or exemptions from the registration requirements thereof). The Grantee further acknowledges that certificates representing the Shares will bear restrictive legends reflecting the foregoing and/or that book entries for uncertificated Shares will include similar restrictive notations.

 

2


(vi) The Grantee has read and understands the Plan and acknowledges and agrees that the Shares are subject to all of the relevant terms of the Plan, including without limitation, the transfer restrictions set forth in Section 9 of the Plan.

(vii) The Grantee understands and agrees that the Company has a right of first refusal with respect to the Shares pursuant to Section 9(b) of the Plan.

(viii) The Grantee understands and agree that the Company has certain repurchase rights with respect to the Shares pursuant to Section 9(c) of the Plan.

(ix) The Grantee understands and agrees that the Grantee may not sell or otherwise transfer or dispose of the Shares for a period of time following the effective date of a public offering by the Company as described in Section 9(f) of the Plan.

2. Repurchase Right. Upon a Termination Event, the Company shall have the right to repurchase Shares of Restricted Stock that are unvested as of the date of such Termination Event as set forth in Section 9(c) of the Plan.

3. Restrictions on Transfer of Shares. The Shares (whether or not vested) shall be subject to certain transfer restrictions and other limitations including, without limitation, the provisions contained in Section 9 of the Plan

4. Incorporation of Plan. Notwithstanding anything herein to the contrary, this Restricted Stock Award shall be subject to and governed by all the terms and conditions of the Plan.

5. Miscellaneous Provisions.

(a) Record Owner; Dividends. The Grantee and any Permitted Transferees, during the duration of this Agreement, shall be considered the record owners of and shall be entitled to vote the Shares if and to the extent the Shares are entitled to voting rights. The Grantee and any Permitted Transferees shall be entitled to receive all dividends and any other distributions declared on the Shares; provided, however, that the Company is under no duty to declare any such dividends or to make any such distribution.

(b) Section 83(b) Election. The Grantee shall consult with the Grantee’s tax advisor to determine whether it would be appropriate for the Grantee to make an election under Section 83(b) of the Code with respect to this Award. Any such election must be filed with the Internal Revenue Service within 30 days of the date of this Award. If the Grantee makes an election under Section 83(b) of the Code, the Grantee shall give prompt notice to the Company (and provide a copy of such election to the Company).

(c) Equitable Relief. The parties hereto agree and declare that legal remedies may be inadequate to enforce the provisions of this Agreement and that equitable relief, including specific performance and injunctive relief, may be used to enforce the provisions of this Agreement.

 

3


(d) Change and Modifications. This Agreement may not be orally changed, modified or terminated, nor shall any oral waiver of any of its terms be effective. This Agreement may be changed, modified or terminated only by an agreement in writing signed by the Company and the Grantee.

(e) Governing Law. This Agreement shall be governed by and construed in accordance with the General Corporation Law of the State of Delaware as to matters within the scope thereof, and as to all other matters shall be governed by and construed in accordance with the internal laws of the Commonwealth of Massachusetts, without regard to conflict of law principles that would result in the application of any law other than the law of the Commonwealth of Massachusetts.

(f) Headings. The headings are intended only for convenience in finding the subject matter and do not constitute part of the text of this Agreement and shall not be considered in the interpretation of this Agreement.

(g) Saving Clause. If any provision(s) of this Agreement shall be determined to be illegal or unenforceable, such determination shall in no manner affect the legality or enforceability of any other provision hereof.

(h) Notices. All notices, requests, consents and other communications shall be in writing and be deemed given when delivered personally, by telex or facsimile transmission or when received if mailed by first class registered or certified mail, postage prepaid. Notices to the Company or the Grantee shall be addressed as set forth underneath their signatures below, or to such other address or addresses as may have been furnished by such party in writing to the other.

(i) Benefit and Binding Effect. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto, their respective successors, assigns, and legal representatives. The Company has the right to assign this Agreement, and such assignee shall become entitled to all the rights of the Company hereunder to the extent of such assignment.

(j) Counterparts. For the convenience of the parties and to facilitate execution, this Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same document.

(k) Integration. This Agreement constitutes the entire agreement between the parties with respect to this Award and supersedes all prior agreements and discussions between the parties concerning such subject matter.

6. Dispute Resolution.

(a) Except as provided below, any dispute arising out of or relating to the Plan or the Shares, this Agreement, or the breach, termination or validity of the Plan, the Shares or this Agreement, shall be finally settled by binding arbitration conducted expeditiously in

 

4


accordance with the J.A.M.S./Endispute Comprehensive Arbitration Rules and Procedures (the “J.A.M.S. Rules”). The arbitration shall be governed by the United States Arbitration Act, 9 U.S.C. Sections 1 - 16, and judgment upon the award rendered by the arbitrators may be entered by any court having jurisdiction thereof. The place of arbitration shall be Boston, Massachusetts.

(b) The arbitration shall commence within 60 days of the date on which a written demand for arbitration is filed by any party hereto. In connection with the arbitration proceeding, the arbitrator shall have the power to order the production of documents by each party and any third-party witnesses. In addition, each party may take up to three depositions as of right, and the arbitrator may in his or her discretion allow additional depositions upon good cause shown by the moving party. However, the arbitrator shall not have the power to order the answering of interrogatories or the response to requests for admission. In connection with any arbitration, each party to the arbitration shall provide to the other, no later than seven business days before the date of the arbitration, the identity of all persons that may testify at the arbitration and a copy of all documents that may be introduced at the arbitration or considered or used by a party’s witness or expert. The arbitrator’s decision and award shall be made and delivered within six months of the selection of the arbitrator. The arbitrator’s decision shall set forth a reasoned basis for any award of damages or finding of liability. The arbitrator shall not have power to award damages in excess of actual compensatory damages and shall not multiply actual damages or award punitive damages, and each party hereby irrevocably waives any claim to such damages.

(c) The Company, the Grantee, each party to the Agreement and any other holder of Shares issued pursuant to this Agreement (each, a “Party”) covenants and agrees that such party will participate in the arbitration in good faith. This Section 6 applies equally to requests for temporary, preliminary or permanent injunctive relief, except that in the case of temporary or preliminary injunctive relief any party may proceed in court without prior arbitration for the limited purpose of avoiding immediate and irreparable harm.

(d) Each Party (i) hereby irrevocably submits to the jurisdiction of any United States District Court of competent jurisdiction for the purpose of enforcing the award or decision in any such proceeding, (ii) hereby waives, and agrees not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above named courts, that its property is exempt or immune from attachment or execution (except as protected by applicable law), that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court, and (iii) hereby waives and agrees not to seek any review by any court of any other jurisdiction which may be called upon to grant an enforcement of the judgment of any such court. Each Party hereby consents to service of process by registered mail at the address to which notices are to be given. Each Party agrees that its, his or her submission to jurisdiction and its, his or her consent to service of process by mail is made for the express benefit of each other Party. Final judgment against any Party in any such action, suit or proceeding may be enforced in other jurisdictions by suit, action or proceeding on the judgment, or in any other manner provided by or pursuant to the laws of such other jurisdiction.

[SIGNATURE PAGE FOLLOWS]

 

5


The foregoing Restricted Stock Agreement is hereby accepted and the terms and conditions thereof are hereby agreed to by the undersigned as of the date of purchase of Shares above written.

 

SURFACE ONCOLOGY, INC.
By:    
  Name:
  Title:

 

Address:  
 
 
 

The undersigned hereby acknowledges receiving and reviewing a copy of the Plan, including, without limitation, Section 9 thereof and understands that the Shares granted hereby are subject to the terms of the Plan and of this Agreement. This Agreement is hereby accepted, and the terms and conditions of the Plan, the Award Notice and this Agreement, SPECIFICALLY INCLUDING THE ARBITRATION PROVISIONS SET FORTH IN SECTION 6 OF THIS AGREEMENT, are hereby agreed to, by the undersigned as of the date first above written.

 

GRANTEE:
 
Name:
Address:
 
 
 

 

6


[SPOUSE’S CONSENT1

I acknowledge that I have read the

foregoing Restricted Stock Agreement

and understand the contents thereof.

                                                                                  ]

 

 

1  A spouse’s consent is required only if the Grantee’s state of residence is one of the following community property states: Arizona, California, Idaho, Louisiana, New Mexico, Nevada, Texas, Washington and Wisconsin.

 

7


EX-10.2

Exhibit 10.2

SURFACE ONCOLOGY, INC.

2018 STOCK OPTION AND INCENTIVE PLAN

SECTION 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS

The name of the plan is the Surface Oncology, Inc. 2018 Stock Option and Incentive Plan (the “Plan”). The purpose of the Plan is to encourage and enable the officers, employees, Non-Employee Directors and Consultants of Surface Oncology, Inc. (the “Company”) and its Subsidiaries upon whose judgment, initiative and efforts the Company largely depends for the successful conduct of its businesses to acquire a proprietary interest in the Company. It is anticipated that providing such persons with a direct stake in the Company’s welfare will assure a closer identification of their interests with those of the Company and its stockholders, thereby stimulating their efforts on the Company’s behalf and strengthening their desire to remain with the Company.

The following terms shall be defined as set forth below:

“2014 Plan” means the Surface Oncology, Inc. 2014 Stock Option and Grant Plan, as amended.

“Act” means the Securities Act of 1933, as amended, and the rules and regulations thereunder.

“Administrator” means either the Board or the compensation committee of the Board or a similar committee performing the functions of the compensation committee and which is comprised of not less than two Non-Employee Directors who are independent.

“Award” or “Awards,” except where referring to a particular category of grant under the Plan, shall include Incentive Stock Options, Non-Qualified Stock Options, Stock Appreciation Rights, Restricted Stock Units, Restricted Stock Awards, Unrestricted Stock Awards, Cash-Based Awards, and Dividend Equivalent Rights.

“Award Certificate” means a written or electronic document setting forth the terms and provisions applicable to an Award granted under the Plan. Each Award Certificate is subject to the terms and conditions of the Plan.

“Board” means the Board of Directors of the Company.

“Cash-Based Award” means an Award entitling the recipient to receive a cash-denominated payment.

“Code” means the Internal Revenue Code of 1986, as amended, and any successor Code, and related rules, regulations and interpretations.

“Consultant” means any natural person that provides bona fide services to the Company, and such services are not in connection with the offer or sale of securities in a capital-raising transaction and do not directly or indirectly promote or maintain a market for the Company’s securities.


“Dividend Equivalent Right” means an Award entitling the grantee to receive credits based on cash dividends that would have been paid on the shares of Stock specified in the Dividend Equivalent Right (or other award to which it relates) if such shares had been issued to and held by the grantee.

“Effective Date” means the date on which the Plan becomes effective as set forth in Section 19.

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.

“Fair Market Value” of the Stock on any given date means the fair market value of the Stock determined in good faith by the Administrator; provided, however, that if the Stock is admitted to quotation on the National Association of Securities Dealers Automated Quotation System (“NASDAQ”), NASDAQ Global Market or another national securities exchange, the determination shall be made by reference to market quotations. If there are no market quotations for such date, the determination shall be made by reference to the last date preceding such date for which there are market quotations; provided further, however, that if the date for which Fair Market Value is determined is the Registration Date, the Fair Market Value shall be the “Price to the Public” (or equivalent) set forth on the cover page for the final prospectus relating to the Company’s Initial Public Offering.

“Incentive Stock Option” means any Stock Option designated and qualified as an “incentive stock option” as defined in Section 422 of the Code.

“Initial Public Offering” means the first underwritten, firm commitment public offering pursuant to an effective registration statement under the Act covering the offer and sale by the Company of its equity securities, or such other event as a result of or following which the Stock shall be publicly held.

“Non-Employee Director” means a member of the Board who is not also an employee of the Company or any Subsidiary.

“Non-Qualified Stock Option” means any Stock Option that is not an Incentive Stock Option.

“Option” or “Stock Option” means any option to purchase shares of Stock granted pursuant to Section 5.

“Registration Date” means the date upon which the registration statement on Form S-1 that is filed by the Company with respect to the Initial Public Offering is declared effective by the Securities and Exchange Commission.

“Restricted Shares” means the shares of Stock underlying a Restricted Stock Award that remain subject to a risk of forfeiture or the Company’s right of repurchase.

 

2


“Restricted Stock Award” means an Award of Restricted Shares subject to such restrictions and conditions as the Administrator may determine at the time of grant.

“Restricted Stock Units” means an Award of stock units subject to such restrictions and conditions as the Administrator may determine at the time of grant.

“Sale Event” shall mean (i) the sale of all or substantially all of the assets of the Company on a consolidated basis to an unrelated person or entity, (ii) a merger, reorganization or consolidation pursuant to which the holders of the Company’s outstanding voting power and outstanding stock immediately prior to such transaction do not own a majority of the outstanding voting power and outstanding stock or other equity interests of the resulting or successor entity (or its ultimate parent, if applicable) immediately upon completion of such transaction, (iii) the sale of all of the Stock of the Company to an unrelated person, entity or group thereof acting in concert, or (iv) any other transaction in which the owners of the Company’s outstanding voting power immediately prior to such transaction do not own at least a majority of the outstanding voting power of the Company or any successor entity immediately upon completion of the transaction other than as a result of the acquisition of securities directly from the Company.

Sale Price” means the value as determined by the Administrator of the consideration payable, or otherwise to be received by stockholders, per share of Stock pursuant to a Sale Event.

“Section 409A” means Section 409A of the Code and the regulations and other guidance promulgated thereunder.

“Service Relationship” means any relationship as a full-time employee, part-time employee, director or other key person (including Consultants) of the Company or any Subsidiary or any successor entity (e.g., a Service Relationship shall be deemed to continue without interruption in the event an individual’s status changes from full-time employee to part-time employee or Consultant).

“Stock” means the Common Stock, par value $0.0001 per share, of the Company, subject to adjustments pursuant to Section 3.

“Stock Appreciation Right” means an Award entitling the recipient to receive shares of Stock (or cash, to the extent explicitly provided for in the applicable Award Certificate) having a value equal to the excess of the Fair Market Value of the Stock on the date of exercise over the exercise price of the Stock Appreciation Right multiplied by the number of shares of Stock with respect to which the Stock Appreciation Right shall have been exercised.

“Subsidiary” means any corporation or other entity (other than the Company) in which the Company has at least a 50 percent interest, either directly or indirectly.

“Ten Percent Owner” means an employee who owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the Code) more than 10 percent of the combined voting power of all classes of stock of the Company or any parent or subsidiary corporation.

“Unrestricted Stock Award” means an Award of shares of Stock free of any restrictions.

 

3


SECTION 2. ADMINISTRATION OF PLAN; ADMINISTRATOR AUTHORITY TO SELECT GRANTEES AND DETERMINE AWARDS

(a) Administration of Plan. The Plan shall be administered by the Administrator.

(b) Powers of Administrator. The Administrator shall have the power and authority to grant Awards consistent with the terms of the Plan, including the power and authority:

(i) to select the individuals to whom Awards may from time to time be granted;

(ii) to determine the time or times of grant, and the extent, if any, of Incentive Stock Options, Non-Qualified Stock Options, Stock Appreciation Rights, Restricted Stock Awards, Restricted Stock Units, Unrestricted Stock Awards, Cash-Based Awards, and Dividend Equivalent Rights, or any combination of the foregoing, granted to any one or more grantees;

(iii) to determine the number of shares of Stock to be covered by any Award;

(iv) to determine and modify from time to time the terms and conditions, including restrictions, not inconsistent with the terms of the Plan, of any Award, which terms and conditions may differ among individual Awards and grantees, and to approve the forms of Award Certificates;

(v) to accelerate at any time the exercisability or vesting of all or any portion of any Award in circumstances involving the grantee’s death or disability;

(vi) subject to the provisions of Section 5(c), to extend at any time the period in which Stock Options may be exercised; and

(vii) at any time to adopt, alter and repeal such rules, guidelines and practices for administration of the Plan and for its own acts and proceedings as it shall deem advisable; to interpret the terms and provisions of the Plan and any Award (including related written instruments); to make all determinations it deems advisable for the administration of the Plan; to decide all disputes arising in connection with the Plan; and to otherwise supervise the administration of the Plan.

All decisions and interpretations of the Administrator shall be binding on all persons, including the Company and Plan grantees.

(c) Delegation of Authority to Grant Awards. Subject to applicable law, the Administrator, in its discretion, may delegate to a committee consisting of one or more officers of the Company, including the Chief Executive Officer of the Company all or part of the Administrator’s authority and duties with respect to the granting of Awards to individuals who are (i) not subject to the reporting and other provisions of Section 16 of the Exchange Act and (ii) not members of the delegated committee. Any such delegation by the Administrator shall include a limitation as to the amount of Stock underlying Awards that may be granted during the period of the delegation and shall contain guidelines as to the determination of the exercise price and the vesting criteria. The Administrator may revoke or amend the terms of a delegation at any time but such action shall not invalidate any prior actions of the Administrator’s delegate or delegates that were consistent with the terms of the Plan.

 

4


(d) Award Certificate. Awards under the Plan shall be evidenced by Award Certificates that set forth the terms, conditions and limitations for each Award which may include, without limitation, the term of an Award and the provisions applicable in the event employment or service terminates.

(e) Indemnification. Neither the Board nor the Administrator, nor any member of either or any delegate thereof, shall be liable for any act, omission, interpretation, construction or determination made in good faith in connection with the Plan, and the members of the Board and the Administrator (and any delegate thereof) shall be entitled in all cases to indemnification and reimbursement by the Company in respect of any claim, loss, damage or expense (including, without limitation, reasonable attorneys’ fees) arising or resulting therefrom to the fullest extent permitted by law and/or under the Company’s articles or bylaws or any directors’ and officers’ liability insurance coverage which may be in effect from time to time and/or any indemnification agreement between such individual and the Company.

(f) Foreign Award Recipients. Notwithstanding any provision of the Plan to the contrary, in order to comply with the laws in other countries in which the Company and its Subsidiaries operate or have employees or other individuals eligible for Awards, the Administrator, in its sole discretion, shall have the power and authority to: (i) determine which Subsidiaries shall be covered by the Plan; (ii) determine which individuals outside the United States are eligible to participate in the Plan; (iii) modify the terms and conditions of any Award granted to individuals outside the United States to comply with applicable foreign laws; (iv) establish subplans and modify exercise procedures and other terms and procedures, to the extent the Administrator determines such actions to be necessary or advisable (and such subplans and/or modifications shall be attached to this Plan as appendices); provided, however, that no such subplans and/or modifications shall increase the share limitations contained in Section 3(a) hereof; and (v) take any action, before or after an Award is made, that the Administrator determines to be necessary or advisable to obtain approval or comply with any local governmental regulatory exemptions or approvals. Notwithstanding the foregoing, the Administrator may not take any actions hereunder, and no Awards shall be granted, that would violate the Exchange Act or any other applicable United States securities law, the Code, or any other applicable United States governing statute or law.

SECTION 3. STOCK ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION

(a) Stock Issuable. The maximum number of shares of Stock reserved and available for issuance under the Plan shall be the sum of (i) 3,400,000 shares and (ii) the shares of common stock remaining available for issuance under the 2014 Plan (together, the “Initial Limit”), subject to adjustment as provided in Section 3(c), plus on January 1, 2019 and each January 1 thereafter, the number of shares of Stock reserved and available for issuance under the Plan shall be cumulatively increased by 4 percent of the number of shares of Stock issued and outstanding on the immediately preceding December 31 or such lesser number of shares as determined by the Administrator (the “Annual Increase”). Subject to such overall limitation, the maximum aggregate number of shares of Stock that may be issued in the form of Incentive Stock

 

5


Options shall not exceed the Initial Limit cumulatively increased on January 1, 2019 and on each January 1 thereafter by the lesser of the Annual Increase for such year or 3,400,000 shares of Stock, subject in all cases to adjustment as provided in Section 3(c). For purposes of this limitation, the shares of Stock underlying any Awards that are forfeited, canceled, held back upon exercise of an Option or settlement of an Award to cover the exercise price or tax withholding, reacquired by the Company prior to vesting, satisfied without the issuance of Stock or otherwise terminated (other than by exercise) under each of the Plan and the 2014 Plan shall be added back to the shares of Stock available for issuance under the Plan. In the event the Company repurchases shares of Stock on the open market, such shares shall not be added to the shares of Stock available for issuance under the Plan. Subject to such overall limitations, shares of Stock may be issued up to such maximum number pursuant to any type or types of Award; provided, however, that no more than 3,400,000 shares of Stock may be issued in the form of Incentive Stock Options. The shares available for issuance under the Plan may be authorized but unissued shares of Stock or shares of Stock reacquired by the Company.

(b) Maximum Awards to Non-Employee Directors. Notwithstanding anything to the contrary in this Plan, the value of all Awards awarded under this Plan and all other cash compensation paid by the Company to any Non-Employee Director in any calendar year shall not exceed $1,000,000. For the purpose of this limitation, the value of any Award shall be its grant date fair value, as determined in accordance with ASC 718 or successor provision but excluding the impact of estimated forfeitures related to service-based vesting provisions.

(c) Changes in Stock. Subject to Section 3(e) hereof, if, as a result of any reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar change in the Company’s capital stock, the outstanding shares of Stock are increased or decreased or are exchanged for a different number or kind of shares or other securities of the Company, or additional shares or new or different shares or other securities of the Company or other non-cash assets are distributed with respect to such shares of Stock or other securities, or, if, as a result of any merger or consolidation, sale of all or substantially all of the assets of the Company, the outstanding shares of Stock are converted into or exchanged for securities of the Company or any successor entity (or a parent or subsidiary thereof), the Administrator shall make an appropriate or proportionate adjustment in (i) the maximum number of shares reserved for issuance under the Plan, including the maximum number of shares that may be issued in the form of Incentive Stock Options, (ii) the number of shares or other securities subject to any then outstanding Awards under the Plan, (iii) the repurchase price, if any, per share subject to each outstanding Restricted Stock Award, and (iv) the exercise price for each share subject to any then outstanding Stock Options and Stock Appreciation Rights under the Plan, without changing the aggregate exercise price (i.e., the exercise price multiplied by the number of Stock Options and Stock Appreciation Rights) as to which such Stock Options and Stock Appreciation Rights remain exercisable. The Administrator shall also make equitable or proportionate adjustments in the number of shares subject to outstanding Awards and the exercise price and the terms of outstanding Awards to take into consideration cash dividends paid other than in the ordinary course or any other extraordinary corporate event. The adjustment by the Administrator shall be final, binding and conclusive. No fractional shares of Stock shall be issued under the Plan resulting from any such adjustment, but the Administrator in its discretion may make a cash payment in lieu of fractional shares.

 

6


(d) Mergers and Other Transactions. In the case of and subject to the consummation of a Sale Event, the parties thereto may cause the assumption or continuation of Awards theretofore granted by the successor entity, or the substitution of such Awards with new Awards of the successor entity or parent thereof, with appropriate adjustment as to the number and kind of shares and, if appropriate, the per share exercise prices, as such parties shall agree. To the extent the parties to such Sale Event do not provide for the assumption, continuation or substitution of Awards, upon the effective time of the Sale Event, the Plan and all outstanding Awards granted hereunder shall terminate. In such case, except as may be otherwise provided in the relevant Award Certificate, all Options and Stock Appreciation Rights that are not exercisable immediately prior to the effective time of the Sale Event shall become fully exercisable as of the effective time of the Sale Event, all other Awards with time-based vesting, conditions or restrictions shall become fully vested and nonforfeitable as of the effective time of the Sale Event, and all Awards with conditions and restrictions relating to the attainment of performance goals may become vested and nonforfeitable in connection with a Sale Event in the Administrator’s discretion or to the extent specified in the relevant Award Certificate. In the event of such termination, (i) the Company shall have the option (in its sole discretion) to make or provide for a payment, in cash or in kind, to the grantees holding Options and Stock Appreciation Rights, in exchange for the cancellation thereof, in an amount equal to the difference between (A) the Sale Price multiplied by the number of shares of Stock subject to outstanding Options and Stock Appreciation Rights (to the extent then exercisable at prices not in excess of the Sale Price) and (B) the aggregate exercise price of all such outstanding Options and Stock Appreciation Rights (provided that, in the case of an Option or Stock Appreciation Right with an exercise price equal to or less than the Sale Price, such Option or Stock Appreciation Right shall be cancelled for no consideration); or (ii) each grantee shall be permitted, within a specified period of time prior to the consummation of the Sale Event as determined by the Administrator, to exercise all outstanding Options and Stock Appreciation Rights (to the extent then exercisable) held by such grantee. The Company shall also have the option (in its sole discretion) to make or provide for a payment, in cash or in kind, to the grantees holding other Awards in an amount equal to the Sale Price multiplied by the number of vested shares of Stock under such Awards.

SECTION 4. ELIGIBILITY

Grantees under the Plan will be such full or part-time officers and other employees, Non-Employee Directors and Consultants of the Company and its Subsidiaries as are selected from time to time by the Administrator in its sole discretion.

SECTION 5. STOCK OPTIONS

(a) Award of Stock Options. The Administrator may grant Stock Options under the Plan. Any Stock Option granted under the Plan shall be in such form as the Administrator may from time to time approve.

Stock Options granted under the Plan may be either Incentive Stock Options or Non-Qualified Stock Options. Incentive Stock Options may be granted only to employees of the Company or any Subsidiary that is a “subsidiary corporation” within the meaning of Section 424(f) of the Code. To the extent that any Option does not qualify as an Incentive Stock Option, it shall be deemed a Non-Qualified Stock Option.

 

7


Stock Options granted pursuant to this Section 5 shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Administrator shall deem desirable. If the Administrator so determines, Stock Options may be granted in lieu of cash compensation at the optionee’s election, subject to such terms and conditions as the Administrator may establish.

(b) Exercise Price. The exercise price per share for the Stock covered by a Stock Option granted pursuant to this Section 5 shall be determined by the Administrator at the time of grant but shall not be less than 100 percent of the Fair Market Value on the date of grant. In the case of an Incentive Stock Option that is granted to a Ten Percent Owner, the option price of such Incentive Stock Option shall be not less than 110 percent of the Fair Market Value on the grant date. Notwithstanding the foregoing, Stock Options may be granted with an exercise price per share that is less than 100 percent of the Fair Market Value on the date of grant pursuant to a transaction described in, and in a manner consistent with, Section 424(a) of the Code.

(c) Option Term. The term of each Stock Option shall be fixed by the Administrator, but no Stock Option shall be exercisable more than ten years after the date the Stock Option is granted. In the case of an Incentive Stock Option that is granted to a Ten Percent Owner, the term of such Stock Option shall be no more than five years from the date of grant.

(d) Exercisability; Rights of a Stockholder. Stock Options shall become exercisable at such time or times, whether or not in installments, as shall be determined by the Administrator at or after the grant date. Subject to Section 2(b)(v), the Administrator may at any time accelerate the exercisability of all or any portion of any Stock Option. An optionee shall have the rights of a stockholder only as to shares acquired upon the exercise of a Stock Option and not as to unexercised Stock Options.

(e) Method of Exercise. Stock Options may be exercised in whole or in part, by giving written or electronic notice of exercise to the Company, specifying the number of shares to be purchased. Payment of the purchase price may be made by one or more of the following methods except to the extent otherwise provided in the Option Award Certificate:

(i) In cash, by certified or bank check or other instrument acceptable to the Administrator;

(ii) Through the delivery (or attestation to the ownership following such procedures as the Company may prescribe) of shares of Stock that are not then subject to restrictions under any Company plan. Such surrendered shares shall be valued at Fair Market Value on the exercise date;

(iii) By the optionee delivering to the Company a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company for the purchase price; provided that in the event the optionee chooses to pay the purchase price as so provided, the optionee and the broker shall comply with such procedures and enter into such agreements of indemnity and other agreements as the Company shall prescribe as a condition of such payment procedure; or

 

8


(iv) With respect to Stock Options that are not Incentive Stock Options, by a “net exercise” arrangement pursuant to which the Company will reduce the number of shares of Stock issuable upon exercise by the largest whole number of shares with a Fair Market Value that does not exceed the aggregate exercise price.

Payment instruments will be received subject to collection. The transfer to the optionee on the records of the Company or of the transfer agent of the shares of Stock to be purchased pursuant to the exercise of a Stock Option will be contingent upon receipt from the optionee (or a purchaser acting in his stead in accordance with the provisions of the Stock Option) by the Company of the full purchase price for such shares and the fulfillment of any other requirements contained in the Option Award Certificate or applicable provisions of laws (including the satisfaction of any withholding taxes that the Company is obligated to withhold with respect to the optionee). In the event an optionee chooses to pay the purchase price by previously-owned shares of Stock through the attestation method, the number of shares of Stock transferred to the optionee upon the exercise of the Stock Option shall be net of the number of attested shares. In the event that the Company establishes, for itself or using the services of a third party, an automated system for the exercise of Stock Options, such as a system using an internet website or interactive voice response, then the paperless exercise of Stock Options may be permitted through the use of such an automated system.

(f) Annual Limit on Incentive Stock Options. To the extent required for “incentive stock option” treatment under Section 422 of the Code, the aggregate Fair Market Value (determined as of the time of grant) of the shares of Stock with respect to which Incentive Stock Options granted under this Plan and any other plan of the Company or its parent and subsidiary corporations become exercisable for the first time by an optionee during any calendar year shall not exceed $100,000. To the extent that any Stock Option exceeds this limit, it shall constitute a Non-Qualified Stock Option.

SECTION 6. STOCK APPRECIATION RIGHTS

(a) Award of Stock Appreciation Rights. The Administrator may grant Stock Appreciation Rights under the Plan. A Stock Appreciation Right is an Award entitling the recipient to receive shares of Stock (or cash, to the extent explicitly provided for in the applicable Award Certificate) having a value equal to the excess of the Fair Market Value of a share of Stock on the date of exercise over the exercise price of the Stock Appreciation Right multiplied by the number of shares of Stock with respect to which the Stock Appreciation Right shall have been exercised.

(b) Exercise Price of Stock Appreciation Rights. The exercise price of a Stock Appreciation Right shall not be less than 100 percent of the Fair Market Value of the Stock on the date of grant.

 

9


(c) Grant and Exercise of Stock Appreciation Rights. Stock Appreciation Rights may be granted by the Administrator independently of any Stock Option granted pursuant to Section 5 of the Plan.

(d) Terms and Conditions of Stock Appreciation Rights. Stock Appreciation Rights shall be subject to such terms and conditions as shall be determined on the date of grant by the Administrator. The term of a Stock Appreciation Right may not exceed ten years. The terms and conditions of each such Award shall be determined by the Administrator, and such terms and conditions may differ among individual Awards and grantees.

SECTION 7. RESTRICTED STOCK AWARDS

(a) Nature of Restricted Stock Awards. The Administrator may grant Restricted Stock Awards under the Plan. A Restricted Stock Award is any Award of Restricted Shares subject to such restrictions and conditions as the Administrator may determine at the time of grant. Conditions may be based on continuing employment (or other Service Relationship) and/or achievement of pre-established performance goals and objectives.

(b) Rights as a Stockholder. Upon the grant of the Restricted Stock Award and payment of any applicable purchase price, a grantee shall have the rights of a stockholder with respect to the voting of the Restricted Shares and receipt of dividends; provided that if the lapse of restrictions with respect to the Restricted Stock Award is tied to the attainment of performance goals, any dividends paid by the Company during the performance period shall accrue and shall not be paid to the grantee until and to the extent the performance goals are met with respect to the Restricted Stock Award. Unless the Administrator shall otherwise determine, (i) uncertificated Restricted Shares shall be accompanied by a notation on the records of the Company or the transfer agent to the effect that they are subject to forfeiture until such Restricted Shares are vested as provided in Section 7(d) below, and (ii) certificated Restricted Shares shall remain in the possession of the Company until such Restricted Shares are vested as provided in Section 7(d) below, and the grantee shall be required, as a condition of the grant, to deliver to the Company such instruments of transfer as the Administrator may prescribe.

(c) Restrictions. Restricted Shares may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of except as specifically provided herein or in the Restricted Stock Award Certificate. Except as may otherwise be provided by the Administrator either in the Award Certificate or, subject to Section 18 below, in writing after the Award is issued, if a grantee’s employment (or other Service Relationship) with the Company and its Subsidiaries terminates for any reason, any Restricted Shares that have not vested at the time of termination shall automatically and without any requirement of notice to such grantee from or other action by or on behalf of, the Company be deemed to have been reacquired by the Company at its original purchase price (if any) from such grantee or such grantee’s legal representative simultaneously with such termination of employment (or other Service Relationship), and thereafter shall cease to represent any ownership of the Company by the grantee or rights of the grantee as a stockholder. Following such deemed reacquisition of Restricted Shares that are represented by physical certificates, a grantee shall surrender such certificates to the Company upon request without consideration.

 

10


(d) Vesting of Restricted Shares. The Administrator at the time of grant shall specify the date or dates and/or the attainment of pre-established performance goals, objectives and other conditions on which the non-transferability of the Restricted Shares and the Company’s right of repurchase or forfeiture shall lapse. Subsequent to such date or dates and/or the attainment of such pre-established performance goals, objectives and other conditions, the shares on which all restrictions have lapsed shall no longer be Restricted Shares and shall be deemed “vested.”

SECTION 8. RESTRICTED STOCK UNITS

(a) Nature of Restricted Stock Units. The Administrator may grant Restricted Stock Units under the Plan. A Restricted Stock Unit is an Award of stock units that may be settled in shares of Stock (or cash, to the extent explicitly provided for in the applicable Award Certificate) upon the satisfaction of such restrictions and conditions at the time of grant. Conditions may be based on continuing employment (or other Service Relationship) and/or achievement of pre-established performance goals and objectives. The terms and conditions of each such Award shall be determined by the Administrator, and such terms and conditions may differ among individual Awards and grantees. Except in the case of Restricted Stock Units with a deferred settlement date that complies with Section 409A, at the end of the vesting period, the Restricted Stock Units, to the extent vested, shall be settled in the form of shares of Stock. Restricted Stock Units with deferred settlement dates are subject to Section 409A and shall contain such additional terms and conditions as the Administrator shall determine in its sole discretion in order to comply with the requirements of Section 409A.

(b) Election to Receive Restricted Stock Units in Lieu of Compensation. The Administrator may, in its sole discretion, permit a grantee to elect to receive a portion of future cash compensation otherwise due to such grantee in the form of an award of Restricted Stock Units. Any such election shall be made in writing and shall be delivered to the Company no later than the date specified by the Administrator and in accordance with Section 409A and such other rules and procedures established by the Administrator. Any such future cash compensation that the grantee elects to defer shall be converted to a fixed number of Restricted Stock Units based on the Fair Market Value of Stock on the date the compensation would otherwise have been paid to the grantee if such payment had not been deferred as provided herein. The Administrator shall have the sole right to determine whether and under what circumstances to permit such elections and to impose such limitations and other terms and conditions thereon as the Administrator deems appropriate. Any Restricted Stock Units that are elected to be received in lieu of cash compensation shall be fully vested, unless otherwise provided in the Award Certificate.

(c) Rights as a Stockholder. A grantee shall have the rights as a stockholder only as to shares of Stock acquired by the grantee upon settlement of Restricted Stock Units; provided, however, that the grantee may be credited with Dividend Equivalent Rights with respect to the stock units underlying his Restricted Stock Units, subject to the provisions of Section 11 and such terms and conditions as the Administrator may determine.

(d) Termination. Except as may otherwise be provided by the Administrator either in the Award Certificate or, subject to Section 18 below, in writing after the Award is issued, a grantee’s right in all Restricted Stock Units that have not vested shall automatically terminate upon the grantee’s termination of employment (or cessation of Service Relationship) with the Company and its Subsidiaries for any reason.

 

11


SECTION 9. UNRESTRICTED STOCK AWARDS

Grant or Sale of Unrestricted Stock. The Administrator may grant (or sell at par value or such higher purchase price determined by the Administrator) an Unrestricted Stock Award under the Plan. An Unrestricted Stock Award is an Award pursuant to which the grantee may receive shares of Stock free of any restrictions under the Plan. Unrestricted Stock Awards may be granted in respect of past services or other valid consideration, or in lieu of cash compensation due to such grantee.

SECTION 10. CASH-BASED AWARDS

Grant of Cash-Based Awards. The Administrator may grant Cash-Based Awards under the Plan. A Cash-Based Award is an Award that entitles the grantee to a payment in cash upon the attainment of specified performance. The Administrator shall determine the maximum duration of the Cash-Based Award, the amount of cash to which the Cash-Based Award pertains, the conditions upon which the Cash-Based Award shall become vested or payable, and such other provisions as the Administrator shall determine. Each Cash-Based Award shall specify a cash-denominated payment amount, formula or payment ranges as determined by the Administrator. Payment, if any, with respect to a Cash-Based Award shall be made in accordance with the terms of the Award and may be made in cash.

SECTION 11. DIVIDEND EQUIVALENT RIGHTS

(a) Dividend Equivalent Rights. The Administrator may grant Dividend Equivalent Rights under the Plan. A Dividend Equivalent Right is an Award entitling the grantee to receive credits based on cash dividends that would have been paid on the shares of Stock specified in the Dividend Equivalent Right (or other Award to which it relates) if such shares had been issued to the grantee. A Dividend Equivalent Right may be granted hereunder to any grantee as a component of an award of Restricted Stock Units or as a freestanding award. The terms and conditions of Dividend Equivalent Rights shall be specified in the Award Certificate. Dividend equivalents credited to the holder of a Dividend Equivalent Right may be paid currently or may be deemed to be reinvested in additional shares of Stock, which may thereafter accrue additional equivalents. Any such reinvestment shall be at Fair Market Value on the date of reinvestment or such other price as may then apply under a dividend reinvestment plan sponsored by the Company, if any. Dividend Equivalent Rights may be settled in cash or shares of Stock or a combination thereof, in a single installment or installments. A Dividend Equivalent Right granted as a component of an Award of Restricted Stock Units shall provide that such Dividend Equivalent Right shall be settled only upon settlement or payment of, or lapse of restrictions on, such other Award, and that such Dividend Equivalent Right shall expire or be forfeited or annulled under the same conditions as such other Award.

(b) Termination. Except as may otherwise be provided by the Administrator either in the Award Certificate or, subject to Section 18 below, in writing after the Award is issued, a grantee’s rights in all Dividend Equivalent Rights shall automatically terminate upon the grantee’s termination of employment (or cessation of Service Relationship) with the Company and its Subsidiaries for any reason.

 

12


SECTION 12. TRANSFERABILITY OF AWARDS

(a) Transferability. Except as provided in Section 14(b) below, during a grantee’s lifetime, his or her Awards shall be exercisable only by the grantee, or by the grantee’s legal representative or guardian in the event of the grantee’s incapacity. No Awards shall be sold, assigned, transferred or otherwise encumbered or disposed of by a grantee other than by will or by the laws of descent and distribution or pursuant to a domestic relations order. No Awards shall be subject, in whole or in part, to attachment, execution, or levy of any kind, and any purported transfer in violation hereof shall be null and void.

(b) Administrator Action. Notwithstanding Section 14(a), the Administrator, in its discretion, may provide either in the Award Certificate regarding a given Award or by subsequent written approval that the grantee (who is an employee or director) may transfer his or her Non-Qualified Stock Options to his or her immediate family members, to trusts for the benefit of such family members, or to partnerships in which such family members are the only partners, provided that the transferee agrees in writing with the Company to be bound by all of the terms and conditions of this Plan and the applicable Award. In no event may an Award be transferred by a grantee for value.

(c) Family Member. For purposes of Section 14(b), “family member” shall mean a grantee’s child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, any person sharing the grantee’s household (other than a tenant of the grantee), a trust in which these persons (or the grantee) have more than 50 percent of the beneficial interest, a foundation in which these persons (or the grantee) control the management of assets, and any other entity in which these persons (or the grantee) own more than 50 percent of the voting interests.

(d) Designation of Beneficiary. To the extent permitted by the Company, each grantee to whom an Award has been made under the Plan may designate a beneficiary or beneficiaries to exercise any Award or receive any payment under any Award payable on or after the grantee’s death. Any such designation shall be on a form provided for that purpose by the Administrator and shall not be effective until received by the Administrator. If no beneficiary has been designated by a deceased grantee, or if the designated beneficiaries have predeceased the grantee, the beneficiary shall be the grantee’s estate.

SECTION 13. TAX WITHHOLDING

(a) Payment by Grantee. Each grantee shall, no later than the date as of which the value of an Award or of any Stock or other amounts received thereunder first becomes includable in the gross income of the grantee for Federal income tax purposes, pay to the Company, or make arrangements satisfactory to the Administrator regarding payment of, any Federal, state, or local taxes of any kind required by law to be withheld by the Company with respect to such income. The Company and its Subsidiaries shall, to the extent permitted by law,

 

13


have the right to deduct any such taxes from any payment of any kind otherwise due to the grantee. The Company’s obligation to deliver evidence of book entry (or stock certificates) to any grantee is subject to and conditioned on tax withholding obligations being satisfied by the grantee.

(b) Payment in Stock. Subject to approval by the Administrator, a grantee may elect to have the Company’s required tax withholding obligation satisfied, in whole or in part, by authorizing the Company to withhold from shares of Stock to be issued pursuant to any Award a number of shares with an aggregate Fair Market Value (as of the date the withholding is effected) that would satisfy the withholding amount due; provided, however, that the amount withheld does not exceed the maximum statutory tax rate or such lesser amount as is necessary to avoid liability accounting treatment. The Administrator may also require Awards to be subject to mandatory share withholding up to the required withholding amount.] For purposes of share withholding, the Fair Market Value of withheld shares shall be determined in the same manner as the value of Stock includible in income of the Participants. The required tax withholding obligation may also be satisfied, in whole or in part, by an arrangement whereby a certain number of shares of Stock issued pursuant to any Award are immediately sold and proceeds from such sale are remitted to the Company in an amount that would satisfy the withholding amount due..

SECTION 14. SECTION 409A AWARDS

To the extent that any Award is determined to constitute “nonqualified deferred compensation” within the meaning of Section 409A (a “409A Award”), the Award shall be subject to such additional rules and requirements as specified by the Administrator from time to time in order to comply with Section 409A. In this regard, if any amount under a 409A Award is payable upon a “separation from service” (within the meaning of Section 409A) to a grantee who is then considered a “specified employee” (within the meaning of Section 409A), then no such payment shall be made prior to the date that is the earlier of (i) six months and one day after the grantee’s separation from service, or (ii) the grantee’s death, but only to the extent such delay is necessary to prevent such payment from being subject to interest, penalties and/or additional tax imposed pursuant to Section 409A. Further, the settlement of any 409A Award may not be accelerated except to the extent permitted by Section 409A.

SECTION 15. TERMINATION OF SERVICE RELATIONSHIP, TRANSFER, LEAVE OF ABSENCE, ETC.

(a) Termination of Service Relationship. If the grantee’s Service Relationship is with a Subsidiary and such Subsidiary ceases to be a Subsidiary, the grantee shall be deemed to have terminated his or her Service Relationship for purposes of the Plan.

(b) For purposes of the Plan, the following events shall not be deemed a termination of Service Relationship:

(i) a transfer to the Service Relationship of the Company from a Subsidiary or from the Company to a Subsidiary, or from one Subsidiary to another; or

 

14


(ii) an approved leave of absence for military service or sickness, or for any other purpose approved by the Company, if the employee’s right to re-employment is guaranteed either by a statute or by contract or under the policy pursuant to which the leave of absence was granted or if the Administrator otherwise so provides in writing.

SECTION 16. AMENDMENTS AND TERMINATION

The Board may, at any time, amend or discontinue the Plan and the Administrator may, at any time, amend or cancel any outstanding Award for the purpose of satisfying changes in law or for any other lawful purpose, but no such action shall adversely affect rights under any outstanding Award without the holder’s consent. Except as provided in Section 3(d) or 3(e), without prior stockholder approval, in no event may the Administrator exercise its discretion to reduce the exercise price of outstanding Stock Options or Stock Appreciation Rights or effect repricing through cancellation and re-grants or cancellation of Stock Options or Stock Appreciation Rights in exchange for cash or other Awards. To the extent required under the rules of any securities exchange or market system on which the Stock is listed, to the extent determined by the Administrator to be required by the Code to ensure that Incentive Stock Options granted under the Plan are qualified under Section 422 of the Code, Plan amendments shall be subject to approval by the Company stockholders entitled to vote at a meeting of stockholders. Nothing in this Section 18 shall limit the Administrator’s authority to take any action permitted pursuant to Section 3(d) or 3(e).

SECTION 17. STATUS OF PLAN

With respect to the portion of any Award that has not been exercised and any payments in cash, Stock or other consideration not received by a grantee, a grantee shall have no rights greater than those of a general creditor of the Company unless the Administrator shall otherwise expressly determine in connection with any Award or Awards. In its sole discretion, the Administrator may authorize the creation of trusts or other arrangements to meet the Company’s obligations to deliver Stock or make payments with respect to Awards hereunder, provided that the existence of such trusts or other arrangements is consistent with the foregoing sentence.

SECTION 18. GENERAL PROVISIONS

(a) No Distribution. The Administrator may require each person acquiring Stock pursuant to an Award to represent to and agree with the Company in writing that such person is acquiring the shares without a view to distribution thereof.

(b) Issuance of Stock Certificates. To the extent certificated, stock certificates to grantees under this Plan shall be deemed delivered for all purposes when the Company or a stock transfer agent of the Company shall have mailed such certificates in the United States mail, addressed to the grantee, at the grantee’s last known address on file with the Company. Uncertificated Stock shall be deemed delivered for all purposes when the Company or a Stock transfer agent of the Company shall have given to the grantee by electronic mail (with proof of receipt) or by United States mail, addressed to the grantee, at the grantee’s last known address on file with the Company, notice of issuance and recorded the issuance in its records (which may include electronic “book entry” records). Notwithstanding anything herein to the contrary, the

 

15


Company shall not be required to issue or deliver any evidence of book entry or certificates evidencing shares of Stock pursuant to the exercise of any Award, unless and until the Administrator has determined, with advice of counsel (to the extent the Administrator deems such advice necessary or advisable), that the issuance and delivery is in compliance with all applicable laws, regulations of governmental authorities and, if applicable, the requirements of any exchange on which the shares of Stock are listed, quoted or traded. Any Stock issued pursuant to the Plan shall be subject to any stop-transfer orders and other restrictions as the Administrator deems necessary or advisable to comply with federal, state or foreign jurisdiction, securities or other laws, rules and quotation system on which the Stock is listed, quoted or traded. The Administrator may place legends on any Stock certificate or notation on any book entry to reference restrictions applicable to the Stock. In addition to the terms and conditions provided herein, the Administrator may require that an individual make such reasonable covenants, agreements, and representations as the Administrator, in its discretion, deems necessary or advisable in order to comply with any such laws, regulations, or requirements. The Administrator shall have the right to require any individual to comply with any timing or other restrictions with respect to the settlement or exercise of any Award, including a window-period limitation, as may be imposed in the discretion of the Administrator.

(c) Stockholder Rights. Until Stock is deemed delivered in accordance with Section 20(b), no right to vote or receive dividends or any other rights of a stockholder will exist with respect to shares of Stock to be issued in connection with an Award, notwithstanding the exercise of a Stock Option or any other action by the grantee with respect to an Award.

(d) Other Compensation Arrangements; No Employment Rights. Nothing contained in this Plan shall prevent the Board from adopting other or additional compensation arrangements, including trusts, and such arrangements may be either generally applicable or applicable only in specific cases. The adoption of this Plan and the grant of Awards do not confer upon any employee any right to continued employment with the Company or any Subsidiary.

(e) Trading Policy Restrictions. Option exercises and other Awards under the Plan shall be subject to the Company’s insider trading policies and procedures, as in effect from time to time.

(f) Clawback Policy. Awards under the Plan shall be subject to the Company’s clawback policy, as in effect from time to time.

SECTION 19. EFFECTIVE DATE OF PLAN

This Plan shall become effective upon the Registration Date. No grants of Stock Options and other Awards may be made hereunder after the tenth anniversary of the Effective Date and no grants of Incentive Stock Options may be made hereunder after the tenth anniversary of the date the Plan is approved by the Board.

 

16


SECTION 20. GOVERNING LAW

This Plan and all Awards and actions taken thereunder shall be governed by, and construed in accordance with, the General Corporation Law of the State of Delaware as to matters within the scope thereof, and as to all other matters shall be governed by and construed in accordance with the internal laws of the State of Delaware, applied without regard to conflict of law principles.

DATE APPROVED BY BOARD OF DIRECTORS: MARCH 14, 2018

DATE APPROVED BY STOCKHOLDERS:

 

17


EX-10.3

Exhibit 10.3

INCENTIVE STOCK OPTION AGREEMENT

UNDER THE SURFACE ONCOLOGY, INC.

2018 STOCK OPTION AND INCENTIVE PLAN

 

Name of Optionee:                                                                     
No. of Option Shares:                            
Option Exercise Price per Share:    $                        
Grant Date:                            
Expiration Date:                            

Pursuant to the Surface Oncology, Inc. 2018 Stock Option and Incentive Plan as amended through the date hereof (the “Plan”), Surface Oncology, Inc. (the “Company”) hereby grants to the Optionee named above an option (the “Stock Option”) to purchase on or prior to the Expiration Date specified above all or part of the number of shares of Common Stock, par value $0.0001 per share (the “Stock”), of the Company specified above at the Option Exercise Price per Share specified above subject to the terms and conditions set forth herein and in the Plan.

1. Exercisability Schedule. No portion of this Stock Option may be exercised until such portion shall have become exercisable. Except as set forth below, and subject to the discretion of the Administrator (as defined in Section 2 of the Plan) to accelerate the exercisability schedule hereunder, this Stock Option shall be exercisable with respect to the following number of Option Shares on the dates indicated so long as the Optionee remains an employee of the Company or a Subsidiary on such dates:

 

Incremental Number of

Option Shares Exercisable*

  

Exercisability Date

                     (        %)                                    
                     (        %)                                    
                     (        %)                                    
                     (        %)                                    
                     (        %)                                    

 

* Max. of $100,000 per yr.

Once exercisable, this Stock Option shall continue to be exercisable at any time or times prior to the close of business on the Expiration Date, subject to the provisions hereof and of the Plan.


2. Manner of Exercise.

(a) The Optionee may exercise this Stock Option only in the following manner: from time to time on or prior to the Expiration Date of this Stock Option, the Optionee may give written notice to the Administrator of his or her election to purchase some or all of the Option Shares purchasable at the time of such notice. This notice shall specify the number of Option Shares to be purchased.

Payment of the purchase price for the Option Shares may be made by one or more of the following methods: (i) in cash, by certified or bank check or other instrument acceptable to the Administrator; (ii) through the delivery (or attestation to the ownership) of shares of Stock that have been purchased by the Optionee on the open market or that are beneficially owned by the Optionee and are not then subject to any restrictions under any Company plan and that otherwise satisfy any holding periods as may be required by the Administrator; or (iii) by the Optionee delivering to the Company a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company to pay the option purchase price, provided that in the event the Optionee chooses to pay the option purchase price as so provided, the Optionee and the broker shall comply with such procedures and enter into such agreements of indemnity and other agreements as the Administrator shall prescribe as a condition of such payment procedure; or (iv) a combination of (i), (ii) and (iii) above. Payment instruments will be received subject to collection.

The transfer to the Optionee on the records of the Company or of the transfer agent of the Option Shares will be contingent upon (i) the Company’s receipt from the Optionee of the full purchase price for the Option Shares, as set forth above, (ii) the fulfillment of any other requirements contained herein or in the Plan or in any other agreement or provision of laws, and (iii) the receipt by the Company of any agreement, statement or other evidence that the Company may require to satisfy itself that the issuance of Stock to be purchased pursuant to the exercise of Stock Options under the Plan and any subsequent resale of the shares of Stock will be in compliance with applicable laws and regulations. In the event the Optionee chooses to pay the purchase price by previously-owned shares of Stock through the attestation method, the number of shares of Stock transferred to the Optionee upon the exercise of the Stock Option shall be net of the Shares attested to.

(b) The shares of Stock purchased upon exercise of this Stock Option shall be transferred to the Optionee on the records of the Company or of the transfer agent upon compliance to the satisfaction of the Administrator with all requirements under applicable laws or regulations in connection with such transfer and with the requirements hereof and of the Plan. The determination of the Administrator as to such compliance shall be final and binding on the Optionee. The Optionee shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Stock subject to this Stock Option unless and until this Stock Option shall have been exercised pursuant to the terms hereof, the Company or the transfer agent shall have transferred the shares to the Optionee, and the Optionee’s name shall have been entered as the stockholder of record on the books of the Company. Thereupon, the Optionee shall have full voting, dividend and other ownership rights with respect to such shares of Stock.

 

2


(c) The minimum number of shares with respect to which this Stock Option may be exercised at any one time shall be 100 shares, unless the number of shares with respect to which this Stock Option is being exercised is the total number of shares subject to exercise under this Stock Option at the time.

(d) Notwithstanding any other provision hereof or of the Plan, no portion of this Stock Option shall be exercisable after the Expiration Date hereof.

3. Termination of Employment. If the Optionee’s employment by the Company or a Subsidiary (as defined in the Plan) is terminated, the period within which to exercise the Stock Option may be subject to earlier termination as set forth below.

(a) Termination Due to Death. If the Optionee’s employment terminates by reason of the Optionee’s death, any portion of this Stock Option outstanding on such date, to the extent exercisable on the date of death, may thereafter be exercised by the Optionee’s legal representative or legatee for a period of 12 months from the date of death or until the Expiration Date, if earlier. Any portion of this Stock Option that is not exercisable on the date of death shall terminate immediately and be of no further force or effect.

(b) Termination Due to Disability. If the Optionee’s employment terminates by reason of the Optionee’s disability (as determined by the Administrator), any portion of this Stock Option outstanding on such date, to the extent exercisable on the date of such termination of employment, may thereafter be exercised by the Optionee for a period of 12 months from the date of disability or until the Expiration Date, if earlier. Any portion of this Stock Option that is not exercisable on the date of disability shall terminate immediately and be of no further force or effect.

(c) Termination for Cause. If the Optionee’s employment terminates for Cause, any portion of this Stock Option outstanding on such date shall terminate immediately and be of no further force and effect. For purposes hereof, “Cause” shall mean, unless otherwise provided in an employment agreement between the Company and the Optionee, a determination by the Administrator that the Optionee shall be dismissed as a result of (i) any material breach by the Optionee of any agreement between the Optionee and the Company; (ii) the conviction of, indictment for or plea of nolo contendere by the Optionee to a felony or a crime involving moral turpitude; or (iii) any material misconduct or willful and deliberate non-performance (other than by reason of disability) by the Optionee of the Optionee’s duties to the Company.

(d) Other Termination. If the Optionee’s employment terminates for any reason other than the Optionee’s death, the Optionee’s disability, or Cause, and unless otherwise determined by the Administrator, any portion of this Stock Option outstanding on such date may be exercised, to the extent exercisable on the date of termination, for a period of three months from the date of termination or until the Expiration Date, if earlier. Any portion of this Stock Option that is not exercisable on the date of termination shall terminate immediately and be of no further force or effect.

 

3


The Administrator’s determination of the reason for termination of the Optionee’s employment shall be conclusive and binding on the Optionee and his or her representatives or legatees.

4. Incorporation of Plan. Notwithstanding anything herein to the contrary, this Stock Option shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Administrator set forth in Section 2(b) of the Plan. Capitalized terms in this Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein.

5. Transferability. This Agreement is personal to the Optionee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than by will or the laws of descent and distribution. This Stock Option is exercisable, during the Optionee’s lifetime, only by the Optionee, and thereafter, only by the Optionee’s legal representative or legatee.

6. Status of the Stock Option. This Stock Option is intended to qualify as an “incentive stock option” under Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), but the Company does not represent or warrant that this Stock Option qualifies as such. The Optionee should consult with his or her own tax advisors regarding the tax effects of this Stock Option and the requirements necessary to obtain favorable income tax treatment under Section 422 of the Code, including, but not limited to, holding period requirements. To the extent any portion of this Stock Option does not so qualify as an “incentive stock option,” such portion shall be deemed to be a non-qualified stock option. If the Optionee intends to dispose or does dispose (whether by sale, gift, transfer or otherwise) of any Option Shares within the one-year period beginning on the date after the transfer of such shares to him or her, or within the two-year period beginning on the day after the grant of this Stock Option, he or she will so notify the Company within 30 days after such disposition.

7. Tax Withholding. The Optionee shall, not later than the date as of which the exercise of this Stock Option becomes a taxable event for Federal income tax purposes, pay to the Company or make arrangements satisfactory to the Administrator for payment of any Federal, state, and local taxes required by law to be withheld on account of such taxable event. The Company shall have the authority to cause the minimum required tax withholding obligation to be satisfied, in whole or in part, by withholding from shares of Stock to be issued to the Optionee a number of shares of Stock with an aggregate Fair Market Value that would satisfy the minimum withholding amount due.

8. No Obligation to Continue Employment. Neither the Company nor any Subsidiary is obligated by or as a result of the Plan or this Agreement to continue the Optionee in employment and neither the Plan nor this Agreement shall interfere in any way with the right of the Company or any Subsidiary to terminate the employment of the Optionee at any time.

9. Integration. This Agreement constitutes the entire agreement between the parties with respect to this Stock Option and supersedes all prior agreements and discussions between the parties concerning such subject matter.

 

4


10. Data Privacy Consent. In order to administer the Plan and this Agreement and to implement or structure future equity grants, the Company, its subsidiaries and affiliates and certain agents thereof (together, the “Relevant Companies”) may process any and all personal or professional data, including but not limited to Social Security or other identification number, home address and telephone number, date of birth and other information that is necessary or desirable for the administration of the Plan and/or this Agreement (the “Relevant Information”). By entering into this Agreement, the Optionee (i) authorizes the Company to collect, process, register and transfer to the Relevant Companies all Relevant Information; (ii) waives any privacy rights the Optionee may have with respect to the Relevant Information; (iii) authorizes the Relevant Companies to store and transmit such information in electronic form; and (iv) authorizes the transfer of the Relevant Information to any jurisdiction in which the Relevant Companies consider appropriate. The Optionee shall have access to, and the right to change, the Relevant Information. Relevant Information will only be used in accordance with applicable law.

11. Notices. Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or delivered to the Optionee at the address on file with the Company or, in either case, at such other address as one party may subsequently furnish to the other party in writing.

 

SURFACE ONCOLOGY, INC.

By:

   
  Title:

The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned. Electronic acceptance of this Agreement pursuant to the Company’s instructions to the Optionee (including through an online acceptance process) is acceptable.

 

Dated:            
        Optionee’s Signature
        Optionee’s name and address:
         
         
         

 

5


EX-10.4

Exhibit 10.4

NON-QUALIFIED STOCK OPTION AGREEMENT

FOR COMPANY EMPLOYEES

UNDER THE SURFACE ONCOLOGY, INC.

2018 STOCK OPTION AND INCENTIVE PLAN

 

Name of Optionee:                                                                             
No. of Option Shares:                                             
Option Exercise Price per Share:    $                                         
Grant Date:                                             
Expiration Date:                                             

Pursuant to the Surface Oncology, Inc. 2018 Stock Option and Incentive Plan as amended through the date hereof (the “Plan”), Surface Oncology, Inc. (the “Company”) hereby grants to the Optionee named above an option (the “Stock Option”) to purchase on or prior to the Expiration Date specified above all or part of the number of shares of Common Stock, par value $0.0001 per share (the “Stock”) of the Company specified above at the Option Exercise Price per Share specified above subject to the terms and conditions set forth herein and in the Plan. This Stock Option is not intended to be an “incentive stock option” under Section 422 of the Internal Revenue Code of 1986, as amended.

1. Exercisability Schedule. No portion of this Stock Option may be exercised until such portion shall have become exercisable. Except as set forth below, and subject to the discretion of the Administrator (as defined in Section 2 of the Plan) to accelerate the exercisability schedule hereunder, this Stock Option shall be exercisable with respect to the following number of Option Shares on the dates indicated so long as Optionee remains an employee of the Company or a Subsidiary on such dates:

 

Incremental Number of

Option Shares Exercisable

  

Exercisability Date

_____________ (___%)                                    
_____________ (___%)                                    
_____________ (___%)                                    
_____________ (___%)                                    
_____________ (___%)                                    

Once exercisable, this Stock Option shall continue to be exercisable at any time or times prior to the close of business on the Expiration Date, subject to the provisions hereof and of the Plan.


2. Manner of Exercise.

(a) The Optionee may exercise this Stock Option only in the following manner: from time to time on or prior to the Expiration Date of this Stock Option, the Optionee may give written notice to the Administrator of his or her election to purchase some or all of the Option Shares purchasable at the time of such notice. This notice shall specify the number of Option Shares to be purchased.

Payment of the purchase price for the Option Shares may be made by one or more of the following methods: (i) in cash, by certified or bank check or other instrument acceptable to the Administrator; (ii) through the delivery (or attestation to the ownership) of shares of Stock that have been purchased by the Optionee on the open market or that are beneficially owned by the Optionee and are not then subject to any restrictions under any Company plan and that otherwise satisfy any holding periods as may be required by the Administrator; (iii) by the Optionee delivering to the Company a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company to pay the option purchase price, provided that in the event the Optionee chooses to pay the option purchase price as so provided, the Optionee and the broker shall comply with such procedures and enter into such agreements of indemnity and other agreements as the Administrator shall prescribe as a condition of such payment procedure; (iv) by a “net exercise” arrangement pursuant to which the Company will reduce the number of shares of Stock issuable upon exercise by the largest whole number of shares with a Fair Market Value that does not exceed the aggregate exercise price; or (v) a combination of (i), (ii), (iii) and (iv) above. Payment instruments will be received subject to collection.

The transfer to the Optionee on the records of the Company or of the transfer agent of the Option Shares will be contingent upon (i) the Company’s receipt from the Optionee of the full purchase price for the Option Shares, as set forth above, (ii) the fulfillment of any other requirements contained herein or in the Plan or in any other agreement or provision of laws, and (iii) the receipt by the Company of any agreement, statement or other evidence that the Company may require to satisfy itself that the issuance of Stock to be purchased pursuant to the exercise of Stock Options under the Plan and any subsequent resale of the shares of Stock will be in compliance with applicable laws and regulations. In the event the Optionee chooses to pay the purchase price by previously-owned shares of Stock through the attestation method, the number of shares of Stock transferred to the Optionee upon the exercise of the Stock Option shall be net of the Shares attested to.

(b) The shares of Stock purchased upon exercise of this Stock Option shall be transferred to the Optionee on the records of the Company or of the transfer agent upon compliance to the satisfaction of the Administrator with all requirements under applicable laws or regulations in connection with such transfer and with the requirements hereof and of the Plan. The determination of the Administrator as to such compliance shall be final and binding on the Optionee. The Optionee shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Stock subject to this Stock Option unless and until this Stock Option shall have been exercised pursuant to the terms hereof, the Company or the transfer agent shall have transferred the shares to the Optionee, and the Optionee’s name shall have been entered as the stockholder of record on the books of the Company. Thereupon, the Optionee shall have full voting, dividend and other ownership rights with respect to such shares of Stock.

 

2


(c) The minimum number of shares with respect to which this Stock Option may be exercised at any one time shall be 100 shares, unless the number of shares with respect to which this Stock Option is being exercised is the total number of shares subject to exercise under this Stock Option at the time.

(d) Notwithstanding any other provision hereof or of the Plan, no portion of this Stock Option shall be exercisable after the Expiration Date hereof.

3. Termination of Employment. If the Optionee’s employment by the Company or a Subsidiary (as defined in the Plan) is terminated, the period within which to exercise the Stock Option may be subject to earlier termination as set forth below.

(a) Termination Due to Death. If the Optionee’s employment terminates by reason of the Optionee’s death, any portion of this Stock Option outstanding on such date, to the extent exercisable on the date of death, may thereafter be exercised by the Optionee’s legal representative or legatee for a period of 12 months from the date of death or until the Expiration Date, if earlier. Any portion of this Stock Option that is not exercisable on the date of death shall terminate immediately and be of no further force or effect.

(b) Termination Due to Disability. If the Optionee’s employment terminates by reason of the Optionee’s disability (as determined by the Administrator), any portion of this Stock Option outstanding on such date, to the extent exercisable on the date of such termination of employment, may thereafter be exercised by the Optionee for a period of 12 months from the date of disability or until the Expiration Date, if earlier. Any portion of this Stock Option that is not exercisable on the date of disability shall terminate immediately and be of no further force or effect.

(c) Termination for Cause. If the Optionee’s employment terminates for Cause, any portion of this Stock Option outstanding on such date shall terminate immediately and be of no further force and effect. For purposes hereof, “Cause” shall mean, unless otherwise provided in an employment agreement between the Company and the Optionee, a determination by the Administrator that the Optionee shall be dismissed as a result of (i) any material breach by the Optionee of any agreement between the Optionee and the Company; (ii) the conviction of, indictment for or plea of nolo contendere by the Optionee to a felony or a crime involving moral turpitude; or (iii) any material misconduct or willful and deliberate non-performance (other than by reason of disability) by the Optionee of the Optionee’s duties to the Company.

(d) Other Termination. If the Optionee’s employment terminates for any reason other than the Optionee’s death, the Optionee’s disability or Cause, and unless otherwise determined by the Administrator, any portion of this Stock Option outstanding on such date may be exercised, to the extent exercisable on the date of termination, for a period of three months from the date of termination or until the Expiration Date, if earlier. Any portion of this Stock Option that is not exercisable on the date of termination shall terminate immediately and be of no further force or effect.

 

3


The Administrator’s determination of the reason for termination of the Optionee’s employment shall be conclusive and binding on the Optionee and his or her representatives or legatees.

4. Incorporation of Plan. Notwithstanding anything herein to the contrary, this Stock Option shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Administrator set forth in Section 2(b) of the Plan. Capitalized terms in this Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein.

5. Transferability. This Agreement is personal to the Optionee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than by will or the laws of descent and distribution. This Stock Option is exercisable, during the Optionee’s lifetime, only by the Optionee, and thereafter, only by the Optionee’s legal representative or legatee.

6. Tax Withholding. The Optionee shall, not later than the date as of which the exercise of this Stock Option becomes a taxable event for Federal income tax purposes, pay to the Company or make arrangements satisfactory to the Administrator for payment of any Federal, state, and local taxes required by law to be withheld on account of such taxable event. The Company shall have the authority to cause the minimum required tax withholding obligation to be satisfied, in whole or in part, by withholding from shares of Stock to be issued to the Optionee a number of shares of Stock with an aggregate Fair Market Value that would satisfy the minimum withholding amount due.

7. No Obligation to Continue Employment. Neither the Company nor any Subsidiary is obligated by or as a result of the Plan or this Agreement to continue the Optionee in employment and neither the Plan nor this Agreement shall interfere in any way with the right of the Company or any Subsidiary to terminate the employment of the Optionee at any time.

8. Integration. This Agreement constitutes the entire agreement between the parties with respect to this Stock Option and supersedes all prior agreements and discussions between the parties concerning such subject matter.

9. Data Privacy Consent. In order to administer the Plan and this Agreement and to implement or structure future equity grants, the Company, its subsidiaries and affiliates and certain agents thereof (together, the “Relevant Companies”) may process any and all personal or professional data, including but not limited to Social Security or other identification number, home address and telephone number, date of birth and other information that is necessary or desirable for the administration of the Plan and/or this Agreement (the “Relevant Information”). By entering into this Agreement, the Optionee (i) authorizes the Company to collect, process, register and transfer to the Relevant Companies all Relevant Information; (ii) waives any privacy rights the Optionee may have with respect to the Relevant Information; (iii) authorizes the Relevant Companies to store and transmit such information in electronic form; and (iv) authorizes the transfer of the Relevant Information to any jurisdiction in which the Relevant Companies consider appropriate. The Optionee shall have access to, and the right to change, the Relevant Information. Relevant Information will only be used in accordance with applicable law.

 

4


10. Notices. Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or delivered to the Optionee at the address on file with the Company or, in either case, at such other address as one party may subsequently furnish to the other party in writing.

 

SURFACE ONCOLOGY, INC.
By:    
  Title:

The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned. Electronic acceptance of this Agreement pursuant to the Company’s instructions to the Optionee (including through an online acceptance process) is acceptable.

 

Dated:       

 

    

 

    Optionee’s Signature
       Optionee’s name and address:
      
 
      
 
      
 
      

 

5


EX-10.5

Exhibit 10.5

NON-QUALIFIED STOCK OPTION AGREEMENT

FOR NON-EMPLOYEE DIRECTORS

UNDER THE SURFACE ONCOLOGY, INC .

2018 STOCK OPTION AND INCENTIVE PLAN

 

Name of Optionee:            
No. of Option Shares:          
Option Exercise Price per Share:   $           
Grant Date:             
Expiration Date:               

Pursuant to the Surface Oncology, Inc. 2018 Stock Option and Incentive Plan as amended through the date hereof (the “Plan”), Surface Oncology, Inc. (the “Company”) hereby grants to the Optionee named above, who is a Director of the Company but is not an employee of the Company, an option (the “Stock Option”) to purchase on or prior to the Expiration Date specified above all or part of the number of shares of Common Stock, par value $0.0001 per share (the “Stock”), of the Company specified above at the Option Exercise Price per Share specified above subject to the terms and conditions set forth herein and in the Plan. This Stock Option is not intended to be an “incentive stock option” under Section 422 of the Internal Revenue Code of 1986, as amended.

1. Exercisability Schedule. No portion of this Stock Option may be exercised until such portion shall have become exercisable. Except as set forth below, and subject to the discretion of the Administrator (as defined in Section 2 of the Plan) to accelerate the exercisability schedule hereunder, this Stock Option shall be exercisable with respect to the following number of Option Shares on the dates indicated so long as the Optionee remains in service as a member of the Board on such dates:

 

Incremental Number of

Option Shares Exercisable

  

Exercisability Date

                        (         %)                                    
                        (         %)                                    
                        (         %)                                    
                        (         %)                                    
                         (        %)                                    

Once exercisable, this Stock Option shall continue to be exercisable at any time or times prior to the close of business on the Expiration Date, subject to the provisions hereof and of the Plan.


2. Manner of Exercise.

(a) The Optionee may exercise this Stock Option only in the following manner: from time to time on or prior to the Expiration Date of this Stock Option, the Optionee may give written notice to the Administrator of his or her election to purchase some or all of the Option Shares purchasable at the time of such notice. This notice shall specify the number of Option Shares to be purchased.

Payment of the purchase price for the Option Shares may be made by one or more of the following methods: (i) in cash, by certified or bank check or other instrument acceptable to the Administrator; (ii) through the delivery (or attestation to the ownership) of shares of Stock that have been purchased by the Optionee on the open market or that are beneficially owned by the Optionee and are not then subject to any restrictions under any Company plan and that otherwise satisfy any holding periods as may be required by the Administrator; (iii) by the Optionee delivering to the Company a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company to pay the option purchase price, provided that in the event the Optionee chooses to pay the option purchase price as so provided, the Optionee and the broker shall comply with such procedures and enter into such agreements of indemnity and other agreements as the Administrator shall prescribe as a condition of such payment procedure; (iv) by a “net exercise” arrangement pursuant to which the Company will reduce the number of shares of Stock issuable upon exercise by the largest whole number of shares with a Fair Market Value that does not exceed the aggregate exercise price; or (v) a combination of (i), (ii), (iii) and (iv) above. Payment instruments will be received subject to collection.

The transfer to the Optionee on the records of the Company or of the transfer agent of the Option Shares will be contingent upon (i) the Company’s receipt from the Optionee of the full purchase price for the Option Shares, as set forth above, (ii) the fulfillment of any other requirements contained herein or in the Plan or in any other agreement or provision of laws, and (iii) the receipt by the Company of any agreement, statement or other evidence that the Company may require to satisfy itself that the issuance of Stock to be purchased pursuant to the exercise of Stock Options under the Plan and any subsequent resale of the shares of Stock will be in compliance with applicable laws and regulations. In the event the Optionee chooses to pay the purchase price by previously-owned shares of Stock through the attestation method, the number of shares of Stock transferred to the Optionee upon the exercise of the Stock Option shall be net of the Shares attested to.

(b) The shares of Stock purchased upon exercise of this Stock Option shall be transferred to the Optionee on the records of the Company or of the transfer agent upon compliance to the satisfaction of the Administrator with all requirements under applicable laws or regulations in connection with such transfer and with the requirements hereof and of the Plan. The determination of the Administrator as to such compliance shall be final and binding on the Optionee. The Optionee shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Stock subject to this Stock Option unless and until this Stock Option shall have been exercised pursuant to the terms hereof, the Company or the transfer agent shall have transferred the shares to the Optionee, and the Optionee’s name shall have been entered as the stockholder of record on the books of the Company. Thereupon, the Optionee shall have full voting, dividend and other ownership rights with respect to such shares of Stock.

 

2


(c) The minimum number of shares with respect to which this Stock Option may be exercised at any one time shall be 100 shares, unless the number of shares with respect to which this Stock Option is being exercised is the total number of shares subject to exercise under this Stock Option at the time.

(d) Notwithstanding any other provision hereof or of the Plan, no portion of this Stock Option shall be exercisable after the Expiration Date hereof.

3. Termination as Director. If the Optionee ceases to be a Director of the Company, the period within which to exercise the Stock Option may be subject to earlier termination as set forth below.

(a) Termination Due to Death. If the Optionee’s service as a Director terminates by reason of the Optionee’s death, any portion of this Stock Option outstanding on such date, to the extent exercisable on the date of death, may thereafter be exercised by the Optionee’s legal representative or legatee for a period of 12 months from the date of death or until the Expiration Date, if earlier. Any portion of this Stock Option that is not exercisable on the date of death shall terminate immediately and be of no further force or effect.

(b) Other Termination. If the Optionee ceases to be a Director for any reason other than the Optionee’s death, any portion of this Stock Option outstanding on such date may be exercised, to the extent exercisable on the date the Optionee ceased to be a Director, for a period of six months from the date the Optionee ceased to be a Director or until the Expiration Date, if earlier. Any portion of this Stock Option that is not exercisable on the date the Optionee ceases to be a Director shall terminate immediately and be of no further force or effect.

4. Incorporation of Plan. Notwithstanding anything herein to the contrary, this Stock Option shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Administrator set forth in Section 2(b) of the Plan. Capitalized terms in this Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein.

5. Transferability. This Agreement is personal to the Optionee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than by will or the laws of descent and distribution. This Stock Option is exercisable, during the Optionee’s lifetime, only by the Optionee, and thereafter, only by the Optionee’s legal representative or legatee.

6. No Obligation to Continue as a Director. Neither the Plan nor this Stock Option confers upon the Optionee any rights with respect to continuance as a Director.

7. Integration. This Agreement constitutes the entire agreement between the parties with respect to this Stock Option and supersedes all prior agreements and discussions between the parties concerning such subject matter.

 

3


8. Data Privacy Consent. In order to administer the Plan and this Agreement and to implement or structure future equity grants, the Company, its subsidiaries and affiliates and certain agents thereof (together, the “Relevant Companies”) may process any and all personal or professional data, including but not limited to Social Security or other identification number, home address and telephone number, date of birth and other information that is necessary or desirable for the administration of the Plan and/or this Agreement (the “Relevant Information”). By entering into this Agreement, the Optionee (i) authorizes the Company to collect, process, register and transfer to the Relevant Companies all Relevant Information; (ii) waives any privacy rights the Optionee may have with respect to the Relevant Information; (iii) authorizes the Relevant Companies to store and transmit such information in electronic form; and (iv) authorizes the transfer of the Relevant Information to any jurisdiction in which the Relevant Companies consider appropriate. The Optionee shall have access to, and the right to change, the Relevant Information. Relevant Information will only be used in accordance with applicable law.

9. Notices. Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or delivered to the Optionee at the address on file with the Company or, in either case, at such other address as one party may subsequently furnish to the other party in writing.

 

SURFACE ONCOLOGY, INC.

By:

   
  Title:

The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned. Electronic acceptance of this Agreement pursuant to the Company’s instructions to the Optionee (including through an online acceptance process) is acceptable.

 

Dated:            
        Optionee’s Signature
        Optionee’s name and address:
         
         
         

 

4


EX-10.6

Exhibit 10.6

RESTRICTED STOCK AWARD AGREEMENT

UNDER THE SURFACE ONCOLOGY, INC.

2018 STOCK OPTION AND INCENTIVE PLAN

 

Name of Grantee:

                                                                    

No. of Shares:

                                   

Grant Date:

                                   

Pursuant to the Surface Oncology, Inc. 2018 Stock Option and Incentive Plan as amended through the date hereof (the “Plan”), Surface Oncology, Inc. (the “Company”) hereby grants a Restricted Stock Award (an “Award”) to the Grantee named above. Upon acceptance of this Award, the Grantee shall receive the number of shares of Common Stock, par value $0.0001 per share (the “Stock”) of the Company specified above, subject to the restrictions and conditions set forth herein and in the Plan. The Company acknowledges the receipt from the Grantee of consideration with respect to the par value of the Stock in the form of cash, past or future services rendered to the Company by the Grantee or such other form of consideration as is acceptable to the Administrator.

1. Award. The shares of Restricted Stock awarded hereunder shall be issued and held by the Company’s transfer agent in book entry form, and the Grantee’s name shall be entered as the stockholder of record on the books of the Company. Thereupon, the Grantee shall have all the rights of a stockholder with respect to such shares, including voting and dividend rights, subject, however, to the restrictions and conditions specified in Paragraph 2 below. The Grantee shall (i) sign and deliver to the Company a copy of this Award Agreement and (ii) deliver to the Company a stock power endorsed in blank.

2. Restrictions and Conditions.

(a) Any book entries for the shares of Restricted Stock granted herein shall bear an appropriate legend, as determined by the Administrator in its sole discretion, to the effect that such shares are subject to restrictions as set forth herein and in the Plan.

(b) Shares of Restricted Stock granted herein may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of by the Grantee prior to vesting.

(c) If the Grantee’s employment with the Company and its Subsidiaries is voluntarily or involuntarily terminated for any reason (including death) prior to vesting of shares of Restricted Stock granted herein, all shares of Restricted Stock shall immediately and automatically be forfeited and returned to the Company.

3. Vesting of Restricted Stock. The restrictions and conditions in Paragraph 2 of this Agreement shall lapse on the Vesting Date or Dates specified in the following schedule so long as the Grantee remains an employee of the Company or a Subsidiary on such Dates. If a series of Vesting Dates is specified, then the restrictions and conditions in Paragraph 2 shall lapse only with respect to the number of shares of Restricted Stock specified as vested on such date.


   

Incremental Number

of Shares Vested

  

Vesting Date

    
 

_____________ (___%)

                              
 

_____________ (___%)

                              
 

_____________ (___%)

                              
 

_____________ (___%)

                              
 

_____________ (___%)

                              

Subsequent to such Vesting Date or Dates, the shares of Stock on which all restrictions and conditions have lapsed shall no longer be deemed Restricted Stock. The Administrator may at any time accelerate the vesting schedule specified in this Paragraph 3.

4. Dividends. Dividends on shares of Restricted Stock shall be paid currently to the Grantee.

5. Incorporation of Plan. Notwithstanding anything herein to the contrary, this Award shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Administrator set forth in Section 2(b) of the Plan. Capitalized terms in this Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein.

6. Transferability. This Agreement is personal to the Grantee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than by will or the laws of descent and distribution.

7. Tax Withholding. The Grantee shall, not later than the date as of which the receipt of this Award becomes a taxable event for Federal income tax purposes, pay to the Company or make arrangements satisfactory to the Administrator for payment of any Federal, state, and local taxes required by law to be withheld on account of such taxable event. Except in the case where an election is made pursuant to Paragraph 8 below, the Company shall have the authority to cause the required minimum tax withholding obligation to be satisfied, in whole or in part, by withholding from shares of Stock to be issued or released by the transfer agent a number of shares of Stock with an aggregate Fair Market Value that would satisfy the minimum withholding amount due.

8. Election Under Section 83(b). The Grantee and the Company hereby agree that the Grantee may, within 30 days following the Grant Date of this Award, file with the Internal Revenue Service and the Company an election under Section 83(b) of the Internal Revenue Code. In the event the Grantee makes such an election, he or she agrees to provide a copy of the election to the Company. The Grantee acknowledges that he or she is responsible for obtaining the advice of his or her tax advisors with regard to the Section 83(b) election and that he or she is relying solely on such advisors and not on any statements or representations of the Company or any of its agents with regard to such election.

 

2


9. No Obligation to Continue Employment. Neither the Company nor any Subsidiary is obligated by or as a result of the Plan or this Agreement to continue the Grantee in employment and neither the Plan nor this Agreement shall interfere in any way with the right of the Company or any Subsidiary to terminate the employment of the Grantee at any time.

10. Integration. This Agreement constitutes the entire agreement between the parties with respect to this Award and supersedes all prior agreements and discussions between the parties concerning such subject matter.

11. Data Privacy Consent. In order to administer the Plan and this Agreement and to implement or structure future equity grants, the Company, its subsidiaries and affiliates and certain agents thereof (together, the “Relevant Companies”) may process any and all personal or professional data, including but not limited to Social Security or other identification number, home address and telephone number, date of birth and other information that is necessary or desirable for the administration of the Plan and/or this Agreement (the “Relevant Information”). By entering into this Agreement, the Grantee (i) authorizes the Company to collect, process, register and transfer to the Relevant Companies all Relevant Information; (ii) waives any privacy rights the Grantee may have with respect to the Relevant Information; (iii) authorizes the Relevant Companies to store and transmit such information in electronic form; and (iv) authorizes the transfer of the Relevant Information to any jurisdiction in which the Relevant Companies consider appropriate. The Grantee shall have access to, and the right to change, the Relevant Information. Relevant Information will only be used in accordance with applicable law.

 

3


12. Notices. Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or delivered to the Grantee at the address on file with the Company or, in either case, at such other address as one party may subsequently furnish to the other party in writing.

 

SURFACE ONCOLOGY, INC.
By:    
  Title:

The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned. Electronic acceptance of this Agreement pursuant to the Company’s instructions to the Grantee (including through an online acceptance process) is acceptable.

 

Dated:                                                                                    
    Grantee’s Signature
    Grantee’s name and address:
     
     
     

 

4


EX-10.7

Exhibit 10.7

RESTRICTED STOCK UNIT AWARD AGREEMENT

FOR COMPANY EMPLOYEES

UNDER THE SURFACE ONCOLOGY, INC.

2018 STOCK OPTION AND INCENTIVE PLAN

 

Name of Grantee:

                                                                            

No. of Restricted Stock Units:

                                            

Grant Date:

                                            

Pursuant to the Surface Oncology, Inc. 2018 Stock Option and Incentive Plan as amended through the date hereof (the “Plan”), Surface Oncology, Inc. (the “Company”) hereby grants an award of the number of Restricted Stock Units listed above (an “Award”) to the Grantee named above. Each Restricted Stock Unit shall relate to one share of Common Stock, par value $0.0001 per share (the “Stock”) of the Company.

1. Restrictions on Transfer of Award. This Award may not be sold, transferred, pledged, assigned or otherwise encumbered or disposed of by the Grantee, and any shares of Stock issuable with respect to the Award may not be sold, transferred, pledged, assigned or otherwise encumbered or disposed of until (i) the Restricted Stock Units have vested as provided in Paragraph 2 of this Agreement and (ii) shares of Stock have been issued to the Grantee in accordance with the terms of the Plan and this Agreement.

2. Vesting of Restricted Stock Units. The restrictions and conditions of Paragraph 1 of this Agreement shall lapse on the Vesting Date or Dates specified in the following schedule so long as the Grantee remains an employee of the Company or a Subsidiary on such Dates. If a series of Vesting Dates is specified, then the restrictions and conditions in Paragraph 1 shall lapse only with respect to the number of Restricted Stock Units specified as vested on such date.

 

   

Incremental Number of

Restricted Stock Units Vested

  

Vesting Date

    
    _____________ (___%)                                         
    _____________ (___%)                                         
    _____________ (___%)                                         
    _____________ (___%)                                         

The Administrator may at any time accelerate the vesting schedule specified in this Paragraph 2.

3. Termination of Employment. If the Grantee’s employment with the Company and its Subsidiaries terminates for any reason (including death or disability) prior to the satisfaction of the vesting conditions set forth in Paragraph 2 above, any Restricted Stock Units that have not vested as of such date shall automatically and without notice terminate and be forfeited, and neither the Grantee nor any of his or her successors, heirs, assigns, or personal representatives will thereafter have any further rights or interests in such unvested Restricted Stock Units.


4. Issuance of Shares of Stock. As soon as practicable following each Vesting Date (but in no event later than two and one-half months after the end of the year in which the Vesting Date occurs), the Company shall issue to the Grantee the number of shares of Stock equal to the aggregate number of Restricted Stock Units that have vested pursuant to Paragraph 2 of this Agreement on such date and the Grantee shall thereafter have all the rights of a stockholder of the Company with respect to such shares.

5. Incorporation of Plan. Notwithstanding anything herein to the contrary, this Agreement shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Administrator set forth in Section 2(b) of the Plan. Capitalized terms in this Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein.

6. Tax Withholding. The Grantee shall, not later than the date as of which the receipt of this Award becomes a taxable event for Federal income tax purposes, pay to the Company or make arrangements satisfactory to the Administrator for payment of any Federal, state, and local taxes required by law to be withheld on account of such taxable event. The Company shall have the authority to cause the required minimum tax withholding obligation to be satisfied, in whole or in part, by withholding from shares of Stock to be issued to the Grantee a number of shares of Stock with an aggregate Fair Market Value that would satisfy the withholding amount due.

7. Section 409A of the Code. This Agreement shall be interpreted in such a manner that all provisions relating to the settlement of the Award are exempt from the requirements of Section 409A of the Code as “short-term deferrals” as described in Section 409A of the Code.

8. No Obligation to Continue Employment. Neither the Company nor any Subsidiary is obligated by or as a result of the Plan or this Agreement to continue the Grantee in employment and neither the Plan nor this Agreement shall interfere in any way with the right of the Company or any Subsidiary to terminate the employment of the Grantee at any time.

9. Integration. This Agreement constitutes the entire agreement between the parties with respect to this Award and supersedes all prior agreements and discussions between the parties concerning such subject matter.

10. Data Privacy Consent. In order to administer the Plan and this Agreement and to implement or structure future equity grants, the Company, its subsidiaries and affiliates and certain agents thereof (together, the “Relevant Companies”) may process any and all personal or professional data, including but not limited to Social Security or other identification number, home address and telephone number, date of birth and other information that is necessary or desirable for the administration of the Plan and/or this Agreement (the “Relevant Information”). By entering into this Agreement, the Grantee (i) authorizes the Company to collect, process, register and transfer to the Relevant Companies all Relevant Information; (ii) waives any privacy rights the Grantee may have with respect to the Relevant Information; (iii) authorizes the Relevant Companies to store and transmit such information in electronic form; and (iv)

 

2


authorizes the transfer of the Relevant Information to any jurisdiction in which the Relevant Companies consider appropriate. The Grantee shall have access to, and the right to change, the Relevant Information. Relevant Information will only be used in accordance with applicable law.

11. Notices. Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or delivered to the Grantee at the address on file with the Company or, in either case, at such other address as one party may subsequently furnish to the other party in writing.

 

SURFACE ONCOLOGY, INC.
By:    
  Title:

The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned. Electronic acceptance of this Agreement pursuant to the Company’s instructions to the Grantee (including through an online acceptance process) is acceptable.

 

Dated:       

 

    

 

    Grantee’s Signature
       Grantee’s name and address:
      
 
      
 
      
 
      

 

3


EX-10.8

Exhibit 10.8

RESTRICTED STOCK UNIT AWARD AGREEMENT

FOR NON-EMPLOYEE DIRECTORS

UNDER THE SURFACE ONCOLOGY, INC.

2018 STOCK OPTION AND INCENTIVE PLAN

Name of Grantee:                                                                                                                               

No. of Restricted Stock Units:                                                     

Grant Date:                                                                                    

Pursuant to the Surface Oncology, Inc. 2018 Stock Option and Incentive Plan as amended through the date hereof (the “Plan”), Surface Oncology, Inc. (the “Company”) hereby grants an award of the number of Restricted Stock Units listed above (an “Award”) to the Grantee named above. Each Restricted Stock Unit shall relate to one share of Common Stock, par value $0.0001 per share (the “Stock”) of the Company.

1. Restrictions on Transfer of Award. This Award may not be sold, transferred, pledged, assigned or otherwise encumbered or disposed of by the Grantee, and any shares of Stock issuable with respect to the Award may not be sold, transferred, pledged, assigned or otherwise encumbered or disposed of until (i) the Restricted Stock Units have vested as provided in Paragraph 2 of this Agreement and (ii) shares of Stock have been issued to the Grantee in accordance with the terms of the Plan and this Agreement.

2. Vesting of Restricted Stock Units. The restrictions and conditions of Paragraph 1 of this Agreement shall lapse on the Vesting Date or Dates specified in the following schedule so long as the Grantee remains in service as a member of the Board on such Dates. If a series of Vesting Dates is specified, then the restrictions and conditions in Paragraph 1 shall lapse only with respect to the number of Restricted Stock Units specified as vested on such date.

 

   

Incremental Number of

Restricted Stock Units Vested

  

Vesting Date

    
    _____________ (___%)   

 

    
    _____________ (___%)   

 

    
    _____________ (___%)   

 

    
    _____________ (___%)   

 

    

The Administrator may at any time accelerate the vesting schedule specified in this Paragraph 2.

3. Termination of Service. If the Grantee’s service with the Company and its Subsidiaries terminates for any reason (including death or disability) prior to the satisfaction of the vesting conditions set forth in Paragraph 2 above, any Restricted Stock Units that have not vested as of such date shall automatically and without notice terminate and be forfeited, and neither the Grantee nor any of his or her successors, heirs, assigns, or personal representatives will thereafter have any further rights or interests in such unvested Restricted Stock Units.


4. Issuance of Shares of Stock. As soon as practicable following each Vesting Date (but in no event later than two and one-half months after the end of the year in which the Vesting Date occurs), the Company shall issue to the Grantee the number of shares of Stock equal to the aggregate number of Restricted Stock Units that have vested pursuant to Paragraph 2 of this Agreement on such date and the Grantee shall thereafter have all the rights of a stockholder of the Company with respect to such shares.

5. Incorporation of Plan. Notwithstanding anything herein to the contrary, this Agreement shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Administrator set forth in Section 2(b) of the Plan. Capitalized terms in this Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein.

6. Section 409A of the Code. This Agreement shall be interpreted in such a manner that all provisions relating to the settlement of the Award are exempt from the requirements of Section 409A of the Code as “short-term deferrals” as described in Section 409A of the Code.

7. No Obligation to Continue as a Director. Neither the Plan nor this Award confers upon the Grantee any rights with respect to continuance as a Director.

8. Integration. This Agreement constitutes the entire agreement between the parties with respect to this Award and supersedes all prior agreements and discussions between the parties concerning such subject matter.

9. Data Privacy Consent. In order to administer the Plan and this Agreement and to implement or structure future equity grants, the Company, its subsidiaries and affiliates and certain agents thereof (together, the “Relevant Companies”) may process any and all personal or professional data, including but not limited to Social Security or other identification number, home address and telephone number, date of birth and other information that is necessary or desirable for the administration of the Plan and/or this Agreement (the “Relevant Information”). By entering into this Agreement, the Grantee (i) authorizes the Company to collect, process, register and transfer to the Relevant Companies all Relevant Information; (ii) waives any privacy rights the Grantee may have with respect to the Relevant Information; (iii) authorizes the Relevant Companies to store and transmit such information in electronic form; and (iv) authorizes the transfer of the Relevant Information to any jurisdiction in which the Relevant Companies consider appropriate. The Grantee shall have access to, and the right to change, the Relevant Information. Relevant Information will only be used in accordance with applicable law.

 

2


10. Notices. Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or delivered to the Grantee at the address on file with the Company or, in either case, at such other address as one party may subsequently furnish to the other party in writing.

 

SURFACE ONCOLOGY, INC.
By:    
  Title:

The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned. Electronic acceptance of this Agreement pursuant to the Company’s instructions to the Grantee (including through an online acceptance process) is acceptable.

 

Dated:                
        Grantee’s Signature
        Grantee’s name and address:
         
         
         

 

3


EX-10.9

Exhibit 10.9

SURFACE ONCOLOGY, INC.

2018 EMPLOYEE STOCK PURCHASE PLAN

The purpose of the Surface Oncology, Inc. 2018 Employee Stock Purchase Plan (“the Plan”) is to provide eligible employees of Surface Oncology, Inc. (the “Company”) and each Designated Subsidiary (as defined in Section 11) with opportunities to purchase shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”). 565,000 shares of Common Stock in the aggregate have been approved and reserved for this purpose. In addition, on January 1, 2019 and each January 1 thereafter through January 1, 2028, the number of shares of Common Stock reserved and available for issuance under the Plan shall be cumulatively increased by the lesser of (i) one percent of the number of shares of Common Stock issued and outstanding on the immediately preceding December 31 and (ii) such lesser number of shares of Common Stock determined by the Administrator. The Plan is intended to constitute an “employee stock purchase plan” within the meaning of Section 423(b) of the Internal Revenue Code of 1986, as amended (the “Code”), and shall be interpreted in accordance with that intent.

1. Administration. The Plan will be administered by the person or persons (the “Administrator”) appointed by the Company’s Board of Directors (the “Board”) for such purpose. The Administrator has authority at any time to: (i) adopt, alter and repeal such rules, guidelines and practices for the administration of the Plan and for its own acts and proceedings as it shall deem advisable; (ii) interpret the terms and provisions of the Plan; (iii) make all determinations it deems advisable for the administration of the Plan; (iv) decide all disputes arising in connection with the Plan; and (v) otherwise supervise the administration of the Plan. All interpretations and decisions of the Administrator shall be binding on all persons, including the Company and the Participants. No member of the Board or individual exercising administrative authority with respect to the Plan shall be liable for any action or determination made in good faith with respect to the Plan or any option granted hereunder.


2. Offerings. The Company will make one or more offerings to eligible employees to purchase Common Stock under the Plan (“Offerings”). Unless otherwise determined by the Administrator, an Offering will begin on the first business day occurring on or after each January 1 and July 1 and will end on the last business day occurring on or before the following June 30 and December 31, respectively. The Administrator may, in its discretion, designate a different period for any Offering, provided that no Offering shall exceed six months in duration or overlap any other Offering.

3. Eligibility. All individuals classified as employees on the payroll records of the Company and each Designated Subsidiary are eligible to participate in any one or more of the Offerings under the Plan, provided that as of the first day of the applicable Offering (the “Offering Date”) they are customarily employed by the Company or a Designated Subsidiary for more than 20 hours a week and have completed at least 30 days of employment. Notwithstanding any other provision herein, individuals who are not contemporaneously classified as employees of the Company or a Designated Subsidiary for purposes of the Company’s or applicable Designated Subsidiary’s payroll system are not considered to be eligible employees of the Company or any Designated Subsidiary and shall not be eligible to participate in the Plan. In the event any such individuals are reclassified as employees of the Company or a Designated Subsidiary for any purpose, including, without limitation, common law or statutory employees, by any action of any third party, including, without limitation, any government agency, or as a result of any private lawsuit, action or administrative proceeding, such individuals shall, notwithstanding such reclassification, remain ineligible for participation.

 

2


Notwithstanding the foregoing, the exclusive means for individuals who are not contemporaneously classified as employees of the Company or a Designated Subsidiary on the Company’s or Designated Subsidiary’s payroll system to become eligible to participate in this Plan is through an amendment to this Plan, duly executed by the Company, which specifically renders such individuals eligible to participate herein.

4. Participation.

(a) Participants on Effective Date. Each eligible employee at the time of the Initial Public Offering shall be deemed to be a Participant at such time. If an eligible employee is deemed to be a Participant pursuant to this Section 4(a), such individual shall be deemed not to have authorized payroll deductions and shall not purchase any Common Stock hereunder unless he or she thereafter authorizes payroll deductions by submitting an enrollment form (in the manner described in Section 4(c)) within 60 days of the commencement of the Initial Offering. If such a Participant does not authorize payroll deductions by submitting an enrollment form by the end of the Initial Offering, that Participant will be deemed to have withdrawn from the Plan.

(b) Participants in Subsequent Offerings. An eligible employee who is not a Participant in any prior Offering may participate in a subsequent Offering by submitting an enrollment form to his or her appropriate payroll location at least 15 business days before the Offering Date (or by such other deadline as shall be established by the Administrator for the Offering).

(c) Enrollment. The enrollment form will (a) state fifteen percent to be deducted from an eligible employee’s Compensation (as defined in Section 11) per pay period, (b) authorize the purchase of Common Stock in each Offering in accordance with the terms of the Plan and (c) specify the exact name or names in which shares of Common Stock purchased

 

3


for such individual are to be issued pursuant to Section 10. An employee who does not enroll in accordance with these procedures will be deemed to have waived the right to participate. Unless a Participant files a new enrollment form or withdraws from the Plan, such Participant’s deductions and purchases will continue at the same fifteen percent of Compensation for future Offerings, provided he or she remains eligible.

(d) Notwithstanding the foregoing, participation in the Plan will neither be permitted nor be denied contrary to the requirements of the Code.

5. Employee Contributions. Each eligible employee may authorize payroll deductions at a minimum of 1 percent up to a maximum of 10 percent of such employee’s Compensation for each pay period. The Company will maintain book accounts showing the amount of payroll deductions made by each Participant for each Offering. No interest will accrue or be paid on payroll deductions.

6. Deduction Changes. Except in the event of a Participant increasing his or her payroll deduction from 0 percent during the first Offering as specified in Section 4(a) or as may be determined by the Administrator in advance of an Offering, a Participant may not increase or decrease his or her payroll deduction during any Offering, but may increase or decrease his or her payroll deduction with respect to the next Offering (subject to the limitations of Section 5) by filing a new enrollment form at least 15 business days before the next Offering Date (or by such other deadline as shall be established by the Administrator for the Offering). The Administrator may, in advance of any Offering, establish rules permitting a Participant to increase, decrease or terminate his or her payroll deduction during an Offering.

 

4


7. Withdrawal. A Participant may withdraw from participation in the Plan by delivering a written notice of withdrawal to his or her appropriate payroll location. The Participant’s withdrawal will be effective as of the next business day. Following a Participant’s withdrawal, the Company will promptly refund such individual’s entire account balance under the Plan to him or her (after payment for any Common Stock purchased before the effective date of withdrawal). Partial withdrawals are not permitted. Such an employee may not begin participation again during the remainder of the Offering, but may enroll in a subsequent Offering in accordance with Section 4.

8. Grant of Options. On each Offering Date, the Company will grant to each eligible employee who is then a Participant in the Plan an option (“Option”) to purchase on the last day of such Offering (the “Exercise Date”), at the Option Price hereinafter provided for, the lowest of (a) a number of shares of Common Stock determined by dividing such Participant’s accumulated payroll deductions on such Exercise Date by Alternative A: the lower of (i) 85 percent of the Fair Market Value of the Common Stock on the Offering Date, or (ii) 85 percent of the Fair Market Value of the Common Stock on the Exercise Date, (b) 5,000 shares; or (c) such other lesser maximum number of shares as shall have been established by the Administrator in advance of the Offering; provided, however, that such Option shall be subject to the limitations set forth below. Each Participant’s Option shall be exercisable only to the extent of such Participant’s accumulated payroll deductions on the Exercise Date. The purchase price for each share purchased under each Option (the “Option Price”) will be 85 percent of the Fair Market Value of the Common Stock on the Offering Date or the Exercise Date, whichever is less.

Notwithstanding the foregoing, no Participant may be granted an option hereunder if such Participant, immediately after the option was granted, would be treated as owning stock possessing 5 percent or more of the total combined voting power or value of all classes of stock of the Company or any Parent or Subsidiary (as defined in Section 11). For purposes of the

 

5


preceding sentence, the attribution rules of Section 424(d) of the Code shall apply in determining the stock ownership of a Participant, and all stock which the Participant has a contractual right to purchase shall be treated as stock owned by the Participant. In addition, no Participant may be granted an Option which permits his or her rights to purchase stock under the Plan, and any other employee stock purchase plan of the Company and its Parents and Subsidiaries, to accrue at a rate which exceeds $25,000 of the fair market value of such stock (determined on the option grant date or dates) for each calendar year in which the Option is outstanding at any time. The purpose of the limitation in the preceding sentence is to comply with Section 423(b)(8) of the Code and shall be applied taking Options into account in the order in which they were granted.

9. Exercise of Option and Purchase of Shares. Each employee who continues to be a Participant in the Plan on the Exercise Date shall be deemed to have exercised his or her Option on such date and shall acquire from the Company such number of whole shares of Common Stock reserved for the purpose of the Plan as his or her accumulated payroll deductions on such date will purchase at the Option Price, subject to any other limitations contained in the Plan; provided that, with respect to the Initial Offering, the exercise of each Option shall be conditioned on the closing of the Company’s Initial Public Offering on or before the Exercise Date. Any amount remaining in a Participant’s account at the end of an Offering solely by reason of the inability to purchase a fractional share will be carried forward to the next Offering; any other balance remaining in a Participant’s account at the end of an Offering will be refunded to the Participant promptly.

10. Issuance of Certificates. Certificates representing shares of Common Stock purchased under the Plan may be issued only in the name of the employee, in the name of the employee and another person of legal age as joint tenants with rights of survivorship, or in the name of a broker authorized by the employee to be his, her or their, nominee for such purpose.

 

6


11. Definitions.

The term “Compensation” means the amount of base pay, prior to salary reduction pursuant to Sections 125, 132(f) or 401(k) of the Code, but excluding overtime, commissions, incentive or bonus awards, allowances and reimbursements for expenses such as relocation allowances or travel expenses, income or gains on the exercise of Company stock options, and similar items.

The term “Designated Subsidiary” means any present or future Subsidiary (as defined below) that has been designated by the Board to participate in the Plan. The Board may so designate any Subsidiary, or revoke any such designation, at any time and from time to time, either before or after the Plan is approved by the stockholders.

The term “Fair Market Value of the Common Stock” on any given date means the fair market value of the Common Stock determined in good faith by the Administrator; provided, however, that if the Common Stock is admitted to quotation on the National Association of Securities Dealers Automated Quotation System (“NASDAQ”), NASDAQ Global Market or another national securities exchange, the determination shall be made by reference to the closing price on such date. If there is no closing price for such date, the determination shall be made by reference to the last date preceding such date for which there is a closing price. Notwithstanding the foregoing, if the date for which Fair Market Value of the Common Stock is determined is the first day when trading prices for the Common Stock are reported on NASDAQ or another national securities exchange, the Fair Market Value of the Common Stock shall be the “Price to the Public” (or equivalent) set forth on the cover page for the final prospectus relating to the Company’s Initial Public Offering.

 

7


The term “Initial Public Offering” means the first underwritten, firm commitment public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale by the Company of its Common Stock.

The term “Parent” means a “parent corporation” with respect to the Company, as defined in Section 424(e) of the Code.

The term “Participant” means an individual who is eligible as determined in Section 3 and who has complied with the provisions of Section 4.

The term “Subsidiary” means a “subsidiary corporation” with respect to the Company, as defined in Section 424(f) of the Code.

12. Rights on Termination of Employment. If a Participant’s employment terminates for any reason before the Exercise Date for any Offering, no payroll deduction will be taken from any pay due and owing to the Participant and the balance in the Participant’s account will be paid to such Participant or, in the case of such Participant’s death, to his or her designated beneficiary as if such Participant had withdrawn from the Plan under Section 7. An employee will be deemed to have terminated employment, for this purpose, if the corporation that employs him or her, having been a Designated Subsidiary, ceases to be a Subsidiary, or if the employee is transferred to any corporation other than the Company or a Designated Subsidiary. An employee will not be deemed to have terminated employment for this purpose, if the employee is on an approved leave of absence for military service or sickness or for any other purpose approved by the Company, if the employee’s right to reemployment is guaranteed either by a statute or by contract or under the policy pursuant to which the leave of absence was granted or if the Administrator otherwise provides in writing.

 

8


13. Special Rules. Notwithstanding anything herein to the contrary, the Administrator may adopt special rules applicable to the employees of a particular Designated Subsidiary, whenever the Administrator determines that such rules are necessary or appropriate for the implementation of the Plan in a jurisdiction where such Designated Subsidiary has employees; provided that such rules are consistent with the requirements of Section 423(b) of the Code. Any special rules established pursuant to this Section 13 shall, to the extent possible, result in the employees subject to such rules having substantially the same rights as other Participants in the Plan.

14. Optionees Not Stockholders. Neither the granting of an Option to a Participant nor the deductions from his or her pay shall constitute such Participant a holder of the shares of Common Stock covered by an Option under the Plan until such shares have been purchased by and issued to him or her.

15. Rights Not Transferable. Rights under the Plan are not transferable by a Participant other than by will or the laws of descent and distribution, and are exercisable during the Participant’s lifetime only by the Participant.

16. Application of Funds. All funds received or held by the Company under the Plan may be combined with other corporate funds and may be used for any corporate purpose.

17. Adjustment in Case of Changes Affecting Common Stock. In the event of a subdivision of outstanding shares of Common Stock, the payment of a dividend in Common Stock or any other change affecting the Common Stock, the number of shares approved for the Plan and the share limitation set forth in Section 8 shall be equitably or proportionately adjusted to give proper effect to such event.

 

9


18. Amendment of the Plan. The Board may at any time and from time to time amend the Plan in any respect, except that without the approval within 12 months of such Board action by the stockholders, no amendment shall be made increasing the number of shares approved for the Plan or making any other change that would require stockholder approval in order for the Plan, as amended, to qualify as an “employee stock purchase plan” under Section 423(b) of the Code.

19. Insufficient Shares. If the total number of shares of Common Stock that would otherwise be purchased on any Exercise Date plus the number of shares purchased under previous Offerings under the Plan exceeds the maximum number of shares issuable under the Plan, the shares then available shall be apportioned among Participants in proportion to the amount of payroll deductions accumulated on behalf of each Participant that would otherwise be used to purchase Common Stock on such Exercise Date.

20. Termination of the Plan. The Plan may be terminated at any time by the Board. Upon termination of the Plan, all amounts in the accounts of Participants shall be promptly refunded.

21. Governmental Regulations. The Company’s obligation to sell and deliver Common Stock under the Plan is subject to obtaining all governmental approvals required in connection with the authorization, issuance, or sale of such stock.

22. Governing Law. This Plan and all Options and actions taken thereunder shall be governed by, and construed in accordance with, the laws of the State of Delaware, applied without regard to conflict of law principles.

 

10


23. Issuance of Shares. Shares may be issued upon exercise of an Option from authorized but unissued Common Stock, from shares held in the treasury of the Company, or from any other proper source.

24. Tax Withholding. Participation in the Plan is subject to any minimum required tax withholding on income of the Participant in connection with the Plan. Each Participant agrees, by entering the Plan, that the Company and its Subsidiaries shall have the right to deduct any such taxes from any payment of any kind otherwise due to the Participant, including shares issuable under the Plan.

25. Notification Upon Sale of Shares. Each Participant agrees, by entering the Plan, to give the Company prompt notice of any disposition of shares purchased under the Plan where such disposition occurs within two years after the date of grant of the Option pursuant to which such shares were purchased or within one year after the date such shares were purchased.

26. Effective Date and Approval of Shareholders. The Plan shall take effect on the date of the Company’s Initial Public Offering, subject to approval by the holders of a majority of the votes cast at a meeting of the stockholders at which a quorum is present or by written consent of the stockholders.

 

DATE APPROVED BY BOARD OF DIRECTORS:    March 14, 2018

DATE APPROVED BY STOCKHOLDERS:

 

11


EX-10.10

Exhibit 10.10

SURFACE ONCOLOGY, INC.

SENIOR EXECUTIVE CASH INCENTIVE BONUS PLAN

1. Purpose

This Senior Executive Cash Incentive Bonus Plan (the “Incentive Plan”) is intended to provide an incentive for superior work and to motivate eligible executives of Surface Oncology, Inc. (the “Company”) and its subsidiaries toward even higher achievement and business results, to tie their goals and interests to those of the Company and its stockholders and to enable the Company to attract and retain highly qualified executives. The Incentive Plan is for the benefit of Covered Executives (as defined below).

2. Covered Executives

From time to time, the Compensation Committee of the Board of Directors of the Company (the “Compensation Committee”) may select certain key executives (the “Covered Executives”) to be eligible to receive bonuses hereunder. Participation in this Plan does not change the “at will” nature of a Covered Executive’s employment with the Company.

3. Administration

The Compensation Committee shall have the sole discretion and authority to administer and interpret the Incentive Plan.

4. Bonus Determinations

(a) Corporate Performance Goals. A Covered Executive may receive a bonus payment under the Incentive Plan based upon the attainment of one or more performance objectives that are established by the Compensation Committee and relate to financial and operational metrics with respect to the Company or any of its subsidiaries (the “Corporate Performance Goals”), including the following: research and development, publication, clinical and/or regulatory milestones; adjusted billings; cash flow (including, but not limited to, operating cash flow and free cash flow); revenue; corporate revenue; earnings before interest, taxes, depreciation and amortization; net income (loss) (either before or after interest, taxes, depreciation and/or amortization); changes in the market price of the Company’s common stock; economic value-added; funds from operations or similar measure; sales or revenue; acquisitions or strategic transactions, including licenses, collaborations, joint ventures or promotion arrangements; operating income (loss); return on capital, assets, equity, or investment; stockholder returns; return on sales; gross or net profit levels; productivity; expense efficiency; margins; operating efficiency; customer satisfaction; working capital; earnings (loss) per share of the Company’s common stock; bookings, new bookings or renewals; sales or market shares; number of customers, number of new customers or customer references; revenue; corporate revenue; operating income and/or net annual recurring revenue, any of which may be (A) measured in absolute terms or compared to any incremental increase, (B) measured in terms of growth, (C) compared to another company or companies or to results of a peer group, (D) measured against the market as a whole and/or as compared to applicable market indices and/or


(E) measured on a pre-tax or post-tax basis (if applicable). Further, any Corporate Performance Goals may be used to measure the performance of the Company as a whole or a business unit or other segment of the Company, or one or more product lines or specific markets. The Corporate Performance Goals may differ from Covered Executive to Covered Executive.

(b) Calculation of Corporate Performance Goals. At the beginning of each applicable performance period, the Compensation Committee will determine whether any significant element(s) will be included in or excluded from the calculation of any Corporate Performance Goal with respect to any Covered Executive. In all other respects, Corporate Performance Goals will be calculated in accordance with the Company’s financial statements, generally accepted accounting principles, or under a methodology established by the Compensation Committee at the beginning of the performance period and which is consistently applied with respect to a Corporate Performance Goal in the relevant performance period.

(c) Target; Minimum; Maximum. Each Corporate Performance Goal shall have a “target” (100 percent attainment of the Corporate Performance Goal) and may also have a “minimum” hurdle and/or a “maximum” amount.

(d) Bonus Requirements; Individual Goals. Except as otherwise set forth in this Section 4(d): (i) any bonuses paid to Covered Executives under the Incentive Plan shall be based upon objectively determinable bonus formulas that tie such bonuses to one or more performance targets relating to the Corporate Performance Goals, (ii) bonus formulas for Covered Executives shall be adopted in each performance period by the Compensation Committee and communicated to each Covered Executive at the beginning of each performance period and (iii) no bonuses shall be paid to Covered Executives unless and until the Compensation Committee makes a determination with respect to the attainment of the performance targets relating to the Corporate Performance Goals. Notwithstanding the foregoing, the Compensation Committee may adjust bonuses payable under the Incentive Plan based on achievement of one or more individual performance objectives or pay bonuses (including, without limitation, discretionary bonuses) to Covered Executives under the Incentive Plan based on individual performance goals and/or upon such other terms and conditions as the Compensation Committee may in its discretion determine.

(e) Individual Target Bonuses. The Compensation Committee shall establish a target bonus opportunity for each Covered Executive for each performance period. For each Covered Executive, the Compensation Committee shall have the authority to apportion the target award so that a portion of the target award shall be tied to attainment of Corporate Performance Goals and a portion of the target award shall be tied to attainment of individual performance objectives.

(f) Employment Requirement. Subject to any additional terms contained in a written agreement between the Covered Executive and the Company, the payment of a bonus to a Covered Executive with respect to a performance period shall be conditioned upon the Covered Executive’s employment by the Company on the bonus payment date. If a Covered Executive was not employed for an entire performance period, the Compensation Committee may pro rate the bonus based on the number of days employed during such period.


5. Timing of Payment

(a) With respect to Corporate Performance Goals established and measured on a basis more frequently than annually (e.g., quarterly or semi-annually), the Corporate Performance Goals will be measured at the end of each performance period after the Company’s financial reports with respect to such period(s) have been published. If the Corporate Performance Goals and/or individual goals for such period are met, payments will be made as soon as practicable following the end of such period, but not later 74 days after the end of the fiscal year in which such performance period ends.

(b) With respect to Corporate Performance Goals established and measured on an annual or multi-year basis, Corporate Performance Goals will be measured as of the end of each such performance period (e.g., the end of each fiscal year) after the Company’s financial reports with respect to such period(s) have been published. If the Corporate Performance Goals and/or individual goals for any such period are met, bonus payments will be made as soon as practicable, but not later than 74 days after the end of the relevant fiscal year.

(c) For the avoidance of doubt, bonuses earned at any time in a fiscal year must be paid no later than 74 days after the last day of such fiscal year.

6. Amendment and Termination

The Company reserves the right to amend or terminate the Incentive Plan at any time in its sole discretion.


EX-10.11

Exhibit 10.11

EMPLOYMENT AGREEMENT

This Employment Agreement (the “Agreement”) is by and between Surface Oncology, Inc. (the “Company”) and Scott Chappel, Ph.D. (the “Executive”) and is made effective as of the closing of the Company’s first underwritten public offering of its equity securities pursuant to an effective registration statement under the Securities Act of 1933, as amended (the “Effective Date”). Except with respect to the Restrictive Covenants Agreements and the Equity Documents (each as defined below), this Agreement supersedes, amends and restates in all respects all prior agreements between the Executive and the Company regarding the subject matter herein, including without limitation any offer letter, employment agreement or severance agreement.

1. Employment Term. The Company and the Executive desire to continue their employment relationship, pursuant to this Agreement commencing as of the date hereof and continuing in effect until terminated by either party in accordance with this Agreement (the “Term”). The Executive’s employment with the Company will continue to be “at will,” meaning that the Executive’s employment may be terminated by the Company or the Executive at any time and for any reason subject to the terms of this Agreement. If the Executive’s employment with the Company is terminated for any reason, the Company shall pay or provide to the Executive (or to his authorized representative or estate) any earned but unpaid Base Salary (as defined below), unpaid expense reimbursements in accordance with Company policy, accrued but unused vacation, if any, and any vested benefits the Executive may have under any employee benefit plan of the Company (collectively, the “Accrued Obligations”).

2. Position and Duties. The Executive shall hold the position of Chief Technology Officer. The Executive will have such powers and duties as may from time to time be prescribed by the Company’s Chief Executive Officer (the “CEO”) or another designated Company executive. The Executive shall devote his full working time and best efforts, skill, knowledge, attention and energies to the business and affairs of the Company and to the performance of the Executive’s duties and responsibilities as an employee of the Company. While the Executive renders services to the Company, he will not engage in any other employment, consulting or other business activity (whether full-time or part-time) without prior written authorization from the CEO. Notwithstanding the foregoing, the Executive may engage in religious, charitable or other community activities as long as such services and activities do not interfere with the Executive’s performance of his duties to the Company. The Executive reaffirms that he has no contractual commitments or other legal obligations that would prohibit him from fully performing his duties for the Company. The Executive shall be based at the Company’s headquarters, currently in Cambridge, Massachusetts.

3. Compensation and Related Matters.

(a) Base Salary. The Executive’s annual base salary is $359,000, which is subject to review and redetermination by the Company. The annual base salary in effect at any given time is referred to herein as “Base Salary.” The Base Salary will be payable in a manner that is consistent with the Company’s usual payroll practices for executive employees.


(b) Bonus. During the Term, the Executive will be eligible to be considered for annual cash bonus as determined by the Company. The Executive’s annual target bonus is 35% of the Base Salary, which is subject to review and redetermination by the Board or the Compensation Committee. The annual target bonus in effect at any given time is referred to herein as the “Target Bonus.” The actual bonus shall be discretionary and shall be subject to terms and conditions of any applicable bonus plan as may be adopted from time to time. The Executive’s bonus, if any, will be paid by March 15 of the year following the applicable bonus year. To earn a bonus, the Executive must be employed by the Company on the day such bonus is paid.

(c) Employee Benefits. During the Term, the Executive will be entitled to continue to participate in the Company’s employee benefit plans and programs, subject to the terms and the conditions of such plans and to the Company’s ability to amend, modify, replace or terminate such plans and programs.

(d) Equity. The equity awards held by the Executive shall be governed by the terms and conditions of the Company’s applicable equity incentive plan(s), the applicable award agreement(s) governing the terms of such equity awards held by the Executive, and Section 3(a) of the Executive’s prior offer letter dated July 15, 2014 (as modified by the “Accelerated Vesting Waiver” in the Incentive Stock Option Agreement under the Surface Oncology 2014 Stock Option Grant and Plan dated March 2, 2018, the “Modified Acceleration Provision”) (collectively, the “Equity Documents”); provided, however, and notwithstanding anything to the contrary in the Equity Documents, Section 6(c) of this Agreement shall apply in the event of a Qualified Termination Event within the Change in Control Period (as defined below) and to the extent accelerated vesting did not already occur upon a Change in Control in accordance with the Modified Acceleration Provision.

(e) Reimbursement of Business Expenses. The Company shall reimburse the Executive for business expenses reasonably and necessarily incurred by the Executive in connection with the Company’s business. Expense reimbursement shall be subject to the policies the Company may adopt from time to time, including with respect to pre-approval and limitations. Any reimbursement in one calendar year shall not affect the amount that may be reimbursed in any other calendar year and a reimbursement (or right thereto) may not be exchanged or liquidated for another benefit or payment. Any business expense reimbursements subject to Section 409A of the Code shall be made no later than the end of the calendar year following the calendar year in which such business expense is incurred by the Executive.

4. Certain Definitions.

(a) Change in Control. “Change in Control” means (i) the sale of all or substantially all of the assets of the Company on a consolidated basis to an unrelated person or entity, (ii) a merger, reorganization or consolidation pursuant to which the holders of the Company’s outstanding voting power and outstanding stock immediately prior to such transaction do not own a majority of the outstanding voting power and outstanding stock or other equity interests of the resulting or successor entity (or its ultimate parent, if applicable) immediately upon completion of such transaction, (iii) the sale of all of the outstanding voting

 

2


stock of the Company to an unrelated person, entity or group thereof acting in concert, or (iv) any other transaction in which the owners of the Company’s outstanding voting power immediately prior to such transaction do not own at least a majority of the outstanding voting power of the Company or any successor entity immediately upon completion of the transaction other than as a result of the acquisition of securities directly from the Company; provided, however, that the Company’s Initial Public Offering, any subsequent public offering or another capital raising event, or a merger effected solely to change the Company’s domicile shall not constitute a “Change in Control.”

(b) Change in Control Period. “Change in Control Period” means the period beginning on the date of a Change in Control and ending on the one-year anniversary of the Change in Control.

(c) Disability. An Executive becomes “Disabled” for purposes of this Agreement if through any illness, injury, accident or condition of either a physical or psychological nature the Executive becomes unable to perform substantially all of his duties and responsibilities for a continuous period of thirteen (13) consecutive weeks or for any twenty (20) weeks within a fifty-two (52) week period. Determinations as to whether Executive is Disabled shall be made by a physician selected by the Board or its insurers and acceptable to the Executive or the Executive’s legal representative, such agreement as to acceptability not to be unreasonably withheld or delayed. In the interest of clarity, the Board may designate another employee to act in the Executive’s place during any period the Executive becomes unable to perform substantially all of his duties and responsibilities.

(d) Qualified Termination Event. A “Qualified Termination Event” means termination of the Executive’s employment by the Company under the circumstances set forth below in Section 4(d)(i) (Termination by the Company without Cause) or Section 4(d)(ii) (“The Executive’s Resignation for Good Reason”), in any event subject to provisions in Section 4(e).

(i) Termination by the Company without Cause. Termination by the Company of the Executive’s employment without Cause. For purposes of this Agreement, “Cause” means the Executive’s:

(A) unauthorized use or disclosure of the Company’s confidential information or trade secrets, which use or disclosure causes material harm to the Company;

(B) material breach of any agreement between the Executive and the Company;

(C) material failure to comply with the Company’s written policies or rules;

(D) conviction of, or plea of “guilty” or “no contest” to, a felony under the laws of the United States or any State;

 

3


(E) gross negligence or willful misconduct in the performance of the Executive’s duties to the Company;

(F) continuing failure to perform assigned duties after receiving written notification of the failure from the Board of Directors; or

(G) failure to cooperate in good faith with a governmental or internal investigation of the Company or its directors, officers or employees, if the Company has requested the Executive’s cooperation.

(ii) The Executive’s Resignation for Good Reason. The Executive’s resignation of his employment with the Company for Good Reason. For purposes of this Agreement, “Good Reason” means that the Executive has complied with the “Good Reason Process” (hereinafter defined) following the occurrence of any of the following events:

(A) a reduction in the Executive’s Base Salary (as pro-rated based on the Executive’s business time devoted to the Company) by more than 10%;

(B) a material diminution of the Executive’s authority, duties or responsibilities; or

(C) a relocation of the Executive’s principal workplace by more than 30 miles.

“Good Reason Process” means that (i) the Executive reasonably determines in good faith that a “Good Reason” condition has occurred; (ii) the Executive notifies the Company in writing of the first occurrence of the Good Reason condition within 90 days of the first occurrence of such condition; (iii) the Executive cooperates in good faith with the Company’s efforts, for a period not less than 30 days following such notice (the “Cure Period”), to remedy the condition; (iv) notwithstanding such efforts, the Good Reason condition continues to exist; and (v) the Executive terminates his employment within 30 days after the end of the Cure Period. If the Company cures the Good Reason condition during the Cure Period, Good Reason shall be deemed not to have occurred.

(e) A Qualified Termination Event shall not be deemed to have occurred pursuant to this Section as a result of: (i) the ending of the Executive’s employment due to the Executive’s death or Disability, (ii) the Executive’s resignation for any reason, other than for Good Reason, (iii) the Company’s termination of the employment relationship for Cause; or (iv) solely as a result of the Executive being or becoming an employee of any direct or indirect successor to the business or assets of the Company rather than continuing as an employee of the Company following a Change in Control.

5. Termination. During the Term, the Executive’s employment hereunder may be terminated without any breach of this Agreement under the following circumstances:

 

4


(a) Death. The Executive’s employment hereunder shall terminate upon his death.

(b) Disability. The Company may terminate the Executive’s employment if he is Disabled, as defined above.

(c) Termination by the Company for Cause. The Company may terminate the Executive’s employment hereunder for Cause.

(d) Termination by the Company without Cause. The Company may terminate the Executive’s employment hereunder at any time without Cause.

(e) Termination by the Executive. The Executive may terminate his employment hereunder at any time for any reason, including but not limited to Good Reason.

6. Severance and Accelerated Vesting if a Qualified Termination Event Occurs within the Change in Control Period. In the event a Qualified Termination Event occurs within the Change in Control Period, subject to the Executive signing and complying with a separation agreement in a form and manner satisfactory to the Company containing, among other provisions, a general release of claims in favor of the Company and related persons and entities, confidentiality, return of property, non-disparagement and reaffirmation of any restrictive covenants (the “Separation Agreement and Release”) and the Separation Agreement and Release becoming irrevocable, all within the time period set forth in the Separation Agreement and Release but in no event more than 60 days after the Date of Termination, the following shall occur:

(a) the Company shall pay to the Executive an amount equal to the sum of twelve (12) months the Executive’s Base Salary in effect immediately prior to the Qualified Termination Event (or the Executive’s Base Salary in effect immediately prior to the Change in Control, if higher) plus one (1) times the amount of the Executive’s Target Bonus;

(b) if the Executive was participating in the Company’s group health plan immediately prior to the Date of Termination and elects COBRA health continuation, then the Company shall pay to the Executive a lump sum cash payment in an amount equal to the monthly employer contribution that the Company would have made to provide health insurance to the Executive if the Executive had remained employed by the Company for twelve (12) months after the Date of Termination, based on the premiums as of the Date of Termination; and

(c) 100% of all time-based equity awards held by the Executive shall immediately accelerate and become fully exercisable or nonforfeitable as of the Date of Termination.

The amounts payable under Section 6(a) and (b), as applicable, shall be paid out in a lump sum within 60 days after the Date of Termination; provided, however, that if the 60-day period begins in one calendar year and ends in a second calendar year, the amounts shall be paid in the second calendar year no later than the last day of the 60-day period.

 

5


7. Severance if a Qualified Termination Event Occurs Outside the Change in Control Period. In the event a Qualified Termination Event occurs at any time other than during the Change in Control Period, subject to the Executive signing and not revoking the Separation Agreement and Release, all within the time period set forth in the Separation Agreement and Release but in no event more than 60 days after the Date of Termination, and subject to the Executive complying with the Separation Agreement and Release, the following shall occur:

(a) the Company shall pay to the Executive an amount equal to the sum of nine (9) months of the Executive’s annual Base Salary in effect immediately prior to the Qualified Termination Event; and

(b) if the Executive was participating in the Company’s group health plan immediately prior to the Date of Termination and elects COBRA health continuation, then the Company shall pay to the Executive a monthly cash payment for nine (9) months or the Executive’s COBRA health continuation period, whichever ends earlier, in an amount equal to the monthly employer contribution that the Company would have made to provide health insurance to the Executive if the Executive had remained employed by the Company, based on the premiums as of the Date of Termination.

The amounts payable under Section 7(a) and (b) shall be paid out in substantially equal installments in accordance with the Company’s payroll practice over nine (9) months commencing within 60 days after the Date of Termination; provided, however, that if the 60-day period begins in one calendar year and ends in a second calendar year, the severance shall begin to be paid in the second calendar year by the last day of such 60-day period; provided further, that the initial payment shall include a catch-up payment to cover amounts retroactive to the day immediately following the Date of Termination. Each payment pursuant to this Agreement is intended to constitute a separate payment for purposes of Treasury Regulation Section 1.409A-2(b)(2).

8. Restrictive Covenants Agreement. The terms of the Employee Non-Competition, Non-Solicitation, Confidentiality and Assignment Agreement dated July 1, 2014 (the “2014 Restrictive Covenants Agreement”) and the Employee Non-Competition, Non-Solicitation, Confidentiality and Assignment Agreement dated May 3, 2017 between the Company and the Executive, attached hereto as Exhibit A (the “2017 Restrictive Covenants Agreement”) continue to be in full force and effect. The 2014 Restrictive Covenants Agreement and the 2017 Restrictive Covenants Agreement are collectively referred to as the “Restrictive Covenants Agreements.” The Executive agrees that the term “Company,” as used in the Restrictive Covenants Agreements, shall mean the Company, its subsidiaries and other affiliates, and its and their successors and assigns. The Executive hereby reaffirms the terms of both Restrictive Covenants Agreements, as modified herein, as material terms of this Agreement and agrees and acknowledges that such terms are incorporated by reference in this Agreement. The Executive and the Company agree that in the event of any inconsistencies between the 2014 Restrictive Covenants Agreement and the 2017 Restrictive Covenants Agreement, the 2017 Restrictive Covenants Agreement will be controlling.

(a) Third-Party Agreements and Rights. The Executive hereby confirms that the Executive is not bound by the terms of any agreement with any previous employer or other party that restricts in any way the Executive’s use or disclosure of information or the Executive’s engagement in any business. The Executive represents to the Company that the Executive’s execution of this Agreement, the Executive’s employment with the Company and the performance of the Executive’s proposed duties for the Company will not violate any obligations

 

6


the Executive may have to any such previous employer or other party. In the Executive’s work for the Company, the Executive will not disclose or make use of any information in violation of any agreements with or rights of any such previous employer or other party, and the Executive will not bring to the premises of the Company any copies or other tangible embodiments of non-public information belonging to or obtained from any such previous employment or other party.

(b) Litigation and Regulatory Cooperation. During and after the Executive’s employment, the Executive shall cooperate fully with the Company in the defense or prosecution of any claims or actions now in existence or which may be brought in the future against or on behalf of the Company which relate to events or occurrences that transpired while the Executive was employed by the Company. The Executive’s full cooperation in connection with such claims or actions shall include, but not be limited to, being available to meet with counsel to prepare for discovery or trial and to act as a witness on behalf of the Company at mutually convenient times. During and after the Executive’s employment, the Executive also shall cooperate fully with the Company in connection with any investigation or review of any federal, state or local regulatory authority as any such investigation or review relates to events or occurrences that transpired while the Executive was employed by the Company. The Company shall reimburse the Executive for any reasonable out-of-pocket expenses incurred in connection with the Executive’s performance of obligations pursuant to this Section 8(b).

(c) Relief. The Executive agrees that it would be difficult to measure any damages caused to the Company which might result from any breach by the Executive of the promises set forth in this Section 8, and that in any event money damages would be an inadequate remedy for any such breach. Accordingly, the Executive agrees that if the Executive breaches, or proposes to breach, any portion of this Agreement, the Company shall be entitled, in addition to all other remedies that it may have, to an injunction or other appropriate equitable relief to restrain any such breach without showing or proving any actual damage to the Company. In addition, in the event the Executive breaches either of the Restrictive Covenants Agreements during a period when he is receiving severance payments pursuant to Section 6 or 7, the Company shall have the right to suspend or terminate such severance payments. Such suspension or termination shall not limit the Company’s other options with respect to relief for such breach and shall not relieve the Executive of his duties under this Agreement.

(d) Protected Disclosures and Other Protected Actions. Nothing in this Agreement shall be interpreted or applied to prohibit the Executive from making any good faith report to any governmental agency or other governmental entity (a “Government Agency”) concerning any act or omission that the Executive reasonably believes constitutes a possible violation of federal or state law or making other disclosures that are protected under the anti-retaliation or whistleblower provisions of applicable federal or state law or regulation. In addition, nothing contained in this Agreement limits the Executive’s ability to communicate with any Government Agency or otherwise participate in any investigation or proceeding that may be conducted by any Government Agency, including the Executive’s ability to provide documents or other information, without notice to the Company. In addition, for the avoidance of doubt, pursuant to the federal Defend Trade Secrets Act of 2016, the Executive shall not be held criminally or civilly liable under any federal or state trade secret law or under this Agreement or the Restrictive Covenants Agreements for the disclosure of a trade secret that (a) is made (i) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (b) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.

 

7


9. Additional Limitation.

(a) Anything in this Agreement to the contrary notwithstanding, in the event that the amount of any compensation, payment or distribution by the Company to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, calculated in a manner consistent with Section 280G of the Code and the applicable regulations thereunder (the “Aggregate Payments”), would be subject to the excise tax imposed by Section 4999 of the Code, then the Aggregate Payments shall be reduced (but not below zero) so that the sum of all of the Aggregate Payments shall be $1.00 less than the amount at which the Executive becomes subject to the excise tax imposed by Section 4999 of the Code; provided that such reduction shall only occur if it would result in the Executive receiving a higher After Tax Amount (as defined below) than the Executive would receive if the Aggregate Payments were not subject to such reduction. In such event, the Aggregate Payments shall be reduced in the following order, in each case, in reverse chronological order beginning with the Aggregate Payments that are to be paid the furthest in time from consummation of the transaction that is subject to Section 280G of the Code: (1) cash payments not subject to Section 409A of the Code; (2) cash payments subject to Section 409A of the Code; (3) equity-based payments and acceleration; and (4) non-cash forms of benefits; provided that in the case of all the foregoing Aggregate Payments all amounts or payments that are not subject to calculation under Treas. Reg. §1.280G-1, Q&A-24(b) or (c) shall be reduced before any amounts that are subject to calculation under Treas. Reg. §1.280G-1, Q&A-24(b) or (c).

(b) For purposes of this Section 9, the “After Tax Amount” means the amount of the Aggregate Payments less all federal, state, and local income, excise and employment taxes imposed on the Executive as a result of the Executive’s receipt of the Aggregate Payments. For purposes of determining the After Tax Amount, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation applicable to individuals for the calendar year in which the determination is to be made, and state and local income taxes at the highest marginal rates of individual taxation in each applicable state and locality, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes.

(c) The determination as to whether a reduction in the Aggregate Payments shall be made pursuant to Section 9 shall be made by a nationally recognized accounting firm selected by the Company (the “Accounting Firm”), which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the Date of Termination, if applicable, or at such earlier time as is reasonably requested by the Company or the Executive. Any determination by the Accounting Firm shall be binding upon the Company and the Executive.

 

8


10. Section 409A.

(a) Anything in this Agreement to the contrary notwithstanding, if at the time of the Executive’s “separation from service” within the meaning of Section 409A of the Code, the Company determines that the Executive is a “specified employee” within the meaning of Section 409A(a)(2)(B)(i) of the Code, then to the extent any payment or benefit that the Executive becomes entitled to under this Agreement on account of the Executive’s separation from service would be considered deferred compensation subject to the 20 percent additional tax imposed pursuant to Section 409A(a) of the Code as a result of the application of Section 409A(a)(2)(B)(i) of the Code, such payment shall not be payable and such benefit shall not be provided until the date that is the earlier of (A) six months and one day after the Executive’s separation from service, or (B) the Executive’s death.

(b) The parties intend that this Agreement will be administered in accordance with Section 409A of the Code. To the extent that any provision of this Agreement is ambiguous as to its compliance with Section 409A of the Code, the provision shall be read in such a manner so that all payments hereunder comply with Section 409A of the Code. The parties agree that this Agreement may be amended, as reasonably requested by either party, and as may be necessary to fully comply with Section 409A of the Code and all related rules and regulations in order to preserve the payments and benefits provided hereunder without additional cost to either party.

(c) All in-kind benefits provided and expenses eligible for reimbursement under this Agreement shall be provided by the Company or incurred by the Executive during the time periods set forth in this Agreement. All reimbursements shall be paid as soon as administratively practicable, but in no event shall any reimbursement be paid after the last day of the taxable year following the taxable year in which the expense was incurred. The amount of in-kind benefits provided or reimbursable expenses incurred in one taxable year shall not affect the in-kind benefits to be provided or the expenses eligible for reimbursement in any other taxable year. Such right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit.

(d) To the extent that any payment or benefit described in this Agreement constitutes “non-qualified deferred compensation” under Section 409A of the Code, and to the extent that such payment or benefit is payable upon the Executive’s termination of employment, then such payments or benefits shall be payable only upon the Executive’s “separation from service.” The determination of whether and when a separation from service has occurred shall be made in accordance with the presumptions set forth in Treasury Regulation Section 1.409A-1(h).

(e) The Company makes no representation or warranty and shall have no liability to the Executive or any other person if any provisions of this Agreement are determined to constitute deferred compensation subject to Section 409A of the Code but do not satisfy an exemption from, or the conditions of, such Section.

 

9


11. Withholding. All payments made by the Company to the Executive under this Agreement shall be net of any tax or other amounts required to be withheld by the Company under applicable law.

12. Notice and Date of Termination.

(a) Notice of Termination. During the Term, any termination of the Executive’s employment (other than by reason of death) shall be communicated by written Notice of Termination from one party hereto to the other party hereto in accordance with this Section 12. For purposes of this Agreement, a “Notice of Termination” shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon.

(b) Date of Termination. “Date of Termination” shall mean: (i) if the Executive’s employment is terminated by his death, the date of the Executive’s death; (ii) if the Executive’s employment is terminated on account of Executive’s Disability, by the Company for Cause, or by the Company without Cause, the date on which Notice of Termination is given; (iii) if the Executive’s employment is terminated by the Executive for any reason except for Good Reason, 30 days after the date on which a Notice of Termination is given, and (v) if the Executive’s employment is terminated by the Executive for Good Reason, the date on which a Notice of Termination is given after the end of the Cure Period. Notwithstanding the foregoing, in the event that the Executive gives a Notice of Termination to the Company, the Company may unilaterally accelerate the Date of Termination and such acceleration shall not result in a termination by the Company for purposes of this Agreement.

13. Representations and Warranties. The Executive represents that he has not been debarred under Subsection (a) or (b) of Section 306 of the United States Federal Food, Drug, and Cosmetic Act (21 U.S.C. 335a); and is not on any of the FDA clinical investigator enforcement lists (including the (i) Disqualified/Totally Restricted List, (ii) Restricted List and (iii) Adequate Assurances List).

14. No Mitigation. The Company agrees that, if the Executive’s employment by the Company is terminated during the term of this Agreement, the Executive is not required to seek other employment or to attempt in any way to reduce any amounts payable to the Executive by the Company pursuant to Section 6 or Section 7 hereof. Further, the amount of any payment provided for in this Agreement shall not be reduced by any compensation earned by the Executive as the result of employment by another employer.

15. Consent to Jurisdiction. The parties hereby consent to the jurisdiction of the state and federal courts in the Commonwealth of Massachusetts. Accordingly, with respect to any such court action, the Executive (a) submits to the personal jurisdiction of such courts; (b) consents to service of process; and (c) waives any other requirement (whether imposed by statute, rule of court, or otherwise) with respect to personal jurisdiction or service of process.

16. Integration. This Agreement constitutes the entire agreement between the parties with respect to compensation, severance pay, benefits and accelerated vesting and supersedes in all respects all prior agreements between the parties concerning such subject matter, including without limitation any offer letter, employment agreement or severance agreement relating to the

 

10


Executive’s employment relationship with the Company and/or the ending of that employment relationship. Notwithstanding the foregoing, the Restrictive Covenants Agreements, the Equity Documents, each as modified herein, and any other agreement relating to confidentiality, noncompetition, nonsolicitation or assignment of inventions shall not be superseded by this Agreement and the Executive acknowledges and agrees that any such agreements remain in full force and effect.

17. Successor to the Executive. This Agreement shall inure to the benefit of and be enforceable by the Executive’s personal representatives, executors, administrators, heirs, distributees, devisees and legatees. In the event of the Executive’s death after a Qualified Termination Event but prior to the completion by the Company of all payments due to the Executive under this Agreement, the Company shall continue such payments to the Executive’s beneficiary designated in writing to the Company prior to his death (or to the Executive’s estate, if the Executive fails to make such designation).

18. Enforceability. If any portion or provision of this Agreement (including, without limitation, any portion or provision of any Section of this Agreement) shall to any extent be declared illegal or unenforceable by a court of competent jurisdiction, then the remainder of this Agreement, or the application of such portion or provision in circumstances other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.

19. Waiver. No waiver of any provision hereof shall be effective unless made in writing and signed by the waiving party. The failure of any party to require the performance of any term or obligation of this Agreement, or the waiver by any party of any breach of this Agreement, shall not prevent any subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach.

20. Notices. Any notices, requests, demands and other communications provided for by this Agreement shall be sufficient if in writing and delivered in person or sent by a nationally recognized overnight currier service of by registered or certified mail, postage prepaid, return receipt requested, to the Executive at the last address the Executive has filed in writing with the Company, or to the Company at its main office, attention of the Board of Directors.

21. Amendment. This Agreement may be amended or modified only by a written instrument signed by the Executive and by a duly authorized representative of the Company.

22. Effect on Other Plans and Agreements. An election by the Executive to resign for Good Reason under the provisions of this Agreement shall not be deemed a voluntary termination of employment by the Executive for the purpose of interpreting the provisions of any of the Company’s benefit plans, programs or policies. Nothing in this Agreement shall be construed to limit the rights of the Executive under the Company’s benefit plans, programs or policies except as otherwise provided in Section 8 hereof, and except that the Executive shall have no rights to any severance benefits under any Company severance pay plan, offer letter or otherwise. In the event that the Executive is party to an agreement with the Company providing for payments or benefits under such agreement and this Agreement, the terms of this Agreement

 

11


shall govern and the Executive may receive payment under this Agreement only and not both. Further, Section 6 and Section 7 of this Agreement are mutually exclusive and in no event shall the Executive be entitled to payments or benefits pursuant to Section 6 and Section 7 of this Agreement.

23. Governing Law. This is a Massachusetts contract and shall be construed under and be governed in all respects by the laws of the Commonwealth of Massachusetts, without giving effect to the conflict of laws principles.

24. Successor to Company. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company expressly to assume and agree to perform this Agreement to the same extent that the Company would be required to perform it if no succession had taken place. Failure of the Company to obtain an assumption of this Agreement at or prior to the effectiveness of any succession shall be a material breach of this Agreement.

25. Gender Neutral. Wherever used herein, a pronoun in the masculine gender shall be considered as including the feminine gender unless the context clearly indicates otherwise.

26. Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be taken to be an original; but such counterparts shall together constitute one and the same document.

[Signature Page Follows]

 

12


IN WITNESS WHEREOF, the parties have executed this Agreement effective on the Effective Date.

 

SURFACE ONCOLOGY, INC.
By:    
Name:  
Title:  
EXECUTIVE:
 
Scott Chappel, Ph.D.
Chief Technology Officer

[Signature Page to the Employment Agreement]


EXHIBIT A

RESTRICTIVE COVENANTS AGREEMENT


SURFACE ONCOLOGY, INC.

Employee Non-Competition, Non-Solicitation, Confidentiality and Assignment Agreement

In consideration and as a condition of my employment or continued employment by Surface Oncology, Inc. (along with its subsidiaries and affiliates, the “Company”), I agree as follows:

 

1. Proprietary Information. I agree that all information, whether or not in writing, concerning the Company’s business, technology, business relationships or financial affairs which the Company has not released to the general public (collectively, “Proprietary Information”) is and will be the exclusive property of the Company. By way of illustration, Proprietary Information may include information or material which has not been made generally available to the public, such as: (a) corporate information, including plans, strategies, methods, policies, resolutions, negotiations or litigation; (b) marketing information, including strategies, methods, customer identities or other information about customers, prospect identities or other information about prospects, or market analyses or projections; (c) financial information, including cost and performance data, debt arrangements, equity structure, investors and holdings, purchasing and sales data and price lists; and (d) operational and technological information, including plans, specifications, manuals, forms, templates, software, designs, methods, procedures, formulas, discoveries, inventions, improvements, concepts and ideas; and (e) personnel information, including personnel lists, reporting or organizational structure, resumes, personnel data, compensation structure, performance evaluations and termination arrangements or documents. Proprietary Information also includes information received in confidence by the Company from its customers or suppliers or other third parties.

2. Recognition of Company’s Rights. I will not, at any time, without the Company’s prior written permission, either during or after my employment, disclose any Proprietary Information to anyone outside of the Company, or use or permit to be used any Proprietary Information for any purpose other than the performance of my duties as an employee of the Company. I will cooperate with the Company and use my best efforts to prevent the unauthorized disclosure of all Proprietary Information. I will deliver to the Company all copies of Proprietary Information in my possession or control upon the earlier of a request by the Company or termination of my employment.

3. Rights of Others. I understand that the Company is now and may hereafter be subject to non-disclosure or confidentiality agreements with third persons which require the Company to protect or refrain from use of proprietary information. I agree to be bound by the terms of such agreements in the event I have access to such proprietary information.

4. Commitment to Company; Avoidance of Conflict of Interest. While an employee of the Company, I will devote my full-time efforts to the Company’s business and I will not engage in any other business activity that conflicts with my duties to the Company. I will advise the president of the Company or his or her nominee at such time as any activity of

either the Company or another business presents me with a conflict of interest or the appearance of a conflict of interest as an employee of the Company. I will take whatever action is requested of me by the Company to resolve any conflict or appearance of conflict which it finds to exist.

5. Developments. I will make full and prompt disclosure to the Company of all inventions, discoveries, designs, developments, methods, modifications, improvements, processes, algorithms, databases, computer programs, formulae, techniques, trade secrets, graphics or images, and audio or visual works and other works of authorship (collectively “Developments”), whether or not patentable or copyrightable, that are created, made, conceived or reduced to practice by me (alone or jointly with others) or under my direction during the period of my employment. I acknowledge that all work performed by me is on a “work for hire” basis, and I hereby do assign and transfer and, to the extent any such assignment cannot be made at present, will assign and transfer, to the Company and its successors and assigns all my right, title and interest in all Developments that (a) relate to the business of the Company or any customer of or supplier to the Company or any of the products or services being researched, developed, manufactured or sold by the Company or which may be used with such products or services; or (b) result from tasks assigned to me by the Company; or (c) result from the use of premises or personal property (whether tangible or intangible) owned, leased or contracted for by the Company (“Company-Related Developments”), and all related patents, patent applications, trademarks and trademark applications, copyrights and copyright applications, and other intellectual property rights in all countries and territories worldwide and under any international conventions (“Intellectual Property Rights”).

To preclude any possible uncertainty, I have set forth on Exhibit A attached hereto a complete list of Developments that I have, alone or jointly with others, conceived, developed or reduced to practice prior to the commencement of my employment with the Company that I consider to be my property or the property of third parties and that I wish to have excluded from the scope of this Agreement (“Prior Inventions”). If disclosure of any such Prior Invention would cause me to violate any prior confidentiality agreement, I understand that I am not to list such Prior Inventions in Exhibit A but am only to disclose a cursory name for each such invention, a listing of the party(ies) to whom it belongs and the fact that full disclosure as to such inventions has not been made for that reason. I have also listed on Exhibit A all patents and patent applications in which I am named as an inventor, other than those which have been assigned to the Company (“Other Patent Rights”). If no such disclosure is attached, I represent that there are no Prior Inventions or Other Patent Rights. If, in the course of my employment with the Company, I incorporate a Prior Invention into a Company product, process or machine or other work done for the

 


Company, I hereby grant to the Company a nonexclusive, royalty-free, paid-up, irrevocable, worldwide license (with the full right to sublicense) to make, have made, modify, use, sell, offer for sale and import such Prior Invention. Notwithstanding the foregoing, I will not incorporate, or permit to be incorporated, Prior Inventions in any Company-Related Development without the Company’s prior written consent.

This Agreement does not obligate me to assign to the Company any Development which, in the sole judgment of the Company, reasonably exercised, is developed entirely on my own time and does not relate to the business efforts or research and development efforts in which, during the period of my employment, the Company actually is engaged or reasonably would be engaged, and does not result from the use of premises or equipment owned or leased by the Company. However, I will also promptly disclose to the Company any such Developments for the purpose of determining whether they qualify for such exclusion. I understand that to the extent this Agreement is required to be construed in accordance with the laws of any state which precludes a requirement in an employee agreement to assign certain classes of inventions made by an employee, this paragraph 5 will be interpreted not to apply to any invention which a court rules and/or the Company agrees falls within such classes. I also hereby waive all claims to any moral rights or other special rights which I may have or accrue in any Company-Related Developments.

6. Documents and Other Materials. I will keep and maintain adequate and current records of all Proprietary Information and Company-Related Developments developed by me during my employment, which records will be available to and remain the sole property of the Company at all times.

All files, letters, notes, memoranda, reports, records, data, sketches, drawings, notebooks, layouts, charts, quotations and proposals, specification sheets, program listings, blueprints, models, prototypes, or other written, photographic or other tangible material containing Proprietary Information, whether created by me or others, which come into my custody or possession, are the exclusive property of the Company to be used by me only in the performance of my duties for the Company. Any property situated on the Company’s premises and owned by the Company, including without limitation computers, disks and other storage media, filing cabinets or other work areas, is subject to inspection by the Company at any time with or without notice. In the event of the termination of my employment for any reason, I will deliver to the Company all files, letters, notes, memoranda, reports, records, data, sketches, drawings, notebooks, layouts, charts, quotations and proposals, specification sheets, program listings, blueprints, models, prototypes, or other written, photographic or other tangible material containing Proprietary Information, and other materials of any nature pertaining to the Proprietary Information of the Company and to my work, and will not take or keep in my possession any of the foregoing or any copies.

7. Enforcement of Intellectual Property Rights. I will cooperate fully with the Company, both during and after my employment with the Company, with respect to the

procurement, maintenance and enforcement of Intellectual Property Rights in Company-Related Developments. I will sign, both during and after the term of this Agreement, all papers, including without limitation copyright applications, patent applications, declarations, oaths, assignments of priority rights, and powers of attorney, which the Company may deem necessary or desirable in order to protect its rights and interests in any Company-Related Development. If the Company is unable, after reasonable effort, to secure my signature on any such papers, I hereby irrevocably designate and appoint each officer of the Company as my agent and attorney-in-fact to execute any such papers on my behalf, and to take any and all actions as the Company may deem necessary or desirable in order to protect its rights and interests in any Company-Related Development.

8. Non-Competition and Non-Solicitation.

In order to protect the Company’s Proprietary Information and good will, during my employment and for a period of one (1) year following the termination of my employment for any reason (the “Restricted Period”), I will not directly or indirectly, whether as owner, partner, shareholder, director, manager, consultant, agent, employee, co-venturer or otherwise, engage, participate or invest in any business activity anywhere in the world that develops, manufactures or markets any products, or performs any services, that are directed to the same molecular targets as any products or services of the Company, or products or services that the Company or its affiliates, has under development or that are the subject of active planning at any time during my employment; provided that this shall not prohibit any possible investment in publicly traded stock of a company representing less than one percent of the stock of such company.

In addition, during the Restricted Period, I will not, directly or indirectly, in any manner, other than for the benefit of the Company, (a) call upon, solicit, divert, take away, accept or conduct any business from or with any of the customers or prospective customers of the Company or any of its suppliers, and/or (b) solicit, entice, attempt to persuade any other employee or consultant of the Company to leave the Company for any reason or otherwise participate in or facilitate the hire, directly or through another entity, of any person who is employed or engaged by the Company or who was employed or engaged by the Company within six months of any attempt to hire such person.

I acknowledge and agree that if I violate any of the provisions of this paragraph 8, the running of the Restricted Period will be extended by the time during which I engage in such violation(s).

9. Government Contracts. I acknowledge that the Company may have from time to time agreements with other persons or with the United States Government or its agencies which impose obligations or restrictions on the Company regarding inventions made during the course of work under such agreements or regarding the confidential nature of such work. I agree to comply with any such obligations or restrictions upon the direction of the Company. In addition to the rights assigned under paragraph 5, I also assign to the

 


Company (or any of its nominees) all rights which I have or acquired in any Developments, full title to which is required to be in the United States under any contract between the Company and the United States or any of its agencies.

10. Prior Agreements. I hereby represent that, except as I have fully disclosed previously in writing to the Company, I am not bound by the terms of any agreement with any previous employer or other party to refrain from using or disclosing any trade secret or confidential or proprietary information in the course of my employment with the Company or to refrain from competing, directly or indirectly, with the business of such previous employer or any other party. I further represent that my performance of all the terms of this Agreement as an employee of the Company does not and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired by me in confidence or in trust prior to my employment with the Company. I will not disclose to the Company or induce the Company to use any confidential or proprietary information or material belonging to any previous employer or others.

11. Remedies Upon Breach. I understand that the restrictions contained in this Agreement are necessary for the protection of the business and goodwill of the Company and I consider them to be reasonable for such purpose. Any breach of this Agreement is likely to cause the Company substantial and irrevocable damage and therefore, in the event of such breach, the Company, in addition to such other remedies which may be available, will be entitled to specific performance and other injunctive relief, without the posting of a bond. If I violated this Agreement, in addition to all other remedies available to the Company at law, in equity, and under contract, I agree that I am obligated to pay all the Company’s costs of enforcement of this Agreement, including attorney’s fees and expenses.

12. Use of Voice, Image and Likeness. I give the Company permission to use any and all of my voice, image and likeness, with or without using my name, in connection with the products and/or services of the Company, for the purposes of advertising and promoting such products and/or services and/or the Company, and/or for other purposes deemed appropriate by the Company in its reasonable discretion, except to the extent expressly prohibited by law.

13. No Employment Obligation. I understand that this Agreement does not create an obligation on the Company or any other person to continue my employment. I acknowledge that my employment with the Company is at will and therefore may be terminated by the Company or me at any time and for any reason, with or without cause.

14. Survival and Assignment by the Company. I understand that my obligations under this Agreement will continue in accordance with its express terms regardless of any changes in my title, position, duties, salary, compensation or benefits or other terms and conditions of employment. I further understand that my obligations under this Agreement will continue following the termination of my employment

regardless of the manner of such termination and will be binding upon my heirs, executors and administrators. The Company will have the right to assign this Agreement to its affiliates, successors and assigns. I expressly consent to be bound by the provisions of this Agreement for the benefit of the Company or any parent, subsidiary or affiliate to whose employ I may be transferred without the necessity that this Agreement be resigned at the time of such transfer.

15. Disclosure to Future Employers. I will provide a copy of this Agreement to any prospective employer, partner or co-venturer prior to entering into an employment, partnership or other business relationship with such person or entity.

16. Severability. In case any provisions (or portions thereof) contained in this Agreement shall, for any reason, be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect the other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. If, moreover, any one or more of the provisions contained in this Agreement shall for any reason be held to be excessively broad as to duration, geographical scope, activity or subject, it shall be construed by limiting and reducing it, so as to be enforceable to the extent compatible with the applicable law as it shall then appear.

17. Protected Disclosures. I understand that nothing contained in this Agreement limits my ability to communicate with any federal, state or local governmental agency or commission, including to provide documents or other information, without notice to the Company. I also understand that nothing in this Agreement limits my ability to share compensation information concerning myself or others, except that this does not permit me to disclose compensation information concerning others that I obtain because my job responsibilities require or allow access to such information.

18. Defend Trade Secrets Act of 2016. I understand that pursuant to the federal Defend Trade Secrets Act of 2016, I shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that (a) is made (i) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (b) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.

19. Interpretation. This Agreement will be deemed to be made and entered into in the Commonwealth of Massachusetts, and will in all respects be interpreted, enforced and governed under the laws of the Commonwealth of Massachusetts. I hereby agree to consent to personal jurisdiction of the state and federal courts situated within Suffolk County, Massachusetts for purposes of enforcing this Agreement, and waive any objection that I might have to personal jurisdiction or venue in those courts.

 


I UNDERSTAND THAT THIS AGREEMENT AFFECTS IMPORTANT RIGHTS. BY SIGNING BELOW, I CERTIFY THAT I HAVE READ IT CAREFULLY AND AM SATISFIED THAT I UNDERSTAND IT COMPLETELY.

IN WITNESS WHEREOF, the undersigned has executed this agreement as a sealed instrument as of the date set forth below.

 

Signed:    
  (Employee’s full name)

Type or print name: _____________________

Date: __________________


EXHIBIT A

 

To: Surface Oncology, Inc.

From: ____________________

Date: _____________________

SUBJECT: Prior Inventions

The following is a complete list of all inventions or improvements relevant to the subject matter of my employment by the Company that have been made or conceived or first reduced to practice by me alone or jointly with others prior to my engagement by the Company:

 

        ☐

   No inventions or improvements   

   See below:   
  

 

  
  

 

  
  

 

  

   Additional sheets attached   

The following is a list of all patents and patent applications in which I have been named as an inventor:

 

        ☐

   None   

   See below:   
  

 

  
  

 

  
  

 

  

EX-10.12

Exhibit 10.12

EMPLOYMENT AGREEMENT

This Employment Agreement (the “Agreement”) is by and between Surface Oncology, Inc. (the “Company”) and Vito Palombella, Ph.D. (the “Executive”) and is made effective as of the closing of the Company’s first underwritten public offering of its equity securities pursuant to an effective registration statement under the Securities Act of 1933, as amended (the “Effective Date”). Except with respect to the Restrictive Covenants Agreements and the Equity Documents (each as defined below), this Agreement supersedes, amends and restates in all respects all prior agreements between the Executive and the Company regarding the subject matter herein, including without limitation any offer letter, employment agreement or severance agreement.

1. Employment Term. The Company and the Executive desire to continue their employment relationship, pursuant to this Agreement commencing as of the date hereof and continuing in effect until terminated by either party in accordance with this Agreement (the “Term”). The Executive’s employment with the Company will continue to be “at will,” meaning that the Executive’s employment may be terminated by the Company or the Executive at any time and for any reason subject to the terms of this Agreement. If the Executive’s employment with the Company is terminated for any reason, the Company shall pay or provide to the Executive (or to his authorized representative or estate) any earned but unpaid Base Salary (as defined below), unpaid expense reimbursements in accordance with Company policy, accrued but unused vacation, if any, and any vested benefits the Executive may have under any employee benefit plan of the Company (collectively, the “Accrued Obligations”).

2. Position and Duties. The Executive shall hold the position of Chief Scientific Officer. The Executive will have such powers and duties as may from time to time be prescribed by the Company’s Chief Executive Officer (the “CEO”) or another designated Company executive. The Executive shall devote his full working time and best efforts, skill, knowledge, attention and energies to the business and affairs of the Company and to the performance of the Executive’s duties and responsibilities as an employee of the Company. While the Executive renders services to the Company, he will not engage in any other employment, consulting or other business activity (whether full-time or part-time) without prior written authorization from the CEO. Notwithstanding the foregoing, the Executive may engage in religious, charitable or other community activities as long as such services and activities do not interfere with the Executive’s performance of his duties to the Company. The Executive reaffirms that he has no contractual commitments or other legal obligations that would prohibit him from fully performing his duties for the Company. The Executive shall be based at the Company’s headquarters, currently in Cambridge, Massachusetts.

3. Compensation and Related Matters.

(a) Base Salary. The Executive’s annual base salary is $375,000, which is subject to review and redetermination by the Company. The annual base salary in effect at any given time is referred to herein as “Base Salary.” The Base Salary will be payable in a manner that is consistent with the Company’s usual payroll practices for executive employees.


(b) Bonus. During the Term, the Executive will be eligible to be considered for annual cash bonus as determined by the Company. The Executive’s annual target bonus is 35% of the Base Salary, which is subject to review and redetermination by the Board or the Compensation Committee. The annual target bonus in effect at any given time is referred to herein as the “Target Bonus.” The actual bonus shall be discretionary and shall be subject to terms and conditions of any applicable bonus plan as may be adopted from time to time. The Executive’s bonus, if any, will be paid by March 15 of the year following the applicable bonus year. To earn a bonus, the Executive must be employed by the Company on the day such bonus is paid.

(c) Employee Benefits. During the Term, the Executive will be entitled to continue to participate in the Company’s employee benefit plans and programs, subject to the terms and the conditions of such plans and to the Company’s ability to amend, modify, replace or terminate such plans and programs.

(d) Equity. The equity awards held by the Executive shall be governed by the terms and conditions of the Company’s applicable equity incentive plan(s), the applicable award agreement(s) governing the terms of such equity awards held by the Executive, and Section 3(a) of the Executive’s prior offer letter dated December 14, 2015 (as modified by the “Accelerated Vesting Waiver” in the Incentive Stock Option Agreement under the Surface Oncology 2014 Stock Option Grant and Plan dated March 2, 2018, the “Modified Acceleration Provision”) (collectively, the “Equity Documents”); provided, however, and notwithstanding anything to the contrary in the Equity Documents, Section 6(c) of this Agreement shall apply in the event of a Qualified Termination Event within the Change in Control Period (as defined below) and to the extent accelerated vesting did not already occur upon a Change in Control in accordance with the Modified Acceleration Provision.

(e) Reimbursement of Business Expenses. The Company shall reimburse the Executive for business expenses reasonably and necessarily incurred by the Executive in connection with the Company’s business. Expense reimbursement shall be subject to the policies the Company may adopt from time to time, including with respect to pre-approval and limitations. Any reimbursement in one calendar year shall not affect the amount that may be reimbursed in any other calendar year and a reimbursement (or right thereto) may not be exchanged or liquidated for another benefit or payment. Any business expense reimbursements subject to Section 409A of the Code shall be made no later than the end of the calendar year following the calendar year in which such business expense is incurred by the Executive.

4. Certain Definitions.

(a) Change in Control. “Change in Control” means (i) the sale of all or substantially all of the assets of the Company on a consolidated basis to an unrelated person or entity, (ii) a merger, reorganization or consolidation pursuant to which the holders of the Company’s outstanding voting power and outstanding stock immediately prior to such transaction do not own a majority of the outstanding voting power and outstanding stock or other equity interests of the resulting or successor entity (or its ultimate parent, if applicable) immediately upon completion of such transaction, (iii) the sale of all of the outstanding voting

 

2


stock of the Company to an unrelated person, entity or group thereof acting in concert, or (iv) any other transaction in which the owners of the Company’s outstanding voting power immediately prior to such transaction do not own at least a majority of the outstanding voting power of the Company or any successor entity immediately upon completion of the transaction other than as a result of the acquisition of securities directly from the Company; provided, however, that the Company’s Initial Public Offering, any subsequent public offering or another capital raising event, or a merger effected solely to change the Company’s domicile shall not constitute a “Change in Control.”

(b) Change in Control Period. “Change in Control Period” means the period beginning on the date of a Change in Control and ending on the one-year anniversary of the Change in Control.

(c) Disability. An Executive becomes “Disabled” for purposes of this Agreement if through any illness, injury, accident or condition of either a physical or psychological nature the Executive becomes unable to perform substantially all of his duties and responsibilities for a continuous period of thirteen (13) consecutive weeks or for any twenty (20) weeks within a fifty-two (52) week period. Determinations as to whether Executive is Disabled shall be made by a physician selected by the Board or its insurers and acceptable to the Executive or the Executive’s legal representative, such agreement as to acceptability not to be unreasonably withheld or delayed. In the interest of clarity, the Board may designate another employee to act in the Executive’s place during any period the Executive becomes unable to perform substantially all of his duties and responsibilities.

(d) Qualified Termination Event. A “Qualified Termination Event” means termination of the Executive’s employment by the Company under the circumstances set forth below in Section 4(d)(i) (Termination by the Company without Cause) or Section 4(d)(ii) (“The Executive’s Resignation for Good Reason”), in any event subject to provisions in Section 4(e).

(i) Termination by the Company without Cause. Termination by the Company of the Executive’s employment without Cause. For purposes of this Agreement, “Cause” means the Executive’s:

(A) unauthorized use or disclosure of the Company’s confidential information or trade secrets, which use or disclosure causes material harm to the Company;

(B) material breach of any agreement between the Executive and the Company;

(C) material failure to comply with the Company’s written policies or rules;

(D) conviction of, or plea of “guilty” or “no contest” to, a felony under the laws of the United States or any State;

 

3


(E) gross negligence or willful misconduct in the performance of the Executive’s duties to the Company;

(F) continuing failure to perform assigned duties after receiving written notification of the failure from the Board of Directors; or

(G) failure to cooperate in good faith with a governmental or internal investigation of the Company or its directors, officers or employees, if the Company has requested the Executive’s cooperation.

(ii) The Executive’s Resignation for Good Reason. The Executive’s resignation of his employment with the Company for Good Reason. For purposes of this Agreement, “Good Reason” means that the Executive has complied with the “Good Reason Process” (hereinafter defined) following the occurrence of any of the following events:

(A) a reduction in the Executive’s Base Salary (as pro-rated based on the Executive’s business time devoted to the Company) by more than 10%;

(B) a material diminution of the Executive’s authority, duties or responsibilities; or

(C) a relocation of the Executive’s principal workplace by more than 30 miles.

“Good Reason Process” means that (i) the Executive reasonably determines in good faith that a “Good Reason” condition has occurred; (ii) the Executive notifies the Company in writing of the first occurrence of the Good Reason condition within 90 days of the first occurrence of such condition; (iii) the Executive cooperates in good faith with the Company’s efforts, for a period not less than 30 days following such notice (the “Cure Period”), to remedy the condition; (iv) notwithstanding such efforts, the Good Reason condition continues to exist; and (v) the Executive terminates his employment within 30 days after the end of the Cure Period. If the Company cures the Good Reason condition during the Cure Period, Good Reason shall be deemed not to have occurred.

(e) A Qualified Termination Event shall not be deemed to have occurred pursuant to this Section as a result of: (i) the ending of the Executive’s employment due to the Executive’s death or Disability, (ii) the Executive’s resignation for any reason, other than for Good Reason, (iii) the Company’s termination of the employment relationship for Cause; or (iv) solely as a result of the Executive being or becoming an employee of any direct or indirect successor to the business or assets of the Company rather than continuing as an employee of the Company following a Change in Control.

 

4


5. Termination. During the Term, the Executive’s employment hereunder may be terminated without any breach of this Agreement under the following circumstances:

(a) Death. The Executive’s employment hereunder shall terminate upon his death.

(b) Disability. The Company may terminate the Executive’s employment if he is Disabled, as defined above.

(c) Termination by the Company for Cause. The Company may terminate the Executive’s employment hereunder for Cause.

(d) Termination by the Company without Cause. The Company may terminate the Executive’s employment hereunder at any time without Cause.

(e) Termination by the Executive. The Executive may terminate his employment hereunder at any time for any reason, including but not limited to Good Reason.

6. Severance and Accelerated Vesting if a Qualified Termination Event Occurs within the Change in Control Period. In the event a Qualified Termination Event occurs within the Change in Control Period, subject to the Executive signing and complying with a separation agreement in a form and manner satisfactory to the Company containing, among other provisions, a general release of claims in favor of the Company and related persons and entities, confidentiality, return of property, non-disparagement and reaffirmation of any restrictive covenants (the “Separation Agreement and Release”) and the Separation Agreement and Release becoming irrevocable, all within the time period set forth in the Separation Agreement and Release but in no event more than 60 days after the Date of Termination, the following shall occur:

(a) the Company shall pay to the Executive an amount equal to the sum of twelve (12) months the Executive’s Base Salary in effect immediately prior to the Qualified Termination Event (or the Executive’s Base Salary in effect immediately prior to the Change in Control, if higher) plus one (1) times the amount of the Executive’s Target Bonus;

(b) if the Executive was participating in the Company’s group health plan immediately prior to the Date of Termination and elects COBRA health continuation, then the Company shall pay to the Executive a lump sum cash payment in an amount equal to the monthly employer contribution that the Company would have made to provide health insurance to the Executive if the Executive had remained employed by the Company for twelve (12) months after the Date of Termination, based on the premiums as of the Date of Termination; and

(c) 100% of all time-based equity awards held by the Executive shall immediately accelerate and become fully exercisable or nonforfeitable as of the Date of Termination.

The amounts payable under Section 6(a) and (b), as applicable, shall be paid out in a lump sum within 60 days after the Date of Termination; provided, however, that if the 60-day period begins in one calendar year and ends in a second calendar year, the amounts shall be paid in the second calendar year no later than the last day of the 60-day period.

 

5


7. Severance if a Qualified Termination Event Occurs Outside the Change in Control Period. In the event a Qualified Termination Event occurs at any time other than during the Change in Control Period, subject to the Executive signing and not revoking the Separation Agreement and Release, all within the time period set forth in the Separation Agreement and Release but in no event more than 60 days after the Date of Termination, and subject to the Executive complying with the Separation Agreement and Release, the following shall occur:

(a) the Company shall pay to the Executive an amount equal to the sum of nine (9) months of the Executive’s annual Base Salary in effect immediately prior to the Qualified Termination Event; and

(b) if the Executive was participating in the Company’s group health plan immediately prior to the Date of Termination and elects COBRA health continuation, then the Company shall pay to the Executive a monthly cash payment for nine (9) months or the Executive’s COBRA health continuation period, whichever ends earlier, in an amount equal to the monthly employer contribution that the Company would have made to provide health insurance to the Executive if the Executive had remained employed by the Company, based on the premiums as of the Date of Termination.

The amounts payable under Section 7(a) and (b) shall be paid out in substantially equal installments in accordance with the Company’s payroll practice over nine (9) months commencing within 60 days after the Date of Termination; provided, however, that if the 60-day period begins in one calendar year and ends in a second calendar year, the severance shall begin to be paid in the second calendar year by the last day of such 60-day period; provided further, that the initial payment shall include a catch-up payment to cover amounts retroactive to the day immediately following the Date of Termination. Each payment pursuant to this Agreement is intended to constitute a separate payment for purposes of Treasury Regulation Section 1.409A-2(b)(2).

8. Restrictive Covenants Agreement. The terms of the Employee Non-Competition, Non-Solicitation, Confidentiality and Assignment Agreement dated December 15, 2015 (the “2015 Restrictive Covenants Agreement”) and the Employee Non-Competition, Non-Solicitation, Confidentiality and Assignment Agreement dated May 23, 2017 between the Company and the Executive, attached hereto as Exhibit A (the “2017 Restrictive Covenants Agreement”) continue to be in full force and effect. The 2015 Restrictive Covenants Agreement and the 2017 Restrictive Covenants Agreement are collectively referred to as the “Restrictive Covenants Agreements.” The Executive agrees that the term “Company,” as used in the Restrictive Covenants Agreements, shall mean the Company, its subsidiaries and other affiliates, and its and their successors and assigns. The Executive hereby reaffirms the terms of both Restrictive Covenants Agreements, as modified herein, as material terms of this Agreement and agrees and acknowledges that such terms are incorporated by reference in this Agreement. The Executive and the Company agree that in the event of any inconsistencies between the 2015 Restrictive Covenants Agreement and the 2017 Restrictive Covenants Agreement, the 2017 Restrictive Covenants Agreement will be controlling.

(a) Third-Party Agreements and Rights. The Executive hereby confirms that the Executive is not bound by the terms of any agreement with any previous employer or other party that restricts in any way the Executive’s use or disclosure of information or the Executive’s engagement in any business. The Executive represents to the Company that the Executive’s execution of this Agreement, the Executive’s employment with the Company and the performance of the Executive’s proposed duties for the Company will not violate any obligations

 

6


the Executive may have to any such previous employer or other party. In the Executive’s work for the Company, the Executive will not disclose or make use of any information in violation of any agreements with or rights of any such previous employer or other party, and the Executive will not bring to the premises of the Company any copies or other tangible embodiments of non-public information belonging to or obtained from any such previous employment or other party.

(b) Litigation and Regulatory Cooperation. During and after the Executive’s employment, the Executive shall cooperate fully with the Company in the defense or prosecution of any claims or actions now in existence or which may be brought in the future against or on behalf of the Company which relate to events or occurrences that transpired while the Executive was employed by the Company. The Executive’s full cooperation in connection with such claims or actions shall include, but not be limited to, being available to meet with counsel to prepare for discovery or trial and to act as a witness on behalf of the Company at mutually convenient times. During and after the Executive’s employment, the Executive also shall cooperate fully with the Company in connection with any investigation or review of any federal, state or local regulatory authority as any such investigation or review relates to events or occurrences that transpired while the Executive was employed by the Company. The Company shall reimburse the Executive for any reasonable out-of-pocket expenses incurred in connection with the Executive’s performance of obligations pursuant to this Section 8(b).

(c) Relief. The Executive agrees that it would be difficult to measure any damages caused to the Company which might result from any breach by the Executive of the promises set forth in this Section 8, and that in any event money damages would be an inadequate remedy for any such breach. Accordingly, the Executive agrees that if the Executive breaches, or proposes to breach, any portion of this Agreement, the Company shall be entitled, in addition to all other remedies that it may have, to an injunction or other appropriate equitable relief to restrain any such breach without showing or proving any actual damage to the Company. In addition, in the event the Executive breaches either of the Restrictive Covenants Agreements during a period when he is receiving severance payments pursuant to Section 6 or 7, the Company shall have the right to suspend or terminate such severance payments. Such suspension or termination shall not limit the Company’s other options with respect to relief for such breach and shall not relieve the Executive of his duties under this Agreement.

(d) Protected Disclosures and Other Protected Actions. Nothing in this Agreement shall be interpreted or applied to prohibit the Executive from making any good faith report to any governmental agency or other governmental entity (a “Government Agency”) concerning any act or omission that the Executive reasonably believes constitutes a possible violation of federal or state law or making other disclosures that are protected under the anti-retaliation or whistleblower provisions of applicable federal or state law or regulation. In addition, nothing contained in this Agreement limits the Executive’s ability to communicate with any Government Agency or otherwise participate in any investigation or proceeding that may be conducted by any Government Agency, including the Executive’s ability to provide documents or other information, without notice to the Company. In addition, for the avoidance of doubt, pursuant to the federal Defend Trade Secrets Act of 2016, the Executive shall not be held criminally or civilly liable under any federal or state trade secret law or under this Agreement or the Restrictive Covenants Agreements for the disclosure of a trade secret that (a) is made (i) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (b) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.

 

7


9. Additional Limitation.

(a) Anything in this Agreement to the contrary notwithstanding, in the event that the amount of any compensation, payment or distribution by the Company to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, calculated in a manner consistent with Section 280G of the Code and the applicable regulations thereunder (the “Aggregate Payments”), would be subject to the excise tax imposed by Section 4999 of the Code, then the Aggregate Payments shall be reduced (but not below zero) so that the sum of all of the Aggregate Payments shall be $1.00 less than the amount at which the Executive becomes subject to the excise tax imposed by Section 4999 of the Code; provided that such reduction shall only occur if it would result in the Executive receiving a higher After Tax Amount (as defined below) than the Executive would receive if the Aggregate Payments were not subject to such reduction. In such event, the Aggregate Payments shall be reduced in the following order, in each case, in reverse chronological order beginning with the Aggregate Payments that are to be paid the furthest in time from consummation of the transaction that is subject to Section 280G of the Code: (1) cash payments not subject to Section 409A of the Code; (2) cash payments subject to Section 409A of the Code; (3) equity-based payments and acceleration; and (4) non-cash forms of benefits; provided that in the case of all the foregoing Aggregate Payments all amounts or payments that are not subject to calculation under Treas. Reg. §1.280G-1, Q&A-24(b) or (c) shall be reduced before any amounts that are subject to calculation under Treas. Reg. §1.280G-1, Q&A-24(b) or (c).

(b) For purposes of this Section 9, the “After Tax Amount” means the amount of the Aggregate Payments less all federal, state, and local income, excise and employment taxes imposed on the Executive as a result of the Executive’s receipt of the Aggregate Payments. For purposes of determining the After Tax Amount, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation applicable to individuals for the calendar year in which the determination is to be made, and state and local income taxes at the highest marginal rates of individual taxation in each applicable state and locality, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes.

(c) The determination as to whether a reduction in the Aggregate Payments shall be made pursuant to Section 9 shall be made by a nationally recognized accounting firm selected by the Company (the “Accounting Firm”), which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the Date of Termination, if applicable, or at such earlier time as is reasonably requested by the Company or the Executive. Any determination by the Accounting Firm shall be binding upon the Company and the Executive.

 

8


10. Section 409A.

(a) Anything in this Agreement to the contrary notwithstanding, if at the time of the Executive’s “separation from service” within the meaning of Section 409A of the Code, the Company determines that the Executive is a “specified employee” within the meaning of Section 409A(a)(2)(B)(i) of the Code, then to the extent any payment or benefit that the Executive becomes entitled to under this Agreement on account of the Executive’s separation from service would be considered deferred compensation subject to the 20 percent additional tax imposed pursuant to Section 409A(a) of the Code as a result of the application of Section 409A(a)(2)(B)(i) of the Code, such payment shall not be payable and such benefit shall not be provided until the date that is the earlier of (A) six months and one day after the Executive’s separation from service, or (B) the Executive’s death.

(b) The parties intend that this Agreement will be administered in accordance with Section 409A of the Code. To the extent that any provision of this Agreement is ambiguous as to its compliance with Section 409A of the Code, the provision shall be read in such a manner so that all payments hereunder comply with Section 409A of the Code. The parties agree that this Agreement may be amended, as reasonably requested by either party, and as may be necessary to fully comply with Section 409A of the Code and all related rules and regulations in order to preserve the payments and benefits provided hereunder without additional cost to either party.

(c) All in-kind benefits provided and expenses eligible for reimbursement under this Agreement shall be provided by the Company or incurred by the Executive during the time periods set forth in this Agreement. All reimbursements shall be paid as soon as administratively practicable, but in no event shall any reimbursement be paid after the last day of the taxable year following the taxable year in which the expense was incurred. The amount of in-kind benefits provided or reimbursable expenses incurred in one taxable year shall not affect the in-kind benefits to be provided or the expenses eligible for reimbursement in any other taxable year. Such right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit.

(d) To the extent that any payment or benefit described in this Agreement constitutes “non-qualified deferred compensation” under Section 409A of the Code, and to the extent that such payment or benefit is payable upon the Executive’s termination of employment, then such payments or benefits shall be payable only upon the Executive’s “separation from service.” The determination of whether and when a separation from service has occurred shall be made in accordance with the presumptions set forth in Treasury Regulation Section 1.409A-1(h).

(e) The Company makes no representation or warranty and shall have no liability to the Executive or any other person if any provisions of this Agreement are determined to constitute deferred compensation subject to Section 409A of the Code but do not satisfy an exemption from, or the conditions of, such Section.

 

9


11. Withholding. All payments made by the Company to the Executive under this Agreement shall be net of any tax or other amounts required to be withheld by the Company under applicable law.

12. Notice and Date of Termination.

(a) Notice of Termination. During the Term, any termination of the Executive’s employment (other than by reason of death) shall be communicated by written Notice of Termination from one party hereto to the other party hereto in accordance with this Section 12. For purposes of this Agreement, a “Notice of Termination” shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon.

(b) Date of Termination. “Date of Termination” shall mean: (i) if the Executive’s employment is terminated by his death, the date of the Executive’s death; (ii) if the Executive’s employment is terminated on account of Executive’s Disability, by the Company for Cause, or by the Company without Cause, the date on which Notice of Termination is given; (iii) if the Executive’s employment is terminated by the Executive for any reason except for Good Reason, 30 days after the date on which a Notice of Termination is given, and (v) if the Executive’s employment is terminated by the Executive for Good Reason, the date on which a Notice of Termination is given after the end of the Cure Period. Notwithstanding the foregoing, in the event that the Executive gives a Notice of Termination to the Company, the Company may unilaterally accelerate the Date of Termination and such acceleration shall not result in a termination by the Company for purposes of this Agreement.

13. Representations and Warranties. The Executive represents that he has not been debarred under Subsection (a) or (b) of Section 306 of the United States Federal Food, Drug, and Cosmetic Act (21 U.S.C. 335a); and is not on any of the FDA clinical investigator enforcement lists (including the (i) Disqualified/Totally Restricted List, (ii) Restricted List and (iii) Adequate Assurances List).

14. No Mitigation. The Company agrees that, if the Executive’s employment by the Company is terminated during the term of this Agreement, the Executive is not required to seek other employment or to attempt in any way to reduce any amounts payable to the Executive by the Company pursuant to Section 6 or Section 7 hereof. Further, the amount of any payment provided for in this Agreement shall not be reduced by any compensation earned by the Executive as the result of employment by another employer.

15. Consent to Jurisdiction. The parties hereby consent to the jurisdiction of the state and federal courts in the Commonwealth of Massachusetts. Accordingly, with respect to any such court action, the Executive (a) submits to the personal jurisdiction of such courts; (b) consents to service of process; and (c) waives any other requirement (whether imposed by statute, rule of court, or otherwise) with respect to personal jurisdiction or service of process.

16. Integration. This Agreement constitutes the entire agreement between the parties with respect to compensation, severance pay, benefits and accelerated vesting and supersedes in all respects all prior agreements between the parties concerning such subject matter, including without limitation any offer letter, employment agreement or severance agreement relating to the

 

10


Executive’s employment relationship with the Company and/or the ending of that employment relationship. Notwithstanding the foregoing, the Restrictive Covenants Agreements, the Equity Documents, each as modified herein, and any other agreement relating to confidentiality, noncompetition, nonsolicitation or assignment of inventions shall not be superseded by this Agreement and the Executive acknowledges and agrees that any such agreements remain in full force and effect.

17. Successor to the Executive. This Agreement shall inure to the benefit of and be enforceable by the Executive’s personal representatives, executors, administrators, heirs, distributees, devisees and legatees. In the event of the Executive’s death after a Qualified Termination Event but prior to the completion by the Company of all payments due to the Executive under this Agreement, the Company shall continue such payments to the Executive’s beneficiary designated in writing to the Company prior to his death (or to the Executive’s estate, if the Executive fails to make such designation).

18. Enforceability. If any portion or provision of this Agreement (including, without limitation, any portion or provision of any Section of this Agreement) shall to any extent be declared illegal or unenforceable by a court of competent jurisdiction, then the remainder of this Agreement, or the application of such portion or provision in circumstances other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.

19. Waiver. No waiver of any provision hereof shall be effective unless made in writing and signed by the waiving party. The failure of any party to require the performance of any term or obligation of this Agreement, or the waiver by any party of any breach of this Agreement, shall not prevent any subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach.

20. Notices. Any notices, requests, demands and other communications provided for by this Agreement shall be sufficient if in writing and delivered in person or sent by a nationally recognized overnight currier service of by registered or certified mail, postage prepaid, return receipt requested, to the Executive at the last address the Executive has filed in writing with the Company, or to the Company at its main office, attention of the Board of Directors.

21. Amendment. This Agreement may be amended or modified only by a written instrument signed by the Executive and by a duly authorized representative of the Company.

22. Effect on Other Plans and Agreements. An election by the Executive to resign for Good Reason under the provisions of this Agreement shall not be deemed a voluntary termination of employment by the Executive for the purpose of interpreting the provisions of any of the Company’s benefit plans, programs or policies. Nothing in this Agreement shall be construed to limit the rights of the Executive under the Company’s benefit plans, programs or policies except as otherwise provided in Section 8 hereof, and except that the Executive shall have no rights to any severance benefits under any Company severance pay plan, offer letter or otherwise. In the event that the Executive is party to an agreement with the Company providing for payments or benefits under such agreement and this Agreement, the terms of this Agreement

 

11


shall govern and the Executive may receive payment under this Agreement only and not both. Further, Section 6 and Section 7 of this Agreement are mutually exclusive and in no event shall the Executive be entitled to payments or benefits pursuant to Section 6 and Section 7 of this Agreement.

23. Governing Law. This is a Massachusetts contract and shall be construed under and be governed in all respects by the laws of the Commonwealth of Massachusetts, without giving effect to the conflict of laws principles.

24. Successor to Company. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company expressly to assume and agree to perform this Agreement to the same extent that the Company would be required to perform it if no succession had taken place. Failure of the Company to obtain an assumption of this Agreement at or prior to the effectiveness of any succession shall be a material breach of this Agreement.

25. Gender Neutral. Wherever used herein, a pronoun in the masculine gender shall be considered as including the feminine gender unless the context clearly indicates otherwise.

26. Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be taken to be an original; but such counterparts shall together constitute one and the same document.

[Signature Page Follows]

 

12


IN WITNESS WHEREOF, the parties have executed this Agreement effective on the Effective Date.

 

SURFACE ONCOLOGY, INC.
By:    
Name:
Title:

 

EXECUTIVE:
   
  Vito Palombella, Ph.D.
  Chief Scientific Officer

[Signature Page to the Employment Agreement]


EXHIBIT A

RESTRICTIVE COVENANTS AGREEMENT


SURFACE ONCOLOGY, INC.

Employee Non-Competition, Non-Solicitation, Confidentiality and Assignment Agreement

In consideration and as a condition of my employment or continued employment by Surface Oncology, Inc. (along with its subsidiaries and affiliates, the “Company”), I agree as follows:

 

1. Proprietary Information. I agree that all information, whether or not in writing, concerning the Company’s business, technology, business relationships or financial affairs which the Company has not released to the general public (collectively, “Proprietary Information”) is and will be the exclusive property of the Company. By way of illustration, Proprietary Information may include information or material which has not been made generally available to the public, such as: (a) corporate information, including plans, strategies, methods, policies, resolutions, negotiations or litigation; (b) marketing information, including strategies, methods, customer identities or other information about customers, prospect identities or other information about prospects, or market analyses or projections; (c) financial information, including cost and performance data, debt arrangements, equity structure, investors and holdings, purchasing and sales data and price lists; and (d) operational and technological information, including plans, specifications, manuals, forms, templates, software, designs, methods, procedures, formulas, discoveries, inventions, improvements, concepts and ideas; and (e) personnel information, including personnel lists, reporting or organizational structure, resumes, personnel data, compensation structure, performance evaluations and termination arrangements or documents. Proprietary Information also includes information received in confidence by the Company from its customers or suppliers or other third parties.

2. Recognition of Company’s Rights. I will not, at any time, without the Company’s prior written permission, either during or after my employment, disclose any Proprietary Information to anyone outside of the Company, or use or permit to be used any Proprietary Information for any purpose other than the performance of my duties as an employee of the Company. I will cooperate with the Company and use my best efforts to prevent the unauthorized disclosure of all Proprietary Information. I will deliver to the Company all copies of Proprietary Information in my possession or control upon the earlier of a request by the Company or termination of my employment.

3. Rights of Others. I understand that the Company is now and may hereafter be subject to non-disclosure or confidentiality agreements with third persons which require the Company to protect or refrain from use of proprietary information. I agree to be bound by the terms of such agreements in the event I have access to such proprietary information.

4. Commitment to Company; Avoidance of Conflict of Interest. While an employee of the Company, I will devote my full-time efforts to the Company’s business and I will not engage in any other business activity that conflicts with my duties to the Company. I will advise the president of the Company or his or her nominee at such time as any activity of

either the Company or another business presents me with a conflict of interest or the appearance of a conflict of interest as an employee of the Company. I will take whatever action is requested of me by the Company to resolve any conflict or appearance of conflict which it finds to exist.

5. Developments. I will make full and prompt disclosure to the Company of all inventions, discoveries, designs, developments, methods, modifications, improvements, processes, algorithms, databases, computer programs, formulae, techniques, trade secrets, graphics or images, and audio or visual works and other works of authorship (collectively “Developments”), whether or not patentable or copyrightable, that are created, made, conceived or reduced to practice by me (alone or jointly with others) or under my direction during the period of my employment. I acknowledge that all work performed by me is on a “work for hire” basis, and I hereby do assign and transfer and, to the extent any such assignment cannot be made at present, will assign and transfer, to the Company and its successors and assigns all my right, title and interest in all Developments that (a) relate to the business of the Company or any customer of or supplier to the Company or any of the products or services being researched, developed, manufactured or sold by the Company or which may be used with such products or services; or (b) result from tasks assigned to me by the Company; or (c) result from the use of premises or personal property (whether tangible or intangible) owned, leased or contracted for by the Company (“Company-Related Developments”), and all related patents, patent applications, trademarks and trademark applications, copyrights and copyright applications, and other intellectual property rights in all countries and territories worldwide and under any international conventions (“Intellectual Property Rights”).

The Company acknowledges that I have, alone or jointly with others, conceived, developed or reduced to practice prior to the commencement of my employment with the Company certain Developments that I consider to be my property or the property of third parties and that are excluded from the scope of this Agreement (“Prior Inventions”). The Company also acknowledges that I am named as an inventor on certain patents and patent applications not related to the Company (“Other Patent Rights”). If, in the course of my employment with the Company, I incorporate a Prior Invention into a Company product, process or machine or other work done for the Company, I hereby grant to the Company a nonexclusive, royalty-free, paid-up, irrevocable, worldwide license (with the full right to sublicense) to make, have made, modify, use, sell, offer for sale and import such Prior Invention. Notwithstanding the foregoing, I will not incorporate, or permit to be incorporated, Prior Inventions in any Company-Related Development without the Company’s prior written consent.

 


This Agreement does not obligate me to assign to the Company any Development which, in the sole judgment of the Company, reasonably exercised, is developed entirely on my own time and does not relate to the business efforts or research and development efforts in which, during the period of my employment, the Company actually is engaged or reasonably would be engaged, and does not result from the use of premises or equipment owned or leased by the Company. However, I will also promptly disclose to the Company any such Developments for the purpose of determining whether they qualify for such exclusion. I understand that to the extent this Agreement is required to be construed in accordance with the laws of any state which precludes a requirement in an employee agreement to assign certain classes of inventions made by an employee, this paragraph 5 will be interpreted not to apply to any invention which a court rules and/or the Company agrees falls within such classes. I also hereby waive all claims to any moral rights or other special rights which I may have or accrue in any Company-Related Developments.

6. Documents and Other Materials. I will keep and maintain adequate and current records of all Proprietary Information and Company-Related Developments developed by me during my employment, which records will be available to and remain the sole property of the Company at all times.

All files, letters, notes, memoranda, reports, records, data, sketches, drawings, notebooks, layouts, charts, quotations and proposals, specification sheets, program listings, blueprints, models, prototypes, or other written, photographic or other tangible material containing Proprietary Information, whether created by me or others, which come into my custody or possession, are the exclusive property of the Company to be used by me only in the performance of my duties for the Company. Any property situated on the Company’s premises and owned by the Company, including without limitation computers, disks and other storage media, filing cabinets or other work areas, is subject to inspection by the Company at any time with or without notice. In the event of the termination of my employment for any reason, I will deliver to the Company all files, letters, notes, memoranda, reports, records, data, sketches, drawings, notebooks, layouts, charts, quotations and proposals, specification sheets, program listings, blueprints, models, prototypes, or other written, photographic or other tangible material containing Proprietary Information, and other materials of any nature pertaining to the Proprietary Information of the Company and to my work, and will not take or keep in my possession any of the foregoing or any copies.

7. Enforcement of Intellectual Property Rights. I will cooperate fully with the Company, both during and after my employment with the Company, with respect to the procurement, maintenance and enforcement of Intellectual Property Rights in Company-Related Developments. I will sign, both during and after the term of this Agreement, all papers, including without limitation copyright applications, patent applications, declarations, oaths, assignments of priority rights, and powers of attorney, which the Company may deem necessary or desirable in order to protect its rights and interests in any Company-Related Development. If the Company is unable, after reasonable effort, to secure my

signature on any such papers, I hereby irrevocably designate and appoint each officer of the Company as my agent and attorney-in-fact to execute any such papers on my behalf, and to take any and all actions as the Company may deem necessary or desirable in order to protect its rights and interests in any Company-Related Development.

8. Non-Competition and Non-Solicitation.

In order to protect the Company’s Proprietary Information and good will, during my employment and for a period of one (1) year following the termination of my employment for any reason (the “Restricted Period”), I will not directly or indirectly, whether as owner, partner, shareholder, director, manager, consultant, agent, employee, co-venturer or otherwise, engage, participate or invest in any business activity anywhere in the world that develops, manufactures or markets any products, or performs any services, that are directed to the same molecular targets as any products or services of the Company, or products or services that the Company or its affiliates, has under development or that are the subject of active planning at any time during my employment; provided that this shall not prohibit any possible investment in publicly traded stock of a company representing less than one percent of the stock of such company.

In addition, during the Restricted Period, I will not, directly or indirectly, in any manner, other than for the benefit of the Company, (a) call upon, solicit, divert, take away, accept or conduct any business from or with any of the customers or prospective customers of the Company or any of its suppliers, and/or (b) solicit, entice, attempt to persuade any other employee or consultant of the Company to leave the Company for any reason or otherwise participate in or facilitate the hire, directly or through another entity, of any person who is employed or engaged by the Company or who was employed or engaged by the Company within six months of any attempt to hire such person.

I acknowledge and agree that if I violate any of the provisions of this paragraph 8, the running of the Restricted Period will be extended by the time during which I engage in such violation(s).

9. Government Contracts. I acknowledge that the Company may have from time to time agreements with other persons or with the United States Government or its agencies which impose obligations or restrictions on the Company regarding inventions made during the course of work under such agreements or regarding the confidential nature of such work. I agree to comply with any such obligations or restrictions upon the direction of the Company. In addition to the rights assigned under paragraph 5, I also assign to the Company (or any of its nominees) all rights which I have or acquired in any Developments, full title to which is required to be in the United States under any contract between the Company and the United States or any of its agencies.

10. Prior Agreements. I hereby represent that, except as I have fully disclosed previously in writing to the Company, I am not bound by the terms of any agreement with any previous employer or other party to refrain from using or

 


disclosing any trade secret or confidential or proprietary information in the course of my employment with the Company or to refrain from competing, directly or indirectly, with the business of such previous employer or any other party. I further represent that my performance of all the terms of this Agreement as an employee of the Company does not and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired by me in confidence or in trust prior to my employment with the Company. I will not disclose to the Company or induce the Company to use any confidential or proprietary information or material belonging to any previous employer or others.

11. Remedies Upon Breach. I understand that the restrictions contained in this Agreement are necessary for the protection of the business and goodwill of the Company and I consider them to be reasonable for such purpose. Any breach of this Agreement is likely to cause the Company substantial and irrevocable damage and therefore, in the event of such breach, the Company, in addition to such other remedies which may be available, will be entitled to specific performance and other injunctive relief, without the posting of a bond. If I violate this Agreement, in addition to all other remedies available to the Company at law, in equity, and under contract, I agree that I am obligated to pay all the Company’s costs of enforcement of this Agreement, including attorneys’ fees and expenses.

12. Use of Voice, Image and Likeness. I give the Company permission to use any and all of my voice, image and likeness, with or without using my name, in connection with the products and/or services of the Company, for the purposes of advertising and promoting such products and/or services and/or the Company, and/or for other purposes deemed appropriate by the Company in its reasonable discretion, except to the extent expressly prohibited by law.

13. No Employment Obligation. I understand that this Agreement does not create an obligation on the Company or any other person to continue my employment. I acknowledge that my employment with the Company is at will and therefore may be terminated by the Company or me at any time and for any reason, with or without cause.

14. Survival and Assignment by the Company. I understand that my obligations under this Agreement will continue in accordance with its express terms regardless of any changes in my title, position, duties, salary, compensation or benefits or other terms and conditions of employment. I further understand that my obligations under this Agreement will continue following the termination of my employment regardless of the manner of such termination and will be binding upon my heirs, executors and administrators. The Company will have the right to assign this Agreement to its affiliates, successors and assigns. I expressly consent to be bound by the provisions of this Agreement for the benefit of

the Company or any parent, subsidiary or affiliate to whose employ I may be transferred without the necessity that this Agreement be resigned at the time of such transfer.

15. Disclosure to Future Employers. I will provide a copy of this Agreement to any prospective employer, partner or co-venturer prior to entering into an employment, partnership or other business relationship with such person or entity.

16. Severability. In case any provisions (or portions thereof) contained in this Agreement shall, for any reason, be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect the other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. If, moreover, any one or more of the provisions contained in this Agreement shall for any reason be held to be excessively broad as to duration, geographical scope, activity or subject, it shall be construed by limiting and reducing it, so as to be enforceable to the extent compatible with the applicable law as it shall then appear.

17. Protected Disclosures. I understand that nothing contained in this Agreement limits my ability to communicate with any federal, state or local governmental agency or commission, including to provide documents or other information, without notice to the Company. I also understand that nothing in this Agreement limits my ability to share compensation information concerning myself or others, except that this does not permit me to disclose compensation information concerning others that I obtain because my job responsibilities require or allow access to such information.

18. Defend Trade Secrets Act of 2016. I understand that pursuant to the federal Defend Trade Secrets Act of 2016, I shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that (a) is made (i) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (b) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.

19. Interpretation. This Agreement will be deemed to be made and entered into in the Commonwealth of Massachusetts, and will in all respects be interpreted, enforced and governed under the laws of the Commonwealth of Massachusetts. I hereby agree to consent to personal jurisdiction of the state and federal courts situated within Suffolk County, Massachusetts for purposes of enforcing this Agreement, and waive any objection that I might have to personal jurisdiction or venue in those courts.

 


I UNDERSTAND THAT THIS AGREEMENT AFFECTS IMPORTANT RIGHTS. BY SIGNING BELOW, I CERTIFY THAT I HAVE READ IT CAREFULLY AND AM SATISFIED THAT I UNDERSTAND IT COMPLETELY.

IN WITNESS WHEREOF, the undersigned has executed this agreement as a sealed instrument as of the date set forth below.

 

Signed:    
  (Employee’s full name)

Type or print name: _____________________

Date: __________________


EXHIBIT A

 

To: Surface Oncology, Inc.

From: ____________________

Date: _____________________

SUBJECT: Prior Inventions

The following is a complete list of all inventions or improvements relevant to the subject matter of my employment by the Company that have been made or conceived or first reduced to practice by me alone or jointly with others prior to my engagement by the Company:

 

        ☐

   No inventions or improvements   

   See below:   
  

 

  
  

 

  
  

 

  

   Additional sheets attached   

The following is a list of all patents and patent applications in which I have been named as an inventor:

 

        ☐

   None   

   See below:   
  

 

  
  

 

  
  

 

  

EX-10.13

Exhibit 10.13

EMPLOYMENT AGREEMENT

This Employment Agreement (the “Agreement”) is by and between Surface Oncology, Inc. (the “Company”) and Robert Ross, M.D. (the “Executive”) and is made effective as of the closing of the Company’s first underwritten public offering of its equity securities pursuant to an effective registration statement under the Securities Act of 1933, as amended (the “Effective Date”). Except with respect to the Restrictive Covenants Agreements and the Equity Documents (each as defined below), this Agreement supersedes, amends and restates in all respects all prior agreements between the Executive and the Company regarding the subject matter herein, including without limitation any offer letter, employment agreement or severance agreement.

1. Employment Term. The Company and the Executive desire to continue their employment relationship, pursuant to this Agreement commencing as of the date hereof and continuing in effect until terminated by either party in accordance with this Agreement (the “Term”). The Executive’s employment with the Company will continue to be “at will,” meaning that the Executive’s employment may be terminated by the Company or the Executive at any time and for any reason subject to the terms of this Agreement. If the Executive’s employment with the Company is terminated for any reason, the Company shall pay or provide to the Executive (or to his authorized representative or estate) any earned but unpaid Base Salary (as defined below), unpaid expense reimbursements in accordance with Company policy, accrued but unused vacation, if any, and any vested benefits the Executive may have under any employee benefit plan of the Company (collectively, the “Accrued Obligations”).

2. Position and Duties. The Executive shall hold the position of Chief Medical Officer. The Executive will have such powers and duties as may from time to time be prescribed by the Company’s Chief Executive Officer (the “CEO”) or another designated Company executive. The Executive shall devote his full working time and best efforts, skill, knowledge, attention and energies to the business and affairs of the Company and to the performance of the Executive’s duties and responsibilities as an employee of the Company. While the Executive renders services to the Company, he will not engage in any other employment, consulting or other business activity (whether full-time or part-time) without prior written authorization from the CEO. Notwithstanding the foregoing, the Executive may engage in religious, charitable or other community activities as long as such services and activities do not interfere with the Executive’s performance of his duties to the Company. The Executive reaffirms that he has no contractual commitments or other legal obligations that would prohibit him from fully performing his duties for the Company. The Executive shall be based at the Company’s headquarters, currently in Cambridge, Massachusetts.

3. Compensation and Related Matters.

(a) Base Salary. The Executive’s annual base salary is $375,000, which is subject to review and redetermination by the Company. The annual base salary in effect at any given time is referred to herein as “Base Salary.” The Base Salary will be payable in a manner that is consistent with the Company’s usual payroll practices for executive employees.


(b) Bonus. During the Term, the Executive will be eligible to be considered for annual cash bonus as determined by the Company. The Executive’s annual target bonus is 35% of the Base Salary, which is subject to review and redetermination by the Board or the Compensation Committee. The annual target bonus in effect at any given time is referred to herein as the “Target Bonus.” The actual bonus shall be discretionary and shall be subject to terms and conditions of any applicable bonus plan as may be adopted from time to time. The Executive’s bonus, if any, will be paid by March 15 of the year following the applicable bonus year. To earn a bonus, the Executive must be employed by the Company on the day such bonus is paid.

(c) Employee Benefits. During the Term, the Executive will be entitled to continue to participate in the Company’s employee benefit plans and programs, subject to the terms and the conditions of such plans and to the Company’s ability to amend, modify, replace or terminate such plans and programs.

(d) Equity. The equity awards held by the Executive shall be governed by the terms and conditions of the Company’s applicable equity incentive plan(s), the applicable award agreement(s) governing the terms of such equity awards held by the Executive, and Section 3(a) of the Executive’s prior offer letter dated August 19, 2016 (as modified by the “Accelerated Vesting Waiver” in the Incentive Stock Option Agreement under the Surface Oncology 2014 Stock Option Grant and Plan dated March 2, 2018, the “Modified Acceleration Provision”) (collectively, the “Equity Documents”); provided, however, and notwithstanding anything to the contrary in the Equity Documents, Section 6(c) of this Agreement shall apply in the event of a Qualified Termination Event within the Change in Control Period (as defined below) and to the extent accelerated vesting did not already occur upon a Change in Control in accordance with the Modified Acceleration Provision.

(e) Reimbursement of Business Expenses. The Company shall reimburse the Executive for business expenses reasonably and necessarily incurred by the Executive in connection with the Company’s business. Expense reimbursement shall be subject to the policies the Company may adopt from time to time, including with respect to pre-approval and limitations. Any reimbursement in one calendar year shall not affect the amount that may be reimbursed in any other calendar year and a reimbursement (or right thereto) may not be exchanged or liquidated for another benefit or payment. Any business expense reimbursements subject to Section 409A of the Code shall be made no later than the end of the calendar year following the calendar year in which such business expense is incurred by the Executive.

4. Certain Definitions.

(a) Change in Control. “Change in Control” means (i) the sale of all or substantially all of the assets of the Company on a consolidated basis to an unrelated person or entity, (ii) a merger, reorganization or consolidation pursuant to which the holders of the Company’s outstanding voting power and outstanding stock immediately prior to such transaction do not own a majority of the outstanding voting power and outstanding stock or other equity interests of the resulting or successor entity (or its ultimate parent, if applicable) immediately upon completion of such transaction, (iii) the sale of all of the outstanding voting

 

2


stock of the Company to an unrelated person, entity or group thereof acting in concert, or (iv) any other transaction in which the owners of the Company’s outstanding voting power immediately prior to such transaction do not own at least a majority of the outstanding voting power of the Company or any successor entity immediately upon completion of the transaction other than as a result of the acquisition of securities directly from the Company; provided, however, that the Company’s Initial Public Offering, any subsequent public offering or another capital raising event, or a merger effected solely to change the Company’s domicile shall not constitute a “Change in Control.”

(b) Change in Control Period. “Change in Control Period” means the period beginning on the date of a Change in Control and ending on the one-year anniversary of the Change in Control.

(c) Disability. An Executive becomes “Disabled” for purposes of this Agreement if through any illness, injury, accident or condition of either a physical or psychological nature the Executive becomes unable to perform substantially all of his duties and responsibilities for a continuous period of thirteen (13) consecutive weeks or for any twenty (20) weeks within a fifty-two (52) week period. Determinations as to whether Executive is Disabled shall be made by a physician selected by the Board or its insurers and acceptable to the Executive or the Executive’s legal representative, such agreement as to acceptability not to be unreasonably withheld or delayed. In the interest of clarity, the Board may designate another employee to act in the Executive’s place during any period the Executive becomes unable to perform substantially all of his duties and responsibilities.

(d) Qualified Termination Event. A “Qualified Termination Event” means termination of the Executive’s employment by the Company under the circumstances set forth below in Section 4(d)(i) (Termination by the Company without Cause) or Section 4(d)(ii) (“The Executive’s Resignation for Good Reason”), in any event subject to provisions in Section 4(e).

(i) Termination by the Company without Cause. Termination by the Company of the Executive’s employment without Cause. For purposes of this Agreement, “Cause” means the Executive’s:

(A) unauthorized use or disclosure of the Company’s confidential information or trade secrets, which use or disclosure causes material harm to the Company;

(B) material breach of any agreement between the Executive and the Company;

(C) material failure to comply with the Company’s written policies or rules;

(D) conviction of, or plea of “guilty” or “no contest” to, a felony under the laws of the United States or any State;

 

3


(E) gross negligence or willful misconduct in the performance of the Executive’s duties to the Company;    

(F) continuing failure to perform assigned duties after receiving written notification of the failure from the Board of Directors; or

(G) failure to cooperate in good faith with a governmental or internal investigation of the Company or its directors, officers or employees, if the Company has requested the Executive’s cooperation.

(ii) The Executive’s Resignation for Good Reason. The Executive’s resignation of his employment with the Company for Good Reason. For purposes of this Agreement, “Good Reason” means that the Executive has complied with the “Good Reason Process” (hereinafter defined) following the occurrence of any of the following events:

(A) a reduction in the Executive’s Base Salary (as pro-rated based on the Executive’s business time devoted to the Company) by more than 10%;

(B) a material diminution of the Executive’s authority, duties or responsibilities; or

(C) a relocation of the Executive’s principal workplace by more than 30 miles.

“Good Reason Process” means that (i) the Executive reasonably determines in good faith that a “Good Reason” condition has occurred; (ii) the Executive notifies the Company in writing of the first occurrence of the Good Reason condition within 90 days of the first occurrence of such condition; (iii) the Executive cooperates in good faith with the Company’s efforts, for a period not less than 30 days following such notice (the “Cure Period”), to remedy the condition; (iv) notwithstanding such efforts, the Good Reason condition continues to exist; and (v) the Executive terminates his employment within 30 days after the end of the Cure Period. If the Company cures the Good Reason condition during the Cure Period, Good Reason shall be deemed not to have occurred.

(e) A Qualified Termination Event shall not be deemed to have occurred pursuant to this Section as a result of: (i) the ending of the Executive’s employment due to the Executive’s death or Disability, (ii) the Executive’s resignation for any reason, other than for Good Reason, (iii) the Company’s termination of the employment relationship for Cause; or (iv) solely as a result of the Executive being or becoming an employee of any direct or indirect successor to the business or assets of the Company rather than continuing as an employee of the Company following a Change in Control.

 

4


5. Termination. During the Term, the Executive’s employment hereunder may be terminated without any breach of this Agreement under the following circumstances:

(a) Death. The Executive’s employment hereunder shall terminate upon his death.

(b) Disability. The Company may terminate the Executive’s employment if he is Disabled, as defined above.

(c) Termination by the Company for Cause. The Company may terminate the Executive’s employment hereunder for Cause.

(d) Termination by the Company without Cause. The Company may terminate the Executive’s employment hereunder at any time without Cause.

(e) Termination by the Executive. The Executive may terminate his employment hereunder at any time for any reason, including but not limited to Good Reason.

6. Severance and Accelerated Vesting if a Qualified Termination Event Occurs within the Change in Control Period. In the event a Qualified Termination Event occurs within the Change in Control Period, subject to the Executive signing and complying with a separation agreement in a form and manner satisfactory to the Company containing, among other provisions, a general release of claims in favor of the Company and related persons and entities, confidentiality, return of property, non-disparagement and reaffirmation of any restrictive covenants (the “Separation Agreement and Release”) and the Separation Agreement and Release becoming irrevocable, all within the time period set forth in the Separation Agreement and Release but in no event more than 60 days after the Date of Termination, the following shall occur:

(a) the Company shall pay to the Executive an amount equal to the sum of twelve (12) months the Executive’s Base Salary in effect immediately prior to the Qualified Termination Event (or the Executive’s Base Salary in effect immediately prior to the Change in Control, if higher) plus one (1) times the amount of the Executive’s Target Bonus;

(b) if the Executive was participating in the Company’s group health plan immediately prior to the Date of Termination and elects COBRA health continuation, then the Company shall pay to the Executive a lump sum cash payment in an amount equal to the monthly employer contribution that the Company would have made to provide health insurance to the Executive if the Executive had remained employed by the Company for twelve (12) months after the Date of Termination, based on the premiums as of the Date of Termination; and

(c) 100% of all time-based equity awards held by the Executive shall immediately accelerate and become fully exercisable or nonforfeitable as of the Date of Termination.

The amounts payable under Section 6(a) and (b), as applicable, shall be paid out in a lump sum within 60 days after the Date of Termination; provided, however, that if the 60-day period begins in one calendar year and ends in a second calendar year, the amounts shall be paid in the second calendar year no later than the last day of the 60-day period.

 

5


7. Severance if a Qualified Termination Event Occurs Outside the Change in Control Period. In the event a Qualified Termination Event occurs at any time other than during the Change in Control Period, subject to the Executive signing and not revoking the Separation Agreement and Release, all within the time period set forth in the Separation Agreement and Release but in no event more than 60 days after the Date of Termination, and subject to the Executive complying with the Separation Agreement and Release, the following shall occur:

(a) the Company shall pay to the Executive an amount equal to the sum of nine (9) months of the Executive’s annual Base Salary in effect immediately prior to the Qualified Termination Event; and

(b) if the Executive was participating in the Company’s group health plan immediately prior to the Date of Termination and elects COBRA health continuation, then the Company shall pay to the Executive a monthly cash payment for nine (9) months or the Executive’s COBRA health continuation period, whichever ends earlier, in an amount equal to the monthly employer contribution that the Company would have made to provide health insurance to the Executive if the Executive had remained employed by the Company, based on the premiums as of the Date of Termination.

The amounts payable under Section 7(a) and (b) shall be paid out in substantially equal installments in accordance with the Company’s payroll practice over nine (9) months commencing within 60 days after the Date of Termination; provided, however, that if the 60-day period begins in one calendar year and ends in a second calendar year, the severance shall begin to be paid in the second calendar year by the last day of such 60-day period; provided further, that the initial payment shall include a catch-up payment to cover amounts retroactive to the day immediately following the Date of Termination. Each payment pursuant to this Agreement is intended to constitute a separate payment for purposes of Treasury Regulation Section 1.409A-2(b)(2).

8. Restrictive Covenants Agreement. The terms of the Employee Non-Competition, Non-Solicitation, Confidentiality and Assignment Agreement dated November 8, 2016 (the “2016 Restrictive Covenants Agreement”) and the Employee Non-Competition, Non-Solicitation, Confidentiality and Assignment Agreement dated May 3, 2017 and the Addendum to the Employee Non-Competition, Non-Solicitation, Confidentiality and Assignment Agreement dated October 11, 2017 between the Company and the Executive, attached hereto as Exhibit A (the “2017 Restrictive Covenants Agreement”), continue to be in full force and effect. The 2016 Restrictive Covenants Agreement and the 2017 Restrictive Covenants Agreement are collectively referred to as the “Restrictive Covenants Agreements.” The Executive agrees that the term “Company,” as used in the Restrictive Covenants Agreements, shall mean the Company, its subsidiaries and other affiliates, and its and their successors and assigns. The Executive hereby reaffirms the terms of both Restrictive Covenants Agreements, as modified herein, as material terms of this Agreement and agrees and acknowledges that such terms are incorporated by reference in this Agreement. The Executive and the Company agree that in the event of any inconsistencies between the 2016 Restrictive Covenants Agreement and the 2017 Restrictive Covenants Agreement, the 2017 Restrictive Covenants Agreement will be controlling.

(a) Third-Party Agreements and Rights. The Executive hereby confirms that the Executive is not bound by the terms of any agreement with any previous employer or other party that restricts in any way the Executive’s use or disclosure of information or the Executive’s engagement in any business. The Executive represents to the Company that the Executive’s execution of this Agreement, the Executive’s employment with the Company and the performance of the Executive’s proposed duties for the Company will not violate any obligations

 

6


the Executive may have to any such previous employer or other party. In the Executive’s work for the Company, the Executive will not disclose or make use of any information in violation of any agreements with or rights of any such previous employer or other party, and the Executive will not bring to the premises of the Company any copies or other tangible embodiments of non-public information belonging to or obtained from any such previous employment or other party.

(b) Litigation and Regulatory Cooperation. During and after the Executive’s employment, the Executive shall cooperate fully with the Company in the defense or prosecution of any claims or actions now in existence or which may be brought in the future against or on behalf of the Company which relate to events or occurrences that transpired while the Executive was employed by the Company. The Executive’s full cooperation in connection with such claims or actions shall include, but not be limited to, being available to meet with counsel to prepare for discovery or trial and to act as a witness on behalf of the Company at mutually convenient times. During and after the Executive’s employment, the Executive also shall cooperate fully with the Company in connection with any investigation or review of any federal, state or local regulatory authority as any such investigation or review relates to events or occurrences that transpired while the Executive was employed by the Company. The Company shall reimburse the Executive for any reasonable out-of-pocket expenses incurred in connection with the Executive’s performance of obligations pursuant to this Section 8(b).

(c) Relief. The Executive agrees that it would be difficult to measure any damages caused to the Company which might result from any breach by the Executive of the promises set forth in this Section 8, and that in any event money damages would be an inadequate remedy for any such breach. Accordingly, the Executive agrees that if the Executive breaches, or proposes to breach, any portion of this Agreement, the Company shall be entitled, in addition to all other remedies that it may have, to an injunction or other appropriate equitable relief to restrain any such breach without showing or proving any actual damage to the Company. In addition, in the event the Executive breaches either of the Restrictive Covenants Agreements during a period when he is receiving severance payments pursuant to Section 6 or 7, the Company shall have the right to suspend or terminate such severance payments. Such suspension or termination shall not limit the Company’s other options with respect to relief for such breach and shall not relieve the Executive of his duties under this Agreement.

(d) Protected Disclosures and Other Protected Actions. Nothing in this Agreement shall be interpreted or applied to prohibit the Executive from making any good faith report to any governmental agency or other governmental entity (a “Government Agency”) concerning any act or omission that the Executive reasonably believes constitutes a possible violation of federal or state law or making other disclosures that are protected under the anti-retaliation or whistleblower provisions of applicable federal or state law or regulation. In addition, nothing contained in this Agreement limits the Executive’s ability to communicate with any Government Agency or otherwise participate in any investigation or proceeding that may be conducted by any Government Agency, including the Executive’s ability to provide documents or other information, without notice to the Company. In addition, for the avoidance of doubt, pursuant to the federal Defend Trade Secrets Act of 2016, the Executive shall not be held criminally or civilly liable under any federal or state trade secret law or under this Agreement or the Restrictive Covenants Agreements for the disclosure of a trade secret that (a) is made (i) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (b) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.

 

7


9. Additional Limitation.

(a) Anything in this Agreement to the contrary notwithstanding, in the event that the amount of any compensation, payment or distribution by the Company to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, calculated in a manner consistent with Section 280G of the Code and the applicable regulations thereunder (the “Aggregate Payments”), would be subject to the excise tax imposed by Section 4999 of the Code, then the Aggregate Payments shall be reduced (but not below zero) so that the sum of all of the Aggregate Payments shall be $1.00 less than the amount at which the Executive becomes subject to the excise tax imposed by Section 4999 of the Code; provided that such reduction shall only occur if it would result in the Executive receiving a higher After Tax Amount (as defined below) than the Executive would receive if the Aggregate Payments were not subject to such reduction. In such event, the Aggregate Payments shall be reduced in the following order, in each case, in reverse chronological order beginning with the Aggregate Payments that are to be paid the furthest in time from consummation of the transaction that is subject to Section 280G of the Code: (1) cash payments not subject to Section 409A of the Code; (2) cash payments subject to Section 409A of the Code; (3) equity-based payments and acceleration; and (4) non-cash forms of benefits; provided that in the case of all the foregoing Aggregate Payments all amounts or payments that are not subject to calculation under Treas. Reg. §1.280G-1, Q&A-24(b) or (c) shall be reduced before any amounts that are subject to calculation under Treas. Reg. §1.280G-1, Q&A-24(b) or (c).

(b) For purposes of this Section 9, the “After Tax Amount” means the amount of the Aggregate Payments less all federal, state, and local income, excise and employment taxes imposed on the Executive as a result of the Executive’s receipt of the Aggregate Payments. For purposes of determining the After Tax Amount, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation applicable to individuals for the calendar year in which the determination is to be made, and state and local income taxes at the highest marginal rates of individual taxation in each applicable state and locality, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes.

(c) The determination as to whether a reduction in the Aggregate Payments shall be made pursuant to Section 9 shall be made by a nationally recognized accounting firm selected by the Company (the “Accounting Firm”), which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the Date of Termination, if applicable, or at such earlier time as is reasonably requested by the Company or the Executive. Any determination by the Accounting Firm shall be binding upon the Company and the Executive.

 

8


10. Section 409A.

(a) Anything in this Agreement to the contrary notwithstanding, if at the time of the Executive’s “separation from service” within the meaning of Section 409A of the Code, the Company determines that the Executive is a “specified employee” within the meaning of Section 409A(a)(2)(B)(i) of the Code, then to the extent any payment or benefit that the Executive becomes entitled to under this Agreement on account of the Executive’s separation from service would be considered deferred compensation subject to the 20 percent additional tax imposed pursuant to Section 409A(a) of the Code as a result of the application of Section 409A(a)(2)(B)(i) of the Code, such payment shall not be payable and such benefit shall not be provided until the date that is the earlier of (A) six months and one day after the Executive’s separation from service, or (B) the Executive’s death.

(b) The parties intend that this Agreement will be administered in accordance with Section 409A of the Code. To the extent that any provision of this Agreement is ambiguous as to its compliance with Section 409A of the Code, the provision shall be read in such a manner so that all payments hereunder comply with Section 409A of the Code. The parties agree that this Agreement may be amended, as reasonably requested by either party, and as may be necessary to fully comply with Section 409A of the Code and all related rules and regulations in order to preserve the payments and benefits provided hereunder without additional cost to either party.

(c) All in-kind benefits provided and expenses eligible for reimbursement under this Agreement shall be provided by the Company or incurred by the Executive during the time periods set forth in this Agreement. All reimbursements shall be paid as soon as administratively practicable, but in no event shall any reimbursement be paid after the last day of the taxable year following the taxable year in which the expense was incurred. The amount of in-kind benefits provided or reimbursable expenses incurred in one taxable year shall not affect the in-kind benefits to be provided or the expenses eligible for reimbursement in any other taxable year. Such right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit.

(d) To the extent that any payment or benefit described in this Agreement constitutes “non-qualified deferred compensation” under Section 409A of the Code, and to the extent that such payment or benefit is payable upon the Executive’s termination of employment, then such payments or benefits shall be payable only upon the Executive’s “separation from service.” The determination of whether and when a separation from service has occurred shall be made in accordance with the presumptions set forth in Treasury Regulation Section 1.409A-1(h).

(e) The Company makes no representation or warranty and shall have no liability to the Executive or any other person if any provisions of this Agreement are determined to constitute deferred compensation subject to Section 409A of the Code but do not satisfy an exemption from, or the conditions of, such Section.

 

9


11. Withholding. All payments made by the Company to the Executive under this Agreement shall be net of any tax or other amounts required to be withheld by the Company under applicable law.

12. Notice and Date of Termination.

(a) Notice of Termination. During the Term, any termination of the Executive’s employment (other than by reason of death) shall be communicated by written Notice of Termination from one party hereto to the other party hereto in accordance with this Section 12. For purposes of this Agreement, a “Notice of Termination” shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon.

(b) Date of Termination. “Date of Termination” shall mean: (i) if the Executive’s employment is terminated by his death, the date of the Executive’s death; (ii) if the Executive’s employment is terminated on account of Executive’s Disability, by the Company for Cause, or by the Company without Cause, the date on which Notice of Termination is given; (iii) if the Executive’s employment is terminated by the Executive for any reason except for Good Reason, 30 days after the date on which a Notice of Termination is given, and (v) if the Executive’s employment is terminated by the Executive for Good Reason, the date on which a Notice of Termination is given after the end of the Cure Period. Notwithstanding the foregoing, in the event that the Executive gives a Notice of Termination to the Company, the Company may unilaterally accelerate the Date of Termination and such acceleration shall not result in a termination by the Company for purposes of this Agreement.

13. Representations and Warranties. The Executive represents that he has not been debarred under Subsection (a) or (b) of Section 306 of the United States Federal Food, Drug, and Cosmetic Act (21 U.S.C. 335a); and is not on any of the FDA clinical investigator enforcement lists (including the (i) Disqualified/Totally Restricted List, (ii) Restricted List and (iii) Adequate Assurances List).

14. No Mitigation. The Company agrees that, if the Executive’s employment by the Company is terminated during the term of this Agreement, the Executive is not required to seek other employment or to attempt in any way to reduce any amounts payable to the Executive by the Company pursuant to Section 6 or Section 7 hereof. Further, the amount of any payment provided for in this Agreement shall not be reduced by any compensation earned by the Executive as the result of employment by another employer.

15. Consent to Jurisdiction. The parties hereby consent to the jurisdiction of the state and federal courts in the Commonwealth of Massachusetts. Accordingly, with respect to any such court action, the Executive (a) submits to the personal jurisdiction of such courts; (b) consents to service of process; and (c) waives any other requirement (whether imposed by statute, rule of court, or otherwise) with respect to personal jurisdiction or service of process.

16. Integration. This Agreement constitutes the entire agreement between the parties with respect to compensation, severance pay, benefits and accelerated vesting and supersedes in all respects all prior agreements between the parties concerning such subject matter, including without limitation any offer letter, employment agreement or severance agreement relating to the

 

10


Executive’s employment relationship with the Company and/or the ending of that employment relationship. Notwithstanding the foregoing, the Restrictive Covenants Agreements, the Equity Documents, each as modified herein, and any other agreement relating to confidentiality, noncompetition, nonsolicitation or assignment of inventions shall not be superseded by this Agreement and the Executive acknowledges and agrees that any such agreements remain in full force and effect.

17. Successor to the Executive. This Agreement shall inure to the benefit of and be enforceable by the Executive’s personal representatives, executors, administrators, heirs, distributees, devisees and legatees. In the event of the Executive’s death after a Qualified Termination Event but prior to the completion by the Company of all payments due to the Executive under this Agreement, the Company shall continue such payments to the Executive’s beneficiary designated in writing to the Company prior to his death (or to the Executive’s estate, if the Executive fails to make such designation).

18. Enforceability. If any portion or provision of this Agreement (including, without limitation, any portion or provision of any Section of this Agreement) shall to any extent be declared illegal or unenforceable by a court of competent jurisdiction, then the remainder of this Agreement, or the application of such portion or provision in circumstances other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.

19. Waiver. No waiver of any provision hereof shall be effective unless made in writing and signed by the waiving party. The failure of any party to require the performance of any term or obligation of this Agreement, or the waiver by any party of any breach of this Agreement, shall not prevent any subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach.

20. Notices. Any notices, requests, demands and other communications provided for by this Agreement shall be sufficient if in writing and delivered in person or sent by a nationally recognized overnight currier service of by registered or certified mail, postage prepaid, return receipt requested, to the Executive at the last address the Executive has filed in writing with the Company, or to the Company at its main office, attention of the Board of Directors.

21. Amendment. This Agreement may be amended or modified only by a written instrument signed by the Executive and by a duly authorized representative of the Company.

22. Effect on Other Plans and Agreements. An election by the Executive to resign for Good Reason under the provisions of this Agreement shall not be deemed a voluntary termination of employment by the Executive for the purpose of interpreting the provisions of any of the Company’s benefit plans, programs or policies. Nothing in this Agreement shall be construed to limit the rights of the Executive under the Company’s benefit plans, programs or policies except as otherwise provided in Section 8 hereof, and except that the Executive shall have no rights to any severance benefits under any Company severance pay plan, offer letter or otherwise. In the event that the Executive is party to an agreement with the Company providing for payments or benefits under such agreement and this Agreement, the terms of this Agreement

 

11


shall govern and the Executive may receive payment under this Agreement only and not both. Further, Section 6 and Section 7 of this Agreement are mutually exclusive and in no event shall the Executive be entitled to payments or benefits pursuant to Section 6 and Section 7 of this Agreement.

23. Governing Law. This is a Massachusetts contract and shall be construed under and be governed in all respects by the laws of the Commonwealth of Massachusetts, without giving effect to the conflict of laws principles.

24. Successor to Company. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company expressly to assume and agree to perform this Agreement to the same extent that the Company would be required to perform it if no succession had taken place. Failure of the Company to obtain an assumption of this Agreement at or prior to the effectiveness of any succession shall be a material breach of this Agreement.

25. Gender Neutral. Wherever used herein, a pronoun in the masculine gender shall be considered as including the feminine gender unless the context clearly indicates otherwise.

26. Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be taken to be an original; but such counterparts shall together constitute one and the same document.

[Signature Page Follows]

 

12


IN WITNESS WHEREOF, the parties have executed this Agreement effective on the Effective Date.

 

SURFACE ONCOLOGY, INC.
By:    
Name:
Title:

 

EXECUTIVE:
 

 

Robert Ross, M.D.
Chief Medical Officer

[Signature Page to the Employment Agreement]


EXHIBIT A

RESTRICTIVE COVENANTS AGREEMENT


SURFACE ONCOLOGY, INC.

Employee Non-Competition, Non-Solicitation, Confidentiality and Assignment Agreement

In consideration and as a condition of my employment or continued employment by Surface Oncology, Inc. (along with its subsidiaries and affiliates, the “Company”), I agree as follows:

 

1. Proprietary Information. I agree that all information, whether or not in writing, concerning the Company’s business, technology, business relationships or financial affairs which the Company has not released to the general public (collectively, “Proprietary Information”) is and will be the exclusive property of the Company. By way of illustration, Proprietary Information may include information or material which has not been made generally available to the public, such as: (a) corporate information, including plans, strategies, methods, policies, resolutions, negotiations or litigation; (b) marketing information, including strategies, methods, customer identities or other information about customers, prospect identities or other information about prospects, or market analyses or projections; (c) financial information, including cost and performance data, debt arrangements, equity structure, investors and holdings, purchasing and sales data and price lists; and (d) operational and technological information, including plans, specifications, manuals, forms, templates, software, designs, methods, procedures, formulas, discoveries, inventions, improvements, concepts and ideas; and (e) personnel information, including personnel lists, reporting or organizational structure, resumes, personnel data, compensation structure, performance evaluations and termination arrangements or documents. Proprietary Information also includes information received in confidence by the Company from its customers or suppliers or other third parties.

2. Recognition of Company’s Rights. I will not, at any time, without the Company’s prior written permission, either during or after my employment, disclose any Proprietary Information to anyone outside of the Company, or use or permit to be used any Proprietary Information for any purpose other than the performance of my duties as an employee of the Company. I will cooperate with the Company and use my best efforts to prevent the unauthorized disclosure of all Proprietary Information. I will deliver to the Company all copies of Proprietary Information in my possession or control upon the earlier of a request by the Company or termination of my employment.

3. Rights of Others. I understand that the Company is now and may hereafter be subject to non-disclosure or confidentiality agreements with third persons which require the Company to protect or refrain from use of proprietary information. I agree to be bound by the terms of such agreements in the event I have access to such proprietary information.

4. Commitment to Company; Avoidance of Conflict of Interest. Subject to the specific terms of my employment letter agreement with the Company, while an employee of the Company, I will devote my full-time efforts to the Company’s business and I will not engage in any other business activity that conflicts with my duties to the Company. I will advise the

president of the Company or his or her nominee at such time as any activity of either the Company or another business presents me with a conflict of interest or the appearance of a conflict of interest as an employee of the Company. I will take whatever action is requested of me by the Company to resolve any conflict or appearance of conflict which it finds to exist.

5. Developments. I will make full and prompt disclosure to the Company of all inventions, discoveries, designs, developments, methods, modifications, improvements, processes, algorithms, databases, computer programs, formulae, techniques, trade secrets, graphics or images, and audio or visual works and other works of authorship (collectively “Developments”), whether or not patentable or copyrightable, that are created, made, conceived or reduced to practice by me (alone or jointly with others) or under my direction during the period of my employment. I acknowledge that all work performed by me is on a “work for hire” basis, and I hereby do assign and transfer and, to the extent any such assignment cannot be made at present, will assign and transfer, to the Company and its successors and assigns all my right, title and interest in all Developments that (a) relate to the business of the Company or any customer of or supplier to the Company or any of the products or services being researched, developed, manufactured or sold by the Company or which may be used with such products or services; or (b) result from tasks assigned to me by the Company; or (c) result from the use of premises or personal property (whether tangible or intangible) owned, leased or contracted for by the Company (“Company-Related Developments”), and all related patents, patent applications, trademarks and trademark applications, copyrights and copyright applications, and other intellectual property rights in all countries and territories worldwide and under any international conventions (“Intellectual Property Rights”).

To preclude any possible uncertainty, I have set forth on Exhibit A attached hereto a complete list of Developments that I have, alone or jointly with others, conceived, developed or reduced to practice prior to the commencement of my employment with the Company that I consider to be my property or the property of third parties and that I wish to have excluded from the scope of this Agreement (“Prior Inventions”). If disclosure of any such Prior Invention would cause me to violate any prior confidentiality agreement, I understand that I am not to list such Prior Inventions in Exhibit A but am only to disclose a cursory name for each such invention, a listing of the party(ies) to whom it belongs and the fact that full disclosure as to such inventions has not been made for that reason. I have also listed on Exhibit A all patents and patent applications in which I am named as an inventor, other than those which have been assigned to the Company (“Other Patent Rights”). If no such disclosure is attached, I represent that there are no Prior Inventions or Other Patent Rights. If, in the course of my employment with the

 


Company, I incorporate a Prior Invention into a Company product, process or machine or other work done for the Company, I hereby grant to the Company a nonexclusive, royalty-free, paid-up, irrevocable, worldwide license (with the full right to sublicense) to make, have made, modify, use, sell, offer for sale and import such Prior Invention. Notwithstanding the foregoing, I will not incorporate, or permit to be incorporated, Prior Inventions in any Company-Related Development without the Company’s prior written consent.

This Agreement does not obligate me to assign to the Company any Development which, in the sole judgment of the Company, reasonably exercised, is developed entirely on my own time and does not relate to the business efforts or research and development efforts in which, during the period of my employment, the Company actually is engaged or reasonably would be engaged, and does not result from the use of premises or equipment owned or leased by the Company. However, I will also promptly disclose to the Company any such Developments for the purpose of determining whether they qualify for such exclusion. I understand that to the extent this Agreement is required to be construed in accordance with the laws of any state which precludes a requirement in an employee agreement to assign certain classes of inventions made by an employee, this paragraph 5 will be interpreted not to apply to any invention which a court rules and/or the Company agrees falls within such classes. I also hereby waive all claims to any moral rights or other special rights which I may have or accrue in any Company-Related Developments.

6. Documents and Other Materials. I will keep and maintain adequate and current records of all Proprietary Information and Company-Related Developments developed by me during my employment, which records will be available to and remain the sole property of the Company at all times.

All files, letters, notes, memoranda, reports, records, data, sketches, drawings, notebooks, layouts, charts, quotations and proposals, specification sheets, program listings, blueprints, models, prototypes, or other written, photographic or other tangible material containing Proprietary Information, whether created by me or others, which come into my custody or possession, are the exclusive property of the Company to be used by me only in the performance of my duties for the Company. Any property situated on the Company’s premises and owned by the Company, including without limitation computers, disks and other storage media, filing cabinets or other work areas, is subject to inspection by the Company at any time with or without notice. In the event of the termination of my employment for any reason, I will deliver to the Company all files, letters, notes, memoranda, reports, records, data, sketches, drawings, notebooks, layouts, charts, quotations and proposals, specification sheets, program listings, blueprints, models, prototypes, or other written, photographic or other tangible material containing Proprietary Information, and other materials of any nature pertaining to the Proprietary Information of the Company and to my work, and will not take or keep in my possession any of the foregoing or any copies.

7. Enforcement of Intellectual Property Rights. I will cooperate fully with the Company, both during and after my employment with the Company, with respect to the procurement, maintenance and enforcement of Intellectual Property Rights in Company-Related Developments. I will sign, both during and after the term of this Agreement, all papers, including without limitation copyright applications, patent applications, declarations, oaths, assignments of priority rights, and powers of attorney, which the Company may deem necessary or desirable in order to protect its rights and interests in any Company-Related Development. If the Company is unable, after reasonable effort, to secure my signature on any such papers, I hereby irrevocably designate and appoint each officer of the Company as my agent and attorney-in-fact to execute any such papers on my behalf, and to take any and all actions as the Company may deem necessary or desirable in order to protect its rights and interests in any Company-Related Development.

8. Non-Competition and Non-Solicitation.

In order to protect the Company’s Proprietary Information and good will, during my employment and for a period of one (1) year following the termination of my employment for any reason (the “Restricted Period”), I will not directly or indirectly, whether as owner, partner, shareholder, director, manager, consultant, agent, employee, co-venturer or otherwise, engage, participate or invest in any business activity anywhere in the world that develops, manufactures or markets any products, or performs any services, that are directed to the same molecular targets as any products or services of the Company, or products or services that the Company or its affiliates, has under development or that are the subject of active planning at any time during my employment where such plans are not subsequently abandoned by the Company; provided that this shall not prohibit any possible investment in publicly traded stock of a company representing less than one percent of the stock of such company.

In addition, during the Restricted Period, I will not, directly or indirectly, in any manner, other than for the benefit of the Company, (a) call upon, solicit, divert, take away, accept or conduct any business from or with any of the customers or prospective customers of the Company or any of its suppliers, and/or (b) solicit, entice, attempt to persuade any other employee or consultant of the Company to leave the Company for any reason or otherwise participate in or facilitate the hire, directly or through another entity, of any person who is employed or engaged by the Company or who was employed or engaged by the Company within six months of any attempt to hire such person.

I acknowledge and agree that if I violate any of the provisions of this paragraph 8, the running of the Restricted Period will be extended by the time during which I engage in such violation(s).

9. Government Contracts. I acknowledge that the Company may have from time to time agreements with other persons or with the United States Government or its agencies which impose obligations or restrictions on the Company

 


regarding inventions made during the course of work under such agreements or regarding the confidential nature of such work. I agree to comply with any such obligations or restrictions upon the direction of the Company. In addition to the rights assigned under paragraph 5, I also assign to the Company (or any of its nominees) all rights which I have or acquired in any Developments, full title to which is required to be in the United States under any contract between the Company and the United States or any of its agencies.

10. Prior Agreements. I hereby represent that, except as I have fully disclosed previously in writing to the Company, I am not bound by the terms of any agreement with any previous employer or other party to refrain from using or disclosing any trade secret or confidential or proprietary information in the course of my employment with the Company or to refrain from competing, directly or indirectly, with the business of such previous employer or any other party. I further represent that my performance of all the terms of this Agreement as an employee of the Company does not and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired by me in confidence or in trust prior to my employment with the Company. I will not disclose to the Company or induce the Company to use any confidential or proprietary information or material belonging to any previous employer or others.

11. Remedies Upon Breach. I understand that the restrictions contained in this Agreement are necessary for the protection of the business and goodwill of the Company and I consider them to be reasonable for such purpose. Any breach of this Agreement is likely to cause the Company substantial and irrevocable damage and therefore, in the event of such breach, the Company, in addition to such other remedies which may be available, will be entitled to specific performance and other injunctive relief, without the posting of a bond. In any action brought to enforce the terms of this Agreement, the prevailing party in such action shall be entitled, in additional to all other remedies available to such party, to recover from the other party his or its costs incurred in connection with such action, including reasonable attorneys’ fees and expenses.

12. Use of Voice, Image and Likeness. I give the Company permission to use any and all of my voice, image and likeness, with or without using my name, in connection with the products and/or services of the Company, for the purposes of advertising and promoting such products and/or services and/or the Company, and/or for other purposes deemed appropriate by the Company in its reasonable discretion, except to the extent expressly prohibited by law.

13. No Employment Obligation. I understand that this Agreement does not create an obligation on the Company or any other person to continue my employment. I acknowledge that my employment with the Company is at will and therefore may be terminated by the Company or me at any time and for any reason, with or without cause.

14. Survival and Assignment by the Company. I understand that my obligations under this Agreement will continue in accordance with its express terms regardless of

any changes in my title, position, duties, salary, compensation or benefits or other terms and conditions of employment. I further understand that my obligations under this Agreement will continue following the termination of my employment regardless of the manner of such termination and will be binding upon my heirs, executors and administrators. The Company will have the right to assign this Agreement to its affiliates, successors and assigns. I expressly consent to be bound by the provisions of this Agreement for the benefit of the Company or any parent, subsidiary or affiliate to whose employ I may be transferred without the necessity that this Agreement be resigned at the time of such transfer.

15. Disclosure to Future Employers. I will provide a copy of this Agreement to any prospective employer, partner or co-venturer prior to entering into an employment, partnership or other business relationship with such person or entity.

16. Severability. In case any provisions (or portions thereof) contained in this Agreement shall, for any reason, be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect the other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. If, moreover, any one or more of the provisions contained in this Agreement shall for any reason be held to be excessively broad as to duration, geographical scope, activity or subject, it shall be construed by limiting and reducing it, so as to be enforceable to the extent compatible with the applicable law as it shall then appear.

17. Protected Disclosures. I understand that nothing contained in this Agreement limits my ability to communicate with any federal, state or local governmental agency or commission, including to provide documents or other information, without notice to the Company. I also understand that nothing in this Agreement limits my ability to share compensation information concerning myself or others, except that this does not permit me to disclose compensation information concerning others that I obtain because my job responsibilities require or allow access to such information.

18. Defend Trade Secrets Act of 2016. I understand that pursuant to the federal Defend Trade Secrets Act of 2016, I shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that (a) is made (i) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (b) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.

19. Interpretation. This Agreement will be deemed to be made and entered into in the Commonwealth of Massachusetts, and will in all respects be interpreted, enforced and governed under the laws of the Commonwealth of Massachusetts. I hereby agree to consent to personal jurisdiction of the state and federal courts situated within Suffolk County, Massachusetts for purposes of enforcing this Agreement, and waive any objection that I might have to personal jurisdiction or venue in those courts.

 


I UNDERSTAND THAT THIS AGREEMENT AFFECTS IMPORTANT RIGHTS. BY SIGNING BELOW, I CERTIFY THAT I HAVE READ IT CAREFULLY AND AM SATISFIED THAT I UNDERSTAND IT COMPLETELY.

IN WITNESS WHEREOF, the undersigned has executed this agreement as a sealed instrument as of the date set forth below.

 

Signed:    
  (Employee’s full name)

Type or print name: _____________________

Date: __________________


EXHIBIT A

 

To: Surface Oncology, Inc.

From: ____________________

Date: _____________________

SUBJECT: Prior Inventions

The following is a complete list of all inventions or improvements relevant to the subject matter of my employment by the Company that have been made or conceived or first reduced to practice by me alone or jointly with others prior to my engagement by the Company:

 

        ☐

   No inventions or improvements   

   See below:   
  

 

  
  

 

  
  

 

  

   Additional sheets attached   

The following is a list of all patents and patent applications in which I have been named as an inventor:

 

        ☐

   None   

   See below:   
  

 

  
  

 

  
  

 

  

EX-10.14

Exhibit 10.14

EXECUTION VERSION

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this “Agreement”), made this 23rd day of November, 2016 is entered into by Surface Oncology, Inc., a Delaware corporation (the “Company”), and Daniel S. Lynch (the “Executive”).

INTRODUCTION

The Company and the Executive desire to establish the terms and conditions of the Executive’s employment with the Company. In consideration of the mutual covenants and promises contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, the parties agree as follows:

1. Services. The Executive agrees to be employed by the Company, serving in a senior management role and performing such duties as may be reasonably requested from time to time by the Company, such duties to be performed at such times and places as shall be mutually agreed to by the Company and the Executive. The Executive shall dedicate twenty percent (20%) of his professional time to the Company. The Company agrees to cause the Executive to be elected to the Board of Directors of the Company (the “Board”) as Executive Chairman and Chairman of the Board, and Executive agrees to serve in such capacities. The Executive shall serve on the Board until such time as this Agreement shall terminate pursuant to Section 4 herein, at which time the Executive shall resign from the Board and from all positions as an officer or director of the Company, unless the Board of Directors of the Company determines, in its sole discretion, to have the Executive continue to serve as a member of the Board notwithstanding termination of this Agreement.

2. Term. This Agreement shall commence on the date hereof and shall continue until the Executive’s employment with the Company is terminated in accordance with the provisions of Section 4, whereupon this Agreement shall terminate (such period, the “Employment Period”).

3. Compensation.

3.1 Salary/Bonus. During the Employment Period, the Company shall pay to the Executive a salary of $12,500 per month ($150,000 on an annual basis (the “Base Compensation”)), payable in accordance with the Company’s normal payroll practices for its executives. Payment for any partial month during the Employment Period shall be prorated. In addition, the Executive will be eligible to receive an annual performance bonus of up to twenty-five percent (25%) of the Base Compensation, as determined by the Board using for such determination the same method used by the Board in determining the annual performance bonus of the Company’s Chief Executive Officer. Each annual performance bonus, if earned, shall be paid to the Executive no later than March 15th of the calendar year immediately following the calendar year for which such bonus was earned. The Executive must be an employee of the Company on September 30th of the applicable bonus year to earn any part of that bonus and, in the event that the Executive is not an employee of the Company through the last day of the applicable bonus year, the amount of such bonus shall be pro-rated based on the number of days in such bonus year that the Executive was employed by the Company.


3.2 Equity.

(a) Initial Equity Grant. As soon as practicable after entering into this Agreement, the Company shall grant the Executive an stock option which, to the extent permitted by law, shall be an incentive stock option (the “Initial Option”) under the Company’s 2014 Stock Option and Incentive Plan (the “Plan”) for the purchase of 743,368 shares of common stock of the Company (the “Initial Shares”) at a per share purchase price equal to the fair market value, as determined by the Board, on the date of the grant. The Company hereby represents and warrants that the Initial Shares represent a one and one half percent (1.5%) ownership interest in the Company as of the date hereof (based on the number of shares of common stock of the Company outstanding, assuming the exercise of all outstanding options, warrants and other rights to purchase capital stock of the Company and the conversion of all securities convertible into common stock of the Company). Subject to the acceleration provisions set forth in Sections 3.2(c) and 3.5, the Initial Option will vest, starting on the date hereof (the “Vesting Commencement Date”), at the rate of 2.0833% for each consecutive month that the Executive continues to be employed by the Company until the date that is four (4) full years after the Vesting Commencement Date, at which time the Initial Option will be fully vested.

(b) Additional Equity Grants. In addition, for so long as the Executive continues to be employed by the Company, subject to the determination of the Board and the Executive’s performance of his obligations hereunder, the Company shall from time to time, including, but not limited to, at such times as the Company considers the grant of equity awards to any of the Company’s senior executives, consider the grant to the Executive of additional stock options (the “Additional Options”) for the purchase of additional shares of common stock of the Company (the “Additional Shares”).

(c) Acceleration Upon a Sale. Notwithstanding the vesting schedules of the Initial Option and any Additional Options, upon a Deemed Liquidation Event (as defined in the Company’s amended and restated certificate of incorporation, provided in no event shall an IPO, a financing event that does not result in the distribution of proceeds to the Company’s stockholders or a wind-down be a Deemed Liquidation Event for purposes of this Agreement), of the Company, the vesting schedule of the Initial Option and any Additional Options shall be accelerated in full and the Initial Option and any Additional Options shall be immediately exercisable for the purchase of all or any portion of the full number of Initial Shares and the full number of Additional Shares.

3.3 Expenses. The Company shall reimburse the Executive for all reasonable documented out of pocket expenses incurred or paid by the Executive in connection with, or related to, the performance of his duties under this Agreement, including Executive’s travel and lodging expenses and Executive’s administrative support expenses; provided, however, (x) for such expenses as may also be reasonably related to the Executive’s performance of services for a third party, the Company shall only be obligated to reimburse the Executive for such expenses in an amount based on the Executive’s pro rata time commitments to the Company as compared to

 

- 2 -


any third parties in connection with such expense and (y) the maximum amount of the Executive’s administrative support expenses that the Company shall be required to reimburse shall be $5,000 per year. The Executive shall submit to the Company documentation, expense statements and other supporting evidence as the Company may reasonably request from the Executive and an itemized monthly statement of such expenses incurred in the previous month. The Company shall pay to the Executive amounts shown on each such statement within thirty (30) days after receipt thereof. The Company shall pay the reasonable and documented fees and expenses of Wilmer Cutler Pickering Hale and Dorr LLP, counsel for the Executive, incurred in connection with the preparation and negotiation of this Agreement, not to exceed $7,500. All reimbursements provided under this Agreement shall be made in accordance with the requirements of Section 409A (“Section 409A”) of the Internal Revenue Code of 1986 and any successor statute, regulation and guidance thereto (the “Code”), including, where applicable, the requirement that: (i) any reimbursement is for expenses incurred during the Executive’s lifetime (or during a shorter period of time specified in this Agreement); (ii) the amount of expenses eligible for reimbursement during a calendar year may not affect the expenses eligible for reimbursement in any other calendar year; (iii) the reimbursement of an eligible expense shall be made no later than the last day of the calendar year following the year in which the expense is incurred; and (iv) the right to reimbursement or in kind benefits is not subject to liquidation or exchange for another benefit.

3.4 Benefits. The Executive and the members of his immediate family shall be entitled to participate in all health and dental benefit programs that the Company establishes and makes available to its employees, and all other benefit programs that the Company establishes and makes available to its employees, if any, each in case to the extent that Executive’s position, tenure, salary, age, health and other qualifications make him eligible to participate, subject to the terms of such plans. In the event that (x) the Executive is not eligible to participate in all health benefit programs that the Company establishes and makes available to its employees and (y) the Executive does not have comparable coverage under a plan or plans of other employers, the Company shall pay to the Executive a monthly cash payment in an amount equal to twenty percent (20%) of the monthly employer contribution that the Company would have made to provide health insurance to the Executive if the Executive was a full-time employee and eligible to participate in such health benefit program.

3.5 Severance and Vesting Acceleration.

(a) In the event that (i) the Company terminates the Executive’s employment hereunder without Cause (as defined below) or (ii) the Executive terminates his employment hereunder for Good Reason (as defined below), if the Executive enters into a valid and irrevocable release of all claims against the Company and all related persons and entities in the form substantially similar to the form attached hereto as Exhibit A (the “Release”) and such Release becomes irrevocable within 60 days following the termination of the Executive’s employment hereunder, then upon the Effective Date (as defined in the Release) (or if later, upon the date of the Executive’s “separation from service” as defined in Section 409A of the Code), and Executive complies with his continuing obligations pursuant to Section 6, (x) the Executive shall be entitled to the salary that would have been payable to the Executive pursuant to Section 3.1 during the Post Termination Period, and (y) the portion of the Initial Option and any Additional Options that would have vested during the Post Termination Period if this Agreement was not so terminated shall immediately vest.

 

- 3 -


(b) For purposes of this Agreement, “Post Termination Period” shall mean a period immediately following the effective date of the termination of this Agreement of twelve (12) successive months.

(c) For purposes of this Agreement, “Cause” means: (i) that (x) the Executive has willfully and intentionally failed to substantially perform his reasonably assigned duties for the Company, as reasonably assigned by the Board or its designee, or to follow the applicable material policies or procedures of the Company in effect from time to time and such non-performance, failure or breach continues for a period of ten (10) business days following written notice by the Company to the Executive of such failure, (y) the Executive has engaged in an act of material dishonesty, fraud or willful misconduct in connection with the Executive’s duties hereunder or in dealings with the Company or knowing engagement in conduct which reasonably would be expected to be materially detrimental or injurious (monetarily or otherwise) to the Company, or (z) the Executive’s breach of any material provision of this Agreement or any other agreement by and between the Executive and the Company, which breach is not cured within ten (10) business days following written notice by the Company to the Executive of such breach; or (ii) the conviction of the Executive of, or the entry of a pleading of guilty or nolo contendere by the Executive to, any felony, other than automobile violations.

(d) For purposes of this Agreement, “Good Reason” shall mean that the Executive has complied with the “Good Reason Process” (hereinafter defined) following the occurrence of any of the following events: (i) reduction of Executive’s base salary without Executive’s prior written consent; (ii) material diminution in Executive’s duties, responsibilities and authorities with the Company, without Executive’s prior written consent; (iii) relocation of the Company’s offices more than 50 miles away from the current location without Executive’s prior written consent; or (iv) any material breach by the Company or any successor thereto of this Agreement. “Good Reason Process” shall mean that (i) Executive has reasonably determined in good faith that a “Good Reason” condition has occurred; (ii) Executive has notified the Company in writing of the first occurrence of the Good Reason condition within 90 days of the first occurrence of such condition; (iii) Executive has cooperated in good faith with the Company’s efforts, for a period not less than 30 days following such notice (the “Cure Period”), to remedy the condition; (iv) notwithstanding such efforts, the Good Reason condition continues to exist; and (v) Executive terminates Executive’s employment within 30 days after the end of the Cure Period. If the Company cures the Good Reason condition during the Cure Period, Good Reason shall be deemed not to have occurred.

3.6 Withholding. All salary, bonus and other compensation payable to the Executive shall be subject to applicable withholding taxes.

4. Termination. The Executive’s employment under this Agreement may be terminated by either the Company or the Executive upon written notice to the other party provided, however, the Executive may terminate the Executive’s employment under this Agreement for Good Reason, in accordance with the notice provisions provided under Section 3.5(d). In the event of any termination of this Agreement, the Executive shall be entitled to

 

- 4 -


payment hereunder and for expenses paid or incurred prior to the effective date of termination. For the avoidance of doubt, if (i) the Company terminates the Executive’s service for Cause, or (ii) the Executive terminates his service for any reason (except for Good Reason), then in each case the Executive shall not be entitled to any severance or accelerated vesting as set forth in Section 3.5.

5. Cooperation. The Company shall provide such access to its information and property as may be reasonably required in order to permit the Executive to perform his obligations hereunder. The Executive shall cooperate with the Company’s personnel, shall not interfere with the conduct of the Company’s business and shall observe all rules, regulations and security requirements of the Company concerning the safety of persons and property.

6. Proprietary Information and Inventions.

6.1 Proprietary Information.

(a) The Executive acknowledges that his relationship with the Company is one of high trust and confidence and that in the course of his employment with the Company he will have access to and contact with Proprietary Information. The Executive shall not disclose any Proprietary Information to any person or entity other than employees, officers, directors, lawyers, accountants and consultants of the Company or use the same for any purposes (other than in the performance of his duties as an employee or director of the Company) without written approval by an officer of the Company, either during or after the Employment Period, unless and until such Proprietary Information has become public knowledge without fault by the Executive.

(b) For purposes of this Agreement, Proprietary Information shall mean, by way of illustration and not limitation, all information, whether or not in writing, whether or not patentable and whether or not copyrightable, of a private, secret or confidential nature, owned, possessed or used by the Company, concerning the Company’s business, business relationships or financial affairs, including, without limitation, any Invention, formula, vendor information, customer information, apparatus, equipment, trade secret, process, research, report, technical or research data, clinical data, know-how, computer program, software, software documentation, hardware design, technology, product, processes, methods, techniques, formulas, compounds, projects, developments, marketing or business plan, forecast, unpublished financial statement, budget, license, price, cost, customer, supplier or personnel information or employee list that is communicated to, learned of, developed or otherwise acquired by the Executive in the course of performing his duties as an employee of the Company.

(c) The Executive’s obligations under this Section 6.1 shall not apply to any information that (i) is or becomes known to the general public under circumstances involving no breach by the Executive or others of the terms of this Section 6.1, (ii) is generally disclosed to third parties by the Company without restriction on such third parties, or (iii) is approved for release by written authorization of an officer of the Company.

 

- 5 -


(d) The Executive agrees that all files, documents, letters, memoranda, reports, records, data sketches, drawings, models, laboratory notebooks, program listings, computer equipment or devices, computer programs or other written, photographic, or other tangible material containing Proprietary Information, whether created by the Executive or others, which shall come into his custody or possession, shall be and are the exclusive property of the Company to be used by the Executive only in the performance of his duties for the Company and shall not be copied or removed from the Company premises except in the pursuit of the business of the Company. All such materials or copies thereof and all tangible property of the Company in the custody or possession of the Executive shall be delivered to the Company, upon the earlier of (i) a request by the Company or (ii) the termination of this Agreement. After such delivery, the Executive shall not retain any such materials or copies thereof or any such tangible property.

(e) The Executive agrees that his obligation not to disclose or to use information and materials of the types set forth in paragraphs (b) and (d) above, and his obligation to return materials and tangible property set forth in paragraph (d) above extends to such types of information, materials and tangible property of customers of the Company or suppliers to the Company or other third parties who may have disclosed or entrusted the same to the Company or to the Executive.

(f) The Executive acknowledges that the Company from time to time may have agreements with other persons or with the United States Government, or agencies thereof, that impose obligations or restrictions on the Company regarding inventions made during the course of work under such agreements or regarding the confidential nature of such work. The Executive agrees to be bound by all such obligations and restrictions that are known to him and to take all action necessary to discharge the obligations of the Company under such agreements.

(g) Pursuant to the federal Defend Trade Secrets Act of 2016, Executive shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that (A) is made (i) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. Further, nothing in this Agreement shall be interpreted or applied to prohibit Executive from making any good faith report to any governmental agency or other governmental entity concerning any acts or omissions that Executive believes to constitute a possible violation of federal or state law or making other disclosures that are protected under the whistleblower provisions of applicable federal or state law or regulation.

6.2 Inventions.

(a) All inventions, creations, discoveries, computer programs, data, developments, technology, designs, innovations and improvements (whether or not patentable and whether or not copyrightable) which are made, conceived, reduced to practice, created, written, designed or developed by the Executive, solely or jointly with others or under his direction and whether during normal business hours or otherwise, (i) during the Employment Period if made, conceived, reduced to practice, created, written, designed or developed in the course of Executive’s performance of duties pursuant to this Agreement or (ii) during or after the Employment Period if resulting or directly derived from Proprietary Information (collectively

 

- 6 -


under clauses (i) and (ii), “Inventions”), shall be the sole property of the Company. The Executive hereby assigns and transfers and, to the extent any such assignment cannot be made at present, will assign and transfer, to the Company all Inventions and any and all related patents, copyrights, trademarks, trade names, and other industrial and intellectual property rights and applications therefor, in the United States and elsewhere and appoints any officer of the Company as his duly authorized attorney to execute, file, prosecute and protect the same before any government agency, court or authority. However, this paragraph shall not apply to Inventions which do not relate to the business or research and development conducted or planned to be conducted by the Company at the time such Invention is created, made, conceived or reduced to practice and which are made and conceived by the Executive not during normal working hours, not on the Company’s premises and not using the Company’s tools, devices, equipment or Proprietary Information.

(b) Upon the request of the Company and at the Company’s expense, the Executive shall execute such further assignments, documents and other instruments as may be necessary or desirable to fully and completely assign all Inventions to the Company and to assist the Company in applying for, obtaining and enforcing patents or copyrights or other rights in the United States and in any foreign country with respect to any Invention. The Executive also hereby waives all claims to moral rights in any Inventions.

(c) The Executive shall promptly disclose to the Company all Inventions and shall maintain adequate and current written records (in the form of notes, sketches, drawings and as may be specified by the Company) to document the conception and/or first actual reduction to practice of any Invention. Such written records shall be available to and remain the sole property of the Company at all times.

6.3 Non-Competition and Non-Solicitation.

(a) In order to protect the Company’s confidential information, Inventions and good will, during the Employment Period and for a period of one (1) year following the termination of the Executive’s employment for any reason (the “Restricted Period”), the Executive will not directly or indirectly, whether as owner, partner, shareholder, director, manager, consultant, agent, employee, co-venturer or otherwise, engage or participate in any business activity (“Activities”) anywhere in the United States that develops, manufactures or markets any products that are directed to the same molecular targets as any products that are under development or that are the subject of active planning at any time during the Executive’s employment with the Company (“Field”); provided that this shall not prohibit any possible investment in publicly traded stock of a company representing less than one percent of the stock of such company. Notwithstanding the immediately preceding sentence, if (x) after the time the Executive begins performing Activities for a third party, the Executive learns that such third party is engaged in the development, manufacture or marketing of one or more products in the Field and (y) the Executive is permitted by such third party to disclose the third party’s identity and the specific molecular target of such product or products to the Company, the Executive shall promptly thereafter disclose the identity of such third party and such specific molecular target. Alternatively, if the Executive is not permitted by such third party to disclose the identity of such third party or the specific molecular target of such product or products to the Company, the Executive shall promptly notify the Company that he is engaged in Activities for a third party

 

- 7 -


engaged in the development, manufacture or marketing of one or more products in the Field (without disclosing the Third Party’s identity or the specific molecular target of such product or products). In either such case, the Company may as a result of such disclosure elect to terminate this Agreement pursuant to Section 4, such termination by the Company to be deemed to have been made without Cause. For the avoidance of doubt, this Section 6.3 shall not prevent the Executive’s employment by a business entity that develops, manufactures or markets any products that are directed to the same molecular targets as any products that are under development or that are the subject of active planning at any time during the Employment Period, provided that the Executive does not engage or participate in any business activity that directly supports such development, manufacture or marketing.

(b) In addition, during the Restricted Period, the Executive will not, directly or indirectly, in any manner, other than for the benefit of the Company, (a) call upon, solicit, divert, take away, accept or conduct any business from or with any of the customers or prospective customers of the Company or any of its suppliers, and/or (b) unless the Company consents in writing (such consent not be unreasonably withheld), solicit, entice, attempt to persuade any other employee or consultant of the Company to leave the Company for any reason or otherwise participate in or facilitate the hire, directly or through another entity, of any person who is employed or engaged by the Company or who was employed or engaged by the Company within six months of any attempt to hire such person. The Executive acknowledges and agrees that if he violates any of the provisions of this paragraph 6.3, the running of the Restricted Period will be extended by the time during which the Executive engages in such violation(s).

7. Other Agreements. The Executive represents that his performance of all the terms of this Agreement and the performance of his duties as an employee of the Company do not and will not breach any agreement with any third party to which the Executive is a party (including, without limitation, any nondisclosure or non-competition agreement), and that the Executive will not disclose to the Company or induce the Company to use any trade secrets, confidential or proprietary information or material belonging to any current or previous employer or others.

8. Non-Exclusivity. Except as set forth in Section 6.3, the Executive retains the right to be employed by other companies and to contract with other companies or entities for his consulting services without restriction.

9. Remedies. The Executive acknowledges that any breach of the provisions of Section 6 of this Agreement shall result in serious and irreparable injury to the Company for which the Company cannot be adequately compensated by monetary damages alone. The Executive agrees, therefore, that, in addition to any other remedy it may have, the Company shall be entitled to enforce the specific performance of this Agreement by the Executive and to seek both temporary and permanent injunctive relief (to the extent permitted by law) without the necessity of proving actual damages or posting a bond.

10. Notices. All notices required or permitted under this Agreement shall be in writing and shall be deemed effective upon personal delivery or three days after deposit in the United States Post Office, by registered or certified mail (return receipt requested), postage prepaid, addressed to the other party at the address shown above, or at such other address or addresses as either party shall designate to the other in accordance with this Section 10.

 

- 8 -


11. Pronouns. Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular forms of nouns and pronouns shall include the plural, and vice versa.

12. Entire Agreement. This Agreement constitutes the entire agreement between the parties and supersedes all prior agreements and understandings, whether written or oral, relating to the subject matter of this Agreement.

13. Amendment. This Agreement may be amended or modified only by a written instrument executed by both the Company and the Executive.

14. Non-Assignability of Contract. This Agreement is personal to the Executive and the Executive shall not have the right to assign any of his rights or delegate any of his duties without the express written consent of the Company. Any non-consented-to assignment or delegation, whether express or implied or by operation of law, shall be void and shall constitute a breach and a default by the Executive.

15. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts without giving effect to any choice or conflict of law provision or rule that would cause the application of laws of any other jurisdiction.

16. Successors and Assigns. This Agreement shall be binding upon, and inure to the benefit of, both parties and their respective successors and assigns, including any entity with which, or into which, the Company may be merged or consolidated or which may succeed to its assets or business, provided, however, that the obligations of the Executive are personal and shall not be assigned by him.

17. Interpretation. If any restriction set forth in Section 6 is found by any court of competent jurisdiction to be unenforceable because it extends for too long a period of time or over too great a range of activities or in too broad a geographic area, it shall be interpreted to extend only over the maximum period of time, range of activities or geographic area as to which it may be enforceable.

18. Survival. Section 3.5 and Sections 4 through 20 shall survive the expiration or termination of this Agreement.

19. Section 409A.

19.1 To the extent that any payment or benefit described in this Agreement constitutes “non-qualified deferred compensation” under Section 409A of the Code, and to the extent that such payment or benefit is payable upon the Executive’s termination of service, then such payments or benefits shall be payable only upon the Executive’s “separation from service.” The determination of whether and when a separation from service has occurred shall be made in accordance with the presumptions set forth in Treasury Regulation Section 1.409A-1(h).

 

- 9 -


19.2 The parties intend that this Agreement will be administered in accordance with Section 409A of the Code. To the extent that any provision of this Agreement is ambiguous as to its compliance with Section 409A of the Code, the provision shall be read in such a manner so that all payments hereunder comply with Section 409A of the Code. Each payment pursuant to this Agreement is intended to constitute a separate payment for purposes of Treasury Regulation Section 1.409A-2(b)(2). The parties agree that this Agreement may be amended, as reasonably requested by either party, and as may be necessary to fully comply with Section 409A of the Code and all related rules and regulations in order to preserve the payments and benefits provided hereunder without additional cost to either party.

19.3 The Company makes no representation or warranty and shall have no liability to the Executive or any other person if any provisions of this Agreement are determined to constitute deferred compensation subject to Section 409A of the Code but do not satisfy an exemption from, or the conditions of, such Section.

20. Miscellaneous.

20.1 No delay or omission by the Company in exercising any right under this Agreement shall operate as a waiver of that or any other right. No waiver of any term or condition of this Agreement shall be valid or binding on either Party unless the same shall be been mutually assented to in writing by both Parties. The failure of either Party to enforce at any time any of the provisions of this Agreement, or the failure to require at any time performance by the other Party of any of the provisions of this Agreement, shall in no way be construed to be a present or future waiver of such provisions, nor in any way affect the right of either Party to enforce each and every such provision thereafter. The express waiver by either Party of any provision, condition or requirement of this Agreement shall not constitute a waiver of any future obligation to comply with such provision, condition or requirement.

20.2 The captions of the sections of this Agreement are for convenience of reference only and in no way define, limit or affect the scope or substance of any section of this Agreement.

20.3 In the event that any provision of this Agreement shall be invalid, illegal or otherwise unenforceable, the validity, legality and enforceability of the remaining provisions shall in no way be affected or impaired thereby.

[Remainder of Page Intentionally Left Blank]

 

- 10 -


IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year set forth above.

 

SURFACE ONCOLOGY, INC.
By:   /s/ Detlev Biniszkiewicz
Name: Detlev Biniszkiewicz
Title: President and CEO

 

EXECUTIVE
/s/ Daniel Lynch
Daniel S. Lynch

Signature Page to Employment Agreement


Exhibit A

SEPARATION AGREEMENT AND RELEASE

This Separation Agreement and Release (“Agreement”) is made by and between Daniel S. Lynch (“Executive”) and Surface Oncology, Inc. (the “Company”) (collectively, referred to as the “Parties” or individually referred to as a “Party”).

WHEREAS, the Parties have previously entered into that certain Employment Agreement, dated as of November [__], 2016 (the “Employment Agreement”); and

WHEREAS, in connection with the termination of the Employment Agreement, the Parties wish to resolve any and all disputes, claims, complaints, grievances, charges, actions, petitions, and demands that the Executive may have against the Company and any of the Releasees (as defined below) arising out of or related to the Executive’s provision of services to or termination of employment with the Company or its subsidiaries or affiliates or the termination of the Employment Agreement (the “Employment Relationship”) but, for the avoidance of doubt, nothing herein will be deemed to release any rights or remedies in connection with amounts owed to, or vested benefits for, the Executive (or his immediate family members) under Sections 3.1, 3.3 and 3.4 of the Employment Agreement through the effective date of termination thereof, the Executive’s ownership of vested equity securities of the Company, the Executive’s right to indemnification by the Company or any of its affiliates pursuant to contract or applicable law or Directors’ and Officers’ insurance, or the Executive’s rights to payments under this Agreement (collectively, the “Retained Claims”).

NOW, THEREFORE, in consideration of the payment to the Executive of the compensation and benefits described in Section 3.5(a) of the Employment Agreement (the “Termination Payments”), which, pursuant to the Employment Agreement, are conditioned on the Executive’s execution and non-revocation of this Agreement, and in consideration of the mutual promises made herein, the Company and the Executive hereby agree as follows:

1. Severance Payments. The Company agrees to provide the Executive with the Termination Payments, payable at the times set forth in, and subject to the terms and conditions of, the Employment Agreement.

2. Release of Claims. The Executive agrees that, other than with respect to the Retained Claims, the foregoing consideration represents settlement in full of all outstanding obligations owed to the Executive by the Company, any of its direct or indirect subsidiaries and affiliates, and any of its or their current and former officers, directors, equity holders, managers, employees, agents, investors, attorneys, shareholders, administrators, affiliates, benefit plans, plan administrators, insurers, trustees, divisions, and subsidiaries and predecessor and successor corporations and assigns (collectively, the “Releasees”) arising out of or related to the Employment Relationship and any prior employment relationship. The Executive, on his own behalf and on behalf of the Executive’s heirs, family members, executors, agents, successors and assigns, other than with respect to the Retained Claims, hereby and forever releases the Releasees from, and agrees not to sue concerning, or in any manner to institute, prosecute, or pursue, any claim, complaint, charge, duty, obligation, or cause of action relating to any matters

 

A-1


of any kind, whether presently known or unknown, suspected or unsuspected, that the Executive may possess against any of the Releasees arising from any omissions, acts, facts, or damages that have occurred up until and including the Effective Date of this Agreement (as defined in Section 7 below) and arising out of or related to the Employment Relationship and any prior employment relationship between the Company and the Executive, including, without limitation, to the extent arising out of or related to the Employment Relationship or any such prior employment relationship:

(a) any and all claims relating to, or arising from, the Executive’s right to purchase, or actual purchase of any shares of stock or other equity interests of the Company or any of its affiliates, including, without limitation, any claims for fraud, misrepresentation, breach of fiduciary duty, breach of duty under applicable state corporate law, and securities fraud under any state or federal law;

(b) any and all claims for wrongful dismissal or discharge of employment; termination in violation of public policy; discrimination; harassment; retaliation; breach of contract, both express and implied; breach of covenant of good faith and fair dealing, both express and implied; promissory estoppel; negligent or intentional infliction of emotional distress; fraud; negligent or intentional misrepresentation; negligent or intentional interference with contract or prospective economic advantage; unfair business practices; defamation; libel; slander; negligence; personal injury; assault; battery; invasion of privacy; false imprisonment; conversion; and disability benefits;

(c) any and all claims for violation of any federal, state, or municipal statute, including, but not limited to, Title VII of the Civil Rights Act of 1964; the Civil Rights Act of 1991; the Rehabilitation Act of 1973; the Americans with Disabilities Act of 1990; the Equal Pay Act; the Fair Credit Reporting Act; the Age Discrimination in Employment Act of 1967; the Older Workers Benefit Protection Act; the Employee Retirement Income Security Act of 1974; the Worker Adjustment and Retraining Notification Act; the Family and Medical Leave Act; the Sarbanes-Oxley Act of 2002; the Massachusetts Fair Employment Practices Act; the Massachusetts Civil Rights Act; the Massachusetts Equal Rights Act; the Massachusetts Labor and Industries Act; the Massachusetts Privacy Act; and the Massachusetts Maternity Leave Act, all as amended;

(d) any and all claims for violation of the federal or any state constitution;

(e) any and all claims arising out of any other laws and regulations relating to employment, the provision of consulting services or employment discrimination;

(f) any claim for any loss, cost, damage, or expense arising out of any dispute over the non-withholding or other tax treatment of any of the proceeds received by the Executive as a result of this Agreement; and

(g) any and all claims for compensatory damages, punitive damages, injunctive relief, attorneys’ fees and costs.

 

A-2


The Executive agrees that the release set forth in this section shall be and remain in effect in all respects as a complete general release as to the matters released. This release does not release claims that cannot be released as a matter of law, including, but not limited to, the Executive’s right to file a charge with or participate in a charge by the Equal Employment Opportunity Commission, or any other local, state, or federal administrative body or government agency that is authorized to enforce or administer laws related to employment or consulting service, against the Company (with the understanding that the Executive’s release of claims herein bars the Executive from recovering monetary relief from the Company or any Releasee), claims for unemployment compensation or any state disability insurance benefits pursuant to the terms of applicable state law, claims to continued participation in certain of the Company’s group benefit plans pursuant to the terms and conditions of COBRA, claims to any benefit entitlements vested as of the date of termination of the Employment Relationship, pursuant to the written terms of any benefit plan of the Company or its affiliates and the Executive’s rights under applicable law, and any Retained Claims.

3. Acknowledgment of Waiver of Claims under ADEA. The Executive understands and acknowledges that the Executive is waiving and releasing any rights the Executive may have under the Age Discrimination in Employment Act of 1967 (“ADEA”), and that this waiver and release is knowing and voluntary. The Executive understands and agrees that this waiver and release does not apply to any rights or claims that may arise under the ADEA after the Effective Date of this Agreement. The Executive understands and acknowledges that the consideration given for this waiver and release is in addition to anything of value to which the Executive was already entitled. The Executive further understands and acknowledges that the Executive has been advised by this writing that: (a) the Executive should consult with an attorney prior to executing this Agreement; (b) the Executive has 21 days within which to consider this Agreement; (c) the Executive has 7 days following the Executive’s execution of this Agreement to revoke this Agreement pursuant to written notice to the Secretary of the Company; (d) this Agreement shall not be effective until after the revocation period has expired; and (e) nothing in this Agreement prevents or precludes the Executive from challenging or seeking a determination in good faith of the validity of this waiver under the ADEA, nor does it impose any condition precedent, penalties, or costs for doing so, unless specifically authorized by federal law. In the event the Executive signs this Agreement and returns it to the Company in less than the 21 day period identified above, the Executive hereby acknowledges that the Executive has freely and voluntarily chosen to waive the time period allotted for considering this Agreement.

4. Severability. In the event that any provision or any portion of any provision hereof or any surviving agreement made a part hereof becomes or is declared by a court of competent jurisdiction or arbitrator to be illegal, unenforceable, or void, this Agreement shall continue in full force and effect without said provision or portion of provision.

5. No Oral Modification. This Agreement may only be amended in a writing signed by the Executive and a duly authorized officer of the Company.

6. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts without giving effect to any choice or conflict of law provision or rule that would cause the application of laws of any other jurisdiction.

 

A-3


7. Effective Date. If the Executive has attained or is over the age of 40 as of the date of the Executive’s termination of services, then the Executive has seven days after the Executive signs this Agreement to revoke it and this Agreement will become effective on the eighth day after the Executive signed this Agreement, so long as it has been signed by the Parties and has not been revoked by either Party before that date (the “Effective Date”). If the Executive has not attained the age of 40 as of the date of the Executive’s termination of services, then the “Effective Date” shall be the date on which the Executive signs this Agreement.

8. Voluntary Execution of Agreement. The Executive understands and agrees that the Executive executed this Agreement voluntarily, without any duress or undue influence on the part or behalf of the Company or any third party, with the full intent of releasing all of the Executive’s claims as set forth above against the Company and any of the other Releasees arising out of or related to the Employment Relationship and any prior employment relationship. The Executive acknowledges that: (a) the Executive has read this Agreement; (b) the Executive has not relied upon any representations or statements made by the Company that are not specifically set forth in this Agreement; (c) the Executive has been represented in the preparation, negotiation, and execution of this Agreement by legal counsel of the Executive’s own choice or has elected not to retain legal counsel; (d) the Executive understands the terms and consequences of this Agreement and of the releases it contains; and (e) the Executive is fully aware of the legal and binding effect of this Agreement.

[Signature Page Follows]

 

A-4


IN WITNESS WHEREOF, the Parties have executed this Agreement on the respective dates set forth below.

 

      EXECUTIVE
Dated:                                                                                                                                              
      Daniel S. Lynch
     
      COMPANY
     
      SURFACE ONCOLOGY, INC.
     
Dated:                                                     By:                                                                                     
      Name:                                                                               
      Title:                                                                                  

 

A-5


EX-10.15

Exhibit 10.15

EMPLOYMENT AGREEMENT

This Employment Agreement (the “Agreement”) is by and between Surface Oncology, Inc. (the “Company”) and J. Jeffrey Goater (the “Executive”) and is made effective as of the closing of the Company’s first underwritten public offering of its equity securities pursuant to an effective registration statement under the Securities Act of 1933, as amended (the “Effective Date”). Except with respect to the Restrictive Covenants Agreements and the Equity Documents (each as defined below), this Agreement supersedes, amends and restates in all respects all prior agreements between the Executive and the Company regarding the subject matter herein, including without limitation any offer letter, employment agreement or severance agreement.

1. Employment Term. The Company and the Executive desire to continue their employment relationship, pursuant to this Agreement commencing as of the date hereof and continuing in effect until terminated by either party in accordance with this Agreement (the “Term”). The Executive’s employment with the Company will continue to be “at will,” meaning that the Executive’s employment may be terminated by the Company or the Executive at any time and for any reason subject to the terms of this Agreement. If the Executive’s employment with the Company is terminated for any reason, the Company shall pay or provide to the Executive (or to his authorized representative or estate) any earned but unpaid Base Salary (as defined below), unpaid expense reimbursements in accordance with Company policy, accrued but unused vacation, if any and any vested benefits the Executive may have under any employee benefit plan of the Company (collectively, the “Accrued Obligations”).

2. Position and Duties. The Executive shall hold the position of President and Chief Executive Officer (the “CEO”). The Executive will have such powers and duties as may from time to time be prescribed by the Company’s Board of Directors (the “Board”). The Executive shall devote his full working time and best efforts, skill, knowledge, attention and energies to the business and affairs of the Company and to the performance of the Executive’s duties and responsibilities as an employee of the Company. While the Executive renders services to the Company, he will not engage in any other employment, consulting or other business activity (whether full-time or part-time) without prior written authorization from the Board. Notwithstanding the foregoing, the Executive may engage in religious, charitable or other community activities as long as such services and activities do not interfere with the Executive’s performance of his duties to the Company. The Executive reaffirms that he has no contractual commitments or other legal obligations that would prohibit him from fully performing his duties for the Company. During Executive’s employment as CEO, he shall also serve as a member of the Company’s Board. Upon the ending of the Executive’s employment as CEO, he shall immediately resign from the Board as well as from any other positions to which he was elected or appointed in connection with his position as CEO. The Executive shall be based at the Company’s headquarters, currently in Cambridge, Massachusetts.

3. Compensation and Related Matters.

(a) Base Salary. The Executive’s annual base salary is $465,000, which is subject to review and redetermination by the Board or the Compensation Committee of the Board (the “Compensation Committee”). The annual base salary in effect at any given time is referred to herein as “Base Salary.” The Base Salary will be payable in a manner that is consistent with the Company’s usual payroll practices for executive employees.


(b) Bonus. During the Term, the Executive will be eligible to be considered for annual cash bonus as determined by the Board or the Compensation Committee. The Executive’s annual target bonus is 50% of the Base Salary, which is subject to review and redetermination by the Board or the Compensation Committee. The annual target bonus in effect at any given time is referred to herein as the “Target Bonus.” The actual bonus shall be discretionary and shall be subject to terms and conditions of any applicable bonus plan as may be adopted from time to time. The Executive’s bonus, if any, will be paid by March 15 of the year following the applicable bonus year. To earn a bonus, the Executive must be employed by the Company on the day such bonus is paid.

(c) Employee Benefits. During the Term, the Executive will be entitled to continue to participate in the Company’s employee benefit plans and programs, subject to the terms and the conditions of such plans and to the Company’s ability to amend, modify, replace or terminate such plans and programs.

(d) Equity. The equity awards held by the Executive shall be governed by the terms and conditions of the Company’s applicable equity incentive plan(s), the applicable award agreement(s) governing the terms of such equity awards held by the Executive, and Section 4 of the Executive’s prior offer letter dated December 6, 2016 (the “Preserved Equity Provision”) (collectively, the “Equity Documents”); provided, however, and notwithstanding anything to the contrary in the Equity Documents, Section 6(c) of this Agreement shall apply in the event of a Qualified Termination Event within the Change in Control Period (as defined below), to the extent accelerated vesting did not already occur upon a Change in Control in accordance with the Preserved Equity Provision.

(e) Reimbursement of Business Expenses. The Company shall reimburse the Executive for business expenses reasonably and necessarily incurred by the Executive in connection with the Company’s business. Expense reimbursement shall be subject to the policies the Company may adopt from time to time, including with respect to pre-approval and limitations. Any reimbursement in one calendar year shall not affect the amount that may be reimbursed in any other calendar year and a reimbursement (or right thereto) may not be exchanged or liquidated for another benefit or payment. Any business expense reimbursements subject to Section 409A of the Code shall be made no later than the end of the calendar year following the calendar year in which such business expense is incurred by the Executive.

4. Certain Definitions.

(a) Change in Control. “Change in Control” means (i) the sale of all or substantially all of the assets of the Company on a consolidated basis to an unrelated person or entity, (ii) a merger, reorganization or consolidation pursuant to which the holders of the Company’s outstanding voting power and outstanding stock immediately prior to such transaction do not own a majority of the outstanding voting power and outstanding stock or other equity interests of the resulting or successor entity (or its ultimate parent, if applicable)

 

2


immediately upon completion of such transaction, (iii) the sale of all of the outstanding voting stock of the Company to an unrelated person, entity or group thereof acting in concert, or (iv) any other transaction in which the owners of the Company’s outstanding voting power immediately prior to such transaction do not own at least a majority of the outstanding voting power of the Company or any successor entity immediately upon completion of the transaction other than as a result of the acquisition of securities directly from the Company; provided, however, that the Company’s Initial Public Offering, any subsequent public offering or another capital raising event, or a merger effected solely to change the Company’s domicile shall not constitute a “Change in Control.”

(b) Change in Control Period. “Change in Control Period” means the period beginning on the date of a Change in Control and ending on the one-year anniversary of the Change in Control.

(c) Disability. An Executive becomes “Disabled” for purposes of this Agreement if through any illness, injury, accident or condition of either a physical or psychological nature the Executive becomes unable to perform substantially all of his duties and responsibilities for a continuous period of thirteen (13) consecutive weeks or for any twenty (20) weeks within a fifty-two (52) week period. Determinations as to whether Executive is Disabled shall be made by a physician selected by the Board or its insurers and acceptable to the Executive or the Executive’s legal representative, such agreement as to acceptability not to be unreasonably withheld or delayed. In the interest of clarity, the Board may designate another employee to act in the Executive’s place during any period the Executive becomes unable to perform substantially all of his duties and responsibilities.

(d) Qualified Termination Event. A “Qualified Termination Event” means termination of the Executive’s employment by the Company under the circumstances set forth below in Section 4(d)(i) (“Termination by the Company without Cause”) or Section 4(d)(ii) (“The Executive’s Resignation for Good Reason”), in any event subject to provisions in Section 4(e).

(i) Termination by the Company without Cause. Termination by the Company of the Executive’s employment without Cause. For purposes of this Agreement, “Cause” means the Executive’s:

(A) unauthorized use or disclosure of the Company’s confidential information or trade secrets, which use or disclosure causes material harm to the Company;

(B) material breach of any agreement between the Executive and the Company;

(C) material failure to comply with the Company’s written policies or rules;

(D) conviction of, or plea of “guilty” or “no contest” to, a felony under the laws of the United States or any State;

 

3


(E) gross negligence or willful misconduct in the performance of the Executive’s duties to the Company;

(F) continuing failure to perform assigned duties after receiving written notification of the failure from the Board of Directors; or

(G) failure to cooperate in good faith with a governmental or internal investigation of the Company or its directors, officers or employees, if the Company has requested the Executive’s cooperation.

(ii) The Executive’s Resignation for Good Reason. The Executive’s resignation of his employment with the Company for Good Reason. For purposes of this Agreement, “Good Reason” means that the Executive has complied with the “Good Reason Process” (hereinafter defined) following the occurrence of any of the following events:

(A) a reduction in the Executive’s Base Salary (as pro-rated based on the Executive’s business time devoted to the Company) by more than 10%;

(B) a material diminution of the Executive’s authority, duties or responsibilities; or

(C) a relocation of the Executive’s principal workplace by more than 30 miles.

“Good Reason Process” means that (i) the Executive reasonably determines in good faith that a “Good Reason” condition has occurred; (ii) the Executive notifies the Company in writing of the first occurrence of the Good Reason condition within 90 days of the first occurrence of such condition; (iii) the Executive cooperates in good faith with the Company’s efforts, for a period not less than 30 days following such notice (the “Cure Period”), to remedy the condition; (iv) notwithstanding such efforts, the Good Reason condition continues to exist; and (v) the Executive terminates his employment within 30 days after the end of the Cure Period. If the Company cures the Good Reason condition during the Cure Period, Good Reason shall be deemed not to have occurred.

(e) A Qualified Termination Event shall not be deemed to have occurred pursuant to this Section as a result of: (i) the ending of the Executive’s employment due to the Executive’s death or Disability, (ii) the Executive’s resignation for any reason, other than for Good Reason, (iii) the Company’s termination of the employment relationship for Cause; or (iv) solely as a result of the Executive being or becoming an employee of any direct or indirect successor to the business or assets of the Company rather than continuing as an employee of the Company following a Change in Control.

 

4


5. Termination. During the Term, the Executive’s employment hereunder may be terminated without any breach of this Agreement under the following circumstances:

(a) Death. The Executive’s employment hereunder shall terminate upon his death.

(b) Disability. The Company may terminate the Executive’s employment if he is Disabled, as defined above.

(c) Termination by the Company for Cause. The Company may terminate the Executive’s employment hereunder for Cause.

(d) Termination by the Company without Cause. The Company may terminate the Executive’s employment hereunder at any time without Cause.

(e) Termination by the Executive. The Executive may terminate his employment hereunder at any time for any reason, including but not limited to Good Reason.

6. Severance and Accelerated Vesting if a Qualified Termination Event Occurs within the Change in Control Period. In the event a Qualified Termination Event occurs within the Change in Control Period, subject to the Executive signing and complying with a separation agreement in a form and manner satisfactory to the Company containing, among other provisions, a general release of claims in favor of the Company and related persons and entities, confidentiality, return of property, non-disparagement and reaffirmation of any restrictive covenants (the “Separation Agreement and Release”) and the Separation Agreement and Release becoming irrevocable, all within the time period set forth in the Separation Agreement and Release but in no event more than 60 days after the Date of Termination, the following shall occur:

(a) the Company shall pay to the Executive an amount equal to the sum of eighteen (18) months the Executive’s Base Salary in effect immediately prior to the Qualified Termination Event (or the Executive’s Base Salary in effect immediately prior to the Change in Control, if higher) plus 1.5 times the amount of the Executive’s Target Bonus;

(b) if the Executive was participating in the Company’s group health plan immediately prior to the Date of Termination and elects COBRA health continuation, then the Company shall pay to the Executive a lump sum cash payment in an amount equal to the monthly employer contribution that the Company would have made to provide health insurance to the Executive if the Executive had remained employed by the Company for eighteen (18) months after the Date of Termination, based on the premiums as of the Date of Termination; and

(c) 100% of all time-based equity awards held by the Executive shall immediately accelerate and become fully exercisable or nonforfeitable as of the Date of Termination.

The amounts payable under Section 6(a) and (b), as applicable, shall be paid out in a lump sum within 60 days after the Date of Termination; provided, however, that if the 60-day period begins in one calendar year and ends in a second calendar year, the amounts shall be paid in the second calendar year no later than the last day of the 60-day period.

 

5


7. Severance if a Qualified Termination Event Occurs Outside the Change in Control Period. In the event a Qualified Termination Event occurs at any time other than during the Change in Control Period, subject to the Executive signing and not revoking the Separation Agreement and Release, all within the time period set forth in the Separation Agreement and Release but in no event more than 60 days after the Date of Termination, and subject to the Executive complying with the Separation Agreement and Release, the following shall occur:

(a) the Company shall pay to the Executive an amount equal to the sum of twelve (12) months of the Executive’s annual Base Salary in effect immediately prior to the Qualified Termination Event; and

(b) if the Executive was participating in the Company’s group health plan immediately prior to the Date of Termination and elects COBRA health continuation, then the Company shall pay to the Executive a monthly cash payment for twelve (12) months or the Executive’s COBRA health continuation period, whichever ends earlier, in an amount equal to the monthly employer contribution that the Company would have made to provide health insurance to the Executive if the Executive had remained employed by the Company, based on the premiums as of the Date of Termination.

The amounts payable under Section 7(a) and (b) shall be paid out in substantially equal installments in accordance with the Company’s payroll practice over twelve (12) months commencing within 60 days after the Date of Termination; provided, however, that if the 60-day period begins in one calendar year and ends in a second calendar year, the severance shall begin to be paid in the second calendar year by the last day of such 60-day period; provided further, that the initial payment shall include a catch-up payment to cover amounts retroactive to the day immediately following the Date of Termination. Each payment pursuant to this Agreement is intended to constitute a separate payment for purposes of Treasury Regulation Section 1.409A-2(b)(2).

8. Restrictive Covenants Agreement. The terms of the Employee Non-Competition, Non-Solicitation, Confidentiality and Assignment Agreement dated December 13, 2016 (the “2016 Restrictive Covenants Agreement”) and the Employee Non-Competition, Non-Solicitation, Confidentiality and Assignment Agreement dated April 26, 2017 between the Company and the Executive, attached hereto as Exhibit A (the “2017 Restrictive Covenants Agreement”) continue to be in full force and effect. The 2016 Restrictive Covenants Agreement and the 2017 Restrictive Covenants Agreement are collectively referred to as the “Restrictive Covenants Agreements.” The Executive agrees that the term “Company,” as used in the Restrictive Covenants Agreements, shall mean the Company, its subsidiaries and other affiliates, and its and their successors and assigns. The Executive hereby reaffirms the terms of both Restrictive Covenants Agreements, as modified herein, as material terms of this Agreement and agrees and acknowledges that such terms are incorporated by reference in this Agreement. The Executive and the Company agree that in the event of any inconsistencies between the 2016 Restrictive Covenants Agreement and the 2017 Restrictive Covenants Agreement, the 2017 Restrictive Covenants Agreement will be controlling.

(a) Third-Party Agreements and Rights. The Executive hereby confirms that the Executive is not bound by the terms of any agreement with any previous employer or other party that restricts in any way the Executive’s use or disclosure of information or the Executive’s engagement in any business. The Executive represents to the Company that the Executive’s execution of this Agreement, the Executive’s employment with the Company and the performance of the Executive’s proposed duties for the Company will not violate any obligations

 

6


the Executive may have to any such previous employer or other party. In the Executive’s work for the Company, the Executive will not disclose or make use of any information in violation of any agreements with or rights of any such previous employer or other party, and the Executive will not bring to the premises of the Company any copies or other tangible embodiments of non-public information belonging to or obtained from any such previous employment or other party.

(b) Litigation and Regulatory Cooperation. During and after the Executive’s employment, the Executive shall cooperate fully with the Company in the defense or prosecution of any claims or actions now in existence or which may be brought in the future against or on behalf of the Company which relate to events or occurrences that transpired while the Executive was employed by the Company. The Executive’s full cooperation in connection with such claims or actions shall include, but not be limited to, being available to meet with counsel to prepare for discovery or trial and to act as a witness on behalf of the Company at mutually convenient times. During and after the Executive’s employment, the Executive also shall cooperate fully with the Company in connection with any investigation or review of any federal, state or local regulatory authority as any such investigation or review relates to events or occurrences that transpired while the Executive was employed by the Company. The Company shall reimburse the Executive for any reasonable out-of-pocket expenses incurred in connection with the Executive’s performance of obligations pursuant to this Section 8(b).

(c) Relief. The Executive agrees that it would be difficult to measure any damages caused to the Company which might result from any breach by the Executive of the promises set forth in this Section 8, and that in any event money damages would be an inadequate remedy for any such breach. Accordingly, the Executive agrees that if the Executive breaches, or proposes to breach, any portion of this Agreement, the Company shall be entitled, in addition to all other remedies that it may have, to an injunction or other appropriate equitable relief to restrain any such breach without showing or proving any actual damage to the Company. In addition, in the event the Executive breaches either of the Restrictive Covenants Agreements during a period when he is receiving severance payments pursuant to Section 6 or 7, the Company shall have the right to suspend or terminate such severance payments. Such suspension or termination shall not limit the Company’s other options with respect to relief for such breach and shall not relieve the Executive of his duties under this Agreement.

(d) Protected Disclosures and Other Protected Actions. Nothing in this Agreement shall be interpreted or applied to prohibit the Executive from making any good faith report to any governmental agency or other governmental entity (a “Government Agency”) concerning any act or omission that the Executive reasonably believes constitutes a possible violation of federal or state law or making other disclosures that are protected under the anti-retaliation or whistleblower provisions of applicable federal or state law or regulation. In addition, nothing contained in this Agreement limits the Executive’s ability to communicate with any Government Agency or otherwise participate in any investigation or proceeding that may be conducted by any Government Agency, including the Executive’s ability to provide documents or other information, without notice to the Company. In addition, for the avoidance of doubt, pursuant to the federal Defend Trade Secrets Act of 2016, the Executive shall not be held criminally or civilly liable under any federal or state trade secret law or under this Agreement or the Restrictive Covenants Agreements for the disclosure of a trade secret that (a) is made (i) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (b) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.

 

7


9. Additional Limitation.

(a) Anything in this Agreement to the contrary notwithstanding, in the event that the amount of any compensation, payment or distribution by the Company to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, calculated in a manner consistent with Section 280G of the Code and the applicable regulations thereunder (the “Aggregate Payments”), would be subject to the excise tax imposed by Section 4999 of the Code, then the Aggregate Payments shall be reduced (but not below zero) so that the sum of all of the Aggregate Payments shall be $1.00 less than the amount at which the Executive becomes subject to the excise tax imposed by Section 4999 of the Code; provided that such reduction shall only occur if it would result in the Executive receiving a higher After Tax Amount (as defined below) than the Executive would receive if the Aggregate Payments were not subject to such reduction. In such event, the Aggregate Payments shall be reduced in the following order, in each case, in reverse chronological order beginning with the Aggregate Payments that are to be paid the furthest in time from consummation of the transaction that is subject to Section 280G of the Code: (1) cash payments not subject to Section 409A of the Code; (2) cash payments subject to Section 409A of the Code; (3) equity-based payments and acceleration; and (4) non-cash forms of benefits; provided that in the case of all the foregoing Aggregate Payments all amounts or payments that are not subject to calculation under Treas. Reg. §1.280G-1, Q&A-24(b) or (c) shall be reduced before any amounts that are subject to calculation under Treas. Reg. §1.280G-1, Q&A-24(b) or (c).

(b) For purposes of this Section 9, the “After Tax Amount” means the amount of the Aggregate Payments less all federal, state, and local income, excise and employment taxes imposed on the Executive as a result of the Executive’s receipt of the Aggregate Payments. For purposes of determining the After Tax Amount, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation applicable to individuals for the calendar year in which the determination is to be made, and state and local income taxes at the highest marginal rates of individual taxation in each applicable state and locality, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes.

(c) The determination as to whether a reduction in the Aggregate Payments shall be made pursuant to Section 9 shall be made by a nationally recognized accounting firm selected by the Company (the “Accounting Firm”), which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the Date of Termination, if applicable, or at such earlier time as is reasonably requested by the Company or the Executive. Any determination by the Accounting Firm shall be binding upon the Company and the Executive.

 

8


10. Section 409A.

(a) Anything in this Agreement to the contrary notwithstanding, if at the time of the Executive’s “separation from service” within the meaning of Section 409A of the Code, the Company determines that the Executive is a “specified employee” within the meaning of Section 409A(a)(2)(B)(i) of the Code, then to the extent any payment or benefit that the Executive becomes entitled to under this Agreement on account of the Executive’s separation from service would be considered deferred compensation subject to the 20 percent additional tax imposed pursuant to Section 409A(a) of the Code as a result of the application of Section 409A(a)(2)(B)(i) of the Code, such payment shall not be payable and such benefit shall not be provided until the date that is the earlier of (A) six months and one day after the Executive’s separation from service, or (B) the Executive’s death.

(b) The parties intend that this Agreement will be administered in accordance with Section 409A of the Code. To the extent that any provision of this Agreement is ambiguous as to its compliance with Section 409A of the Code, the provision shall be read in such a manner so that all payments hereunder comply with Section 409A of the Code. The parties agree that this Agreement may be amended, as reasonably requested by either party, and as may be necessary to fully comply with Section 409A of the Code and all related rules and regulations in order to preserve the payments and benefits provided hereunder without additional cost to either party.

(c) All in-kind benefits provided and expenses eligible for reimbursement under this Agreement shall be provided by the Company or incurred by the Executive during the time periods set forth in this Agreement. All reimbursements shall be paid as soon as administratively practicable, but in no event shall any reimbursement be paid after the last day of the taxable year following the taxable year in which the expense was incurred. The amount of in-kind benefits provided or reimbursable expenses incurred in one taxable year shall not affect the in-kind benefits to be provided or the expenses eligible for reimbursement in any other taxable year. Such right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit.

(d) To the extent that any payment or benefit described in this Agreement constitutes “non-qualified deferred compensation” under Section 409A of the Code, and to the extent that such payment or benefit is payable upon the Executive’s termination of employment, then such payments or benefits shall be payable only upon the Executive’s “separation from service.” The determination of whether and when a separation from service has occurred shall be made in accordance with the presumptions set forth in Treasury Regulation Section 1.409A-1(h).

(e) The Company makes no representation or warranty and shall have no liability to the Executive or any other person if any provisions of this Agreement are determined to constitute deferred compensation subject to Section 409A of the Code but do not satisfy an exemption from, or the conditions of, such Section.

 

9


11. Withholding. All payments made by the Company to the Executive under this Agreement shall be net of any tax or other amounts required to be withheld by the Company under applicable law.

12. Notice and Date of Termination.

(a) Notice of Termination. During the Term, any termination of the Executive’s employment (other than by reason of death) shall be communicated by written Notice of Termination from one party hereto to the other party hereto in accordance with this Section 12. For purposes of this Agreement, a “Notice of Termination” shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon.

(b) Date of Termination. “Date of Termination” shall mean: (i) if the Executive’s employment is terminated by his death, the date of the Executive’s death; (ii) if the Executive’s employment is terminated on account of Executive’s Disability, by the Company for Cause, or by the Company without Cause, the date on which Notice of Termination is given; (iii) if the Executive’s employment is terminated by the Executive for any reason except for Good Reason, 30 days after the date on which a Notice of Termination is given, and (iv) if the Executive’s employment is terminated by the Executive for Good Reason, the date on which a Notice of Termination is given after the end of the Cure Period. Notwithstanding the foregoing, in the event that the Executive gives a Notice of Termination to the Company, the Company may unilaterally accelerate the Date of Termination and such acceleration shall not result in a termination by the Company for purposes of this Agreement.

13. Representations and Warranties. The Executive represents that he has not been debarred under Subsection (a) or (b) of Section 306 of the United States Federal Food, Drug, and Cosmetic Act (21 U.S.C. 335a); and is not on any of the FDA clinical investigator enforcement lists (including the (i) Disqualified/Totally Restricted List, (ii) Restricted List and (iii) Adequate Assurances List).

14. No Mitigation. The Company agrees that, if the Executive’s employment by the Company is terminated during the term of this Agreement, the Executive is not required to seek other employment or to attempt in any way to reduce any amounts payable to the Executive by the Company pursuant to Section 6 or Section 7 hereof. Further, the amount of any payment provided for in this Agreement shall not be reduced by any compensation earned by the Executive as the result of employment by another employer.

15. Consent to Jurisdiction. The parties hereby consent to the jurisdiction of the state and federal courts in the Commonwealth of Massachusetts. Accordingly, with respect to any such court action, the Executive (a) submits to the personal jurisdiction of such courts; (b) consents to service of process; and (c) waives any other requirement (whether imposed by statute, rule of court, or otherwise) with respect to personal jurisdiction or service of process.

16. Integration. This Agreement constitutes the entire agreement between the parties with respect to compensation, severance pay, benefits and accelerated vesting and supersedes in all respects all prior agreements between the parties concerning such subject matter, including without limitation any offer letter, employment agreement or severance agreement relating to the

 

10


Executive’s employment relationship with the Company and/or the ending of that employment relationship. Notwithstanding the foregoing, the Restrictive Covenants Agreements, the Equity Documents, each as modified herein, and any other agreement relating to confidentiality, noncompetition, nonsolicitation or assignment of inventions shall not be superseded by this Agreement and the Executive acknowledges and agrees that any such agreements remain in full force and effect.

17. Successor to the Executive. This Agreement shall inure to the benefit of and be enforceable by the Executive’s personal representatives, executors, administrators, heirs, distributees, devisees and legatees. In the event of the Executive’s death after a Qualified Termination Event but prior to the completion by the Company of all payments due to the Executive under this Agreement, the Company shall continue such payments to the Executive’s beneficiary designated in writing to the Company prior to his death (or to the Executive’s estate, if the Executive fails to make such designation).

18. Enforceability. If any portion or provision of this Agreement (including, without limitation, any portion or provision of any Section of this Agreement) shall to any extent be declared illegal or unenforceable by a court of competent jurisdiction, then the remainder of this Agreement, or the application of such portion or provision in circumstances other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.

19. Waiver. No waiver of any provision hereof shall be effective unless made in writing and signed by the waiving party. The failure of any party to require the performance of any term or obligation of this Agreement, or the waiver by any party of any breach of this Agreement, shall not prevent any subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach.

20. Notices. Any notices, requests, demands and other communications provided for by this Agreement shall be sufficient if in writing and delivered in person or sent by a nationally recognized overnight currier service of by registered or certified mail, postage prepaid, return receipt requested, to the Executive at the last address the Executive has filed in writing with the Company, or to the Company at its main office, attention of the Board of Directors.

21. Amendment. This Agreement may be amended or modified only by a written instrument signed by the Executive and by a duly authorized representative of the Company.

22. Effect on Other Plans and Agreements. An election by the Executive to resign for Good Reason under the provisions of this Agreement shall not be deemed a voluntary termination of employment by the Executive for the purpose of interpreting the provisions of any of the Company’s benefit plans, programs or policies. Nothing in this Agreement shall be construed to limit the rights of the Executive under the Company’s benefit plans, programs or policies except as otherwise provided in Section 8 hereof, and except that the Executive shall have no rights to any severance benefits under any Company severance pay plan, offer letter or otherwise. In the event that the Executive is party to an agreement with the Company providing for payments or benefits under such agreement and this Agreement, the terms of this Agreement

 

11


shall govern and the Executive may receive payment under this Agreement only and not both. Further, Section 6 and Section 7 of this Agreement are mutually exclusive and in no event shall the Executive be entitled to payments or benefits pursuant to Section 6 and Section 7 of this Agreement.

23. Governing Law. This is a Massachusetts contract and shall be construed under and be governed in all respects by the laws of the Commonwealth of Massachusetts, without giving effect to the conflict of laws principles.

24. Successor to Company. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company expressly to assume and agree to perform this Agreement to the same extent that the Company would be required to perform it if no succession had taken place. Failure of the Company to obtain an assumption of this Agreement at or prior to the effectiveness of any succession shall be a material breach of this Agreement.

25. Gender Neutral. Wherever used herein, a pronoun in the masculine gender shall be considered as including the feminine gender unless the context clearly indicates otherwise.

26. Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be taken to be an original; but such counterparts shall together constitute one and the same document.

[Signature Page Follows]

 

12


IN WITNESS WHEREOF, the parties have executed this Agreement effective on the Effective Date.

 

SURFACE ONCOLOGY, INC.

 

 

By:    
Name:  
Title:  
EXECUTIVE:
 
J. Jeffrey Goater
Chief Executive Officer

[Signature Page to the Employment Agreement]


EXHIBIT A

RESTRICTIVE COVENANTS AGREEMENT


SURFACE ONCOLOGY, INC.

Employee Non-Competition, Non-Solicitation, Confidentiality and Assignment Agreement

In consideration and as a condition of my employment or continued employment by Surface Oncology, Inc. (along with its subsidiaries and affiliates, the “Company”), I agree as follows:

 

1. Proprietary Information. I agree that all information, whether or not in writing, concerning the Company’s business, technology, business relationships or financial affairs which the Company has not released to the general public (collectively, “Proprietary Information”) is and will be the exclusive property of the Company. By way of illustration, Proprietary Information may include information or material which has not been made generally available to the public, such as: (a) corporate information, including plans, strategies, methods, policies, resolutions, negotiations or litigation; (b) marketing information, including strategies, methods, customer identities or other information about customers, prospect identities or other information about prospects, or market analyses or projections; (c) financial information, including cost and performance data, debt arrangements, equity structure, investors and holdings, purchasing and sales data and price lists; and (d) operational and technological information, including plans, specifications, manuals, forms, templates, software, designs, methods, procedures, formulas, discoveries, inventions, improvements, concepts and ideas; and (e) personnel information, including personnel lists, reporting or organizational structure, resumes, personnel data, compensation structure, performance evaluations and termination arrangements or documents. Proprietary Information also includes information received in confidence by the Company from its customers or suppliers or other third parties.

2. Recognition of Company’s Rights. I will not, at any time, without the Company’s prior written permission, either during or after my employment, disclose any Proprietary Information to anyone outside of the Company, or use or permit to be used any Proprietary Information for any purpose other than the performance of my duties as an employee of the Company. I will cooperate with the Company and use my best efforts to prevent the unauthorized disclosure of all Proprietary Information. I will deliver to the Company all copies of Proprietary Information in my possession or control upon the earlier of a request by the Company or termination of my employment.

3. Rights of Others. I understand that the Company is now and may hereafter be subject to non-disclosure or confidentiality agreements with third persons which require the Company to protect or refrain from use of proprietary information. I agree to be bound by the terms of such agreements in the event I have access to such proprietary information.

4. Commitment to Company; Avoidance of Conflict of Interest. While an employee of the Company, I will devote my full-time efforts to the Company’s business and I will not engage in any other business activity that conflicts with my duties to the Company. I will advise the president of the Company or his or her nominee at such time as any activity of

either the Company or another business presents me with a conflict of interest or the appearance of a conflict of interest as an employee of the Company. I will take whatever action is requested of me by the Company to resolve any conflict or appearance of conflict which it finds to exist.

5. Developments. I will make full and prompt disclosure to the Company of all inventions, discoveries, designs, developments, methods, modifications, improvements, processes, algorithms, databases, computer programs, formulae, techniques, trade secrets, graphics or images, and audio or visual works and other works of authorship (collectively “Developments”), whether or not patentable or copyrightable, that are created, made, conceived or reduced to practice by me (alone or jointly with others) or under my direction during the period of my employment. I acknowledge that all work performed by me is on a “work for hire” basis, and I hereby do assign and transfer and, to the extent any such assignment cannot be made at present, will assign and transfer, to the Company and its successors and assigns all my right, title and interest in all Developments that (a) relate to the business of the Company or any customer of or supplier to the Company or any of the products or services being researched, developed, manufactured or sold by the Company or which may be used with such products or services; or (b) result from tasks assigned to me by the Company; or (c) result from the use of premises or personal property (whether tangible or intangible) owned, leased or contracted for by the Company (“Company-Related Developments”), and all related patents, patent applications, trademarks and trademark applications, copyrights and copyright applications, and other intellectual property rights in all countries and territories worldwide and under any international conventions (“Intellectual Property Rights”).

To preclude any possible uncertainty, I have set forth on Exhibit A attached hereto a complete list of Developments that I have, alone or jointly with others, conceived, developed or reduced to practice prior to the commencement of my employment with the Company that I consider to be my property or the property of third parties and that I wish to have excluded from the scope of this Agreement (“Prior Inventions”). If disclosure of any such Prior Invention would cause me to violate any prior confidentiality agreement, I understand that I am not to list such Prior Inventions in Exhibit A but am only to disclose a cursory name for each such invention, a listing of the party(ies) to whom it belongs and the fact that full disclosure as to such inventions has not been made for that reason. I have also listed on Exhibit A all patents and patent applications in which I am named as an inventor, other than those which have been assigned to the Company (“Other Patent Rights”). If no such disclosure is attached, I represent that there are no Prior Inventions or Other Patent Rights. If, in the course of my employment with the Company, I incorporate a Prior Invention into a Company product, process or machine or other work done for the

 


Company, I hereby grant to the Company a nonexclusive, royalty-free, paid-up, irrevocable, worldwide license (with the full right to sublicense) to make, have made, modify, use, sell, offer for sale and import such Prior Invention. Notwithstanding the foregoing, I will not incorporate, or permit to be incorporated, Prior Inventions in any Company-Related Development without the Company’s prior written consent.

This Agreement does not obligate me to assign to the Company any Development which, in the sole judgment of the Company, reasonably exercised, is developed entirely on my own time and does not relate to the business efforts or research and development efforts in which, during the period of my employment, the Company actually is engaged or reasonably would be engaged, and does not result from the use of premises or equipment owned or leased by the Company. However, I will also promptly disclose to the Company any such Developments for the purpose of determining whether they qualify for such exclusion. I understand that to the extent this Agreement is required to be construed in accordance with the laws of any state which precludes a requirement in an employee agreement to assign certain classes of inventions made by an employee, this paragraph 5 will be interpreted not to apply to any invention which a court rules and/or the Company agrees falls within such classes. I also hereby waive all claims to any moral rights or other special rights which I may have or accrue in any Company-Related Developments.

6. Documents and Other Materials. I will keep and maintain adequate and current records of all Proprietary Information and Company-Related Developments developed by me during my employment, which records will be available to and remain the sole property of the Company at all times.

All files, letters, notes, memoranda, reports, records, data, sketches, drawings, notebooks, layouts, charts, quotations and proposals, specification sheets, program listings, blueprints, models, prototypes, or other written, photographic or other tangible material containing Proprietary Information, whether created by me or others, which come into my custody or possession, are the exclusive property of the Company to be used by me only in the performance of my duties for the Company. Any property situated on the Company’s premises and owned by the Company, including without limitation computers, disks and other storage media, filing cabinets or other work areas, is subject to inspection by the Company at any time with or without notice. In the event of the termination of my employment for any reason, I will deliver to the Company all files, letters, notes, memoranda, reports, records, data, sketches, drawings, notebooks, layouts, charts, quotations and proposals, specification sheets, program listings, blueprints, models, prototypes, or other written, photographic or other tangible material containing Proprietary Information, and other materials of any nature pertaining to the Proprietary Information of the Company and to my work, and will not take or keep in my possession any of the foregoing or any copies.

7. Enforcement of Intellectual Property Rights. I will cooperate fully with the Company, both during and after my employment with the Company, with respect to the

procurement, maintenance and enforcement of Intellectual Property Rights in Company-Related Developments. I will sign, both during and after the term of this Agreement, all papers, including without limitation copyright applications, patent applications, declarations, oaths, assignments of priority rights, and powers of attorney, which the Company may deem necessary or desirable in order to protect its rights and interests in any Company-Related Development. If the Company is unable, after reasonable effort, to secure my signature on any such papers, I hereby irrevocably designate and appoint each officer of the Company as my agent and attorney-in-fact to execute any such papers on my behalf, and to take any and all actions as the Company may deem necessary or desirable in order to protect its rights and interests in any Company-Related Development.

8. Non-Competition and Non-Solicitation.

In order to protect the Company’s Proprietary Information and good will, during my employment and for a period of one (1) year following the termination of my employment for any reason (the “Restricted Period”), I will not directly or indirectly, whether as owner, partner, shareholder, director, manager, consultant, agent, employee, co-venturer or otherwise, engage, participate or invest in any business activity anywhere in the world that develops, manufactures or markets any products, or performs any services, that are directed to the same molecular targets as any products or services of the Company, or products or services that the Company or its affiliates, has under development or that are the subject of active planning at any time during my employment; provided that this shall not prohibit any possible investment in publicly traded stock of a company representing less than one percent of the stock of such company.

In addition, during the Restricted Period, I will not, directly or indirectly, in any manner, other than for the benefit of the Company, (a) call upon, solicit, divert, take away, accept or conduct any business from or with any of the customers or prospective customers of the Company or any of its suppliers, and/or (b) solicit, entice, attempt to persuade any other employee or consultant of the Company to leave the Company for any reason or otherwise participate in or facilitate the hire, directly or through another entity, of any person who is employed or engaged by the Company or who was employed or engaged by the Company within six months of any attempt to hire such person.

I acknowledge and agree that if I violate any of the provisions of this paragraph 8, the running of the Restricted Period will be extended by the time during which I engage in such violation(s).

9. Government Contracts. I acknowledge that the Company may have from time to time agreements with other persons or with the United States Government or its agencies which impose obligations or restrictions on the Company regarding inventions made during the course of work under such agreements or regarding the confidential nature of such work. I agree to comply with any such obligations or restrictions upon the direction of the Company. In addition to the rights assigned under paragraph 5, I also assign to the

 


Company (or any of its nominees) all rights which I have or acquired in any Developments, full title to which is required to be in the United States under any contract between the Company and the United States or any of its agencies.

10. Prior Agreements. I hereby represent that, except as I have fully disclosed previously in writing to the Company, I am not bound by the terms of any agreement with any previous employer or other party to refrain from using or disclosing any trade secret or confidential or proprietary information in the course of my employment with the Company or to refrain from competing, directly or indirectly, with the business of such previous employer or any other party. I further represent that my performance of all the terms of this Agreement as an employee of the Company does not and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired by me in confidence or in trust prior to my employment with the Company. I will not disclose to the Company or induce the Company to use any confidential or proprietary information or material belonging to any previous employer or others.

11. Remedies Upon Breach. I understand that the restrictions contained in this Agreement are necessary for the protection of the business and goodwill of the Company and I consider them to be reasonable for such purpose. Any breach of this Agreement is likely to cause the Company substantial and irrevocable damage and therefore, in the event of such breach, the Company, in addition to such other remedies which may be available, will be entitled to specific performance and other injunctive relief, without the posting of a bond. If I violate this Agreement, in addition to all other remedies available to the Company at law, in equity, and under contract, I agree that I am obligated to pay all the Company’s costs of enforcement of this Agreement, including attorneys’ fees and expenses.

12. Use of Voice, Image and Likeness. I give the Company permission to use any and all of my voice, image and likeness, with or without using my name, in connection with the products and/or services of the Company, for the purposes of advertising and promoting such products and/or services and/or the Company, and/or for other purposes deemed appropriate by the Company in its reasonable discretion, except to the extent expressly prohibited by law.

13. No Employment Obligation. I understand that this Agreement does not create an obligation on the Company or any other person to continue my employment. I acknowledge that my employment with the Company is at will and therefore may be terminated by the Company or me at any time and for any reason, with or without cause.

14. Survival and Assignment by the Company. I understand that my obligations under this Agreement will continue in accordance with its express terms regardless of any changes in my title, position, duties, salary, compensation or benefits or other terms and conditions of employment. I further understand that my obligations under this Agreement will continue following the termination of my employment

regardless of the manner of such termination and will be binding upon my heirs, executors and administrators. The Company will have the right to assign this Agreement to its affiliates, successors and assigns. I expressly consent to be bound by the provisions of this Agreement for the benefit of the Company or any parent, subsidiary or affiliate to whose employ I may be transferred without the necessity that this Agreement be resigned at the time of such transfer.

15. Disclosure to Future Employers. I will provide a copy of this Agreement to any prospective employer, partner or co-venturer prior to entering into an employment, partnership or other business relationship with such person or entity.

16. Severability. In case any provisions (or portions thereof) contained in this Agreement shall, for any reason, be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect the other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. If, moreover, any one or more of the provisions contained in this Agreement shall for any reason be held to be excessively broad as to duration, geographical scope, activity or subject, it shall be construed by limiting and reducing it, so as to be enforceable to the extent compatible with the applicable law as it shall then appear.

17. Protected Disclosures. I understand that nothing contained in this Agreement limits my ability to communicate with any federal, state or local governmental agency or commission, including to provide documents or other information, without notice to the Company. I also understand that nothing in this Agreement limits my ability to share compensation information concerning myself or others, except that this does not permit me to disclose compensation information concerning others that I obtain because my job responsibilities require or allow access to such information.

18. Defend Trade Secrets Act of 2016. I understand that pursuant to the federal Defend Trade Secrets Act of 2016, I shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that (a) is made (i) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (b) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.

19. Interpretation. This Agreement will be deemed to be made and entered into in the Commonwealth of Massachusetts, and will in all respects be interpreted, enforced and governed under the laws of the Commonwealth of Massachusetts. I hereby agree to consent to personal jurisdiction of the state and federal courts situated within Suffolk County, Massachusetts for purposes of enforcing this Agreement, and waive any objection that I might have to personal jurisdiction or venue in those courts.

 


I UNDERSTAND THAT THIS AGREEMENT AFFECTS IMPORTANT RIGHTS. BY SIGNING BELOW, I CERTIFY THAT I HAVE READ IT CAREFULLY AND AM SATISFIED THAT I UNDERSTAND IT COMPLETELY.

IN WITNESS WHEREOF, the undersigned has executed this agreement as a sealed instrument as of the date set forth below.

 

Signed:    
  (Employee’s full name)

Type or print name: _____________________

Date: __________________


EXHIBIT A

 

To: Surface Oncology, Inc.

From: ____________________

Date: _____________________

SUBJECT: Prior Inventions

The following is a complete list of all inventions or improvements relevant to the subject matter of my employment by the Company that have been made or conceived or first reduced to practice by me alone or jointly with others prior to my engagement by the Company:

 

        ☐

   No inventions or improvements   

   See below:   
  

 

  
  

 

  
  

 

  

   Additional sheets attached   

The following is a list of all patents and patent applications in which I have been named as an inventor:

 

        ☐

   None   

   See below:   
  

 

  
  

 

  
  

 

  

EX-10.16

Exhibit 10.16

September 27, 2017

Detlev M. Biniszkiewicz, PhD

 

Re: Separation Agreement

Dear Detlev:

This sets forth the terms and conditions associated with the ending of your employment with Surface Oncology, Inc. (“Surface” or the “Company”). The Company’s Board of Directors (the “Board”) appreciates your contributions and would like to make this transition as smooth as possible. With that in mind and consistent with the terms of your March 7, 2015 Employment Agreement with the Company (the “Employment Agreement”), the Company shall provide you with the Termination Benefits set forth below provided you enter into, do not revoke and comply with the terms of this Separation Agreement (this “Agreement”). The Company is also electing to provide you with additional Termination Benefits not contemplated in the Employment Agreement in the form of additional vested equity, a revised mix of options for exercise, and a continued role with the Company as a director serving on the Board, all as set forth in this Agreement. With those understandings, September 15, 2017 shall be the “Date of Termination” and this document is the “Release” referenced in the Employment Agreement.

 

1. Ending of Employment

In connection with the ending of your employment and regardless of whether you sign this Agreement: (i) the Company shall pay your salary plus any accrued but unused vacation through the Date of Termination; the cash amount of such accrued but unused vacation is $11,569.23 (64 hours) and was paid to you as part of the Company’s September 15th payroll; (ii) the Company shall reimburse you for any outstanding, reasonable business expenses that you incur on the Company’s behalf through the Date of Termination (provided the Company receives appropriate documentation in accordance with the Company’s reimbursement policies); (iii) your eligibility to participate in the Company’s health and dental coverage shall end on September 30, 2017 (provided you shall have an opportunity to continue your health, dental and vision insurance pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) and subject to Section 4(b)); (iv) your eligibility to participate in any other employee benefit plans and programs of the Company shall cease on the Date of Termination in accordance with the terms and conditions of those plans; and (v) your outstanding equity awards shall vest until the Date of Termination and the terms of your equity awards shall be governed by the Company’s below referenced stock option plan and associated award agreements (without reference to this Agreement). A summary of your equity awards is attached as Exhibit A to this Agreement.

 

2. Resignation from All Officer Positions; Continuation as Director

To the extent the ending of your relationship with the Company or any Company affiliate is not effectuated by your termination of employment, you hereby resign as President and Chief Executive Officer of the Company and all other affiliations that you have with the Company or any of its affiliates, such resignations effective on the Date of Termination. You agree to execute any reasonably requested resignation letters to confirm any such resignations. Notwithstanding the foregoing, you shall continue to serve as director of the Company on the terms set forth in letter agreement with the Company attached hereto as Exhibit B to this Agreement (the “Director Letter Agreement”).


Detlev M. Biniszkiewicz, Ph.D.

September 27, 2017

Page 2

 

3. Existing Agreements

The following plans and agreements continue to be in effect except to the extent specifically modified by this Agreement: the Employment Agreement, the Restrictive Covenant Agreement (defined below), the Restricted Stock Award Notice Under the Surface Oncology, Inc. 2014 Stock Option and Grant Plan and the associated Restricted Stock Agreement dated May 14, 2015 (the “Equity Award” (as also defined in the Employment Agreement)); the Incentive Stock Option Grant Notice and the attached Incentive Stock Option Agreement dated December 4, 2015 (the “2015 Option Grant”); the Incentive Stock Option Grant Notice and the attached Incentive Stock Option Agreement dated March 3, 2016 (the “2016 Option Grant”); the Incentive Stock Option Grant Notice and the attached Incentive Stock Option Agreement dated June 27, 2017 (the “2017 Option Grant”, and together with the 2015 Option Grant and the 2016 Option Grant, the “Option Grants”); the Promissory Note dated May 28, 2015 (the “Promissory Note”); and the Pledge Agreement dated May 28, 2015 (the “Pledge Agreement”). The Equity Award and the Option Grants are collectively referred to as the “Stock Grants.”

 

4. Severance Conditions/Termination Benefits

To receive Termination Benefits (as defined in the Employment Agreement), you must execute, not revoke and comply with this Agreement, including, without limitation, by complying with your ongoing obligations to the Company under this Agreement and the noncompetition, inventions or nondisclosure obligations that you owe to the Company, whether pursuant to applicable law or the Restrictive Covenant Agreement as defined below.

(a) continuation of your base salary for the nine (9) month period that immediately follows the Date of Termination in an amount equal to $282,000 (the “Salary Continuation Payments”);

(b) if elected, continuation of group health plan benefits to the extent authorized by and consistent with 29 U.S.C. § 1161 et seq. (commonly known as “COBRA”), with the cost of the regular premium for such benefits shared in the same relative proportion by the Company and you as in effect on the Date of Termination until the earlier of (i) the date that is nine (9) months after the Date of Termination; and (ii) the date you become eligible for health benefits through another employer or otherwise become ineligible for COBRA;

(c) the unvested portion of the Equity Award (but none of the Option Grants) shall accelerate and vest for an additional six months beyond the Date of Termination (amounting to an additional 96,270 shares of Common Stock of the Company (the “Common Stock”)); and

(d) a pro-rated bonus equal to $112,800, less deductions and withholdings (the “Prorated Bonus”).


Detlev M. Biniszkiewicz, Ph.D.

September 27, 2017

Page 3

 

The Salary Continuation Payments shall be made on the Company’s regular payroll dates commencing on the first payroll date after the Effective Date. In the event you miss a regular payroll period between the Date of Termination and first Salary Continuation Payment date, the first Salary Continuation Payment shall include a “catch up” payment. The Pro-rated Bonus shall be paid to you within five days of the Effective Date.

 

5. Equity Treatment

It is understood and agreed that, based on the Date of Termination and the 6-month acceleration of the Equity Award (but not the Option Grants) referenced above in Section 4(c), as of the Termination Date, awards with respect to an aggregate of 1,018,360 shares of Common Stock under the Option Grants (472,830 options) and the Equity Award (545,530 shares) are vested.

First, the Company is offering to accelerate an additional portion of the Stock Grants with respect to an aggregate of 139,482 shares, consisting of a mix of options for Common Stock or restricted stock under the Stock Grants, so that the total vested equity as of the Date of Termination under the Stock Grants shall be equal to an aggregate of 1,157,842 shares of Common Stock under the Option Grants and the Equity Award, all in.

Further, the Company has elected to compensate you with equity for your continued service to the Company as a Board director, with an option grant for 102,900 shares, vesting over a three year period on a monthly basis (so 2,858 options per month for the first 35 months, and 2,870 options for the 36th month), such vesting to start on the Date of Termination and to continue on each month anniversary thereof for as long as you continue to maintain a Service Relationship (as defined in the Stock Grants) with the Company (such grant on those terms, the “Director Equity”). As described below, this equity grant will be achieved by restructuring the 2015 Option Grant.

To achieve that vested share position (i.e., 1,157,842 options and shares in total as of the Date of Termination) and the Director Equity (subject to further vesting), and to assist you in reducing cash payments to be made for those options and shares, notwithstanding anything herein to the contrary (provided you do not revoke this Agreement as provided below), the following is hereby agreed to by you and the Company:

 

    The Equity Award is hereby made fully vested, amounting to you retaining ownership of 770,161 shares of Common Stock (provided you pay the Company the Promissory Note Payment as required by this Agreement).

 

    The remaining portion of that vested share position as of the Date of Termination (amounting to 387,681 options) shall be achieved by hereby setting the vested portion of the 2015 Option Grant as of the Date of Termination at 387,681 options.

 

   

To reflect your Director Equity, instead of granting you any new option grant, the 2015 Option Grant shall hereby be modified as follows: (a) 102,900 options under the 2015 Option Grant shall hereby have the vesting schedule specified above for the Director Equity, and (b) the remaining options under the 2015 Option Grant, totaling 51,911


Detlev M. Biniszkiewicz, Ph.D.

September 27, 2017

Page 4

 

 

options, are hereby cancelled in full and cannot vest under any circumstances and thus consequently cannot be exercised for any shares of Common Stock. Thus, to recap the treatment of the 2015 Option Grant: (1) 387,681 options are vested as of the Date of Termination, (2) 102,900 options shall vest as specified above for the Director Equity, and (3) 51,911 options are cancelled in full and cannot vest under any circumstances and thus consequently cannot be exercised for any shares of Common Stock.

 

    The 2016 Option Grant and the 2017 Option Grant are hereby cancelled in full and cannot vest under any circumstances and thus consequently cannot be exercised for any shares of Common Stock.

 

    You hereby agree to pay the Company the full amount under the Promissory Note, $61,612.88 in principal plus the prescribed interest as of the projected Effective Date, together amounting to $61,951.21 (the “Promissory Note Payment”); at signing, you will provide the Company with a personal check made out to the Company in an amount equal to the Promissory Note Payment (the “Check”), which the Company will hold in escrow and cash on the Effective Date (or destroy if no Effective Date occurs).

The Stock Grants are hereby amended and restated to reflect the foregoing (subject to you not revoking this Agreement as provided below). You hereby confirm that you have no other right, title or interest in or to any equity or other securities of the Company (under the Employment Agreement or otherwise), except as expressly set forth in the Equity Award and the 2015 Option Grant, each as amended by this Agreement.

For clarity, any exercise period for the 2015 Option Grant, as amended by this Agreement, shall control the exercise period for options under that 2015 Option Grant (as so amended), and the Company makes not representation, warranty, covenant or other assertion as to whether any of the 2015 Option Grant (as so amended) qualifies, in whole or in part, as an “incentive stock option” as defined in Section 422 of the Internal Revenue Code of 1986, as amended from time to time.

 

6. Release of Claims

In consideration of, among other things, the Termination Benefits, you irrevocably and unconditionally release and forever discharge the Company, all of its affiliated and related entities, its and their respective predecessors, successors and assigns, its and their respective employee benefit plans and the fiduciaries of such plans, and the current, future and former managers, members, partners, officers, directors, shareholders, employees, attorneys, accountants, and agents of each of the foregoing in their official and personal capacities (collectively referred to as the “Releasees”) generally from all claims, demands, debts, damages and liabilities of every name and nature, known or unknown (“Claims”) that, as of the date when you sign this Agreement, you have ever had, now claim to have or ever claimed to have had against any or all of the Releasees. This release includes, without limitation, the complete release of all Claims of or for: breach of express or implied contract; wrongful termination of employment whether in contract or tort; intentional, reckless, or negligent infliction of emotional distress; breach of any express or implied covenant of employment, including, without


Detlev M. Biniszkiewicz, Ph.D.

September 27, 2017

Page 5

 

limitation, the covenant of good faith and fair dealing, whether prospective or existing; deceit or misrepresentation; discrimination or retaliation under state, federal, or municipal law (including, without limitation, under Massachusetts General Law Ch. 151B, Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act (“ADEA”), the Americans with Disabilities Act of 1990, and the Family and Medical Leave Act); defamation or damage to reputation; reinstatement; punitive or emotional distress damages; equity compensation or other forms of compensation; and attorney’s fees and costs for wages, back or front pay, bonuses, severance pay, incentive compensation, commissions, stock, stock options, vacation pay or any other compensation or benefits, either under the Massachusetts Wage Act, M.G.L. c. 149, § 148-150C, or otherwise.

You understand that this general release of Claims extends to any and all claims through the date you sign this Agreement, including, without limitation, all claims related to equity of the Company and to your employment by the Company and your separation from that employment.

 

7. Return of Property

You acknowledge that you have returned to the Company all property of the Company, including, without limitation, keys and access cards, computer equipment, software licensed to the Company, files and any documents (including, without limitation, computerized data and any copies) containing information concerning the Company, its business or its business relationships (in the latter two cases, actual or prospective). You also commit that, upon request by the Company you shall delete and finally purge any duplicates of files or documents that may contain the Company’s information from any non-Company computer, Smartphone device or other device that remains your property after the Date of Termination, unless expressly authorized to keep duplicates of some of these materials. In any event, if you later discover that you continue to retain any such property, you shall return it to the Company immediately.

 

8. Restrictive Covenant Agreement

The Noncompetition and Nonsolicitation Confidentiality and Assignment Agreement which you entered into in connection with your employment (the “Restrictive Covenant Agreement”), appended hereto as Exhibit C to this Agreement shall remain in full force in effect in accordance with its terms and is hereby incorporated by reference into this Agreement.

 

9. Nondisparagement

You agree not to make any disparaging statements concerning the Company or any of its affiliates or their respective products or services, or any of the Company’s current, future or former managers, members, partners, officers, directors, shareholders, employees or agents. The obligations set forth herein shall not in any way affect your obligation to testify truthfully in any legal proceeding.


Detlev M. Biniszkiewicz, Ph.D.

September 27, 2017

Page 6

 

10. Communications About Your Departure

The Board shall work with you to develop an internal and external communication plan regarding your departure and the Company. If you are asked by any person or entity (whether or not affiliated with the Company) about the reasons for your departure from the Company, you shall respond in a way that is consistent with the communication and you shall not make negative statements about the Company, your employment or the reasons for your departure.

 

11. Future Cooperation

You agree to cooperate reasonably with the Company (including, without limitation, its outside counsel) in connection with the contemplation, prosecution and defense of all phases of existing, past and future litigation about which the Company believes you may have knowledge or information. You agree to make yourself available during and outside of regular business hours for such cooperation; provided that the Company shall not utilize this Section 11 to require you to make yourself available to an extent that would unreasonably interfere with your search for employment or any subsequent employment responsibilities that you may have. You agree to appear without the necessity of a subpoena to testify truthfully in any legal proceedings in which the Company calls you as a witness. In connection with fulfilling your obligations under this Section 11, your pre-approved, out of pocket and reasonable expenses shall be reimbursed by the Company.

 

12. Confidentiality of Agreement

You agree to keep the existence of the terms of this Agreement (“Agreement-Related Information”) strictly confidential and to not disclose Agreement-Related Information to anyone provided you may disclose Agreement-Related Information to your attorneys, tax advisors and your immediate family but only if such person first agrees to keep the Agreement-Related Information confidential.

 

13. Unemployment Compensation

If you apply to the Massachusetts Department of Unemployment Assistance for unemployment compensation benefits under state law, the Company shall not dispute your eligibility for such benefits. This shall not affect the Company’s obligation to respond truthfully to governmental agency requests for information related to unemployment compensation eligibility.

 

14. Taxes

All payments set forth in this Agreement shall be subject to all applicable federal, state or local withholding or payroll taxes, and the Company may withhold from any amounts payable to you (including, without limitation, any amounts payable pursuant to this Agreement) in order to comply with such withholding obligations, including, without limitation, with respect to the Prorated Bonus based on the full amount thereof. Nothing herein shall be construed to mean that the Company shall compensate you for tax-related payments or liabilities.


Detlev M. Biniszkiewicz, Ph.D.

September 27, 2017

Page 7

 

15. Legally Binding; Advice of Counsel

This Agreement is a legally binding document, and your signature shall commit you to its terms. You acknowledge that you have it carefully read and fully understand all of the provisions of this Agreement, that the Company has advised you to consult with counsel prior to entering into this Agreement, and that you are voluntarily entering into this Agreement.

 

16. Absence of Reliance

In signing this Agreement, you are not relying upon any promises or representations made by anyone at or on behalf of the Company except those promises and representations as provided in this Agreement.

 

17. Enforceability

If any portion or provision of this Agreement (including, without limitation, any portion or provision of any section of the Equity Award, 2015 Option Grant, the Director Letter or the Restrictive Covenant Agreement) shall to any extent be declared illegal or unenforceable by a court of competent jurisdiction, then the remainder of this Agreement, or the application of such portion or provision in circumstances other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.

 

18. Waiver or Amendment

No waiver of any provision of this Agreement shall be effective unless made in writing and signed by the waiving party. The failure of any party to require the performance of any term or obligation of this Agreement, or the waiver by any party of any breach of this Agreement, shall not prevent any subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach. No amendment to any provision of this Agreement shall be effective unless made in writing and signed by all of the parties to this Agreement.

 

19. Governing Law; Interpretation

This Agreement shall be interpreted and enforced under the laws of the Commonwealth of Massachusetts, without regard to conflict of law principles. In the event of any dispute, this Agreement is intended by the parties to be construed as a whole, to be interpreted in accordance with its fair meaning, and not to be construed strictly for or against either you or the Company. The term “or” means “and/or”.

 

20. Entire Agreement

This Agreement along with the Restrictive Covenant Agreement, the Equity Award, the 2015 Option Grant, the Director Letter, the Promissory Note and the Pledge Agreement, constitutes the entire agreement between you and the Company. This Agreement and those agreement supersedes any previous agreements or understandings between you and the Company or any of their affiliates relating to the subject matter herein (including, without limitation, the Stock Grants except to the extent amended by this Agreement). You further acknowledge and agree that, expect as specifically set forth herein, you are not entitled to any other securities of, or payments or benefits from, the Company.


Detlev M. Biniszkiewicz, Ph.D.

September 27, 2017

Page 8

 

21. Time for Consideration; Effective Date

You acknowledge that you have been provided with the opportunity to consider this Agreement and the Director Letter for twenty-one (21) days before signing it. To accept this Agreement and the Director Letter, you must return a signed original of this Agreement and the Director Letter and the Check so that they are received by Lisa McGrath, Human Resources, or Company corporate counsel Goodwin Procter LLP, on or before the expiration of this twenty-one (21) day period. If you sign this Agreement and the Director Letter, and deliver the Check, within less than twenty-one (21) days of the date of its delivery to you, you acknowledge by signing this Agreement that such decision was entirely voluntary and that you had the opportunity to consider this Agreement and the Director Letter for the entire twenty-one (21) day period. You and the Company agree that any changes or modifications to this Agreement or the Director Letter shall not restart the twenty-one (21) day period. For a period of seven (7) days from the day of the execution of this Agreement and the Director Letter, and your delivery of the Check, you shall retain the right to revoke this Agreement and the Director Letter all together (and for clarity, not in part) by written notice that must be received by Ms. McGrath or corporate counsel before the end of such revocation period. This Agreement and the Director Letter shall become effective on the business day immediately following the expiration of the revocation period (the “Effective Date”), whereupon the Company will cash the Check, provided that you do not revoke this Agreement and the Director Letter during the revocation period. Upon any such revocation, this Agreement and the Director Letter shall be null and void (and for clarity the Stock Grants shall continue in full force and effect with reference to the terms of this Agreement, and the Check will be destroyed by the Company as provided above).

 

22. Counterparts

This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be taken to be an original, but all of which together shall constitute one and the same document.

* * *


Detlev M. Biniszkiewicz, Ph.D.

September 27, 2017

Page 9

 

Please indicate your agreement to the terms of this Agreement by signing and returning the original of this letter to the undersigned within the time period set forth above.

Agreed to by:

SURFACE ONCOLOGY, INC.

By:  

/s/ Daniel S. Lynch

     

9/28/2017

  Daniel S. Lynch      
 

/s/ Detlev Biniszkiewicz

     

9/28/2017

  Detlev M. Biniszkiewicz, PhD       Date


Exhibit A

 

a. Stock Options (under Option Grants):

 

Option

Grant

   Options
Granted
     Exercise Price      Vested as of Date of
Termination
 

12/4/15

     542,492      $ 0.16        237,340  

3/3/16

     589,662      $ 1.81        233,407  

6/27/17

     50,000      $ 2.46        2,083  
  

 

 

       

 

 

 

Total

     1,182,154           472,830  

 

b. Restricted Stock (under the Equity Award): 770,161 shares; 545,530 shares vested as of Date of Termination.1

 

1  Assumes 6 months of accelerated vesting which is contingent on entering into and complying with this Agreement.


Exhibit B

Director Letter Agreement


September 27, 2017

Detlev M. Biniszkiewicz, PhD

 

Re: Board of Directors of Surface Oncology

Dear Detlev:

Surface Oncology, Inc. (the “Company”) is pleased to confirm its offer to you to continue to serve as a director on the Board of Directors (the “Board”) of the Company.

Your compensation for serving as a director of the Company will be at the rate of $25,000 per year, payable in four calendar quarterly installments of $6250, thirty (30) days in arrears after the end of each calendar quarter.

In addition to your cash compensation for serving as a director of the Company, options for common stock of the Company have been identified to vest with your continued service, pursuant to that certain agreement entitled “Separation Agreement” of around the same date hereof; those options are known as the “Director Equity” in that Separation Agreement. You should not expect to receive any other Company equity grants.

As you are aware, the Company is a Delaware corporation and, therefore, your rights and duties as a Board member are prescribed by Delaware law and the Company’s charter documents, as well as by the policies established by the Board from time to time.

It is understood that you will serve at the pleasure of the Company and that either you or the Company may terminate your directorship at any time and for any reason without prior notice and without additional compensation to you (and even if only some and not all of the Director Equity has vested).

You will be solely responsible for payment of all governmental charges and taxes arising from your service to the Company as a director.

This letter is in addition to, and not in lieu of, all other agreements you have with the Company, including, without limitation, the Separation Agreement and the other agreements referred to therein.


Please indicate your acceptance of this offer to continue to serve as a director of the Company by signing and dating the enclosed copy of this letter.

We look forward to your continued service on the Board.

 

Very truly yours,

Surface Oncology, Inc.

 

By:    
Title:    

Accepted and Agreed:

 

 

 

 

 

Date


Exhibit C

Restrictive Covenant Agreement

Attached.


SURFACE ONCOLOGY, INC.

Employee Non-Competition, Non-Solicitation, Confidentiality and Assignment Agreement

In consideration and as a condition of my employment or continued employment by Surface Oncology, Inc. (the “Company”), I agree as follows:

 

1. Proprietary Information. I agree that all information, whether or not in writing, concerning the Company’s business, technology, business relationships or financial affairs which the Company has not released to the general public (collectively, “Proprietary Information”) is and will be the exclusive property of the Company. By way of illustration, Proprietary Information may include information or material which has not been made generally available to the public, such as: (a) corporate information, including plans, strategies, methods, policies, resolutions, negotiations or litigation; (b) marketing information, including strategies, methods, customer identities or other information about customers, prospect identities or other information about prospects, or market analyses or projections; (c) financial information, including cost and performance data, debt arrangements, equity structure, investors and holdings, purchasing and sales data and price lists; and (d) operational and technological information, including plans, specifications, manuals, forms, templates, software, designs, methods, procedures, formulas, discoveries, inventions, improvements, concepts and ideas; and (e) personnel information, including personnel lists, reporting or organizational structure, resumes, personnel data, compensation structure, performance evaluations and termination arrangements or documents. Proprietary Information also includes information received in confidence by the Company from its customers or suppliers or other third parties.

2. Recognition of Company’s Rights. I will not, at any time, without the Company’s prior written permission, either during or after my employment, disclose any Proprietary Information to anyone outside of the Company, or use or permit to be used any Proprietary Information for any purpose other than the performance of my duties as an employee of the Company. I will cooperate with the Company and use my best efforts to prevent the unauthorized disclosure of all Proprietary Information. I will deliver to the Company all copies of Proprietary Information in my possession or control upon the earlier of a request by the Company or termination of my employment.

3. Rights of Others. I understand that the Company is now and may hereafter be subject to non-disclosure or confidentiality agreements with third persons which require the Company to protect or refrain from use of proprietary information. I agree to be bound by the terms of such agreements in the event I have access to such proprietary information.

4. Commitment to Company; Avoidance of Conflict of Interest. While an employee of the Company,

I will devote my full-time efforts to the Company’s business and I will not engage in any other business activity that conflicts with my duties to the Company. I will advise the president of the Company or his or her nominee at such time as any activity of either the Company or another business presents me with a conflict of interest or the appearance of a conflict of interest as an employee of the Company. I will take whatever action is requested of me by the Company to resolve any conflict or appearance of conflict which it finds to exist

5. Developments. I will make full and prompt disclosure to the Company of all inventions, discoveries, designs, developments, methods, modifications, improvements, processes, algorithms, databases, computer programs, formulae, techniques, trade secrets, graphics or images, and audio or visual works and other works of authorship (collectively “Developments”), whether or not patentable or copyrightable, that are created, made, conceived or reduced to practice by me (alone or jointly with others) or under my direction during the period of my employment. I acknowledge that all work performed by me is on a “work for hire” basis, and I hereby do assign and transfer and, to the extent any such assignment cannot be made at present, will assign and transfer, to the Company and its successors and assigns all my right, title and interest in all Developments that (a) relate to the business of the Company or any customer of or supplier to the Company or any of the products or services being researched, developed, manufactured or sold by the Company or which may be used with such products or services; or (b) result from tasks assigned to me by the Company, or (c) result from the use of premises or personal property (whether tangible or intangible) owned, leased or contracted for by the Company (“Company-Related Developments”), and all related patents, patent applications, trademarks and trademark applications, copyrights and copyright applications, and other intellectual property rights in all countries and territories worldwide and under any international conventions (“Intellectual Property Rights”).

To preclude any possible uncertainty, I have set forth on Exhibit A attached hereto a complete list of Developments that I have, alone or jointly with others, conceived, developed or reduced to practice prior to the commencement of my employment with the Company that I consider to be my property or the property of third parties and that I wish to have excluded from the scope of this Agreement (“Prior Inventions”). If disclosure of any such Prior Invention would cause me to violate any prior confidentiality agreement, I understand that I am not to list such Prior Inventions in Exhibit A but am only to disclose a cursory name for each such invention, a listing of the

 


party(ies) to whom it belongs and the fact that full disclosure as to such inventions has not been made for that reason. I have also listed on Exhibit A all patents and patent applications in which I am named as an inventor, other than those which have been assigned to the Company (“Other Patent Rights”). If no such disclosure is attached, I represent that there are no Prior Inventions or Other Patent Rights. If, in the course of my employment with the Company, I incorporate a Prior Invention into a Company product, process or machine or other work done for the Company, I hereby grant to the Company a nonexclusive, royalty-free, paid-up, irrevocable, worldwide license (with the full right to sublicense) to make, have made, modify, use, sell, offer for sale and import such Prior Invention. Notwithstanding the foregoing, I will not incorporate, or permit to be incorporated, Prior Inventions in any Company-Related Development without the Company’s prior written consent.

This Agreement does not obligate me to assign to the Company any Development which, in the sole judgment of the Company, reasonably exercised, is developed entirely on my own time and does not relate to the business efforts or research and development efforts in which, during the period of my employment, the Company actually is engaged or reasonably would be engaged, and does not result from the use of premises or equipment owned or leased by the Company. However, I will also promptly disclose to the Company any such Developments for the purpose of determining whether they qualify for such exclusion. I understand that to the extent this Agreement is required to be construed in accordance with the laws of any state which precludes a requirement in an employee agreement to assign certain classes of inventions made by an employee, this paragraph 5 will be interpreted not to apply to any invention which a court rules and/or the Company agrees falls within such classes. I also hereby waive all claims to any moral rights or other special rights which I may have or accrue in any Company-Related Developments.

6. Documents and Other Materials. I will keep and maintain adequate and current records of all Proprietary Information and Company-Related Developments developed by me during my employment, which records will be available to and remain the sole property of the Company at all times.

All files, letters, notes, memoranda, reports, records, data, sketches, drawings, notebooks, layouts, charts, quotations and proposals, specification sheets, program listings, blueprints, models, prototypes, or other written, photographic or other tangible material containing Proprietary Information, whether created by me or others, which come into my custody or possession, are the exclusive property of the Company to be used by me only in the performance of my duties for the Company. Any property situated on the Company’s premises and owned by the Company, including without limitation computers, disks and other storage media, filing cabinets or other work areas, is subject to inspection by the Company at any time with or without notice. In the event of the termination of

my employment for any reason, I will deliver to the Company all files, letters, notes, memoranda, reports, records, data, sketches, drawings, notebooks, layouts, charts, quotations and proposals, specification sheets, program listings, blueprints, models, prototypes, or other written, photographic or other tangible material containing Proprietary Information, and other materials of any nature pertaining to the Proprietary Information of the Company and to my work, and will not take or keep in my possession any of the foregoing or any copies.

7. Enforcement of Intellectual Property Rights. I will cooperate fully with the Company, both during and after my employment with the Company, with respect to the procurement, maintenance and enforcement of Intellectual Property Rights in Company-Related Developments. I will sign, both during and after the term of this Agreement, all papers, including without limitation copyright applications, patent applications, declarations, oaths, assignments of priority rights, and powers of attorney, which the Company may deem necessary or desirable in order to protect its rights and interests in any Company-Related Development. If the Company is unable, after reasonable effort, to secure my signature on any such papers, I hereby irrevocably designate and appoint each officer of the Company as my agent and attorney-in-fact to execute any such papers on my behalf, and to take any and all actions as the Company may deem necessary or desirable in order to protect its rights and interests in any Company-Related Development.

8. Non-Competition and Non-Solicitation.

In order to protect the Company’s Proprietary Information and good will, during my employment and for a period of one (1) year following the termination of my employment for any reason (the “Restricted Period”), I will not directly or indirectly, whether as owner, partner, shareholder, director, manager, consultant, agent, employee, co-venturer or otherwise, engage or participate in any business activity anywhere in the United States that develops, manufactures or markets any products that are directed to the same molecular targets as any products that are under development or that are the subject of active planning at any time during my employment; provided that this shall not prohibit any possible investment in publicly traded stock of a company representing less than one percent of the stock of such company. For the avoidance of doubt, this Section 8 shall not prevent my employment by a business entity that develops, manufactures or markets any products that are directed to the same molecular targets as any products that are under development or that are the subject of active planning at any time during my employment by Company, provided that I do not engage or participate in such development, manufacture or marketing. In addition, during the Restricted Period, I will not, directly or indirectly, in any manner, other than for the benefit of the Company, (a) call upon, solicit, divert, take away, accept or conduct any business from or with any of the customers of the Company or any of its suppliers, for the purpose of selling products or services that compete with the Company’s products or services or interfering with the

 


Company’s relationship with such customer or supplier, and/or (b) solicit, entice, attempt to persuade any other employee or consultant of the Company to leave the Company for any reason or otherwise participate in or facilitate the hire, directly or through another entity, of any person who is employed or engaged by the Company or who was employed or engaged by the Company within six months of any attempt to hire such person. I acknowledge and agree that if I violate any of the provisions of this paragraph 8, the running of the Restricted Period will be extended by the time during which I engage in such violation(s).

9. Government Contracts. I acknowledge that the Company may have from time to time agreements with other persons or with the United States Government or its agencies which impose obligations or restrictions on the Company regarding inventions made during the course of work under such agreements or regarding the confidential nature of such work. I agree to comply with any such obligations or restrictions upon the direction of the Company. In addition to the rights assigned under paragraph 5, I also assign to the Company (or any of its nominees) all rights which I have or acquired in any Developments, full title to which is required to be in the United States under any contract between the Company and the United States or any of its agencies.

10. Prior Agreements. I hereby represent that, except as I have fully disclosed previously in writing to the Company, I am not bound by the terms of any agreement with any previous employer or other party to refrain from using or disclosing any trade secret or confidential or proprietary information in the course of my employment with the Company or to refrain from competing, directly or indirectly, with the business of such previous employer or any other party. I further represent that my performance of all the terms of this Agreement as an employee of the Company does not and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired by me in confidence or in trust prior to my employment with the Company. I will not disclose to the Company or induce the Company to use any confidential or proprietary information or material belonging to any previous employer or others.

11. Remedies Upon Breach. I understand that the restrictions contained in this Agreement are necessary for the protection of the business and goodwill of the Company and I consider them to be reasonable for such purpose. Any breach of this Agreement is likely to cause the Company substantial and irrevocable damage and therefore, in the event of such breach, the Company, in addition to such other remedies which may be available, will be entitled to specific performance and other injunctive relief, without the posting of a bond.

12. Use of Voice, Image and Likeness. I give the Company permission to use any and all of my voice, image and likeness, with or without using my name, in connection with the products and/or services of the Company, for the

purposes of advertising and promoting such products and/or services and/or the Company, and/or for other purposes deemed appropriate by the Company in its reasonable discretion, except to the extent expressly prohibited by law.

13. Publications and Public Statements. I will obtain the Company’s written approval before publishing or submitting for publication any material that relates to my work at the Company and/or incorporates any Proprietary Information. To ensure that the Company delivers a consistent message about its products, services and operations to the public, and further in recognition that even positive statements may have a detrimental effect on the Company in certain securities transactions and other contexts, any statement about the Company which I create, publish or post during my period of employment and for six (6) months thereafter, on any media accessible by the public, including but not limited to social media and networking services and sites, electronic bulletin boards and Internet-based chat rooms, must first be reviewed and approved by an officer of the Company before it is released in the public domain.

14. No Employment Obligation. I understand that this Agreement does not create an obligation on the Company or any other person to continue my employment, I acknowledge that, unless otherwise agreed in a formal written employment agreement signed on behalf of the Company by an authorized officer, my employment with the Company is at will and therefore may be terminated by the Company or me at any time and for any reason, with or without cause.

15. Survival and Assignment by the Company. I understand that my obligations under this Agreement will continue in accordance with its express terms regardless of any changes in my title, position, duties, salary, compensation or benefits or other terms and conditions of employment. I further understand that my obligations under this Agreement will continue following the termination of my employment regardless of the manner of such termination and will be binding upon my heirs, executors and administrators. The Company will have the right to assign this Agreement to its affiliates, successors and assigns. I expressly consent to be bound by the provisions of this Agreement for the benefit of the Company or any parent, subsidiary or affiliate to whose employ I may be transferred without the necessity that this Agreement be resigned at the time of such transfer.

16. [Reserved]

17. Severability. In case any provisions (or portions thereof) contained in this Agreement shall, for any reason, be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect the other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. If, moreover, any one or more of the provisions contained

 


in this Agreement shall for any reason be held to be excessively broad as to duration, geographical scope, activity or subject, it shall be construed by limiting and reducing it, so as to be enforceable to the extent compatible with the applicable law as it shall then appear.

18. Interpretation. This Agreement will be deemed to be made and entered into in the Commonwealth of Massachusetts, and will in all respects be interpreted, enforced and governed under

the laws of the Commonwealth of Massachusetts. I hereby agree to consent to personal jurisdiction of the state and federal courts situated within Suffolk County, Massachusetts for purposes of enforcing this Agreement, and waive any objection that I might have to personal jurisdiction or venue in those courts.

 

 

[End of Text]


I UNDERSTAND THAT THIS AGREEMENT AFFECTS IMPORTANT RIGHTS. BY SIGNING BELOW, I CERTIFY THAT I HAVE READ IT CAREFULLY AND AM SATISFIED THAT I UNDERSTAND IT COMPLETELY.

IN WITNESS WHEREOF, the undersigned has executed this agreement as a sealed instrument as of the date set forth below.

 

Signed:    
  (Employee’s full name)

Type or print name:

Date:


EXHIBIT A

 

To: Surface Oncology, Inc.

From:                                                              

Date:                                                               

SUBJECT: Prior Inventions

The following is a complete list of all inventions or improvements relevant to the subject matter of my employment by the Company that have been made or conceived or first reduced to practice by me alone or jointly with others prior to my engagement by the Company:

 

   No inventions or improvements   
   See below:   
  

 

  
  

 

  
  

 

  
   Additional sheets attached   

The following is a list of all patents and patent applications in which I have been named as an inventor:

 

   None   
   See below:   
  

 

  
  

 

  
  

 

  

 


EX-10.17

Exhibit 10.17

LEASE

by and between

BMR-HAMPSHIRE LLC,

a Delaware limited liability company

and

SURFACE ONCOLOGY, INC.,

a Delaware corporation

 

  BioMed Realty form dated 2/10/16  


Table of Contents

 

1.

   Lease of Premises    1

2.

   Basic Lease Provisions    2

3.

   Term    4

4.

   Possession and Commencement Date    4

5.

   Condition of Premises    7

6.

   Rentable Area    7

7.

   Rent    8

8.

   Rent Adjustments    9

9.

   Operating Expenses and Laboratory Support Expenses    9

10.

   Taxes on Tenant’s Property    16

11.

   Security Deposit    16

12.

   Use    19

13.

   Rules and Regulations, CC&Rs, Parking Facilities and Common Area    22

14.

   Project Control by Landlord    23

15.

   Quiet Enjoyment    25

16.

   Utilities and Services    25

17.

   Alterations    30

18.

   Repairs and Maintenance    32

19.

   Liens    34

20.

   Estoppel Certificate    35

21.

   Hazardous Materials    35

22.

   Odors and Exhaust    38

23.

   Insurance; Waiver of Subrogation    39

24.

   Damage or Destruction    42

25.

   Eminent Domain    44

26.

   Surrender    45

27.

   Holding Over    46

28.

   Indemnification and Exculpation    46

29.

   Assignment or Subletting    48

30.

   Subordination and Attornment    52

31.

   Defaults and Remedies    53

32.

   Bankruptcy    58

 

i


33.    Brokers    58
34.    Definition of Landlord    59
35.    Limitation of Landlord’s Liability    59
36.    Joint and Several Obligations    60
37.    Representations    60
38.    Confidentiality    60
39.    Notices    61
40.    Miscellaneous    61
41.    Rooftop Installation Area    64
42.    Option to Extend Term    65

 

ii


LEASE

THIS LEASE (this “Lease”) is entered into as of this 13th day of May, 2016 (the “Execution Date”), by and between BMR-HAMPSHIRE LLC, a Delaware limited liability company (“Landlord”), and SURFACE ONCOLOGY, INC., a Delaware corporation (“Tenant”).

RECITALS

A. WHEREAS, Landlord owns certain real property and improvements located at 50 and 60 Hampshire Street (also known as 205 Broadway), Cambridge, Middlesex County, Massachusetts (the “Property”), including the buildings located thereon; and

B. WHEREAS, Landlord wishes to lease to Tenant, and Tenant desires to lease from Landlord, certain premises (the “Premises”) located on the eighth (8th) floor of the building known as 50 Hampshire Street (the “Building”), pursuant to the terms and conditions of this Lease, as detailed below.

AGREEMENT

NOW, THEREFORE, Landlord and Tenant, in consideration of the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, agree as follows:

1. Lease of Premises. Effective on the Term Commencement Date (as defined below), Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, the Premises, as shown on Exhibit A attached hereto for use by Tenant in accordance with the Permitted Use (as defined below) and no other uses. The portion of the Property commonly known as 50 Hampshire Street and all landscaping, parking facilities, private drives and other improvements and appurtenances related thereto, including the Building, are hereinafter collectively referred to as the “Project.” The portion of the Property commonly known as 60 Hampshire Street and all landscaping, parking facilities, private drives and other improvements and appurtenances related thereto, including the building located thereon (the “60 Building”), are hereinafter collectively referred to as the “60 Project” and, together with the Project, the “Hampshire Project.” All portions of the Building that are for the non-exclusive use of the tenants of the Building only, and not the tenants of the Hampshire Project generally, such as service corridors, stairways, elevators, public restrooms and public lobbies (all to the extent located in the Building), are hereinafter referred to as “Building Common Area.” All portions of the 60 Building that are for the non-exclusive use of the tenants of the 60 Building only, and not the tenants of the Hampshire Project generally, such as service corridors, stairways, elevators, public restrooms and public lobbies (all to the extent located in the 60 Building), are hereinafter referred to as “60 Building Common Area.” All portions of the Hampshire Project that are for the non-exclusive use of tenants of the Hampshire Project generally, including driveways, sidewalks, parking areas, landscaped areas, and (to the extent not located in a building) service corridors, stairways, elevators, public restrooms and public lobbies (but excluding the Building Common Area and the 60 Building Common Area), are hereinafter referred to as “Hampshire Project Common Area.” The Building Common Area and the Hampshire Project Common Area are collectively referred to herein as “Common Area.” The “Laboratory Building” consists of the floors and areas within the Building that serve (or are capable of serving) laboratory uses.


2. Basic Lease Provisions. For convenience of the parties, certain basic provisions of this Lease are set forth herein. The provisions set forth herein are subject to the remaining terms and conditions of this Lease and are to be interpreted in light of such remaining terms and conditions.

2.1. This Lease shall take effect upon the Execution Date and, except as specifically otherwise provided within this Lease, each of the provisions hereof shall be binding upon and inure to the benefit of Landlord and Tenant from the date of execution and delivery hereof by all parties hereto.

2.2. In the definitions below, Rentable Area (as defined below) is expressed in square feet. Rentable Area and “Tenant’s Pro Rata Shares ” (i.e., Pro Rata Share of Building and Pro Rata Share of Laboratory Building) are all subject to adjustment as provided in this Lease.

 

Definition or Provision    Means the Following (As of the Term
   Commencement Date)
Approximate Rentable Area of Premises    32,018 square feet
Approximate Rentable Area of Building    202,023 square feet
Tenant’s Pro Rata Share of Building    15.85%
Approximate Rentable Area of Laboratory Building    97,757 square feet
Tenant’s Pro Rata Share of Laboratory Building    32.75%

2.3. Monthly and annual installments of Base Rent for the Premises (“Base Rent”) as of the Rent Commencement Date (as defined below), subject to adjustment under this Lease:

 

Dates

   Square Feet of
Rentable Area
     Base Rent per Square Foot
of Rentable Area
     Monthly Base
Rent
     Annual Base
Rent
 

Rent

     32,018      $ 73.00 annually      $ 194,776.17      $ 2,337,314.00  
Commencement            
Date – First (1st)            
Anniversary of the Term            
Commencement Date            

 

2


2.4. Estimated Term Commencement Date: February 20, 2017

2.5. Estimated Term Expiration Date: February 19, 2027

2.6. Security Deposit: $1,000,000.00, subject to increase in accordance with the terms

hereof.

2.7. Permitted Use: Office and laboratory use in conformity with all federal, state, municipal and local laws, codes, ordinances, rules and regulations of Governmental Authorities (as defined below), committees, associations, or other regulatory committees, agencies or governing bodies having jurisdiction over the Premises, the Building, the Property, the Project, Landlord or Tenant, including both statutory and common law and hazardous waste rules and regulations (“Applicable Laws”)

2.8. Address for Rent Payment:

BMR-Hampshire LLC

Attention Entity 325

P.O. Box 511415

Los Angeles, California 90051-7970

2.9. Address for Notices to Landlord:

BMR-Hampshire LLC

17190 Bernardo Center Drive

San Diego, California 92128

Attn: Real Estate Legal Department

2.10. Address for Notices to Tenant:

Prior to the Term Commencement Date:

Surface Oncology, Inc.

215 First Street

Cambridge, MA 02142

Attn: Jessica Fees

After the Term Commencement Date:

Surface Oncology, Inc.

50 Hampshire Street

Cambridge, MA 02139

Attn: Jessica Fees

2.11. Address for Invoices to Tenant:

Prior to the Term Commencement Date:

 

3


Surface Oncology, Inc.

215 First Street

Cambridge, MA 02142

Attn: Jessica Fees

After the Term Commencement Date:

Surface Oncology, Inc.

50 Hampshire Street

Cambridge, MA 02139

Attn: Jessica Fees

2.12. The following Exhibits are attached hereto and incorporated herein by reference:

 

Exhibit A

  

Premises

Exhibit B

  

Work Letter

Exhibit B, Attch. 1

  

Schedule

Exhibit B, Attch. 2

  

Approved Schematic Plans

Exhibit B, Attch. 3

  

Budget

Exhibit B-1

  

Tenant Work Insurance Schedule

Exhibit B-2

  

Landlord’s Work

Exhibit C

  

Acknowledgement of Term Commencement Date and

   Term Expiration Date

Exhibit D

  

Plan of Lab and Office Zones

Exhibit E

  

Form of Letter of Credit

Exhibit F

  

Rules and Regulations

Exhibit G

  

PTDM

Exhibit H

  

Tenant’s Personal Property

Exhibit I

  

Form of Estoppel Certificate

3. Term. The actual term of this Lease (as the same may be extended pursuant to Article 42 hereof, and as the same may be earlier terminated in accordance with this Lease, the “Term”) shall commence on the Term Commencement Date (as defined in Article 4) and end on the date (the “Term Expiration Date”) that is one hundred twenty (120) months after the Term Commencement Date, subject to extension or earlier termination of this Lease as provided herein.

 

4. Possession and Commencement Date.

4.1. Landlord shall use commercially reasonable efforts to tender possession of the Premises to Tenant on the Estimated Term Commencement Date, with the work (the “Tenant Improvements”) required of Landlord described in the Work Letter attached hereto as Exhibit B (the “Work Letter”) and the light laboratory base Building improvements described in Exhibit B-2 (the “Landlord’s Work”) Substantially Complete (as defined below). If Landlord has failed to Substantially Complete the Tenant Improvements and the Landlord’s Work on or prior to the date that is sixty (60) days after the Estimated Term Commencement Date (as the same may be

 

4


extended pursuant to the last sentence of this Section 4.1), then Tenant shall be entitled to one (1) day of abatement of Base Rent for every day after the Estimated Term Commencement Date that Substantial Completion of Tenant Improvements and the Landlord’s Work has not occurred. Any such Base Rent abatement shall be credited against the Base Rent due from Tenant following the Rent Commencement Date (as hereinafter defined). Tenant agrees that in the event such work is not Substantially Complete on or before the Estimated Term Commencement Date for any reason, then (a) this Lease shall not be void or voidable, (b) Landlord shall not be liable to Tenant for any loss or damage resulting therefrom, (c) the Term Expiration Date shall be extended accordingly and (d) Tenant shall not be responsible for the payment of any Base Rent or Tenant’s Adjusted Share of Operating Expenses (as defined below) or Tenant’s Adjusted Share of Laboratory Support Expenses (as defined below) until the actual Term Commencement Date as described in Section 4.2 occurs. Notwithstanding the foregoing, if Landlord has failed to Substantially Complete the Tenant Improvements on or prior to the date that is one hundred twenty (120) days after the Estimated Term Commencement Date (as the same may be extended pursuant to the last sentence of this Section 4.1), then this Lease may be terminated by Tenant by written notice to Landlord given no later than thirty (30) days following such date, and if so terminated by Tenant: (a) the Security Deposit shall be returned to Tenant in accordance with Article 11 hereof, and (b) neither Landlord nor Tenant shall have any further rights, duties or obligations under this Lease, except with respect to the terms and provisions of this Lease that expressly survive the expiration or earlier termination of this Lease; provided, however, that any such termination notice shall be null and void and no longer of any force and effect if Landlord Substantially Completes the Tenant Improvements and Landlord’s Work within forty-five (45) days after receipt of such termination notice. The term “Substantially Complete” or “Substantial Completion” means that (a) the Tenant Improvements are substantially complete in accordance with the Approved Plans (as defined in the Work Letter) as reasonably determined by Landlord’s architect, except for minor punch list items, (b) the Landlord’s Work is substantially complete, as reasonably determined by Landlord’s architect, except for minor punch list items, and (c) Landlord has received a certificate of occupancy (which may include a temporary certificate of occupancy) from the City of Cambridge for the Premises. Notwithstanding anything in this Lease (including the Work Letter) to the contrary, Landlord’s obligation to timely achieve Substantial Completion on the Estimated Term Commencement Date shall be subject to extension on a day-for-day basis as a result of Force Majeure (as defined below), and Landlord shall incur no liability under this Section 4.1 for any delay caused by or any action or inaction of Tenant or its contractors, agents or employees.

4.2. The “Term Commencement Date” shall be the day Landlord tenders possession of the Premises to Tenant with the Tenant Improvements Substantially Complete. If possession is delayed by action of Tenant, then the Term Commencement Date shall be the date that the Term Commencement Date would have occurred but for such delay. Tenant shall execute and deliver to Landlord written acknowledgment of the actual Term Commencement Date and the Term Expiration Date within ten (10) days after Tenant takes occupancy of the Premises, in the form attached as Exhibit C hereto. Failure to execute and deliver such acknowledgment, however, shall not affect the Term Commencement Date or Landlord’s or Tenant’s liability hereunder. Failure by Tenant to obtain validation by any medical review board or other similar governmental licensing of the Premises required for the Permitted Use by Tenant shall not serve to extend the Term Commencement Date.

 

5


4.3. Tenant shall be entitled to enter upon the Premises during the sixty (60) day period prior to the Term Commencement Date (or such earlier period with respect to tel/data installations), subject to the written approval of Landlord, in Landlord’s reasonable discretion, for the sole purposes of installing improvements and/or the placement of personal property such as, furniture, IT cabling, security systems, and laboratory equipment. Tenant agrees that it shall be reasonable for Landlord to withhold its approval pursuant to the immediately foregoing sentence if Landlord reasonably determines that any such early access by Tenant will interfere with Landlord’s construction of the Tenant Improvements or Landlord’s Work. In the event that Landlord permits (in Landlord’s sole and absolute discretion) Tenant to enter upon the Premises prior to the Term Commencement Date for the purpose of installing improvements or the placement of personal property, Tenant shall furnish to Landlord evidence satisfactory to Landlord in advance that insurance coverages required of Tenant under the provisions of Article 23 are in effect, and such entry shall be subject to all the terms and conditions of this Lease other than the payment of Base Rent; and provided, further, that if the Term Commencement Date is delayed due to such early access, then the Term Commencement Date shall be the date that the Term Commencement Date would have occurred but for such delay.

4.4. Landlord shall cause the Tenant Improvements to be constructed in the Premises pursuant to the Work Letter at a cost to Landlord not to exceed Four Million Eight Hundred Two Thousand Seven Hundred Dollars ($4,802,700) (based upon One Hundred Fifty Dollars ($150) per square foot of Rentable Area (as defined below) (the “TI Allowance”). The TI Allowance may be applied to the costs of (m) construction, (n) project management by Landlord (which fee shall equal three percent (3%) of the cost of the Tenant Improvements, including the TI Allowance), (o) commissioning of mechanical, electrical and plumbing systems by a licensed, qualified commissioning agent hired by Landlord, and review of such party’s commissioning report by a licensed, qualified commissioning agent hired by Tenant, (p) space planning, architect, engineering and other related services performed by third parties unaffiliated with Tenant, (q) building permits and other taxes, fees, charges and levies by Governmental Authorities (as defined below) for permits or for inspections of the Tenant Improvements, and (r) costs and expenses for labor, material, equipment and fixtures. In no event shall the TI Allowance be used for (w) payments to Tenant or any affiliates of Tenant, (x) the purchase of any furniture, personal property or other non-building system equipment, (y) costs resulting from any default by Tenant of its obligations under this Lease or (z) costs that are recoverable by Tenant from a third party (e.g., insurers, warrantors, or tortfeasors).

4.5. Tenant shall have until July 1, 2017 (the “TI Deadline”), to expend the unused portion of the TI Allowance, after which date Landlord’s obligation to fund such costs shall expire.

4.6. In no event shall any unused TI Allowance entitle Tenant to a credit against Rent payable under this Lease.

4.7. Notwithstanding anything to the contrary in this Lease, Landlord and Tenant agree that all Tenant Improvements shall (a) be programmed in accordance with the lab and office zones identified on Exhibit D attached hereto, and (b) incorporate flexible lab bench systems. The portion of the Premises that is programmed for laboratory uses is defined herein as the “Lab Zone” and the portion of the Premises that is programmed for office uses is defined herein as the “Office Zone”.

 

6


5. Condition of Premises Landlord represents to Tenant that, on the date on which Landlord delivers the Premises to Tenant with the Tenant Improvements Substantially Complete, all base building systems within the Premises, including the HVAC (as hereinafter defined), electrical, life safety and plumbing systems, shall be in good working order (provided that the sole remedy for any breach of the foregoing representation shall be that Landlord shall repair or remedy the violation of the foregoing representation at its sole cost, provided that Landlord may include the costs thereof in Operating Expenses or Laboratory Support Expenses to the extent that Landlord is permitted to do so under Article 9 below, and Tenant shall not be entitled to any monetary damages for any breach of such representation). Except as set forth in the immediately foregoing sentence, Tenant acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty with respect to the condition of the Premises, the Building or the Project, or with respect to the suitability of the Premises, the Building or the Project for the conduct of Tenant’s business. Tenant acknowledges that (a) it is fully familiar with the condition of the Premises and agrees to take the same in its condition “as is” as of the Term Commencement Date and (b) Landlord shall have no obligation to alter, repair or otherwise prepare the Premises for Tenant’s occupancy or to pay for or construct any improvements to the Premises, except for performance of the Tenant Improvements and Landlord’s Work. Tenant’s taking of possession of the Premises shall, except as otherwise agreed to in writing by Landlord and Tenant, conclusively establish that the Premises, the Building and the Project were at such time in good, sanitary and satisfactory condition and repair.

6. Rentable Area.

6.1. The term “Rentable Area” shall reflect such areas as reasonably calculated by Landlord’s architect, as the same may be reasonably adjusted from time to time by Landlord in consultation with Landlord’s architect to reflect changes to the Premises, the Building, the Laboratory Building, or the Project, as applicable, including (with respect to the Laboratory Building) due to the conversion of space in the Building to increase the space serving (or capable of serving) laboratory uses.

6.2. The Rentable Area of the Building is generally determined by making separate calculations of Rentable Area applicable to each floor within the Building and totaling the Rentable Area of all floors within the Building. The Rentable Area of a floor is computed by measuring to the outside finished surface of the permanent outer Building walls. The full area calculated as previously set forth is included as Rentable Area, without deduction for columns and projections or vertical penetrations, including stairs, elevator shafts, flues, pipe shafts, vertical ducts and the like, as well as such items’ enclosing walls.

6.3. The term “Rentable Area,” when applied to the Premises, is that area equal to the usable area of the Premises, plus an equitable allocation of Rentable Area within the Building that is not then utilized or expected to be utilized as usable area, including that portion of the Building devoted to corridors, equipment rooms, restrooms, elevator lobby, atrium and mailroom.

 

7


6.4. The Rentable Area of the Hampshire Project is the total Rentable Area of all buildings within the Hampshire Project.

6.5. Review of allocations of Rentable Areas as between tenants of the Building, the Laboratory Building and the Hampshire Project shall be made as frequently as Landlord deems appropriate, including in order to facilitate an equitable apportionment of Operating Expenses (as defined below) and Laboratory Support Expenses (as defined below). If such review is by a licensed architect and allocations are certified by such licensed architect as being correct, then Tenant shall be bound by such certifications.

7. Rent.

7.1. Tenant shall pay to Landlord as Base Rent for the Premises, commencing on the date that is two (2) months after the Term Commencement Date (the “Rent Commencement Date”), the sums set forth in Section 2.3, subject to the rental adjustments provided in Article 8 hereof. Base Rent shall be paid in equal monthly installments as set forth in Section 2.3, subject to the rental adjustments provided in Article 8 hereof, each in advance on the first day of each and every calendar month during the Term.

7.2. In addition to Base Rent, Tenant shall pay to Landlord as additional rent (“Additional Rent”) at times hereinafter specified in this Lease (a) Tenant’s Adjusted Share (as defined below) of Operating Expenses (as defined below), (b) Tenant’s Adjusted Share of Laboratory Support Expenses, (c) the Property Management Fee (as defined below), and (d) any other amounts that Tenant assumes or agrees to pay under the provisions of this Lease that are owed to Landlord, including any and all other sums that may become due by reason of any default of Tenant or failure on Tenant’s part to comply with the agreements, terms, covenants and conditions of this Lease to be performed by Tenant, after notice and the lapse of any applicable cure periods.

7.3. Base Rent and Additional Rent shall together be denominated “Rent.” Rent shall be paid to Landlord, without abatement, deduction or offset, in lawful money of the United States of America to the address set forth in Section 2.8 or to such other person or at such other place as Landlord may from time designate in writing. In the event the Term commences or ends on a day other than the first day of a calendar month, then the Rent for such fraction of a month shall be prorated for such period on the basis of the number of days in the month and shall be paid at the then-current rate for such fractional month.

7.4. Tenant’s obligation to pay Rent shall not be discharged or otherwise affected by (a) any Applicable Laws now or hereafter applicable to the Premises, (b) any other restriction on Tenant’s use, (c) except as expressly provided herein, any casualty or taking or (d) any other occurrence; and Tenant waives all rights now or hereafter existing to terminate or cancel this Lease or quit or surrender the Premises or any part thereof, or to assert any defense in the nature of constructive eviction to any action seeking to recover rent. Tenant’s obligation to pay Rent with respect to any period or obligations arising, existing or pertaining to the period prior to the date of the expiration or earlier termination of the Term or this Lease shall survive any such expiration or earlier termination; provided, however, that nothing in this sentence shall in any way affect Tenant’s obligations with respect to any other period.

 

8


8. Rent Adjustments. Base Rent shall be subject to an annual upward adjustment of three percent (3%) of the then-current Base Rent. The first such adjustment shall become effective commencing on the first (1st) annual anniversary of the Term Commencement Date, and subsequent adjustments shall become effective on every successive annual anniversary for so long as this Lease continues in effect.

9. Operating Expenses and Laboratory Support Expenses.

9.1. As used herein, the term “Operating Expenses” shall include:

(a) Government impositions, including property tax costs consisting of real and personal property taxes (including amounts due under any improvement bond upon the Building or the Project (including the parcel or parcels of real property upon which the Building, and areas serving the Building and the Project are located)) or assessments in lieu thereof imposed by any federal, state, regional, local or municipal governmental authority, agency or subdivision (each, a “Governmental Authority”), but excluding any such impositions or assessments on Base Building Laboratory Support Systems (as hereinafter defined), if such amounts are imposed or assessed separately by a Governmental Authority; taxes on or measured by gross rentals received from the rental of space in the Project; taxes based on the square footage of the Premises, the Building or the Project, as well as any parking charges, utilities surcharges or any other costs levied, assessed or imposed by, or at the direction of, or resulting from Applicable Laws or interpretations thereof, promulgated by any Governmental Authority in connection with the use or occupancy of the Project or the parking facilities serving the Project; taxes on this transaction or any document to which Tenant is a party creating or transferring an interest in the Premises; any fee for a business license to operate an office building; and any expenses, including the reasonable cost of attorneys or experts, reasonably incurred by Landlord in seeking reduction by the taxing authority of the applicable taxes, less tax refunds obtained as a result of an application for review thereof; and

(b) All other costs of any kind paid or incurred by Landlord in connection with the operation or maintenance of the Building and the Project (other than Laboratory Support Expenses), which shall include (i) Project office rent at fair market rental for a commercially reasonable amount of space for Project management personnel, to the extent an office used for Project operations is maintained at the Project, plus customary expenses for such office, and costs of repairs and replacements to improvements within the Project as appropriate to maintain the Project as required hereunder, including costs of funding such reasonable reserves as Landlord, consistent with good business practice, may establish to provide for future repairs and replacements, or as any Lender (as defined below) may require; costs of utilities furnished to the Common Area; sewer fees; cable television; trash collection; cleaning, including windows; heating, ventilation and air-conditioning (“HVAC”); maintenance of landscaping and grounds; snow removal; maintenance of drives and parking areas; maintenance of the roof; security services and devices; building supplies; maintenance or replacement of equipment utilized for operation and maintenance of the Project; license, permit and inspection fees; sales, use and excise taxes on goods and services purchased by Landlord in connection with the operation, maintenance or repair of the Building or Project systems and equipment; telephone, postage, stationery supplies and other expenses incurred in connection with the operation, maintenance or repair of the Project; accounting, legal and other professional fees and expenses incurred in

 

9


connection with the Project; costs of furniture, draperies, carpeting, landscaping supplies, snow removal and other customary and ordinary items of personal property provided by Landlord for use in Common Area or in the Project office; capital expenditures but only to the extent permitted in Section 9.1(c) below; costs of complying with Applicable Laws (except to the extent such costs are incurred to remedy non-compliance as of the Execution Date with Applicable Laws); costs to keep the Project in compliance with, or costs or fees otherwise required under or incurred pursuant to any CC&Rs (as defined below), including condominium fees; insurance premiums, including premiums for commercial general liability, property casualty, earthquake, terrorism and environmental coverages; portions of insured losses paid by Landlord as part of the deductible portion of a loss pursuant to the terms of insurance policies; service contracts; costs of services of independent contractors retained to do work of a nature referenced above; and costs of compensation (including employment taxes and fringe benefits) of all persons who perform regular and recurring duties connected with the day-to-day operation and maintenance of the Project, its equipment, the adjacent walks, landscaped areas, drives and parking areas, including janitors, floor waxers, window washers, watchmen, gardeners, sweepers, plow truck drivers, handymen, and engineering/maintenance/facilities personnel.

(c) Notwithstanding the foregoing, Operating Expenses shall not include any net income, franchise, capital stock, estate or inheritance taxes, or taxes that are the personal obligation of Tenant or of another tenant of the Project or any penalties, fines and interest incurred by reason of Landlord’s failure to timely pay any taxes or other impositions of a Governmental Authority; any leasing commissions; expenses (including attorney fees and court costs) incurred in connection with (i) negotiations or disputes with tenants of the Property or other occupants or prospective tenants or other occupants, (ii) the enforcement of any leases or (iii) the defense of Landlord’s title to, or interest in, the Project, the Building or any part thereof; costs (including permit, license, and inspection fees) incurred in connection with preparing rental space for a tenant, that relate to preparation of rental space for a tenant or for any subsequent improvements Landlord performs for any other tenant in such tenant’s premises; expenses of initial development and construction, including grading, paving, landscaping and decorating (as distinguished from maintenance, repair and replacement of the foregoing); Landlord’s costs of any services provided to tenants or other occupants for which Landlord is actually reimbursed by such tenants or other occupants (other than reimbursement through Operating Expenses) as an additional charge or rental over and above the basic rent (and escalations thereof) payable under the lease with such tenant or other occupant; capital expenditures, except for those incurred (A) in replacing obsolete equipment, (B) for the primary purpose of reducing Operating Expenses, or (C) required to comply with changes in Applicable Laws that take effect after the Execution Date of the Lease, in each case amortized over the useful life thereof (but in no event more than seven (7) years), as reasonably determined by Landlord; costs (i.e., interest and penalties) incurred due to Landlord’s default of this Lease or any other lease, mortgage, or other agreement, in each case affecting the Project, the Building or Property; payments to subsidiaries or affiliates of Landlord, or to any other party, in each case as a result of a non-arm’s length transaction, for management or other services for the Building, or for supplies or other materials for the Building, to the extent that such payments exceed arm’s length competitive prices in the Cambridge, Massachusetts market for the services, supplies or materials provided; Landlord’s legal existence and general corporate overhead and general administrative expenses; legal expenses relating to other tenants; costs of repairs to the extent reimbursed by payment of insurance proceeds received by Landlord; advertising and promotional expenditures directly related to Landlord’s efforts to lease space in

 

10


the Building; the cost of repairs or other work occasioned by fire, windstorm, or other insured casualty, to the extent Landlord actually receives proceeds of such insurance for such repairs or other work; debt service; interest upon loans to Landlord or secured by a mortgage or deed of trust covering the Project or a portion thereof or any other debt of Landlord (provided that interest upon a government assessment or improvement bond payable in installments shall constitute an Operating Expense under Subsection 9.1(a)); rental payments under any ground lease; salaries of employees of Landlord above those performing property management and facilities management duties at the Building; legal and accounting fees not incurred in connection with operation and management of the Building, (including any legal and other costs incurred in connection with the sale, financing, refinancing, syndication, securitization, or change of ownership of the Building, including, without limitation, brokerage commissions, attorneys’ and accountants’ fees, closing costs, title insurance premiums, points, and interest charges); salaries of executive officers of Landlord; depreciation claimed by Landlord for tax purposes (provided that this exclusion of depreciation is not intended to delete from Operating Expenses actual costs of repairs and replacements and reasonable reserves in regard thereto that are provided for in Subsection 9.1(b)); costs or expenses incurred in connection with the financing or sale of the Project, the Building or any portion thereof; costs expressly excluded from Operating Expenses elsewhere in this Lease or that are charged to or paid by Tenant under other provisions of this Lease; professional fees and disbursements and other costs and expenses related to the ownership (as opposed to the use, occupancy, operation, maintenance or repair) of the Project; political and charitable contributions; costs of environmental testing, monitoring, removal or remediation of any Hazardous Materials in the Building or the Property (other than disposal and recycling of Hazardous Materials customarily found in the operation and use of comparable buildings, such as cleaning supplies) that are in existence at the Building or the Property prior to the Term Commencement Date except to the extent caused by Tenant or a Tenant Party (as defined below); and any item that, if included in Operating Expenses, would involve a double collection for such item by Landlord. To the extent that Tenant uses more than Tenant’s Pro Rata Share of Building of any item of Operating Expenses or Tenant’s Pro Rata Share of Laboratory Building of any Laboratory Support Expenses, as the case may be, Tenant shall pay Landlord for such excess in addition to Tenant’s obligation to pay Tenant’s Pro Rata Share of Building of Operating Expenses and Tenant’s Pro Rata Share of Laboratory Building (or Tenant’s Occupied Lab Share (as hereinafter defined) if applicable) of Laboratory Support Expenses, as the case may be (such excess, together with Tenant’s Pro Rata Share of Building of Operating Expenses or Tenant’s Pro Rata Share of Laboratory Building (or Tenant’s Occupied Lab Share if applicable) of Laboratory Support Expenses, as the case may be, “Tenants Adjusted Share”).

9.2. As used herein, the term “Base Building Laboratory Support Systems” means all base Building systems, fixtures and equipment exclusively serving the laboratory uses in the Building that are shared (or capable of being shared) by tenants or other occupants in the Building that are permitted to use and occupy premises in the Building for laboratory uses, including but not limited to the following base Building systems: (i) vacuum and compressed air; (ii) purified water and (iii) laboratory waste water treatment, each with respect to the portion of such system that extends to the isolation valve for such system that serves the Premises.

Laboratory Support Expenses” shall include:

 

11


(a) Government impositions, including property tax costs consisting of real and personal property taxes (including amounts due under any improvement bond upon the Building or the Project (including the parcel or parcels of real property upon which the Building, and areas serving the Building and the Project are located)) or assessments in lieu thereof imposed by any Governmental Authority separately on any Base Building Laboratory Support Systems or reasonably determined by Landlord to be attributable to any Base Building Laboratory Support Systems and not other portions of the Project; and

(b) All other costs of any kind paid or incurred by Landlord in connection with the operation or maintenance of the Base Building Laboratory Support Systems and the provision of services that exclusively serve the Laboratory Building, which shall include costs of repairs and replacements to Base Building Laboratory Support Systems, including costs of funding such reasonable reserves as Landlord, consistent with good business practice, may establish to provide for future repairs and replacements, or as any Lender (as defined below) may require; costs of utilities furnished to the Base Building Laboratory Support Systems; sewer fees; HVAC; maintenance or replacement of equipment utilized for operation and maintenance of the Base Building Lab Systems; license, permit and inspection fees; sales, use and excise taxes on goods and services purchased by Landlord in connection with the operation, maintenance or repair of the Base Building Laboratory Support Systems; other expenses incurred in connection with the operation, maintenance or repair of the Base Building Laboratory Support Systems; accounting, legal and other professional fees and expenses incurred in connection with the Base Building Laboratory Support Systems; capital expenditures related to Base Building Laboratory Support Systems; costs of complying with Applicable Laws (except to the extent such costs are incurred to remedy non-compliance as of the Execution Date with Applicable Laws); costs to keep the Base Building Laboratory Support Systems in compliance with, or costs or fees otherwise required under or incurred pursuant to any CC&Rs (as defined below), including insurance premiums attributable to Base Building Laboratory Support Systems, including premiums for commercial general liability, property casualty, earthquake, terrorism and environmental coverages; portions of insured losses to Base Building Laboratory Support Systems paid by Landlord as part of the deductible portion of a loss pursuant to the terms of insurance policies; service contracts; costs of services of independent contractors retained to do work of a nature referenced above; and costs of compensation (including employment taxes and fringe benefits) of all persons who perform regular and recurring duties connected with the day-to-day operation and maintenance of Base Building Laboratory Support Systems.

9.3. Tenant shall pay to Landlord on the first day of each calendar month of the Term, as Additional Rent, (a) the Property Management Fee (as defined below), (b) Landlord’s estimate of Tenant’s Adjusted Share of Operating Expenses with respect to the Building and the Project, and (c) Landlord’s estimate of Tenant’s Adjusted Share of Laboratory Support Expenses, as applicable, for such month.

(w) The “Property Management Fee” shall equal three percent (3%) of Base Rent due from Tenant. Tenant shall pay the Property Management Fee in accordance with Section 9.3 with respect to the entire Term, including any extensions thereof or any holdover periods, regardless of whether Tenant is obligated to pay Base Rent, Operating Expenses, Laboratory Support Expenses or any other Rent with respect to any such period or portion thereof. For the first two (2) months of the Term (and any period of occupancy prior to the Term as further described in Section 9.6), the Property Management Fee shall be calculated as if Tenant were paying One Hundred Ninety- Four Thousand Seven Hundred Seventy-Six and 17/00 Dollars ($194,776.17) per month for Base Rent.

 

12


(x) Within ninety (90) days after the conclusion of each calendar year (or such longer period as may be reasonably required by Landlord), Landlord shall furnish to Tenant a statement showing in reasonable detail the actual Operating Expenses and Laboratory Support Expenses, Tenant’s Adjusted Share of Operating Expenses and Laboratory Support Expenses, and the cost of providing utilities to the Premises for the previous calendar year (“Landlord’s Statement”). Any additional sum due from Tenant to Landlord shall be due and payable within thirty (30) days after receipt of an invoice therefor. If the amounts paid by Tenant pursuant to this Section exceed Tenant’s Adjusted Share of Operating Expenses and Tenant’s Adjusted Share of Laboratory Support Expenses for the previous calendar year, then Landlord shall credit the difference against the Rent next due and owing from Tenant; provided that, if the Lease term has expired, Landlord shall accompany Landlord’s Statement with payment for the amount of such difference.

(y) Any amount due under this Section for any period that is less than a full month shall be prorated for such fractional month on the basis of the number of days in the month.

9.4. Landlord’s annual statement shall be final and binding upon Tenant unless Tenant, within sixty (60) days after Tenant’s receipt thereof, shall contest any item therein by giving written notice to Landlord, specifying each item contested and the reasons therefor; provided that Tenant shall in all events pay the amount specified in Landlord’s annual statement, pending the results of the Independent Review and determination of the Accountant(s), as applicable and as each such term is defined below. If, during such sixty (60)-day period, Tenant reasonably and in good faith questions or contests the correctness of Landlord’s statement of Tenant’s Adjusted Share of Operating Expenses or Laboratory Support Expenses, Landlord shall provide Tenant with reasonable access to Landlord’s books and records to the extent relevant to determination of Operating Expenses or Laboratory Support Expenses, and such information as Landlord reasonably determines to be responsive to Tenant’s written inquiries. In the event that, after Tenant’s review of such information, Landlord and Tenant cannot agree upon the amount of Tenant’s Adjusted Share of Operating Expenses or Laboratory Support Expenses, then Tenant shall have the right to have an independent public accounting firm hired by Tenant on an hourly basis and not on a contingent-fee basis (at Tenant’s sole cost and expense) and approved by Landlord (which approval Landlord shall not unreasonably withhold or delay) audit and review such of Landlord’s books and records for the year in question as directly relate to the determination of Operating Expenses or Laboratory Support Expenses for such year (the “Independent Review”), but not books and records of entities other than Landlord. Landlord shall make such books and records available at the location where Landlord maintains them in the ordinary course of its business. Landlord need not provide copies of any books or records. Tenant shall commence the Independent Review within fifteen (15) days after the date Landlord has given Tenant access to Landlord’s books and records for the Independent Review. Tenant shall complete the Independent Review and notify Landlord in writing of Tenant’s specific objections to Landlord’s calculation of Operating Expenses or Laboratory Support Expenses (including Tenant’s accounting firm’s written statement of the basis, nature and amount of each

 

13


proposed adjustment) no later than sixty (60) days after Landlord has first given Tenant access to Landlord’s books and records for the Independent Review. Landlord shall review the results of any such Independent Review. The parties shall endeavor to agree promptly and reasonably upon Operating Expenses or Laboratory Support Expenses taking into account the results of such Independent Review. If, as of the date that is sixty (60) days after Tenant has submitted the Independent Review to Landlord, the parties have not agreed on the appropriate adjustments to Operating Expenses, then the parties shall engage a mutually agreeable independent third party accountant with at least ten (10) years’ experience in commercial real estate accounting in the Cambridge, Massachusetts area (the “Accountant”). If the parties cannot agree on the Accountant, each shall within ten (10) days after such impasse appoint an Accountant (different from the accountant and accounting firm that conducted the Independent Review) and, within ten (10) days after the appointment of both such Accountants, those two Accountants shall select a third (which cannot be the accountant and accounting firm that conducted the Independent Review). If either party fails to timely appoint an Accountant, then the Accountant the other party appoints shall be the sole Accountant. Within ten (10) days after appointment of the Accountant(s), Landlord and Tenant shall each simultaneously give the Accountants (with a copy to the other party) its determination of Operating Expenses or Laboratory Support Expenses, with such supporting data or information as each submitting party determines appropriate. Within ten (10) days after such submissions, the Accountants shall by majority vote select either Landlord’s or Tenant’s determination of Operating Expenses or Laboratory Support Expenses. The Accountants may not select or designate any other determination of Operating Expenses or Laboratory Support Expenses. The determination of the Accountant(s) shall bind the parties. If the parties agree or the Accountant(s) determine that the Operating Expenses or Laboratory Support Expenses actually paid by Tenant for the calendar year in question exceeded Tenant’s obligations for such calendar year, then Landlord shall, at Tenant’s option, either (a) credit the excess to the next succeeding installments of estimated Additional Rent or (b) pay the excess to Tenant within thirty (30) days after delivery of such results. If the parties agree or the Accountant(s) determine that Tenant’s payments of Operating Expenses or Laboratory Support Expenses for such calendar year were less than Tenant’s obligation for the calendar year, then Tenant shall pay the deficiency to Landlord within thirty (30) days after delivery of such results. If the Independent Review reveals or the Accountant(s) determine that the Operating Expenses or Laboratory Support Expenses billed to Tenant by Landlord and paid by Tenant to Landlord for the applicable calendar year in question exceeded by more than five percent (5%) what Tenant should have been billed during such calendar year, then Landlord shall pay the reasonable cost of the Independent Review. In all other cases, Tenant shall pay the cost of the Independent Review. In all instances, Tenant shall pay the cost of the Accountant(s).

9.5. Landlord may, from time to time, modify Landlord’s calculation and allocation procedures for Operating Expenses and Laboratory Support Expenses, subject to any exclusions therefrom specified in Sections 9.1 and 9.2, so long as such modifications produce Dollar results substantially consistent with Landlord’s then-current practice at the Project. Landlord or an affiliate(s) of Landlord currently own other property(ies) adjacent to the Project or its neighboring properties, including the 60 Project (which is part of the Property) (collectively, “Neighboring Properties”). In connection with Landlord performing services for the Project pursuant to this Lease, similar services may be performed by the same vendor(s) for Neighboring Properties. In such a case, or in the case of any real estate or personal property taxes or other impositions or taxes charged or assessed by a Governmental Authority for the Hampshire Project

 

14


as a whole, Landlord shall reasonably allocate to each building and the Project the costs for such services based upon the ratio that the square footage of the building or the Project (as applicable) bears to the total square footage of all of the Neighboring Properties or buildings within the Neighboring Properties for which the services are performed, unless the scope of the services performed for any building or property (including the Building and the Project) is disproportionately more or less than for others, in which case Landlord shall equitably allocate the costs based on the scope of the services being performed for each building or property (including the Building and the Project). For clarity, in the case of any Operating Expenses (including without limitation real estate or personal property taxes or other impositions or taxes charged or assessed by a Governmental Authority for the Hampshire Project as a whole) that apply to the Hampshire Project as a whole (as opposed to allocated specifically to each of the Project and the 60 Project or to each of the Building and the 60 Building), Landlord shall reasonably allocate to the Project and the 60 Project the costs of such Operating Expenses based upon the ratio that the square footage of Rentable Area of each of the Building and the 60 Building, respectively, bears to the total square footage of Rentable Area of all of the buildings in the Hampshire Project, or such other equitable allocation as Landlord reasonably determines.

9.6. Tenant shall not be responsible for Operating Expenses and Laboratory Support Expenses with respect to any time period prior to the Term Commencement Date; provided, however, that if Landlord shall permit Tenant possession of the Premises prior to the Term Commencement Date, Tenant shall be responsible for Operating Expenses and Laboratory Support Expenses from such earlier date of possession (the Term Commencement Date or such earlier date, as applicable, the “Expense Trigger Date”); and provided, further, that Landlord may annualize certain Operating Expenses and Laboratory Support Expenses incurred prior to the Expense Trigger Date over the course of the budgeted year during which the Expense Trigger Date occurs, and Tenant shall be responsible for the annualized portion of such Operating Expenses and Laboratory Support Expenses corresponding to the number of days during such year, commencing with the Expense Trigger Date, for which Tenant is otherwise liable for Operating Expenses and Base Building Laboratory Support Systems Expenses pursuant to this Lease. Tenant’s responsibility for Tenant’s Adjusted Share of Operating Expenses and Laboratory Support Expenses shall continue to the latest of (a) the date of termination of the Lease, (b) the date Tenant has fully vacated the Premises and (c) if termination of the Lease is due to a default by Tenant, the date of rental commencement of a replacement tenant.

9.7. Operating Expenses and Laboratory Support Expenses for the calendar year in which Tenant’s obligation to share therein commences and for the calendar year in which such obligation ceases shall be prorated on a basis reasonably determined by Landlord. Expenses such as taxes, assessments and insurance premiums that are incurred for an extended time period shall be prorated based upon the time periods to which they apply so that the amounts attributed to the Premises relate in a reasonable manner to the time period wherein Tenant has an obligation to share in Operating Expenses and Laboratory Support Expenses.

9.8. Within thirty (30) days after the end of each calendar month, Tenant shall submit to Landlord an invoice, or, in the event an invoice is not available, an itemized list, of all costs and expenses that (a) Tenant has incurred (either internally or by employing third parties) during the prior month and (b) for which Tenant reasonably believes it is entitled to reimbursements from Landlord pursuant to the terms of this Lease or that Tenant reasonably believes is the responsibility of Landlord pursuant to this Lease or the Work Letter.

 

15


9.9. In the event that the Building or Project is less than fully occupied during a calendar year, Tenant acknowledges that Landlord may extrapolate Operating Expenses and Laboratory Support Expenses that vary depending on the occupancy of the Building or Project, as applicable, to equal Landlord’s reasonable estimate of what such Operating Expenses or Laboratory Support Expenses, as the case may be, would have been had the Building or Project, as applicable, been ninety-five percent (95%) occupied during such calendar year; provided, however, that Landlord shall not recover more than one hundred percent (100%) of Operating Expenses and Laboratory Support Expenses.

10. Taxes on Tenant’s Property.

10.1. Tenant shall be solely responsible for the payment of any and all taxes levied upon (a) personal property and trade fixtures located at the Premises and (b) any gross or net receipts of or sales by Tenant, and shall pay the same at least twenty (20) days prior to delinquency.

10.2. If any such taxes on Tenant’s personal property or trade fixtures are levied against Landlord or Landlord’s property or, if the assessed valuation of the Building, the Property or the Project is increased by inclusion therein of a value attributable to Tenant’s personal property or trade fixtures, and if Landlord, after written notice to Tenant, pays the taxes based upon any such increase in the assessed value of the Building, the Property or the Project, then Tenant shall, upon demand, repay to Landlord the taxes so paid by Landlord.

10.3. If any improvements in or alterations to the Premises, whether owned by Landlord or Tenant and whether or not affixed to the real property so as to become a part thereof, are assessed for real property tax purposes at a valuation higher than the valuation at which improvements conforming to Landlord’s building standards (the “Building Standard”) in other spaces in the Building are assessed, then the real property taxes and assessments levied against Landlord or the Building, the Property or the Project by reason of such excess assessed valuation shall be deemed to be taxes levied against personal property of Tenant and shall be governed by the provisions of Section 10.2. Any such excess assessed valuation due to improvements in or alterations to space in the Project leased by other tenants at the Project shall not be included in Operating Expenses. If the records of the applicable governmental assessor’s office are available and sufficiently detailed to serve as a basis for determining whether such Tenant improvements or alterations are assessed at a higher valuation than the Building Standard, then such records shall be binding on both Landlord and Tenant.

11. Security Deposit.

11.1. Tenant shall deposit with Landlord on or before the Execution Date the sum set forth in Section 2.6 (the “Security Deposit”), which sum shall be held by Landlord as security for the faithful performance by Tenant of all of the terms, covenants and conditions of this Lease to be kept and performed by Tenant during the period commencing on the Execution Date and ending upon the expiration or termination of Tenant’s obligations under this Lease. If Tenant Defaults (as defined below) with respect to any provision of this Lease, including any provision

 

16


relating to the payment of Rent, then Landlord may (but shall not be required to) use, apply or retain all or any part of the Security Deposit for the payment of any Rent or any other sum in default, or to compensate Landlord for any other loss or damage that Landlord may suffer by reason of Tenant’s default. If any portion of the Security Deposit is so used or applied, then Tenant shall, within ten (10) days following demand therefor, deposit cash with Landlord in an amount sufficient to restore the Security Deposit to its original amount, and Tenant’s failure to do so shall be a material breach of this Lease. The provisions of this Article shall survive the expiration or earlier termination of this Lease.

11.2. In the event of bankruptcy or other debtor-creditor proceedings against Tenant, the Security Deposit shall be deemed to be applied first to the payment of Rent and other charges due Landlord for all periods prior to the filing of such proceedings.

11.3. Landlord may deliver to any purchaser of Landlord’s interest in the Premises the funds deposited hereunder by Tenant, and thereupon Landlord shall be discharged from any further liability with respect to such deposit. This provision shall also apply to any subsequent transfers.

11.4. If Tenant shall fully and faithfully perform every provision of this Lease to be performed by it, then the Security Deposit, or any balance thereof, shall be returned to Tenant (or, at Landlord’s option, to the last assignee of Tenant’s interest hereunder) within thirty (30) days after the expiration or earlier termination of this Lease.

11.5. If the Security Deposit shall be in cash, Landlord shall hold the Security Deposit in an account at a banking organization selected by Landlord; provided, however, that Landlord shall not be required to maintain a separate account for the Security Deposit, but may intermingle it with other funds of Landlord. Landlord shall be entitled to all interest and/or dividends, if any, accruing on the Security Deposit. Landlord shall not be required to credit Tenant with any interest for any period during which Landlord does not receive interest on the Security Deposit.

11.6. The Security Deposit may be in the form of cash, a letter of credit or any other security instrument acceptable to Landlord in its sole discretion. Tenant may at any time, except when Tenant is in Default (as defined below), deliver a letter of credit (the “L/C Security”) as the entire Security Deposit, as follows:

(a) If Tenant elects to deliver L/C Security, then Tenant shall provide Landlord, and maintain in full force and effect throughout the Term and until the date that is four (4) months after the then-current Term Expiration Date, a letter of credit in the form of Exhibit E, or such other form that Landlord may approve in its sole discretion, issued by an issuer reasonably satisfactory to Landlord, in the amount of the Security Deposit, with an initial term of at least one year. Landlord may require the L/C Security to be re-issued by a different issuer at any time during the Term if Landlord reasonably believes that the issuing bank of the L/C Security is or may soon become insolvent; provided, however, Landlord shall return the existing L/C Security to the existing issuer immediately upon receipt of the substitute L/C Security. If any issuer of the L/C Security shall become insolvent or placed into FDIC receivership, then Tenant shall immediately deliver to Landlord (without the requirement of notice from Landlord) substitute L/C Security issued by an issuer reasonably satisfactory to Landlord, and otherwise

 

17


conforming to the requirements set forth in this Article. As used herein with respect to the issuer of the L/C Security, “insolvent” shall mean the determination of insolvency as made by such issuer’s primary bank regulator (i.e., the state bank supervisor for state chartered banks; the OCC or OTS, respectively, for federally chartered banks or thrifts; or the Federal Reserve for its member banks). If, at the Term Expiration Date, any Rent remains uncalculated or unpaid, then (i) Landlord shall with reasonable diligence complete any necessary calculations, (ii) Tenant shall extend the expiry date of such L/C Security from time to time as Landlord reasonably requires and (iii) in such extended period, Landlord shall not unreasonably refuse to consent to an appropriate reduction of the L/C Security. Tenant shall reimburse Landlord’s legal costs (as estimated by Landlord’s counsel) in handling Landlord’s acceptance of L/C Security or its replacement or extension.

(b) If Tenant delivers to Landlord satisfactory L/C Security in place of the entire Security Deposit, Landlord shall remit to Tenant any cash Security Deposit Landlord previously held.

(c) Landlord may draw upon the L/C Security, and hold and apply the proceeds in the same manner and for the same purposes as the Security Deposit, if (i) an uncured Default (as defined below) exists, (ii) as of the date that is forty-five (45) days before any L/C Security expires (even if such scheduled expiry date is after the Term Expiration Date) Tenant has not delivered to Landlord an amendment or replacement for such L/C Security, reasonably satisfactory to Landlord, extending the expiry date to the earlier of (1) four (4) months after the then-current Term Expiration Date or (2) the date that is one year after the then-current expiry date of the L/C Security, (iii) the L/C Security provides for automatic renewals, Landlord asks the issuer to confirm the current L/C Security expiry date, and the issuer fails to do so within ten (10) business days, (iv) Tenant fails to pay (when and as Landlord reasonably requires) any bank charges for Landlord’s transfer of the L/C Security or (v) the issuer of the L/C Security ceases, or announces that it will cease, to maintain an office in the city where Landlord may present drafts under the L/C Security (and fails to permit drawing upon the L/C Security by overnight courier or facsimile). This Section does not limit any other provisions of this Lease allowing Landlord to draw the L/C Security under specified circumstances.

(d) Tenant shall not seek to enjoin, prevent, or otherwise interfere with Landlord’s draw under L/C Security, even if it violates this Lease. Tenant acknowledges that the only effect of a wrongful draw would be to substitute a cash Security Deposit for L/C Security, causing Tenant no legally recognizable damage. Landlord shall hold the proceeds of any draw in the same manner and for the same purposes as a cash Security Deposit. In the event of a wrongful draw, (a) the parties shall cooperate to allow Tenant to post replacement L/C Security simultaneously with the return to Tenant of the wrongfully drawn sums, (b) Landlord shall upon request confirm in writing to the issuer of the L/C Security that Landlord’s draw was erroneous, and (c) if Tenant receives a final determination from a court of competent jurisdiction that is not subject to appeal that Landlord has made a “wrongful” draw, (i) Landlord shall pay Tenant interest upon the amount of such wrongful draw at the rate of twelve percent (12%) and (ii) Tenant shall be entitled to recover its reasonable attorney’s fees in accordance with Section 40.7. For purposes of the immediately foregoing sentence, the term “wrongful” shall mean that Landlord had no reasonable basis to believe that it had the right to make the draw.

 

18


(e) If Landlord transfers its interest in the Premises, then Tenant shall at Tenant’s expense, within five (5) business days after receiving a request from Landlord, deliver (and, if the issuer requires, Landlord shall consent to) an amendment to the L/C Security naming Landlord’s grantee as substitute beneficiary. If the required Security Deposit changes while L/C Security is in force, then Tenant shall deliver (and, if the issuer requires, Landlord shall consent to) a corresponding amendment to the L/C Security.

12. Use.

12.1. Tenant shall use the Premises for the Permitted Use, and shall not use the Premises, or permit or suffer the Premises to be used, for any other purpose without Landlord’s prior written consent, which consent Landlord may withhold in its sole and absolute discretion.

12.2. Tenant shall not use or occupy the Premises in violation of Applicable Laws; zoning ordinances; or the certificate of occupancy issued for the Building or the Project, and shall, upon five (5) days’ written notice from Landlord, discontinue any use of the Premises that is declared or claimed by any Governmental Authority having jurisdiction to be a violation of any of the above, or that in Landlord’s reasonable opinion violates any of the above. Tenant shall comply with any direction of any Governmental Authority having jurisdiction that shall, by reason of the nature of Tenant’s use or occupancy of the Premises, impose any duty upon Tenant or Landlord with respect to the Premises or with respect to the use or occupation thereof, and shall indemnify, save, defend (at Landlord’s option and with counsel reasonably acceptable to Landlord) and hold Landlord and its affiliates, employees, agents and contractors; and any lender, mortgagee, ground lessor or beneficiary (each, a “Lender” and, collectively with Landlord and its affiliates, employees, agents and contractors, the “Landlord Indemnitees”) harmless from and against any and all demands, claims, liabilities, losses, costs, expenses, actions, causes of action, damages, suits or judgments, and all reasonable expenses (including reasonable attorneys’ fees, charges and disbursements, regardless of whether the applicable demand, claim, action, cause of action or suit is voluntarily withdrawn or dismissed) incurred in investigating or resisting the same (collectively, “Claims”) of any kind or nature that arise before, during or after the Term as a result of Tenant’s breach of this Section.

12.3. Tenant shall not do or permit to be done anything that will invalidate or increase the cost of any fire, environmental, extended coverage or any other insurance policy covering the Building or the Project, and shall comply with all rules, orders, regulations and requirements of the insurers of the Building and the Project, and Tenant shall promptly, upon demand, reimburse Landlord for any additional premium charged for such policy by reason of Tenant’s failure to comply with the provisions of this Article.

12.4. Tenant shall keep all doors opening onto public corridors closed, except when in use for ingress and egress.

12.5. No additional locks or bolts of any kind shall be placed upon any of the doors or windows by Tenant, nor shall any changes be made to existing locks or the mechanisms thereof without Landlord’s prior written consent. Tenant shall, upon termination of this Lease, return to Landlord all keys to offices and restrooms either furnished to or otherwise procured by Tenant. In the event any key so furnished to Tenant is lost, Tenant shall pay to Landlord the cost of replacing the same or of changing the lock or locks opened by such lost key if Landlord shall

 

19


deem it necessary to make such change. Tenant shall be permitted to install its own security system in the Premises which is compatible with the key card access system for the Building and may include, within the Premises, video, motion and other sensors, provided, however no portion of it shall be visible outside the Premises without Landlord’s approval. Tenant shall have the right to install and use a WiFi system in its Premises provided the same does not interfere with other tenants in the Project.

12.6. No awnings or other projections shall be attached to any outside wall of the Building. No curtains, blinds, shades or screens shall be attached to or hung in, or used in connection with, any window or door of the Premises other than Landlord’s standard window coverings. Neither the interior nor exterior of any windows shall be coated or otherwise sunscreened without Landlord’s prior written consent, nor shall any bottles, parcels or other articles be placed on the windowsills or items attached to windows that are visible from outside the Premises. No equipment, furniture or other items of personal property shall be placed on any exterior balcony without Landlord’s prior written consent.

12.7. No sign, advertisement or notice (“Signage”) shall be exhibited, painted or affixed by Tenant on any part of the Premises or the Building without Landlord’s prior written consent Signage shall conform to Landlord’s design criteria. For any Signage, Tenant shall, at Tenant’s own cost and expense, (a) acquire all permits for such Signage in compliance with Applicable Laws and (b) design, fabricate, install and maintain such Signage in a first-class condition. Tenant shall be responsible for reimbursing Landlord for costs incurred by Landlord in removing any of Tenant’s Signage upon the expiration or earlier termination of the Lease. Interior signs on entry doors to the Premises shall be inscribed, painted or affixed by Tenant at Tenant’s sole cost and expense, and shall be of a size, color and type and be located in a place acceptable to Landlord. An interior sign on the directory tablet shall be inscribed, painted or affixed for Tenant by Landlord at Landlord’s sole cost and expense; provided, however, that Tenant shall be responsible for all costs and expenses incurred by Landlord for any changes to Tenant’s listing in such directory tablet requested by Tenant from and after the Term Commencement Date (excluding any changes on account of improvements to the directory tablet initiated by Landlord). The directory tablet shall be provided exclusively for the display of the name and location of tenants only. Tenant shall not place anything on the exterior of the corridor walls or corridor doors other than Landlord’s standard lettering. At Landlord’s option, Landlord may install any Tenant Signage, and Tenant shall pay all costs associated with such installation within thirty (30) days after demand therefor.

12.8. Tenant may only place equipment within the Premises with floor loading consistent with the Building’s structural design unless Tenant obtains Landlord’s prior written approval. Tenant may place such equipment only in a location designed to carry the weight of such equipment.

12.9. Tenant shall cause any equipment or machinery to be installed in the Premises so as to reasonably prevent sounds or vibrations therefrom from extending into the Common Area or other offices in the Project.

 

20


12.10. Tenant shall not (a) do or permit anything to be done in or about the Premises that shall in any way obstruct or interfere with the rights of other tenants or occupants of the Project, or injure or annoy them, (b) use or allow the Premises to be used for immoral, unlawful or objectionable purposes, (c) cause, maintain or permit any nuisance or waste in, on or about the Project or (d) take any other action that would in Landlord’s reasonable determination in any manner adversely affect other tenants’ quiet use and enjoyment of their space or adversely impact their ability to conduct business in a professional and suitable work environment. Notwithstanding anything in this Lease to the contrary, Tenant may not install any security systems (including cameras) outside the Premises or that record sounds or images outside the Premises without Landlord’s prior written consent, which Landlord may withhold in its sole and absolute discretion.

12.11. Notwithstanding any other provision herein to the contrary, Tenant shall be responsible for all liabilities, costs and expenses arising out of or in connection with the compliance of the Premises with the Americans with Disabilities Act, 42 U.S.C. § 12101, et seq., and any state and local accessibility laws, codes, ordinances and rules (collectively, and together with regulations promulgated pursuant thereto, the “ADA”) (except to the extent that any such non-compliance of the Premises with the ADA (as in effect and interpreted as of the Term Commencement Date) existed as of the Term Commencement Date, and Tenant shall indemnify, compensate, save, defend (at Landlord’s option and with counsel reasonably acceptable to Landlord) and hold the Landlord Indemnitees harmless from and against Claims arising out of any such failure of the Premises to comply with the Tenant’s obligations with respect to the ADA under this Section. This Section (as well as any other provisions of this Lease dealing with indemnification of the Landlord Indemnitees by Tenant) shall be deemed to be modified in each case by the insertion in the appropriate place of the following: “except as otherwise provided in Mass. G.L. Ter. Ed., C. 186, Section 15.” The provisions of this Section shall survive the expiration or earlier termination of this Lease.

12.12. Tenant shall maintain temperature and humidity in the Premises in accordance with ASHRAE standards at all times (subject to Landlord’s compliance with its obligations with respect to base Building HVAC systems under this Lease).

12.13. Tenant shall establish and maintain a chemical safety program administered by a licensed, qualified individual in accordance with the requirements of the Massachusetts Water Resources Authority (“MWRA”) and any other applicable Governmental Authority. Tenant shall be solely responsible for all costs incurred in connection with such chemical safety program, and Tenant shall provide Landlord with such documentation as Landlord may reasonably require evidencing Tenant’s compliance with the requirements of (a) the MWRA and any other applicable Governmental Authority with respect to such chemical safety program and (b)    this Section. Notwithstanding the foregoing, Landlord shall obtain, at Landlord’s cost, and Landlord shall maintain during the Term, (m) any permit required by the MWRA (“MWRA Permit”) and (n) a wastewater treatment operator license from the Commonwealth of Massachusetts with respect to Tenant’s use of the Acid Neutralization Tank (as defined below) in the Building. Tenant shall not introduce anything into the Acid Neutralization Tank (x) in violation of the terms of the MWRA Permit, (y) in violation of Applicable Laws or (z) that would interfere with the proper functioning of the Acid Neutralization Tank. Tenant shall reimburse Landlord within ten (10) business days after demand for any costs incurred by Landlord pursuant to the immediately foregoing sentence. Tenant agrees to reasonably cooperate with Landlord in order to obtain the MWRA Permit and the wastewater treatment operator license.

 

21


13. Rules and Regulations, CC&Rs, Parking Facilities and Common Area.

13.1. Tenant shall have the non-exclusive right, in common with others, to use the Common Area in conjunction with Tenant’s use of the Premises for the Permitted Use, and such use of the Common Area and Tenant’s use of the Premises shall be subject to the rules and regulations adopted by Landlord and attached hereto as Exhibit F, together with such other reasonable and nondiscriminatory rules and regulations as are hereafter promulgated by Landlord in its sole and absolute discretion (the “Rules and Regulations”). Tenant shall and shall ensure that its contractors, subcontractors, employees, subtenants and invitees faithfully observe and comply with the Rules and Regulations. Landlord shall not be responsible to Tenant for the violation or non-performance by any other tenant or any agent, employee or invitee thereof of any of the Rules and Regulations.

13.2. This Lease is subject to any recorded covenants, conditions or restrictions on the Project or Property, including the Parking and Transportation Demand Management Plan for the Project that was approved on July 2, 1999, and amended December 14, 2001, and that is attached hereto as Exhibit G with all applicable transfers thereof (the “PTDM”), as the same may be amended, amended and restated, supplemented or otherwise modified from time to time (the “CC&Rs”). Tenant shall, at its sole cost and expense, comply with the CC&Rs. Tenant acknowledges that Tenant, at its sole cost and expense, shall comply with the tenant requirements in the PTDM, including the requirements set forth in the “Alternative Work Programs,” “Public Transportation Incentives,” “Ridesharing Programs” and “Provisions of Bicycle and Pedestrian Amenities” sections thereof. Tenant, at its sole cost and expense, shall also comply with the reporting requirements set forth in the PTDM at Landlord’s request. Any costs incurred by Landlord in connection with the PTDM shall constitute an Operating Expense.

13.3. Tenant agrees to cooperate with Landlord in connection with “Developer’s” performance of the obligations of the “Developer” under the Development Controls and Community Outreach Program for Cambridge Place effective as of July 27, 1998, executed by The Bulfinch Companies, Inc., CCC I Realty Trust, 205 Broadway Realty Trust, Neighbors for a Better Community, Inc., and the McKinnon Company, Inc. (as it may be amended, modified, amended and restated, otherwise supplemented, or superseded from time to time, the “Community Agreement”). Landlord encourages Tenant to participate in programs of civic and charitable giving and the provision of in-kind services and facilities that will extend the benefits of the Project to neighborhood residents, including, by way of example, the charitable and civic connections identified in Section 2.5 of the Community Agreement.

13.4. The Charles River Transportation Management Association (of which Landlord or an affiliate of Landlord is currently a member) provides certain programs to help improve transportation in the Cambridge area. Their website is www.charlesrivertma.org.

13.5. Tenant shall have a non-exclusive, irrevocable license to use 32 parking spaces (“Tenant’s Parking Spaces”) in the parking facilities serving the Hampshire Project in common on an unreserved basis with other tenants of the Hampshire Project during the Term at a cost of Two Hundred Eighty Five Dollars ($285) per parking space per month (subject to market rate

 

22


adjustments by Landlord from time to time throughout the Term), which Tenant shall pay simultaneously with payments of Rent as Additional Rent commencing on the Term Commencement Date. Notwithstanding the foregoing, during the period from the Term Commencement Date to the first (1st) anniversary of the Term Commencement Date, Tenant shall only pay for, and shall only have the right to use, 24 of Tenant’s Parking Spaces; provided, however, that Tenant shall have the one-time right, which may be exercised by Tenant at any time during the period from the Term Commencement Date to the first (1st) anniversary of the Term Commencement Date, to notify Landlord in writing that it elects to use (and shall be required to pay for) the remaining 8 of Tenant’s Parking Spaces (the “Remaining Spaces”). If Tenant does not elect to use the Remaining Spaces prior to the first (1st) anniversary of the Term Commencement Date, or Tenant surrenders all or any portion of Tenant’s Parking Spaces through written notice to Landlord after the first (1st) anniversary of the Term Commencement Date, (a) Tenant shall be relieved of its obligation to pay for the surrendered spaces beginning on the first day of the month that is more than thirty (30) days from the delivery of said notice and (b)    Tenant’s ability to license the Remaining Spaces or any surrendered spaces in the future shall be subject to their availability, which availability will not be guaranteed by Landlord from and after any such surrender.

13.6. Tenant agrees not to unreasonably overburden the parking facilities and agrees to cooperate with Landlord and other tenants in the use of the parking facilities. Landlord reserves the right to determine that parking facilities are becoming overcrowded and to limit Tenant’s use thereof. Upon such determination, Landlord may reasonably allocate parking spaces among Tenant and other tenants of the Building or the Project. Nothing in this Section, however, is intended to create an affirmative duty on Landlord’s part to monitor parking.

13.7. Subject to the terms of this Lease including the Rules and Regulations and the rights of other tenants of the Building, Tenant shall have the non-exclusive right on an unreserved basis to access the freight loading dock and freight elevator twenty-four (24) hours per day, seven (7) days per week, at no additional cost.

14. Project Control by Landlord.

14.1. Landlord reserves full control over the Building and the Project to the extent not inconsistent with Tenant’s enjoyment of the Premises as provided by this Lease. This reservation includes Landlord’s right to subdivide the Project or the Hampshire Project; convert the Building and other buildings within the Hampshire Project to condominium units; change the size of the Project by selling all or a portion of the Project or adding real property and any improvements thereon to the Project; grant easements and licenses to third parties; maintain or establish ownership of the Building separate from fee title to the Property; make additions to or reconstruct portions of the Building and the Project; install, use, maintain, repair, replace and relocate for service to the Premises and other parts of the Building or the Project pipes, ducts, conduits, wires and appurtenant fixtures, wherever located in the Premises, the Building or elsewhere at the Project; and alter or relocate any other Common Area or facility, including private drives, lobbies, entrances and landscaping; provided, however, that such rights shall be exercised in a way that does not materially adversely affect Tenant’s beneficial use and occupancy of the Premises, including the Permitted Use and Tenant’s access to the Premises. Tenant acknowledges that Landlord specifically reserves the right to allow the exclusive use of corridors and restroom facilities located on specific floors to one or more tenants occupying such floors; provided, however, that Tenant shall not be deprived of the use of the corridors reasonably required to serve the Premises or of restroom facilities serving the floor upon which the Premises are located.

 

23


14.2. Possession of areas of the Premises necessary for utilities, services, safety and operation of the Building is reserved to Landlord.

14.3. Tenant shall, at Landlord’s request, promptly execute such further documents as may be reasonably appropriate to assist Landlord in the performance of its obligations hereunder; provided that Tenant need not execute any document that creates additional liability for Tenant or that deprives Tenant of the quiet enjoyment and use of the Premises as provided for in this Lease.

14.4. Landlord may, at any and all reasonable times during non-business hours (or during business hours, if (a) with respect to Subsections 14.4(u) through 14.4(y), Tenant so requests, and (b) with respect to Subsection 14.4(z), if Landlord so requests), and upon twenty-four (24) hours’ prior notice (which may be oral or by email to the office manager or other Tenant-designated individual at the Premises; but provided that no time restrictions shall apply or advance notice be required if an emergency necessitates immediate entry), enter the Premises to (u) inspect the same and to determine whether Tenant is in compliance with its obligations hereunder, (v) supply any service Landlord is required to provide hereunder, (w) alter, improve or repair any portion of the Building other than the Premises for which access to the Premises is reasonably necessary, (x) post notices of nonresponsibility, (y) access the telephone equipment, electrical substation and fire risers and (z) show the Premises to prospective tenants during the final year of the Term and current and prospective purchasers and lenders at any time. Notwithstanding the foregoing, Tenant shall have the right to have a representative of Tenant accompany Landlord at such times. With respect to that portion of the Lab Zone of the Premises that is a Biosafety Level 2 Enhanced laboratory (the “Secure Area”), which Tenant shall clearly identify with appropriate signage in the Premises, Tenant’s representative shall be present during any time that Landlord accesses the Secure Area (except in the event of an emergency during which time Landlord may access the Secure Area without Tenant’s representative being present) and Landlord shall endeavor to comply with Tenant’s reasonable security and safety requirements that are provided to Landlord in writing in advance. In connection with any such alteration, improvement or repair as described in Subsection 14.4(w), Landlord may erect in the Premises or elsewhere in the Project scaffolding and other structures reasonably required for the alteration, improvement or repair work to be performed. In no event shall Tenant’s Rent abate as a result of Landlord’s activities pursuant to this Section; provided, however, that all such activities shall be conducted in such a manner so as to cause as little interference to Tenant as is reasonably possible. Landlord shall at all times retain a key with which to unlock all of the doors in the Premises. If an emergency necessitates immediate access to the Premises, Landlord may use whatever force is necessary to enter the Premises, and any such entry to the Premises shall not constitute a forcible or unlawful entry to the Premises, a detainer of the Premises, or an eviction of Tenant from the Premises or any portion thereof.

 

24


15.    Quiet Enjoyment. Landlord covenants that Tenant, upon paying the Rent and performing its obligations contained in this Lease, may peacefully and quietly have, hold and enjoy the Premises, free from any claim by Landlord or persons claiming under Landlord, but subject to all of the terms and provisions hereof, provisions of Applicable Laws and rights of record to which this Lease is or may become subordinate. This covenant is in lieu of any other quiet enjoyment covenant, either express or implied.

16. Utilities and Services.

16.1. Tenant shall pay for all water (including the cost to service, repair and replace reverse osmosis, de-ionized and other treated water), gas, heat, light, power, telephone, internet service, cable television, other telecommunications and other utilities supplied to the Premises, together with any fees, surcharges and taxes thereon. Utilities for the HVAC system that supports the Lab Zone shall be billed to Tenant on a proportionate basis. If any utility is not separately metered or submetered to Tenant, Tenant shall pay Tenant’s Adjusted Share of Operating Expenses or Laboratory Support Expenses, as the case may be, of all charges of such utility jointly metered with other premises as Additional Rent or, in the alternative, Landlord may, at its option, monitor the usage of such utilities by Tenant and charge Tenant with the cost of purchasing, installing and monitoring such metering equipment, which cost shall be paid by Tenant as Additional Rent. Landlord may base its bills for utilities on reasonable estimates; provided that Landlord adjusts such billings to reflect the actual cost of providing utilities to the Premises no less than quarterly. To the extent that Tenant uses more than Tenant’s Pro Rata Share of Laboratory Building of any utilities attributable to Base Building Laboratory Support Systems or otherwise, then Tenant shall pay Landlord for Tenant’s Adjusted Share of such utilities to reflect such excess. In the event that the Building or Project is less than fully occupied during a calendar year, Tenant acknowledges that Landlord may extrapolate utility usage that varies depending on the occupancy of the Building or Project (as applicable) to equal Landlord’s reasonable estimate of what such utility usage would have been had the Building or Project, as applicable, been ninety-five percent (95%) occupied during such calendar year; provided, however, that Landlord shall not recover more than one hundred percent (100%) of the cost of such utilities. In the event that the Laboratory Building is less than fully occupied during any portion of the Term, Tenant acknowledges that during such time, Landlord shall charge Tenant for the Laboratory Support Expenses (other than those utilities that are metered and submetered) based on Tenant’s pro rata share of the occupied Laboratory Building (“Occupied Lab Share”), rather than Tenant’s Pro Rata Share of Laboratory Building, as determined by Landlord based on the ratio of the Rentable Area of the Premises to the total Rentable Area of the Laboratory Building for which there are leases (including without limitation, this Lease) with terms that have commenced, expressed as a percentage of the Laboratory Support Expenses. Landlord shall have the right to recalculate the Occupied Lab Share from time to time as occupancy of the Laboratory Building changes. Except as expressly provided herein or approved by Landlord, Tenant shall only be entitled to use Tenant’s Pro Rata Share of Laboratory Building of Base Building Laboratory Support Systems, regardless of whether Tenant is paying its Occupied Lab Share or Pro Rata Share of Laboratory Building of the costs thereof. Tenant shall not be liable for the cost of utilities supplied to the Premises attributable to the time period prior to the Term Commencement Date; provided, however, that, if Landlord shall permit Tenant possession of the Premises prior to the Term Commencement Date and Tenant uses the Premises for any purpose other than placement of personal property as set forth in Section 4.3, then Tenant shall be responsible for the cost of utilities supplied to the Premises from such earlier date of possession.

 

25


16.2. Landlord shall not be liable for, nor shall any eviction of Tenant result from, the failure to furnish any utility or service, whether or not such failure is caused by accidents; breakage; casualties (to the extent not caused by the party claiming Force Majeure); Severe Weather Conditions (as defined below); physical natural disasters (but excluding weather conditions that are not Severe Weather Conditions); strikes, lockouts or other labor disturbances or labor disputes (other than labor disturbances and labor disputes resulting solely from the acts or omissions of the party claiming Force Majeure); acts of terrorism; riots or civil disturbances; wars or insurrections; shortages of materials (which shortages are not unique to the party claiming Force Majeure); government regulations, moratoria or other governmental actions, inactions or delays; failures by third parties to deliver gas, oil or another suitable fuel supply, or inability of the party claiming Force Majeure, by exercise of reasonable diligence, to obtain gas, oil or another suitable fuel; or other causes beyond the reasonable control of the party claiming that Force Majeure has occurred (collectively, “Force Majeure”); or, to the extent permitted by Applicable Laws, Landlord’s negligence. In the event of such failure, Tenant shall not be entitled to termination of this Lease or any abatement or reduction of Rent, nor shall Tenant be relieved from the operation of any covenant or agreement of this Lease. “Severe Weather Conditions” means weather conditions that are materially worse than those that reasonably would be anticipated for the Property at the applicable time based on historic meteorological records. Notwithstanding anything to the contrary in this Lease, if, for more than five (5) consecutive business days following written notice to Landlord and as a direct result of Landlord’s gross negligence or willful misconduct (and except to the extent that such failure is caused by any other factor, including any action or inaction of a Tenant Party (as defined below)), the provision of HVAC or other utilities to all or a material portion of the Premises that Landlord must provide pursuant to this Lease is interrupted (a “Material Services Failure”), then Tenant’s Base Rent and Operating Expenses (or, to the extent that less than all of the Premises are affected, a proportionate amount (based on the Rentable Area of the Premises that is rendered unusable) of Base Rent and Operating Expenses) shall thereafter be abated until the Premises are again usable by Tenant for the Permitted Use; provided, however, that, if Landlord is diligently pursuing the restoration of such HVAC and other utilities and Landlord provides substitute HVAC and other utilities reasonably suitable for Tenant’s continued use and occupancy of the Premises for the Permitted Use (e.g., supplying potable water or portable air conditioning equipment), then neither Base Rent nor Operating Expenses shall be abated. During any Material Services Failure, Tenant will cooperate with Landlord to arrange for the provision of any interrupted utility services on an interim basis via temporary measures until final corrective measures can be accomplished, and Tenant will permit Landlord the necessary access to the Premises to remedy such Material Service Failure. In the event of any interruption of HVAC or other utilities that Landlord must provide pursuant to this Lease, regardless of the cause, Landlord shall diligently pursue the restoration of such HVAC and other utilities. Notwithstanding anything in this Lease to the contrary, but subject to Article 24 (which shall govern in the event of a casualty), the provisions of this Section shall be Tenant’s sole recourse and remedy in the event of an interruption of HVAC or other utilities to the Premises, including related to Section 16.8.

 

26


16.3. Tenant shall pay for, prior to delinquency of payment therefor, any utilities and services that may be furnished to the Premises during or, if Tenant occupies the Premises after the expiration or earlier termination of the Term, after the Term, beyond those utilities provided by Landlord, including telephone, internet service, cable television and other telecommunications, together with any fees, surcharges and taxes thereon. Upon Landlord’s demand, utilities and services provided to the Premises that are separately metered shall be paid by Tenant directly to the supplier of such utilities or services.

16.4. Tenant shall not, without Landlord’s prior written consent, use any device in the Premises (including data processing machines) that will in any way (a) increase the amount of ventilation, air exchange, gas, steam, electricity or water required or consumed in the Premises based upon Tenant’s Pro Rata Share of the Building or the Laboratory Building (as applicable) beyond the existing capacity of the Building or the Base Building Laboratory Support Systems usually furnished or supplied for the Permitted Use or (b) exceed Tenant’s Pro Rata Share of the Building’s or Tenant’s Pro Rata Share of the Laboratory Building’s (as applicable) capacity to provide such utilities or services.

16.5. If Tenant shall require utilities or services in excess of those usually furnished or supplied for tenants in similar spaces in the Building or the Project by reason of Tenant’s equipment or extended hours of business operations, then Tenant shall first procure Landlord’s consent for the use thereof, which consent Landlord may condition upon the availability of such excess utilities or services, and Tenant shall pay as Additional Rent an amount equal to the cost of providing such excess utilities and services.

16.6. Landlord shall provide water in the Common Area for lavatory and landscaping purposes only, which water shall be from the local municipal or similar source; provided, however, that if Landlord determines that Tenant requires, uses or consumes water provided to the Common Area for any purpose other than ordinary lavatory purposes, Landlord may install a water meter (“Tenant Water Meter”) and thereby measure Tenant’s water consumption for all purposes. Tenant shall pay Landlord for the costs of any Tenant Water Meter and the installation and maintenance thereof during the Term. If Landlord installs a Tenant Water Meter, Tenant shall pay for water consumed, as shown on such meter, as and when bills are rendered. If Tenant fails to timely make such payments, Landlord may pay such charges and collect the same from Tenant. Any such costs or expenses incurred or payments made by Landlord for any of the reasons or purposes stated in this Section shall be deemed to be Additional Rent payable by Tenant and collectible by Landlord as such.

16.7. Landlord reserves the right to stop service of the elevator, plumbing, ventilation, air conditioning and utility systems, when Landlord deems necessary or desirable, due to accident, emergency or the need to make repairs, alterations or improvements, until such repairs, alterations or improvements shall have been completed, and Landlord shall further have no responsibility or liability for failure to supply elevator facilities, plumbing, ventilation, air conditioning or utility service when prevented from doing so by Force Majeure or, to the extent permitted by Applicable Laws, Landlord’s negligence. Without limiting the foregoing, it is expressly understood and agreed that any covenants on Landlord’s part to furnish any service pursuant to any of the terms, covenants, conditions, provisions or agreements of this Lease, or to perform any act or thing for the benefit of Tenant, shall not be deemed breached if Landlord is unable to furnish or perform the same by virtue of Force Majeure or, to the extent permitted by Applicable Laws, Landlord’s negligence.

 

27


16.8. Landlord will install a back-up generator at the Project and connect the Generator to the Premises’ emergency electrical panel (the “Generator”). Tenant shall be entitled to use up to its Pro Rata Share of Laboratory Building of power from the Generator (after deducting any power from the Generator required for the Common Area) on a non-exclusive basis with other tenants in the Building. Tenant shall reimburse Landlord for Tenant’s Pro Rata Share of Laboratory Building (or Tenant’s Occupied Lab Share, if applicable) of all costs, charges and expenses incurred by Landlord from time to time in connection with or arising out of the operation, use, maintenance, repair or refurbishment of the Generator (collectively, “Generator Costs”). Landlord expressly disclaims any warranties with regard to the Generator or the installation thereof, including any warranty of merchantability or fitness for a particular purpose. Landlord shall maintain the Generator and any equipment connecting the Generator to Tenant’s automatic transfer switch in good working condition as set forth above; provided, however, that Tenant shall be solely responsible (and Landlord shall not be liable) for maintaining and operating Tenant’s automatic transfer switch and the distribution of power from Tenant’s automatic transfer switch throughout the Premises; and provided, further, that Landlord shall not be liable for any failure to make any repairs or to perform any maintenance that is an obligation of Landlord unless such failure shall persist for an unreasonable time after Tenant provides Landlord with written notice of the need for such repairs or maintenance. The provisions of Section 16.2 of this Lease shall apply to the Generator.

16.9. Subject to Section 18.1, Landlord shall furnish HVAC to the Lab Zone as reasonably required (except as this Lease otherwise provides or as to any special requirements that arise from Tenant’s particular use of the Premises) for reasonably comfortable occupancy of the Lab Zone twenty-four (24) hours a day, every day during the Term, subject to casualty, eminent domain or as otherwise specified in this Article. Subject to Section 18.1, Landlord shall furnish HVAC to the Office Zone for reasonably comfortable occupancy of the Office Zone twenty-four (24) hours a day, every day during the Term, subject to casualty, eminent domain or as otherwise specified in this Article; provided that Tenant complies with the next sentence. If Tenant will require HVAC to the Office Zone outside normal business hours of business days (as reasonably designated by Landlord, and which shall initially be 8 a.m. to 6 p.m., Mondays through Fridays) in the Office Zone (“Overtime HVAC”), then Landlord shall be obligated to provide Overtime HVAC only if Tenant requests it by 4 p.m. on the immediately preceding business day, and Tenant must pay for a minimum of 3 hours. Tenant shall pay Landlord, as Additional Rent, $100 per hour for Overtime HVAC for the Premises (which charge may be adjusted by Landlord from time to time), as well as for HVAC provided during Tenant’s business hours. To the extent that Tenant requires HVAC services in excess of those provided by connection to the Building HVAC systems (that serve either the Lab Zone or Office Zone or both), Tenant shall install and maintain, at its sole cost (and Landlord shall not be liable for) supplemental HVAC systems in accordance with the provisions of this Lease. Notwithstanding anything to the contrary in this Section, Landlord shall have no liability, and Tenant shall have no right or remedy, on account of any interruption or impairment in HVAC services; provided that Landlord diligently endeavors to cure any such interruption or impairment.

16.10. For any utilities serving the Premises for which Tenant is billed directly by such utility provider, Tenant agrees to furnish to Landlord (a) any invoices or statements for such utilities within thirty (30) days after Tenant’s receipt thereof, (b) within thirty (30) days after Landlord’s request, any other utility usage information reasonably requested by Landlord which

 

28


is in Tenant’s possession, and (c) within thirty (30) days after each calendar year during the Term, authorization to allow Landlord to access Tenant’s usage information necessary for Landlord to complete an ENERGY STAR® Statement of Performance (or similar comprehensive utility usage report (e.g., related to Labs 21), if requested by Landlord) and any other information reasonably requested by Landlord for the immediately preceding year; and Tenant shall comply with any other energy usage or consumption requirements required by Applicable Laws. Tenant shall retain records of utility usage at the Premises, including invoices and statements from the utility provider, for at least sixty (60) months, or such other period of time as may be requested by Landlord. Tenant acknowledges that any utility information for the Premises, the Building and the Project may be shared with third parties, including Landlord’s consultants and Governmental Authorities. In the event that Tenant fails to comply with this Section, Tenant hereby authorizes Landlord to collect utility usage information directly from the applicable utility providers, and Tenant shall pay Landlord a fee of Five Hundred Dollars ($500) per month to collect such utility usage information. In addition to the foregoing, Tenant shall comply with all Applicable Laws related to the disclosure and tracking of energy consumption at the Premises. The provisions of this Section shall survive the expiration or earlier termination of this Lease.

16.11. As part of Landlord’s Work, the Building will be serviced by a common laboratory waste sanitary sewer connection from the pH neutralization room in garage level P3 to the municipal sewer line in the street adjacent to the Building. Landlord will install, as part of Landlord’s Work, a separate acid neutralization tank (the “Acid Neutralization Tank”) that will be connected to the Premises, as well as to other premises in the Laboratory Building. Tenant shall have a non-exclusive right to use its Pro Rata Share of Laboratory Building of the Acid Neutralization Tank in accordance with Applicable Laws in common with other tenants of the Laboratory Building. Tenant shall reimburse Landlord for Tenant’s Pro Rata Share of Laboratory Building (or Tenant’s Occupied Lab Share, if applicable) of all costs, charges and expenses incurred by Landlord from time to time in connection with or arising out of the operation, use, maintenance, repair or refurbishment of the Acid Neutralization Tank, including all clean-up costs relating to the Acid Neutralization Tank (collectively, “Tank Costs”). Notwithstanding the foregoing, in the event the Acid Neutralization Tank is damaged or repairs to the Acid Neutralization Tank are required as a result of the improper use of the Acid Neutralization Tank by Tenant, Tenant shall be responsible for one hundred percent (100%) of the cost of any repairs or replacement required as a result of such improper use by Tenant, regardless of whether the Acid Neutralization Tank is then being used by other tenant(s) or occupant(s) of the Building. Similarly, if the Acid Neutralization Tank is damaged, or if repairs to the Acid Neutralization Tank are required as a result of the improper use of the Acid Neutralization Tank by other tenant(s) or occupant(s) of the Building, then Tenant shall have no responsibility for the cost of any repairs or replacements required as a result of such improper use by such other tenant(s) or occupant(s). Tenant shall indemnify, save, defend (at Landlord’s option and with counsel reasonably acceptable to Landlord) and hold the Landlord Indemnitees harmless from and against any and all Claims, including (a) diminution in value of the Project or any portion thereof, (b) damages for the loss or restriction on use of rentable or usable space or of any amenity of the Project, (c) damages arising from any adverse impact on marketing of space in the Project or any portion thereof and (d) sums paid in settlement of Claims that arise during or after the Term as a result of Tenant’s improper use of the Acid Neutralization Tank. This indemnification by Tenant includes costs incurred in connection with any investigation of site conditions or any clean-up, remediation, removal or restoration required by any Governmental Authority caused by Tenant’s improper use of the Acid Neutralization Tank.

 

29


17. Alterations.

17.1. Tenant shall make no alterations, additions or improvements in or to the Premises or engage in any construction, demolition, reconstruction, renovation or other work (whether major or minor) of any kind in, at or serving the Premises (“Alterations”) without Landlord’s prior written approval, which approval Landlord shall not unreasonably withhold; provided, however, that, in the event any proposed Alteration affects (a) any structural portions of the Building, including exterior walls, the roof, the foundation or slab, foundation or slab systems (including barriers and subslab systems) or the core of the Building, (b) the exterior of the Building or (c) any Building systems, including elevator, plumbing, HVAC, electrical, security, life safety, power, and the Base Building Laboratory Support Systems, then Landlord may withhold its approval in its sole and absolute discretion. Tenant shall, in making any Alterations, use only those architects, contractors, suppliers and mechanics of which Landlord has given prior written approval, which approval shall be in Landlord’s sole and absolute discretion. In seeking Landlord’s approval, Tenant shall provide Landlord, at least thirty (30) days in advance of any proposed construction, with plans, specifications, bid proposals, certified stamped engineering drawings and calculations by Tenant’s engineer of record or architect of record (including connections to the Building’s structural system, modifications to the Building’s envelope, non-structural penetrations in slabs or walls, and modifications or tie-ins to life safety systems), work contracts, requests for laydown areas and such other information concerning the nature and cost of the Alterations as Landlord may reasonably request. In no event shall Tenant use or Landlord be required to approve any architects, consultants, contractors, subcontractors or material suppliers that Landlord reasonably believes could cause labor disharmony or may not have sufficient experience, in Landlord’s reasonable opinion, to perform work in an occupied Class “A” laboratory research building and in tenant-occupied lab areas. Notwithstanding the foregoing, Tenant may make strictly cosmetic changes to the Premises that do not require any permits or more than three (3) total contractors and subcontractors (“Cosmetic Alterations”) without Landlord’s consent; provided that (y) the cost of any Cosmetic Alterations does not exceed Fifty Thousand Dollars ($50,000) in any one instance or One Hundred Fifty Thousand Dollars ($150,000) annually, (z) such Cosmetic Alterations do not (i) require any structural or other substantial modifications to the Premises, (ii) require any changes to or adversely affect the Building systems, (iii) affect the exterior of the Building or (iv) trigger any requirement under Applicable Laws that would require Landlord to make any alteration or improvement to the Premises, the Building or the Project. Tenant shall give Landlord at least ten (10) days’ prior written notice of any Cosmetic Alterations.

17.2. Tenant shall not construct or permit to be constructed partitions or other obstructions that might interfere with free access to mechanical installation or service facilities of the Building or with other tenants’ components located within the Building, or interfere with the moving of Landlord’s equipment to or from the enclosures containing such installations or facilities.

17.3. Tenant shall accomplish any work performed on the Premises or the Building in such a manner as to permit any life safety systems to remain fully operable at all times.

 

30


17.4. Any work performed on the Premises, the Building or the Project by Tenant or Tenant’s contractors shall be done at such times and in such manner as Landlord may from time to time designate. Tenant covenants and agrees that all work done by Tenant or Tenant’s contractors shall be performed in full compliance with Applicable Laws. Within thirty (30) days after completion of any Alterations, Tenant shall provide Landlord with complete “as built” drawing print sets and electronic CADD files on disc (or files in such other current format in common use as Landlord reasonably approves or requires) showing any changes in the Premises, as well as a commissioning report prepared by a licensed, qualified commissioning agent hired by Tenant and approved by Landlord for all new or affected mechanical, electrical and plumbing systems. Any such “as built” plans shall show the applicable Alterations as an overlay on the Building as-built plans; provided that Landlord provides the Building “as built” plans to Tenant.

17.5.    Before commencing any Alterations, Tenant shall (a) give Landlord at least thirty (30)    days’ prior written notice of the proposed commencement of such work and the names and addresses of the persons supply labor or materials therefor so that Landlord may enter the Premises to post and keep posted thereon and therein notices or to take any further action that Landlord may reasonably deem proper for the protection of Landlord’s interest in the Project and (b) shall, if required by Landlord, secure, at Tenant’s own cost and expense, a completion and lien indemnity bond satisfactory to Landlord for such work.

17.6. Tenant shall repair any damage to the Premises caused by Tenant’s removal of any property from the Premises. During any such restoration period, Tenant shall pay Rent to Landlord as provided herein as if such space were otherwise occupied by Tenant. The provisions of this Section shall survive the expiration or earlier termination of this Lease.

17.7. The Premises plus any Alterations; Signage; Tenant Improvements; attached equipment, decorations, fixtures and trade fixtures; movable laboratory casework and related appliances; and other additions and improvements attached to or built into the Premises made by either of the parties (including all floor and wall coverings; paneling; sinks and related plumbing fixtures; laboratory benches; exterior venting fume hoods; walk-in freezers and refrigerators; ductwork; conduits; electrical panels and circuits; attached machinery and equipment; and built-in furniture and cabinets, in each case, together with all additions and accessories thereto), shall (unless, prior to such construction or installation, Landlord elects otherwise in writing) at all times remain the property of Landlord, shall remain in the Premises and shall (unless, prior to construction or installation thereof, Landlord elects otherwise in writing) be surrendered to Landlord upon the expiration or earlier termination of this Lease. For the avoidance of doubt, the items listed on Exhibit H attached hereto (which Exhibit H may be updated by Tenant from and after the Term Commencement Date, subject to Landlord’s written consent) constitute Tenant’s property and shall be removed by Tenant upon the expiration or earlier termination of the Lease.

17.8. Notwithstanding any other provision of this Article to the contrary, in no event shall Tenant remove any improvement from the Premises as to which Landlord contributed payment, including the Tenant Improvements, without Landlord’s prior written consent, which consent Landlord may withhold in its sole and absolute discretion.

 

31


17.9. If Tenant shall fail to remove any of its property from the Premises prior to the expiration or earlier termination of this Lease, then Landlord may, at its option, remove the same in any manner that Landlord shall choose and store such effects without liability to Tenant for loss thereof or damage thereto, and Tenant shall pay Landlord, upon demand, any costs and expenses incurred due to such removal and storage or Landlord may, at its sole option and without notice to Tenant, sell such property or any portion thereof at private sale and without legal process for such price as Landlord may obtain and apply the proceeds of such sale against any (a) amounts due by Tenant to Landlord under this Lease and (b) any expenses incident to the removal, storage and sale of such personal property.

17.10. Tenant shall pay to Landlord an amount equal to three percent (3%) of the cost to Tenant of all Alterations (to cover Landlord’s overhead and expenses for plan review, engineering review, coordination, scheduling and supervision thereof, except (A) Tenant shall not be required to pay such amount for Cosmetic Alterations and (B) with respect to Tenant’s initial sublease of a portion of the Premises (which such sublease is subject to the terms and conditions of Article 29 of this Lease), Tenant shall only be required to pay for Landlord’s third-party out-of- pocket costs for its review, coordination, scheduling and supervision of the demolition of the demising walls of the subleased premises, if and when such demolition occurs as part of future Alterations by Tenant. For purposes of payment of such sum, Tenant shall submit to Landlord copies of all bills, invoices and statements covering the costs of such charges, accompanied by payment to Landlord of the fee set forth in this Section. Tenant shall reimburse Landlord for any extra expenses incurred by Landlord by reason of faulty work done by Tenant or its contractors, or by reason of delays caused by such work, or by reason of inadequate clean-up.

17.11. Within sixty (60) days after final completion of any Alterations performed by Tenant with respect to the Premises, Tenant shall submit to Landlord documentation showing the amounts expended by Tenant with respect to such Alterations, together with supporting documentation reasonably acceptable to Landlord.

17.12. Tenant shall take, and shall cause its contractors to take, commercially reasonable steps to protect the Premises during the performance of any Alterations, including covering or temporarily removing any window coverings so as to guard against dust, debris or damage.

17.13. Tenant shall require its contractors and subcontractors performing work on the Premises to name Landlord and its affiliates and Lenders as additional insureds on their respective insurance policies.

18. Repairs and Maintenance.

18.1. Subject to the limitations set forth in Section 16.9, Landlord shall repair and maintain the structural and exterior portions and the Building Common Area, including roofing and covering materials; foundations (excluding any architectural slabs, but including any structural slabs); exterior walls; plumbing; fire sprinkler and life safety systems (if any); base Building HVAC systems up to the first damper or isolation valve that serves the Premises (for purposes of clarity, the portion of the HVAC system that includes such first damper or isolation valve and extends into and through the Premises, whether serving the Lab Zone or Office Zone, and any supplemental HVAC serving the Premises, shall not be part of the base Building HVAC

 

32


and shall be Tenant’s obligation to maintain and repair pursuant to Section 18.2 below); the Acid Neutralization Tank and associated monitoring system; the Base Building Laboratory Support Systems; elevators; and base Building electrical systems. The Base Building Laboratory Support Systems include the following base Building systems: (i) vacuum and compressed air; (ii) purified water and (iii) laboratory waste water treatment, and shall include only the portion of such system that extends to the isolation valve for such system that serves the Premises; Tenant hereby agreeing that any such isolation valve and the portion of such system that extends from such isolation valve to and in the Premises (a “Premises Laboratory Support System”) is not a Base Building Laboratory Support System. To the extent that a Base Building Laboratory Support System does not include an isolation valve that serves the Premises, then only the portion of such system that is located outside of the Premises shall constitute a Base Building Laboratory Support System, and any portion of such system that is located inside the Premises shall be a Premises Laboratory Support System. Tenant shall repair and maintain each Premises Laboratory Support System in accordance with Section 18.2 of this Lease. Further, and with respect to the Base Building Laboratory Support System that is the purified water system for the Building, such system provides only water that has been treated by reverse osmosis, and Landlord makes no representations or warranties with respect to the purity or quality of such water and shall incur no liability whatsoever with respect to the purity, quality or any other condition of such water, and Tenant, at Tenant’s sole cost and expense, shall be solely responsible for the purity, quality and condition of the water from such purified water system that Tenant may elect to use in the Premises.

18.2. Except for services of Landlord, if any, required by Section 18.1, Tenant shall at Tenant’s sole cost and expense maintain and keep the Premises and every part thereof (including but not limited to each Premises Laboratory Support System, the portion of the HVAC system, whether serving the Lab Zone or Office Zone, that includes such first damper or isolation valve and extends into and through the Premises, any supplemental HVAC serving the Premises, any systems or equipment exclusively serving the Premises and any lightbulbs, lamps and ballasts in the Premises) in good condition and repair, damage thereto from ordinary wear and tear excepted, and shall, within ten (10) days after receipt of written notice from Landlord, provide to Landlord any maintenance records that Landlord reasonably requests, and to the extent Landlord determines that a third-party expert is necessary to review or evaluate any such records relating to systems serving Tenant’s Premises, Tenant shall reimburse Landlord for Landlord’s actual out-of-pocket costs and expenses related thereto. Tenant shall, upon the expiration or sooner termination of the Term, surrender the Premises to Landlord in as good a condition as when the Tenant Improvements are finally completed by Landlord, and with respect to Alterations, in substantially the same condition as existed on the date such Alterations are substantially completed by Tenant, ordinary wear and tear excepted; and shall, at Landlord’s request and Tenant’s sole cost and expense, remove all telephone and data systems, wiring and equipment from the Premises (with respect to wiring, only to the extent installed by a Tenant Party (as defined below)), and repair any damage to the Premises caused thereby. Landlord shall have no obligation to alter, remodel, improve, repair, decorate or paint the Premises or any part thereof, other than pursuant to the terms and provisions of the Work Letter.

18.3. Landlord shall not be liable for any failure to make any repairs or to perform any maintenance that is Landlord’s obligation pursuant to this Lease unless such failure shall persist for an unreasonable time after Tenant provides Landlord with written notice of the need of such repairs or maintenance. Tenant waives its rights under Applicable Laws now or hereafter in effect to make repairs at Landlord’s expense.

 

33


18.4. If any excavation shall be made upon land adjacent to or under the Building, or shall be authorized to be made, Tenant shall afford to the person causing or authorized to cause such excavation, license to enter the Premises for the purpose of performing such work as such person shall deem necessary or desirable to preserve and protect the Building from injury or damage and to support the same by proper foundations, without any claim for damages or liability against Landlord and without reducing or otherwise affecting Tenant’s obligations under this Lease.

18.5. This Article relates to repairs and maintenance arising in the ordinary course of operation of the Building and the Project. In the event of a casualty described in Article 24, Article 24 shall apply in lieu of this Article. In the event of eminent domain, Article 25 shall apply in lieu of this Article.

18.6. Costs incurred by Landlord pursuant to this Article shall constitute Operating Expenses or Laboratory Support Expenses, as may be reasonably allocated by Landlord.

19. Liens.

19.1. Subject to the immediately succeeding sentence, Tenant shall keep the Premises, the Building and the Project free from any liens arising out of work or services performed, materials furnished to or obligations incurred by Tenant. Tenant further covenants and agrees that any mechanic’s or materialman’s lien filed against the Premises, the Building or the Project for work or services claimed to have been done for, or materials claimed to have been furnished to, or obligations incurred by Tenant shall be discharged or bonded by Tenant within ten (10) days after the filing thereof, at Tenant’s sole cost and expense.

19.2. Should Tenant fail to discharge or bond against any lien of the nature described in Section 19.1, Landlord may, at Landlord’s election, pay such claim or post a statutory lien bond or otherwise provide security to eliminate the lien as a claim against title, and Tenant shall immediately reimburse Landlord for the costs thereof as Additional Rent. Tenant shall indemnify, save, defend (at Landlord’s option and with counsel reasonably acceptable to Landlord) and hold the Landlord Indemnitees harmless from and against any Claims arising from any such liens, including any administrative, court or other legal proceedings related to such liens.

19.3. In the event that Tenant leases or finances the acquisition of office equipment, furnishings or other personal property of a removable nature utilized by Tenant in the operation of Tenant’s business, Tenant warrants that any Uniform Commercial Code financing statement shall, upon its face or by exhibit thereto, indicate that such financing statement is applicable only to removable personal property of Tenant located within the Premises. In no event shall the address of the Premises, the Building or the Project be furnished on a financing statement without qualifying language as to applicability of the lien only to removable personal property located in an identified suite leased by Tenant. Should any holder of a financing statement record or place of record a financing statement that appears to constitute a lien against any interest of Landlord or against equipment that may be located other than within an identified

 

34


suite leased by Tenant, Tenant shall, within ten (10) days after filing such financing statement, cause (a) a copy of the lender security agreement or other documents to which the financing statement pertains to be furnished to Landlord to facilitate Landlord’s ability to demonstrate that the lien of such financing statement is not applicable to Landlord’s interest and (b) Tenant’s lender to amend such financing statement and any other documents of record to clarify that any liens imposed thereby are not applicable to any interest of Landlord in the Premises, the Building or the Project.

20.    Estoppel Certificate. Tenant shall, within ten (10) days after receipt of written notice from Landlord, execute, acknowledge and deliver a statement in writing substantially in the form attached to this Lease as Exhibit I, or on any other form reasonably requested by a current or proposed Lender or encumbrancer or proposed purchaser, (a) certifying that this Lease is unmodified and 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) and the dates to which rental and other charges are paid in advance, if any, (b) acknowledging that there are not, to Tenant’s knowledge, any uncured defaults on the part of Landlord hereunder, or specifying such defaults if any are claimed, and (c) setting forth such further information with respect to this Lease or the Premises as may be requested thereon. Any such statements may be relied upon by any prospective purchaser or encumbrancer of all or any portion of the Property. Tenant’s failure to deliver any such statement within such the prescribed time shall, at Landlord’s option, constitute a Default (as defined below) under this Lease, and, in any event, shall be binding upon Tenant that the Lease is in full force and effect and without modification except as may be represented by Landlord in any certificate prepared by Landlord and delivered to Tenant for execution.

21. Hazardous Materials.

21.1. Tenant shall not cause or permit any Hazardous Materials (as defined below) to be brought upon, kept or used in or about the Premises, the Building or the Project in violation of Applicable Laws by Tenant or any of its employees, agents, contractors or invitees (collectively with Tenant, each a “Tenant Party”). If (a) Tenant breaches such obligation, (b) the presence of Hazardous Materials as a result of such a breach results in contamination of the Project, any portion thereof, or any adjacent property, (c) contamination of the Premises otherwise occurs during the Term or any extension or renewal hereof or holding over hereunder or (d) contamination of the Project occurs as a result of Hazardous Materials that are placed on or under or are released into the Project by a Tenant Party, then Tenant shall indemnify, save, defend (at Landlord’s option and with counsel reasonably acceptable to Landlord) and hold the Landlord Indemnitees harmless from and against any and all Claims of any kind or nature, including (w) diminution in value of the Project or any portion thereof, (x) damages for the loss or restriction on use of rentable or usable space or of any amenity of the Project, (y) damages arising from any adverse impact on marketing of space in the Project or any portion thereof and (z)    sums paid in settlement of Claims that arise before, during or after the Term as a result of such breach or contamination. This indemnification by Tenant includes costs incurred in connection with any investigation of site conditions or any clean-up, remedial, removal or restoration work required by any Governmental Authority because of Hazardous Materials present in the air, soil or groundwater above, on, under or about the Project. Without limiting the foregoing, if the presence of any Hazardous Materials in, on, under or about the Project, any

 

35


portion thereof or any adjacent property caused or permitted by any Tenant Party results in any contamination of the Project, any portion thereof or any adjacent property, then Tenant shall promptly take all actions at its sole cost and expense as are necessary to return the Project, any portion thereof or any adjacent property to its respective condition existing prior to the time of such contamination; provided that Landlord’s written approval of such action shall first be obtained, which approval Landlord shall not unreasonably withhold; and provided, further, that it shall be reasonable for Landlord to withhold its consent if such actions could have a material adverse long-term or short-term effect on the Project, any portion thereof or any adjacent property. Tenant’s obligations under this Section shall not be affected, reduced or limited by any limitation on the amount or type of damages, compensation or benefits payable by or for Tenant under workers’ compensation acts, disability benefit acts, employee benefit acts or similar legislation.

21.2. Landlord acknowledges that it is not the intent of this Article to prohibit Tenant from operating its business for the Permitted Use. Tenant may operate its business according to the custom of Tenant’s industry so long as the use or presence of Hazardous Materials is strictly and properly monitored in accordance with Applicable Laws. As a material inducement to Landlord to allow Tenant to use Hazardous Materials in connection with its business, Tenant agrees to deliver to Landlord (a) a list identifying each type of Hazardous Material to be present at the Premises that is subject to regulation under any environmental Applicable Laws in the form of a Tier II form pursuant to Section 312 of the Emergency Planning and Community Right-to-Know Act of 1986 (or any successor statute) or any other form reasonably requested by Landlord, (b) a list of any and all approvals or permits from Governmental Authorities required in connection with the presence of such Hazardous Material at the Premises and (c) correct and complete copies of (i) notices of violations of Applicable Laws related to Hazardous Materials and (ii) plans relating to the installation of any storage tanks to be installed in, on, under or about the Project (provided that installation of storage tanks shall only be permitted after Landlord has given Tenant its written consent to do so, which consent Landlord may withhold in its sole and absolute discretion) and closure plans or any other documents required by any and all Governmental Authorities for any storage tanks installed in, on, under or about the Project for the closure of any such storage tanks (collectively, “Hazardous Materials Documents”). Tenant shall deliver to Landlord updated Hazardous Materials Documents, within fourteen (14) days after receipt of a written request therefor from Landlord, not more often than once per year, unless (m) there are any changes to the Hazardous Materials Documents or (n) Tenant initiates any Alterations or changes its business, in either case in a way that involves any material increase in the types or amounts of Hazardous Materials, in which case Tenant shall deliver updated Hazardous Materials documents (without Landlord having to request them) before or, if not practicable to do so before, as soon as reasonably practicable after the occurrence of the events in Subsection 21.2(m) or (n). For each type of Hazardous Material listed, the Hazardous Materials Documents shall include (t) the chemical name, (u) the material state (e.g., solid, liquid, gas or cryogen), (v) the concentration, (w) the storage amount and storage condition (e.g., in cabinets or not in cabinets), (x) the use amount and use condition (e.g., open use or closed use), (y) the location (e.g., room number or other identification) and (z) if known, the chemical abstract service number. Notwithstanding anything in this Section to the contrary, Tenant shall not be required to provide Landlord with any documents containing information of a proprietary nature, unless such documents contain a reference to Hazardous Materials or activities related to Hazardous Materials. Landlord may, at Landlord’s expense, cause the Hazardous Materials

 

36


Documents to be reviewed by a person or firm qualified to analyze Hazardous Materials to confirm compliance with the provisions of this Lease and with Applicable Laws. In the event that a review of the Hazardous Materials Documents indicates non-compliance with this Lease or Applicable Laws, Tenant shall, at its expense, diligently take steps to bring its storage and use of Hazardous Materials into compliance. Notwithstanding anything in this Lease to the contrary or Landlord’s review into Tenant’s Hazardous Materials Documents or use or disposal of hazardous materials, however, Landlord shall not have and expressly disclaims any liability related to Tenant’s or other tenants’ use or disposal of Hazardous Materials, it being acknowledged by Tenant that Tenant is best suited to evaluate the safety and efficacy of its Hazardous Materials usage and procedures.

21.3. Tenant represents and warrants to Landlord that is not nor has it been, in connection with the use, disposal or storage of Hazardous Materials, (a) subject to a material enforcement order issued by any Governmental Authority or (b) required to take any remedial action.

21.4. Upon at least two (2) business days prior written notice to Tenant (unless Landlord reasonably believes testing must be completed sooner), prior to the expiration of the Term, Landlord shall have the right to conduct appropriate tests of the Project or any portion thereof to demonstrate that Hazardous Materials are present or that contamination has occurred due to the acts or omissions of a Tenant Party. Tenant shall pay all reasonable costs of such tests if such tests reveal that Hazardous Materials exist at the Project in violation of this Lease.

21.5. If underground or other storage tanks storing Hazardous Materials installed or utilized by Tenant are located on the Premises, or are hereafter placed on the Premises by Tenant (or by any other party, if such storage tanks are utilized by Tenant), then Tenant shall monitor the storage tanks, maintain appropriate records, implement reporting procedures, properly close any underground storage tanks, and take or cause to be taken all other steps necessary or required under the Applicable Laws. Tenant shall have no responsibility or liability for underground or other storage tanks installed by anyone other than Tenant unless Tenant utilizes such tanks, in which case Tenant’s responsibility for such tanks shall be as set forth in this Section.

21.6. Tenant shall promptly report to Landlord any actual or suspected presence of mold or water intrusion at the Premises.

21.7. Tenant’s obligations under this Article shall survive the expiration or earlier termination of the Lease. During any period of time needed by Tenant or Landlord after the termination of this Lease to complete the removal from the Premises of any such Hazardous Materials, Tenant shall be deemed a holdover tenant and subject to the provisions of Article 27.

21.8. As used herein, the term “Hazardous Material” means any toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic or otherwise hazardous substance, material or waste that is or becomes regulated by Applicable Laws or any Governmental Authority.

 

37


21.9. Notwithstanding anything to the contrary in this Lease, Landlord shall have sole control over the equitable allocation of fire control areas (as defined in the Uniform Building Code as adopted by the city or municipality(ies) in which the Project is located (the “UBC”)) within the Project for the storage of Hazardous Materials. Notwithstanding anything to the contrary in this Lease, the quantity of Hazardous Materials allowed by this Section is specific to Tenant and shall not run with the Lease in the event of a Transfer (as defined in Article 29). In the event of a Transfer, if the use of Hazardous Materials by such new tenant (“New Tenant”) is such that New Tenant utilizes fire control areas in the Project in excess of New Tenant’s Pro Rata Share of the Laboratory Building, then New Tenant shall, at its sole cost and expense and upon Landlord’s written request, establish and maintain a separate area of the Premises classified by the UBC as an “H” occupancy area for the use and storage of Hazardous Materials, or take such other action as is necessary to ensure that its share of the fire control areas of the Building is not greater than New Tenant’s Pro Rata Share of the Laboratory Building. Notwithstanding anything in this Lease to the contrary, Landlord shall not have and expressly disclaims any liability related to Tenant’s or other tenants’ use or disposal of fire control areas, it being acknowledged by Tenant that Tenant and other tenants are best suited to evaluate the safety and efficacy of its Hazardous Materials usage and procedures.

22. Odors and Exhaust. Tenant acknowledges that Landlord would not enter into this Lease with Tenant unless Tenant assured Landlord that under no circumstances will any other occupants of the Building or the Project (including persons legally present in any outdoor areas of the Project) be subjected to odors or fumes (whether or not noxious), and that the Building and the Project will not be damaged by any exhaust, in each case from Tenant’s operations. Landlord and Tenant therefore agree as follows:

22.1. Tenant shall not cause or permit (or conduct any activities that would cause) any release of any odors or fumes of any kind from the Premises.

22.2. If the Building has a ventilation system that, in Landlord’s judgment, is adequate, suitable, and appropriate to vent the Premises in a manner that does not release odors affecting any indoor or outdoor part of the Project, Tenant shall vent the Premises through such system. If Landlord at any time determines that any existing ventilation system is inadequate, or if no ventilation system exists, Tenant shall in compliance with Applicable Laws vent all fumes and odors from the Premises (and remove odors from Tenant’s exhaust stream) as Landlord requires. The placement and configuration of all ventilation exhaust pipes, louvers and other equipment shall be subject to Landlord’s approval. Tenant acknowledges Landlord’s legitimate desire to maintain the Project (indoor and outdoor areas) in an odor- free manner, and Landlord may require Tenant to abate and remove all odors in a manner that goes beyond the requirements of Applicable Laws.

22.3. Tenant shall, at Tenant’s sole cost and expense, provide odor eliminators and other devices (such as filters, air cleaners, scrubbers and whatever other equipment may in Landlord’s judgment be necessary or appropriate from time to time) to completely remove, eliminate and abate any odors, fumes or other substances in Tenant’s exhaust stream that, in Landlord’s judgment, emanate from Tenant’s Premises. Any work Tenant performs under this Section shall constitute Alterations.

 

38


22.4. Tenant’s responsibility to remove, eliminate and abate odors, fumes and exhaust shall continue throughout the Term. Landlord’s construction of the Tenant Improvements shall not preclude Landlord from requiring additional measures to eliminate odors, fumes and other adverse impacts of Tenant’s exhaust stream (as Landlord may designate in Landlord’s discretion). Tenant shall install additional equipment as Landlord requires from time to time under the preceding sentence. Such installations shall constitute Alterations.

22.5. If Tenant fails to install satisfactory odor control equipment within ten (10) business days after Landlord’s demand made at any time, then Landlord may, without limiting Landlord’s other rights and remedies, require Tenant to cease and suspend any operations in the Premises that, in Landlord’s determination, cause odors, fumes or exhaust. For example, if Landlord determines that Tenant’s production of a certain type of product causes odors, fumes or exhaust, and Tenant does not install satisfactory odor control equipment within ten (10) business days after Landlord’s request, then Landlord may require Tenant to stop producing such type of product in the Premises unless and until Tenant has installed odor control equipment satisfactory to Landlord.

23. Insurance; Waiver of Subrogation.

23.1. Landlord shall maintain insurance for the Building and the Project in amounts equal to full replacement cost (exclusive of the costs of excavation, foundations and footings, engineering costs or such other costs to the extent the same are not incurred in the event of a rebuild and without reference to depreciation taken by Landlord upon its books or tax returns) or such lesser coverage as Landlord may elect, provided that such coverage shall not be less than the amount of such insurance Landlord’s Lender, if any, requires Landlord to maintain, providing protection against any peril generally included within the classification “Fire and Extended Coverage,” together with insurance against sprinkler damage (if applicable), vandalism and malicious mischief. Landlord, subject to availability thereof, shall further insure, if Landlord deems it appropriate, coverage against flood, environmental hazard, earthquake, loss or failure of building equipment, rental loss during the period of repairs or rebuilding, Workers’ Compensation insurance and fidelity bonds for employees employed to perform services. Notwithstanding the foregoing, Landlord may, but shall not be deemed required to, provide insurance for any improvements installed by Tenant or that are in addition to the standard improvements customarily furnished by Landlord, without regard to whether or not such are made a part of or are affixed to the Building.

23.2. In addition, Landlord shall carry Commercial General Liability insurance with limits of not less than One Million Dollars ($1,000,000) per occurrence/general aggregate for bodily injury (including death), or property damage with respect to the Project.

23.3. Tenant shall, at its own cost and expense, procure and maintain during the Term the following insurance for the benefit of Tenant and Landlord (as their interests may appear) with insurers financially acceptable and lawfully authorized to do business in the state where the Premises are located:

(a) Commercial General Liability insurance on a broad-based occurrence coverage form, with coverages including but not limited to bodily injury (including death), property damage (including loss of use resulting therefrom), premises/operations, personal & advertising injury, and contractual liability with limits of liability of not less than $2,000,000 for bodily injury and property damage per occurrence, $2,000,000 general aggregate, which limits may be met by use of excess and/or umbrella liability insurance provided that such coverage is at least as broad as the primary coverages required herein.

 

39


(b) Commercial Automobile Liability insurance covering liability arising from the use or operation of any auto, including those owned, hired or otherwise operated or used by or on behalf of the Tenant. The coverage shall be on a broad-based occurrence form with combined single limits of not less than $1,000,000 per accident for bodily injury and property damage.

(c) Commercial Property insurance covering property damage to the full replacement cost value and business interruption. Covered property shall include all tenant improvements in the Premises (to the extent not insured by Landlord pursuant to Section 23.1) and Tenant’s Property including personal property, furniture, fixtures, machinery, equipment, stock, inventory and improvements and betterments, which may be owned by Tenant or Landlord and required to be insured hereunder, or which may be leased, rented, borrowed or in the care custody or control of Tenant, or Tenant’s agents, employees or subcontractors. Such insurance, with respect only to all Tenant Improvements, Alterations or other work performed on the Premises by Tenant (collectively, “Tenant Work”), shall name Landlord and Landlord’s current and future mortgagees as loss payees as their interests may appear. Such insurance shall be written on an “all risk” of physical loss or damage basis including the perils of fire, extended coverage, electrical injury, mechanical breakdown, windstorm, vandalism, malicious mischief, sprinkler leakage, back-up of sewers or drains, flood, terrorism and such other risks Landlord may from time to time designate, for the full replacement cost value of the covered items with an agreed amount endorsement with no co-insurance. Business interruption coverage shall have limits sufficient to cover Tenant’s lost profits and necessary continuing expenses, including rents due Landlord under the Lease. The minimum period of indemnity for business interruption coverage shall be twelve (12) months.

(d) Workers’ Compensation insurance as is required by statute or law, or as may be available on a voluntary basis and Employers’ Liability insurance with limits of not less than the following: each accident, Five Hundred Thousand Dollars ($500,000); disease ($500,000); disease (each employee), Five Hundred Thousand Dollars ($500,000).

(e) Pollution Legal Liability insurance is not currently required based on the Hazardous Materials Documents that Tenant delivered to Landlord as of the Execution Date. If the Hazardous Materials Documents change during the Term and Tenant continues to store, handle, generate or treat Hazardous Materials on or about the Premises or other circumstances change related to Tenant’s use of Hazardous Materials on or about the Premises, Landlord reserves the right, in Landlord’s sole discretion, to require Tenant to obtain Pollution Legal Liability insurance. Such coverage shall include bodily injury, sickness, disease, death or mental anguish or shock sustained by any person; property damage including physical injury to or destruction of tangible property including the resulting loss of use thereof, clean-up costs, and the loss of use of tangible property that has not been physically injured or destroyed; and defense costs, charges and expenses incurred in the investigation, adjustment or defense of claims for such compensatory damages. Coverage shall apply to both sudden and non-sudden pollution conditions including the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any watercourse or body of water. Claims-made

 

40


coverage is permitted, provided the policy retroactive date is continuously maintained prior to the commencement date of this agreement, and coverage is continuously maintained during all periods in which Tenant occupies the Premises. Coverage shall be maintained with limits of not less than $1,000,000 per incident with a $2,000,000 policy aggregate and for a period of two (2) years thereafter.

(f) During all construction by Tenant at the Premises, with respect to tenant improvements being constructed (including any Alterations, insurance required in Exhibit B-1) must be in place.

23.4. The insurance required of Tenant by this Article shall be with companies at all times having a current rating of not less than A- and financial category rating of at least Class VII in “A.M. Best’s Insurance Guide” current edition. Tenant shall obtain for Landlord from the insurance companies/broker or cause the insurance companies/broker to furnish certificates of insurance evidencing all coverages required herein to Landlord. Landlord reserves the right to require complete, certified copies of all required insurance policies including any endorsements. No such policy shall be cancelable or subject to reduction of coverage or other modification or cancellation except after twenty (20) days’ prior written notice to Landlord from Tenant or its insurers (except in the event of non-payment of premium, in which case ten (10) days’ written notice shall be given). All such policies shall be written as primary policies, not contributing with and not in excess of the coverage that Landlord may carry. Tenant’s required policies shall contain severability of interests clauses stating that, except with respect to limits of insurance, coverage shall apply separately to each insured or additional insured. Tenant shall, prior to the expiration of such policies, furnish Landlord with renewal certificates of insurance or binders. Tenant agrees that if Tenant does not take out and maintain such insurance, Landlord may (but shall not be required to) procure such insurance on Tenant’s behalf and at its cost to be paid by Tenant as Additional Rent. Commercial General Liability, Commercial Automobile Liability, Umbrella Liability, and Pollution Legal Liability insurance as required above shall name Landlord, BioMed Realty, L.P., and BRE Edison Parent L.P., and their respective officers, employees, agents, general partners, members, subsidiaries, affiliates and Lenders (“Landlord Parties”) as additional insureds as respects liability arising from work or operations performed by or on behalf of Tenant, Tenant’s use or occupancy of Premises, and ownership, maintenance or use of vehicles by or on behalf of Tenant.

23.5. In each instance where insurance is to name Landlord Parties as additional insureds, Tenant shall, upon Landlord’s written request, also designate and furnish certificates evidencing such Landlord Parties as additional insureds to (a) any Lender of Landlord holding a security interest in the Building or the Project, (b) the landlord under any lease whereunder Landlord is a tenant of the real property upon which the Building is located if the interest of Landlord is or shall become that of a tenant under a ground lease rather than that of a fee owner and (c) any management company retained by Landlord to manage the Project.

23.6. Tenant assumes the risk of damage to any fixtures, goods, inventory, merchandise, equipment and leasehold improvements, and Landlord shall not be liable for injury to Tenant’s business or any loss of income therefrom, relative to such damage, all as more particularly set forth within this Lease. Tenant shall, at Tenant’s sole cost and expense, carry such insurance as Tenant desires for Tenant’s protection with respect to personal property of Tenant or business interruption.

 

41


23.7. Tenant and its insurers hereby waive any and all rights of recovery or subrogation against the Landlord Parties with respect to any loss, damage, claims, suits or demands, howsoever caused, that are covered, or should have been covered, by valid and collectible insurance, including any deductibles or self-insurance maintained thereunder. If necessary, Tenant agrees to endorse the required insurance policies to permit waivers of subrogation as required hereunder and hold harmless and indemnify the Landlord Parties for any loss or expense incurred as a result of a failure to obtain such waivers of subrogation from insurers. Tenant, upon obtaining the policies of insurance required or permitted under this Lease, shall give notice to its insurance carriers that the foregoing waiver of subrogation is contained in this Lease. If such policies shall not be obtainable with such waiver or shall be so obtainable only at a premium over that chargeable without such waiver, then Tenant shall notify Landlord of such conditions.

23.8. Landlord may require insurance policy limits required under this Lease to be raised to conform with requirements of Landlord’s Lender or to bring coverage limits to levels then being required of new tenants within the Project.

23.9. Any costs incurred by Landlord pursuant to this Article shall constitute a portion of Operating Expenses.

23.10. The provisions of this Article shall survive the expiration or earlier termination of this Lease.

24. Damage or Destruction.

24.1. In the event of a partial destruction of (a) the Premises, (b) the Building, (c) the Common Area or (d) the Project ((a)-(d) collectively, the “Affected Areas”) by fire or other perils covered by extended coverage insurance not exceeding twenty- five percent (25%) of the full insurable value thereof, and provided that (x) the damage thereto is such that the Affected Areas may be repaired, reconstructed or restored within a period of six (6) months from the date of the happening of such casualty, (y) Landlord shall receive insurance proceeds sufficient to cover the cost of such repairs, reconstruction and restoration (except for any deductible amount provided by Landlord’s policy, which deductible amount, if paid by Landlord, shall constitute an Operating Expense) and (z) such casualty was not intentionally caused by a Tenant Party, then Landlord shall commence and proceed diligently with the work of repair, reconstruction and restoration of the Affected Areas and this Lease shall continue in full force and effect.

24.2. In the event of any damage to or destruction of the Building or the Project other than as described in Section 24.1, Landlord may elect to repair, reconstruct and restore the Building or the Project, as applicable, in which case this Lease shall continue in full force and effect. If Landlord elects not to repair, reconstruct and restore the Building or the Project, as applicable, then this Lease shall terminate as of the date of such damage or destruction. In the event of any damage or destruction (regardless of whether such damage is governed by Section 24.1 or this Section), if (a) in Landlord’s determination as set forth in the Damage Repair Estimate (as defined below), the Affected Areas cannot be repaired, reconstructed or restored

 

42


within twelve (12) months after the date of the Damage Repair Estimate, (b) subject to Section 24.6, the Affected Areas are not actually repaired, reconstructed and restored within eighteen (18) months after the date of the Damage Repair Estimate, or (c) the damage and destruction occurs within the last twelve (12) months of the then-current Term, then Tenant shall have the right to terminate this Lease, effective as of the date of such damage or destruction, by delivering to Landlord its written notice of termination (a “Termination Notice”) (y) with respect to Subsections 24.2(a) and (c), no later than fifteen (15) days after Landlord delivers to Tenant Landlord’s Damage Repair Estimate and (z) with respect to Subsection 24.2(b), no later than fifteen (15) days after such twelve (12) month period (as the same may be extended pursuant to Section 24.6) expires. If Tenant provides Landlord with a Termination Notice pursuant to Subsection 24.2(z), Landlord shall have an additional thirty (30) days after receipt of such Termination Notice to complete the repair, reconstruction and restoration. If Landlord does not complete such repair, reconstruction and restoration within such thirty (30) day period, then Tenant may terminate this Lease by giving Landlord written notice within two (2) business days after the expiration of such thirty (30) day period. If Landlord does complete such repair, reconstruction and restoration within such thirty (30) day period, then this Lease shall continue in full force and effect.

24.3. As soon as reasonably practicable, but in any event within sixty (60) days following the date of damage or destruction, Landlord shall notify Tenant of Landlord’s good faith estimate of the period of time in which the repairs, reconstruction and restoration will be completed (the “Damage Repair Estimate”), which estimate shall be based upon the opinion of a contractor reasonably selected by Landlord and experienced in comparable repair, reconstruction and restoration of similar buildings. Additionally, Landlord shall give written notice to Tenant within sixty (60) days following the date of damage or destruction of its election not to repair, reconstruct or restore the Building or the Project, as applicable.

24.4. Upon any termination of this Lease under any of the provisions of this Article, the parties shall be released thereby without further obligation to the other from the date possession of the Premises is surrendered to Landlord, except with regard to (a) items occurring prior to the damage or destruction and (b) provisions of this Lease that, by their express terms, survive the expiration or earlier termination hereof.

24.5. In the event of repair, reconstruction and restoration as provided in this Article, all Rent to be paid by Tenant under this Lease shall be abated proportionately based on the extent to which Tenant’s use of the Premises is impaired during the period of such repair, reconstruction or restoration, unless Landlord provides Tenant with other space during the period of repair, reconstruction and restoration that, in Tenant’s reasonable opinion, is suitable for the temporary conduct of Tenant’s business; provided, however, that the amount of such abatement shall be reduced by the amount of Rent that is received by Tenant as part of the business interruption or loss of rental income with respect to the Premises from the proceeds of business interruption or loss of rental income insurance.

24.6. Notwithstanding anything to the contrary contained in this Article, should Landlord be delayed or prevented from completing the repair, reconstruction or restoration of the damage or destruction to the Premises after the occurrence of such damage or destruction by Force Majeure or delays caused by a Tenant Party, then the time for Landlord to commence or complete repairs, reconstruction and restoration shall be extended on a day-for-day basis; provided, however, that, at Landlord’s election, Landlord shall be relieved of its obligation to make such repairs, reconstruction and restoration.

 

43


24.7. If Landlord is obligated to or elects to repair, reconstruct or restore as herein provided, then Landlord shall be obligated to make such repairs, reconstruction or restoration only with regard to (a) those portions of the Premises that were originally provided at Landlord’s expense and (b) the Common Area portion of the Affected Areas. The repairs, reconstruction or restoration of improvements not originally provided by Landlord or at Landlord’s expense shall be the obligation of Tenant. In the event Tenant has elected to upgrade certain improvements from the Building Standard, Landlord shall, upon the need for replacement due to an insured loss, provide only the Building Standard, unless Tenant again elects to upgrade such improvements and pay any incremental costs related thereto, except to the extent that excess insurance proceeds, if received, are adequate to provide such upgrades, in addition to providing for basic repairs, reconstruction and restoration of the Premises, the Building and the Project.

24.8. Notwithstanding anything to the contrary contained in this Article, Landlord shall not have any obligation whatsoever to repair, reconstruct or restore the Premises if the damage resulting from any casualty covered under this Article occurs during the last twenty-four (24) months of the Term or any extension thereof, or to the extent that insurance proceeds are not available therefor.

24.9. Landlord’s obligation, should it elect or be obligated to repair, reconstruct or restore, shall be limited to the Affected Areas, and shall be conditioned upon Landlord receiving any permits or authorizations required by Applicable Laws. Tenant shall, at its expense, replace or fully repair all of Tenant’s personal property and any Alterations installed by Tenant existing at the time of such damage or destruction. If Affected Areas are to be repaired, reconstructed or restored in accordance with the foregoing, Landlord shall make available to Tenant any portion of insurance proceeds it receives that are allocable to the Alterations constructed by Tenant pursuant to this Lease; provided Tenant is not then in default under this Lease, and subject to the requirements of any Lender of Landlord.

24.10. This Article sets forth the terms and conditions upon which this Lease may terminate in the event of any damage or destruction. Accordingly, the parties hereby waive the provisions of any Applicable Laws (and any successor statutes) permitting the parties to terminate this Lease as a result of any damage or destruction.

25. Eminent Domain.

25.1. In the event (a) the whole of all Affected Areas or (b) such part thereof as shall substantially interfere with Tenant’s use and occupancy of the Premises for the Permitted Use shall be taken for any public or quasi-public purpose by any lawful power or authority by exercise of the right of appropriation, condemnation or eminent domain, or sold to prevent such taking, Tenant or Landlord may terminate this Lease effective as of the date possession is required to be surrendered to such authority, except with regard to (y) items occurring prior to the taking and (z) provisions of this Lease that, by their express terms, survive the expiration or earlier termination hereof.

 

44


25.2. In the event of a partial taking of (a) the Building or the Project or (b) drives, walkways or parking areas serving the Building or the Project for any public or quasi-public purpose by any lawful power or authority by exercise of right of appropriation, condemnation, or eminent domain, or sold to prevent such taking, then, without regard to whether any portion of the Premises occupied by Tenant was so taken, Landlord may elect to terminate this Lease (except with regard to (y) items occurring prior to the taking and (z) provisions of this Lease that, by their express terms, survive the expiration or earlier termination hereof) as of such taking if such taking is, in Landlord’s sole opinion, of a material nature such as to make it uneconomical to continue use of the unappropriated portion for purposes of renting office or laboratory space.

25.3. Tenant shall be entitled to any award that is specifically awarded as compensation for (a) the taking of Tenant’s personal property that was installed at Tenant’s expense and (b) the costs of Tenant moving to a new location. Except as set forth in the previous sentence, any award for such taking shall be the property of Landlord.

25.4. If, upon any taking of the nature described in this Article, this Lease continues in effect, then Landlord shall promptly proceed to restore the Affected Areas to substantially their same condition prior to such partial taking. To the extent such restoration is infeasible, as determined by Landlord in its sole and absolute discretion, the Rent shall be decreased proportionately to reflect the loss of any portion of the Premises no longer available to Tenant.

25.5. This Article sets forth the terms and conditions upon which this Lease may terminate in the event of any damage or destruction. Accordingly, the parties hereby waive the provisions of any Applicable Laws (and any successor statutes) permitting the parties to terminate this Lease as a result of any damage or destruction.

26. Surrender.

26.1. At least thirty (30) days prior to Tenant’s surrender of possession of any part of the Premises, Tenant shall provide Landlord with a facility decommissioning and Hazardous Materials closure plan for the Premises (“Exit Survey”) prepared by an independent third party state-certified professional with appropriate expertise, which Exit Survey must be reasonably acceptable to Landlord. The Exit Survey shall comply with the American National Standards Institute’s Laboratory Decommissioning guidelines (ANSI/AIHA Z9.11-2008) or any successor standards published by ANSI or any successor organization (or, if ANSI and its successors no longer exist, a similar entity publishing similar standards). In addition, at least ten (10) days prior to Tenant’s surrender of possession of any part of the Premises, Tenant shall (a) provide Landlord with written evidence of all appropriate governmental releases obtained by Tenant in accordance with Applicable Laws, including laws pertaining to the surrender of the Premises, (b) place Laboratory Equipment Decontamination Forms on all decommissioned equipment to assure safe occupancy by future users and (c) conduct a site inspection with Landlord. In addition, Tenant agrees to remain responsible after the surrender of the Premises for the remediation of any recognized environmental conditions set forth in the Exit Survey and comply with any recommendations set forth in the Exit Survey. Tenant’s obligations under this Section shall survive the expiration or earlier termination of the Lease.

26.2. No surrender of possession of any part of the Premises shall release Tenant from any of its obligations hereunder, unless such surrender is accepted in writing by Landlord.

 

45


26.3. The voluntary or other surrender of this Lease by Tenant shall not effect a merger with Landlord’s fee title or leasehold interest in the Premises, the Building, the Property or the Project, unless Landlord consents in writing, and shall, at Landlord’s option, operate as an assignment to Landlord of any or all subleases.

26.4. The voluntary or other surrender of any ground or other underlying lease that now exists or may hereafter be executed affecting the Building or the Project, or a mutual cancellation thereof or of Landlord’s interest therein by Landlord and its lessor shall not effect a merger with Landlord’s fee title or leasehold interest in the Premises, the Building or the Property and shall, at the option of the successor to Landlord’s interest in the Building or the Project, as applicable, operate as an assignment of this Lease.

27. Holding Over.

27.1. If, with Landlord’s prior written consent, Tenant holds possession of all or any part of the Premises after the Term, Tenant shall become a tenant from month to month after the expiration or earlier termination of the Term, and in such case Tenant shall continue to pay (a) Base Rent in accordance with Article 7, as adjusted in accordance with Article 8, and (b) any amounts for which Tenant would otherwise be liable under this Lease if the Lease were still in effect, including payments for Tenant’s Adjusted Share of Operating Expenses and Tenant’s Adjusted Share of Base Building Lab Systems. Any such month-to-month tenancy shall be subject to every other term, covenant and agreement contained herein.

27.2. Notwithstanding the foregoing, if Tenant remains in possession of the Premises after the expiration or earlier termination of the Term without Landlord’s prior written consent, (a) Tenant shall become a tenant at sufferance subject to the terms and conditions of this Lease, except that the monthly rent shall be equal to one hundred fifty percent (150%) of the Rent in effect during the last thirty (30) days of the Term, and (b) Tenant shall be liable to Landlord for any and all damages suffered by Landlord as a result of such holdover, including any lost rent or consequential, special and indirect damages (in each case, regardless of whether such damages are foreseeable).

27.3. Acceptance by Landlord of Rent after the expiration or earlier termination of the Term shall not result in an extension, renewal or reinstatement of this Lease.

27.4. The foregoing provisions of this Article are in addition to and do not affect Landlord’s right of reentry or any other rights of Landlord hereunder or as otherwise provided by Applicable Laws.

27.5. The provisions of this Article shall survive the expiration or earlier termination of this Lease.

28. Indemnification and Exculpation.

28.1. Tenant agrees to indemnify, save, defend (at Landlord’s option and with counsel reasonably acceptable to Landlord) and hold the Landlord Indemnitees harmless from and against any and all Claims arising from injury to or death of any person or damage to any property occurring within or about the Premises, the Building, the Property or the Project, arising directly or indirectly out of (a) the presence at or use or occupancy of the Premises or Project or

 

46


the Property by a Tenant Party, (b) an act or omission on the part of any Tenant Party, (c) a breach or default by Tenant in the performance of any of its obligations hereunder or (d) injury to or death of persons or damage to or loss of any property, real or alleged, arising from the serving of alcoholic beverages at the Premises or Project, including liability under any dram shop law, host liquor law or similar Applicable Law, except to the extent directly caused by Landlord’s negligence or willful misconduct. Tenant’s obligations under this Section shall not be affected, reduced or limited by any limitation on the amount or type of damages, compensation or benefits payable by or for Tenant under workers’ compensation acts, disability benefit acts, employee benefit acts or similar legislation. Tenant’s obligations under this Section shall survive the expiration or earlier termination of this Lease. Subject to Sections 23.6, 28.2 and 31.12 and any subrogation provisions contained in the Work Letter, Landlord agrees to indemnify, save, defend (at Tenant’s option and with counsel reasonably acceptable to Tenant) and hold the Tenant Parties harmless from and against any and all Claims arising from injury to or death of any person or damage to or loss of any physical property occurring within or about the Premises, the Building, the Property or the Project to the extent directly arising out of Landlord’s gross negligence or willful misconduct.

28.2. Notwithstanding anything in this Lease to the contrary, Landlord shall not be liable to Tenant for and Tenant assumes all risk of (a) damage or losses caused by fire, electrical malfunction, gas explosion or water damage of any type (including broken water lines, malfunctioning fire sprinkler systems, roof leaks or stoppages of lines), unless any such loss is due to Landlord’s willful disregard of written notice by Tenant of need for a repair that Landlord is responsible to make for an unreasonable period of time, and (b) damage to personal property or scientific research, including loss of records kept by Tenant within the Premises (in each case, regardless of whether such damages are foreseeable). Tenant further waives any claim for injury to Tenant’s business or loss of income relating to any such damage or destruction of personal property as described in this Section. Notwithstanding anything in the foregoing or this Lease to the contrary, except (x) as otherwise provided herein (including Section 27.2), (y) as may be provided by Applicable Laws or (z) in the event of Tenant’s breach of Article 21 or Section 26.1, in no event shall Landlord or Tenant be liable to the other for any consequential, special or indirect damages arising out of this Lease, including lost profits (provided that this Subsection 28.2(z) shall not limit Tenant’s liability for Base Rent or Additional Rent pursuant to this Lease).

28.3. Landlord shall not be liable for any damages arising from any act, omission or neglect of any other tenant in the Building or the Project, or of any other third party.

28.4. Tenant acknowledges that security devices and services, if any, while intended to deter crime, may not in given instances prevent theft or other criminal acts. Landlord shall not be liable for injuries or losses caused by criminal acts of third parties, and Tenant assumes the risk that any security device or service may malfunction or otherwise be circumvented by a criminal. If Tenant desires protection against such criminal acts, then Tenant shall, at Tenant’s sole cost and expense, obtain appropriate insurance coverage. Tenant’s security programs and equipment for the Premises shall be coordinated with Landlord and subject to Landlord’s reasonable approval.

28.5. The provisions of this Article shall survive the expiration or earlier termination of this Lease.

 

47


29. Assignment or Subletting.

29.1. Except as hereinafter expressly permitted, none of the following (each, a “Transfer”), either voluntarily or by operation of Applicable Laws, shall be directly or indirectly performed without Landlord’s prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed: (a) Tenant selling, hypothecating, assigning, pledging, encumbering or otherwise transferring this Lease or subletting the Premises or (b) a controlling interest in Tenant being sold, assigned or otherwise transferred (other than as a result of shares in Tenant being sold on a public stock exchange). Notwithstanding the immediately foregoing clause (b), Tenant shall have the right to obtain financing from institutional investors (including venture capital funding) which regularly invest in private biotechnology companies that results in a change in control of Tenant without such change of control constituting a Transfer under this Lease; provided that (i) any such financing is obtained primarily to increase the capitalization of Tenant and (ii) Tenant provides Landlord written notice of such financing promptly following the closing of such financing. For purposes of the first sentence of this Section 29.1, “control” means (a) owning (directly or indirectly) more than fifty percent (50%) of the stock or other equity interests of another person or (b) possessing, directly or indirectly, the power to direct or cause the direction of the management and policies of such person. Notwithstanding the foregoing, Tenant shall have the right to Transfer, without Landlord’s prior written consent, Tenant’s interest in this Lease or the Premises or any part thereof to (x) any person that as of the date of determination and at all times thereafter directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with Tenant (“Tenant’s Affiliate”) or (y) any entity that succeeds to Tenant’ interest in the Lease by reason of acquisition (whereby the acquisition consists of all or substantially all of Tenant’s stock or assets), merger, spin-off or consolidation (“Tenant’s Successor”) or (z) any portfolio company of Atlas Ventures (an “Atlas Company”) provided that with respect to a Transfer to an Atlas Company, such Transfer is a sublease or license only for not more than 15,000 contiguous square feet of Rentable Area; provided that Tenant shall notify Landlord in writing at least thirty (30) days prior to the effectiveness of such Transfer to Tenant’s Affiliate, Tenant’s Successor or an Atlas Company (an “Exempt Transfer”) and otherwise comply with the requirements of this Lease regarding such Transfer; and provided, further, that the person that will be the tenant under this Lease after an Exempt Transfer under the immediately foregoing clauses (x) and (y) has a net worth (as of both the day immediately prior to and the day immediately after the Exempt Transfer) that is equal to or greater than the net worth (as of both the Execution Date and the date of the Exempt Transfer) of the transferring Tenant; and provided, further, that with respect to a Transfer to an Atlas Company under the immediately foregoing clause (z), if the first Transfer to an Atlas Company occurs during the first (1st) twelve months of the Term and the term of such sublease or license is not greater than three (3) years from the date of the sublease or license, then for such first Transfer only, the Required Financials (as hereinafter defined) of such Atlas Company shall be provided to Landlord but Landlord shall not have the right to approve same, and with respect to any other Transfer to an Atlas Company under the immediately foregoing clause (z), the Required Financials (as hereinafter defined) of such Atlas Company shall be reasonably satisfactory to Landlord. For purposes of the immediately preceding sentence, “control” requires both (a) owning (directly or indirectly) more than fifty percent (50%) of the stock or other equity interests of another person and (b) possessing, directly or indirectly, the power to direct or cause the direction of the management and policies of such person. In no event shall Tenant perform a Transfer to or with an entity that is a tenant at the Hampshire

 

48


Project or that is in active discussions with Landlord or an affiliate of Landlord to lease premises at the Project or a property owned by Landlord or an affiliate of Landlord. As used in the immediately foregoing sentence, the term “active discussion” shall mean a proposed transaction in which either Landlord (or its affiliate) or such entity (or their respective broker) has submitted in writing to the other (or to the other’s broker) the material terms of a proposed lease transaction within thirty (30) days of Tenant offering a proposal to Landlord or such affiliate. Notwithstanding anything in this Lease to the contrary, if (a) Tenant or any proposed transferee, assignee or sublessee of Tenant has been required by any prior landlord, Lender or Governmental Authority to take material remedial action in connection with Hazardous Materials contaminating a property if the contamination resulted from such party’s action or omission or use of the property in question or (b) Tenant or any proposed transferee, assignee or sublessee is subject to a material enforcement order issued by any Governmental Authority in connection with the use, disposal or storage of Hazardous Materials, then Landlord shall have the right to terminate this Lease in Landlord’s sole and absolute discretion (with respect to any such matter involving Tenant), and it shall not be unreasonable for Landlord to withhold its consent to any proposed transfer, assignment or subletting (with respect to any such matter involving a proposed transferee, assignee or sublessee).

29.2. In the event Tenant desires to effect a Transfer, then, at least thirty (30) but not more than ninety (90) days prior to the date when Tenant desires the Transfer to be effective (the “Transfer Date”), Tenant shall provide written notice to Landlord (the “Transfer Notice”) containing information (including references) concerning the character of the proposed transferee, assignee or sublessee; the Transfer Date; the most recent unconsolidated balance sheet, profit and loss statement, and statement of cash flow, as excerpts from audited financial statements, of Tenant and of the proposed transferee, assignee or sublessee satisfying the requirements of Section 40.2 (“Required Financials”); any ownership or commercial relationship between Tenant and the proposed transferee, assignee or sublessee; copies of Hazardous Materials Documents for the proposed transferee, assignee or sublessee; and the consideration and all other material terms and conditions of the proposed Transfer, all in such detail as Landlord shall reasonably require.

29.3. Landlord, in determining whether consent should be given to a proposed Transfer, may give consideration to (a) the financial strength of Tenant and of such transferee, assignee or sublessee (notwithstanding Tenant remaining liable for Tenant’s performance), (b) any change in use that such transferee, assignee or sublessee proposes to make in the use of the Premises and (c) Landlord’s desire to exercise its rights under Section 29.7 to cancel this Lease. In no event shall Landlord be deemed to be unreasonable for declining to consent to a Transfer to a transferee, assignee or sublessee of poor reputation, lacking financial qualifications or seeking a change in the Permitted Use, or jeopardizing directly or indirectly the status of Landlord or any of Landlord’s affiliates as a Real Estate Investment Trust under the Internal Revenue Code of 1986 (as the same may be amended from time to time, the “Revenue Code”). Notwithstanding anything contained in this Lease to the contrary, (w) no Transfer shall be consummated on any basis such that the rental or other amounts to be paid by the occupant, assignee, manager or other transferee thereunder would be based, in whole or in part, on the income or profits derived by the business activities of such occupant, assignee, manager or other transferee; (x) Tenant shall not furnish or render any services to an occupant, assignee, manager or other transferee with respect to whom transfer consideration is required to be paid, or manage or operate the Premises or any

 

49


capital additions so transferred, with respect to which transfer consideration is being paid; (y) Tenant shall not consummate a Transfer with any person in which Landlord owns an interest, directly or indirectly (by applying constructive ownership rules set forth in Section 856(d)(5) of the Revenue Code); and (z) Tenant shall not consummate a Transfer with any person or in any manner that could cause any portion of the amounts received by Landlord pursuant to this Lease or any sublease, license or other arrangement for the right to use, occupy or possess any portion of the Premises to fail to qualify as “rents from real property” within the meaning of Section 856(d) of the Revenue Code, or any similar or successor provision thereto or which could cause any other income of Landlord to fail to qualify as income described in Section 856(c)(2) of the Revenue Code.

29.4. The following are conditions precedent to a Transfer or to Landlord considering a request by Tenant to a Transfer:

(a) Tenant shall remain fully liable under this Lease. Tenant agrees that it shall not be (and shall not be deemed to be) a guarantor or surety of this Lease, however, and waives its right to claim that is it is a guarantor or surety or to raise in any legal proceeding any guarantor or surety defenses permitted by this Lease or by Applicable Laws;

(b) If Tenant or the proposed transferee, assignee or sublessee does not or cannot deliver the Required Financials, then Landlord may elect to have either Tenant’s ultimate parent company or the proposed transferee’s, assignee’s or sublessee’s ultimate parent company provide a guaranty of the applicable entity’s obligations under this Lease, in a form acceptable to Landlord, which guaranty shall be executed and delivered to Landlord by the applicable guarantor prior to the Transfer Date;

(c) In the case of an Exempt Transfer, Tenant shall provide Landlord with evidence reasonably satisfactory to Landlord that the Transfer qualifies as an Exempt Transfer;

(d) Tenant shall reimburse Landlord for Landlord’s actual costs and expenses, including reasonable attorneys’ fees, charges and disbursements incurred in connection with the review, processing and documentation of such request not to exceed $2,500;

(e) Except with respect to an Exempt Transfer, if Tenant’s transfer of rights or sharing of the Premises provides for the receipt by, on behalf of or on account of Tenant of any consideration of any kind whatsoever (including a premium rental for a sublease or lump sum payment for an assignment, but excluding Tenant’s reasonable costs in marketing and subleasing the Premises) in excess of the rental and other charges due to Landlord under this Lease, Tenant shall pay fifty percent (50%) of all of such excess to Landlord, after making deductions for any reasonable marketing expenses, tenant improvement funds expended by Tenant, alterations, cash concessions, brokerage commissions, attorneys’ fees and free rent actually paid by Tenant. If such consideration consists of cash paid to Tenant, payment to Landlord shall be made upon receipt by Tenant of such cash payment;

 

50


(f) The proposed transferee, assignee or sublessee shall agree that, in the event Landlord gives such proposed transferee, assignee or sublessee notice that Tenant is in default under this Lease, such proposed transferee, assignee or sublessee shall thereafter make all payments otherwise due Tenant directly to Landlord, which payments shall be received by Landlord without any liability being incurred by Landlord, except to credit such payment against those due by Tenant under this Lease, and any such proposed transferee, assignee or sublessee shall agree to attorn to Landlord or its successors and assigns should this Lease be terminated for any reason; provided, however, that in no event shall Landlord or its Lenders, successors or assigns be obligated to accept such attornment;

(g) Landlord’s consent to any such Transfer shall be effected on Landlord’s forms;

(h) Tenant shall not then be in default hereunder in any respect;

(i) Such proposed transferee, assignee or sublessee’s use of the Premises shall be the same as the Permitted Use;

(j) Landlord shall not be bound by any provision of any agreement pertaining to the Transfer, except for Landlord’s written consent to the same;

(k) Tenant shall pay all transfer and other taxes (including interest and penalties) assessed or payable for any Transfer;

(l) Landlord’s consent (or waiver of its rights) for any Transfer shall not waive Landlord’s right to consent or refuse consent to any later Transfer;

(m) Tenant shall deliver to Landlord one executed copy of any and all written instruments evidencing or relating to the Transfer; and

(n) Tenant shall deliver to Landlord a list of Hazardous Materials (as defined below), certified by the proposed transferee, assignee or sublessee to be true and correct, that the proposed transferee, assignee or sublessee intends to use or store in the Premises. Additionally, Tenant shall deliver to Landlord, on or before the date any proposed transferee, assignee or sublessee takes occupancy of the Premises, all of the items relating to Hazardous Materials of such proposed transferee, assignee or sublessee as described in Section 21.2.

29.5. Any Transfer that is not in compliance with the provisions of this Article or with respect to which Tenant does not fulfill its obligations pursuant to this Article shall be void and shall, at the option of Landlord, terminate this Lease.

29.6. Notwithstanding any Transfer, Tenant shall remain fully and primarily liable for the payment of all Rent and other sums due or to become due hereunder, and for the full performance of all other terms, conditions and covenants to be kept and performed by Tenant. The acceptance of Rent or any other sum due hereunder, or the acceptance of performance of any other term, covenant or condition thereof, from any person or entity other than Tenant shall not be deemed a waiver of any of the provisions of this Lease or a consent to any Transfer.

 

51


29.7. If Tenant delivers to Landlord a Transfer Notice indicating a desire to assign this Lease (other than pursuant to an Exempt Transfer) or (a) sublet more than sixty percent (60%) of the Rentable Area of the Premises (either in a single sublease or in the aggregate) (other than pursuant to Exempt Transfers that are not Transfers to Atlas Companies) or (b) sublet more than fifty percent (50%) of the Premises for the remainder of the Term of this Lease (other than pursuant to Exempt Transfers that are not Transfer to Atlas Companies), then Landlord shall have the option, exercisable by giving notice to Tenant at any time within ten (10) days after Landlord’s receipt of such Transfer Notice, to terminate this Lease as of the date specified in the Transfer Notice as the Transfer Date, except for those provisions that, by their express terms, survive the expiration or earlier termination hereof. If Landlord exercises such option, then Tenant shall have the right to withdraw such Transfer Notice by delivering to Landlord written notice of such election within five (5) days after Landlord’s delivery of notice electing to exercise Landlord’s option to terminate this Lease. In the event Tenant withdraws the Transfer Notice as provided in this Section, this Lease shall continue in full force and effect. No failure of Landlord to exercise its option to terminate this Lease shall be deemed to be Landlord’s consent to a proposed Transfer.

29.8. If Tenant sublets the Premises or any portion thereof, Tenant hereby immediately and irrevocably assigns to Landlord, as security for Tenant’s obligations under this Lease, all rent from any such subletting, and Landlord (or a receiver for Tenant appointed on Landlord’s application) may collect such rent and apply it toward Tenant’s obligations under this Lease; provided that, until the occurrence of a Default (as defined below) by Tenant, Tenant shall have the right to collect such rent. The terms of this Section 29.8 are self-operative, however, if Tenant fails to confirm Landlord’s rights under this Section 29.8 in writing within five (5) business days after written notice from Landlord, Tenant hereby appoints Landlord as assignee and attorney-in-fact for Tenant to collect and apply any such rents in accordance with this Section 29.8. Tenant acknowledges and agrees that notwithstanding anything in this Lease to the contrary and with respect to the immediately foregoing sentence it shall not be entitled to any other cure period as may be specified in this Lease other than the 5-business day cure period specified in this Section 29.8.

29.9. In the event that Tenant enters into a sublease for the entire Premises in accordance with this Article that expires within two (2) days of the Term Expiration Date, the term expiration date of such sublease shall, notwithstanding anything in this Lease, the sublease or any consent to the sublease to the contrary, be deemed to be the date that is two (2) days prior to the Term Expiration Date.

30. Subordination and Attornment.

30.1. This Lease shall be subject and subordinate to the lien of any mortgage, deed of trust, or lease in which Landlord is tenant now or hereafter in force against the Building or the Project and to all advances made or hereafter to be made upon the security thereof without the necessity of the execution and delivery of any further instruments on the part of Tenant to effectuate such subordination.

30.2. Notwithstanding the foregoing, Tenant shall execute and deliver upon demand such further instrument or instruments evidencing such subordination of this Lease to the lien of any such mortgage or mortgages or deeds of trust or lease in which Landlord is tenant as may be required by Landlord. If any such mortgagee, beneficiary or landlord under a lease wherein Landlord is tenant (each, a “Mortgagee”) so elects, however, this Lease shall be deemed prior in lien to any such lease, mortgage, or deed of trust upon or including the Premises regardless of

 

52


date and Tenant shall execute a statement in writing to such effect at Landlord’s request. If Tenant fails to execute any document required from Tenant under this Section within ten (10) days after written request therefor, Tenant hereby constitutes and appoints Landlord or its special attorney-in-fact to execute and deliver any such document or documents in the name of Tenant. Such power is coupled with an interest and is irrevocable. For the avoidance of doubt, “Mortgagees” shall also include historic tax credit investors and new market tax credit investors.

30.3. Upon written request of Landlord and opportunity for Tenant to review, Tenant agrees to execute any Lease amendments not materially altering the terms of this Lease, if required by a Mortgagee incident to the financing of the real property of which the Premises constitute a part.

30.4. In the event any proceedings are brought for foreclosure, or in the event of the exercise of the power of sale under any mortgage or deed of trust made by Landlord covering the Premises, Tenant shall at the election of the purchaser at such foreclosure or sale attorn to the purchaser upon any such foreclosure or sale and recognize such purchaser as Landlord under this Lease.

31. Defaults and Remedies.

31.1. Late payment by Tenant to Landlord of Rent and other sums due shall cause Landlord to incur costs not contemplated by this Lease, the exact amount of which shall be extremely difficult and impracticable to ascertain. Such costs include processing and accounting charges and late charges that may be imposed on Landlord by the terms of any mortgage or trust deed covering the Premises. Therefore, if any installment of Rent due from Tenant is not received by Landlord within three (3) days after the date such payment is due, Tenant shall pay to Landlord (a) an additional sum of six percent (6%) of the overdue Rent as a late charge plus

(b) interest at an annual rate (the “Default Rate”) equal to the lesser of (a) twelve percent (12%) and (b) the highest rate permitted by Applicable Laws. The parties agree that this late charge represents a fair and reasonable estimate of the costs that Landlord shall incur by reason of late payment by Tenant and shall be payable as Additional Rent to Landlord due with the next installment of Rent or within five (5) business days after Landlord’s demand, whichever is earlier. Landlord’s acceptance of any Additional Rent (including a late charge or any other amount hereunder) shall not be deemed an extension of the date that Rent is due or prevent Landlord from pursuing any other rights or remedies under this Lease, at law or in equity.

31.2. No payment by Tenant or receipt by Landlord of a lesser amount than the Rent payment herein stipulated shall be deemed to be other than on account of the Rent, nor shall any endorsement or statement on any check or any letter accompanying any check or payment as Rent be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord’s right to recover the balance of such Rent or pursue any other remedy provided in this Lease or in equity or at law. If a dispute shall arise as to any amount or sum of money to be paid by Tenant to Landlord hereunder, Tenant shall have the right to make payment “under protest,” such payment shall not be regarded as a voluntary payment, and there shall survive the right on the part of Tenant to institute suit for recovery of the payment paid under protest.

 

53


31.3. If Tenant fails to pay any sum of money required to be paid by it hereunder or perform any other act on its part to be performed hereunder, in each case within the applicable cure period (if any) described in Section 31.4, then Landlord may (but shall not be obligated to), without waiving or releasing Tenant from any obligations of Tenant, make such payment or perform such act; provided that such failure by Tenant unreasonably interfered with the use of the Building or the Project by any other tenant or with the efficient operation of the Building or the Project, or resulted or could have resulted in a violation of Applicable Laws or the cancellation of an insurance policy maintained by Landlord. Notwithstanding the foregoing, in the event of an emergency, Landlord shall have the right to enter the Premises and act in accordance with its rights as provided elsewhere in this Lease. In addition to the late charge described in Section 31.1, Tenant shall pay to Landlord as Additional Rent all sums so paid or incurred by Landlord, together with interest at the Default Rate, computed from the date such sums were paid or incurred.

31.4. The occurrence of any one or more of the following events shall constitute a “Default” hereunder by Tenant:

(a) Tenant abandons or vacates the Premises;

(b) Tenant fails to make any payment of Rent, as and when due, or to satisfy its obligations under Article 19, where such failure shall continue for a period of three (3) business days after written notice thereof from Landlord to Tenant;

(c) Tenant fails to observe or perform any obligation or covenant contained herein (other than described in Sections 31.4(a) and 31.4(b)) to be performed by Tenant, where such failure continues for a period of thirty (30) days after written notice thereof from Landlord to Tenant; provided that, if the nature of Tenant’s default is such that it reasonably requires more than thirty (30) days to cure, Tenant shall not be deemed to be in Default if Tenant commences such cure within such thirty (30) day period and thereafter diligently prosecutes the same to completion; and provided, further, that such cure is completed no later than thirty (30) days after Tenant’s receipt of written notice from Landlord;

(d) Tenant makes an assignment for the benefit of creditors;

(e) A receiver, trustee or custodian is appointed to or does take title, possession or control of all or substantially all of Tenant’s assets;

(f) Tenant files a voluntary petition under the United States Bankruptcy Code or any successor statute (as the same may be amended from time to time, the “Bankruptcy Code”) or an order for relief is entered against Tenant pursuant to a voluntary or involuntary proceeding commenced under any chapter of the Bankruptcy Code;

(g) Any involuntary petition is filed against Tenant under any chapter of the Bankruptcy Code and is not dismissed within one hundred twenty (120) days;

(h) Tenant fails to deliver an estoppel certificate in accordance with Article 20; or

 

54


(i) Tenant’s interest in this Lease is attached, executed upon or otherwise judicially seized and such action is not released within one hundred twenty (120) days of the action.

Notices given under this Section shall specify the alleged default and shall demand that Tenant perform the provisions of this Lease or pay the Rent that is in arrears, as the case may be, within the applicable period of time, or quit the Premises. No such notice shall be deemed a forfeiture or a termination of this Lease unless Landlord elects otherwise in such notice.

31.5. In the event of a Default by Tenant, and at any time thereafter, with or without notice or demand and without limiting Landlord in the exercise of any right or remedy that Landlord may have, Landlord has the right to do any or all of the following:

(a) Halt any Alterations and order Tenant’s contractors, subcontractors, consultants, designers and material suppliers to stop work;

(b) Terminate Tenant’s right to possession of the Premises by written notice to Tenant or by any lawful means, in which case Tenant shall immediately surrender possession of the Premises to Landlord. In such event, Landlord shall have the immediate right to re-enter and remove all persons and property, and such property may be removed and stored in a public warehouse or elsewhere at the cost and for the account of Tenant, all without service of notice or resort to legal process and without being deemed guilty of trespass or becoming liable for any loss or damage that may be occasioned thereby; and

(c) Terminate this Lease, in which event Tenant shall immediately surrender possession of the Premises to Landlord. In such event, Landlord shall have the immediate right to re-enter and remove all persons and property, and such property may be removed and stored in a public warehouse or elsewhere at the cost and for the account of Tenant, all without service of notice or resort to legal process and without being deemed guilty of trespass or becoming liable for any loss or damage that may be occasioned thereby. In the event that Landlord shall elect to so terminate this Lease, then Landlord shall be entitled to recover from Tenant all damages incurred by Landlord by reason of Tenant’s default, including The sum of:

(i) The worth at the time of award of any unpaid Rent that had accrued at the time of such termination; plus

(ii) The costs of restoring the Premises to the condition required under the terms of this Lease; plus

(iii) An amount (the “Election Amount”) equal to either (A) the positive difference (if any, and measured at the time of such termination) between (1) the then-present value of the total Rent and other benefits that would have accrued to Landlord under this Lease for the remainder of the Term if Tenant had fully complied with the Lease minus (2) the then-present cash rental value of the Premises as determined by Landlord for what would be the then-unexpired Term if the Lease remained in effect, computed using the discount rate of the Federal Reserve Bank of San Francisco at the time of the award plus one (1) percentage point (the “Discount Rate”) or (B) twelve (12) months (or such lesser number of months as may then be remaining in the Term) of Base Rent and Additional Rent at the rate last payable by Tenant

 

55


pursuant to this Lease, in either case as Landlord specifies in such election. Landlord and Tenant agree that the Election Amount represents a reasonable forecast of the minimum damages expected to occur in the event of a breach, taking into account the uncertainty, time and cost of determining elements relevant to actual damages, such as fair market rent, time and costs that may be required to re-lease the Premises, and other factors; and that the Election Amount is not a penalty.

As used in Section 31.5(c)(i), “worth at the time of award” shall be computed by allowing interest at the Default Rate.

31.6. In addition to any other remedies available to Landlord at law or in equity and under this Lease, Landlord may continue this Lease in effect after Tenant’s Default or abandonment and recover Rent as it becomes due. In addition, Landlord shall not be liable in any way whatsoever for its failure or refusal to relet the Premises. For purposes of this Section, the following acts by Landlord will not constitute the termination of Tenant’s right to possession of the Premises:

(a) Acts of maintenance or preservation or efforts to relet the Premises, including alterations, remodeling, redecorating, repairs, replacements or painting as Landlord shall consider advisable for the purpose of reletting the Premises or any part thereof; or

(b) The appointment of a receiver upon the initiative of Landlord to protect Landlord’s interest under this Lease or in the Premises.

Notwithstanding the foregoing, in the event of a Default by Tenant, Landlord may elect at any time to terminate this Lease and to recover damages to which Landlord is entitled.

31.7. If Landlord does not elect to terminate this Lease as provided in Section 31.5, then Landlord may, from time to time, recover all Rent as it becomes due under this Lease. At any time thereafter, Landlord may elect to terminate this Lease and to recover damages to which Landlord is entitled.

31.8. In the event Landlord elects to terminate this Lease and relet the Premises, Landlord may execute any new lease in its own name. Tenant hereunder shall have no right or authority whatsoever to collect any Rent from such tenant. The proceeds of any such reletting shall be applied as follows:

(a) First, to the payment of any indebtedness other than Rent due hereunder from Tenant to Landlord, including storage charges or brokerage commissions owing from Tenant to Landlord as the result of such reletting;

(b) Second, to the payment of the costs and expenses of reletting the Premises, including (i) alterations and repairs that Landlord deems reasonably necessary and advisable and

(ii) reasonable attorneys’ fees, charges and disbursements incurred by Landlord in connection with the retaking of the Premises and such reletting;

(c) Third, to the payment of Rent and other charges due and unpaid hereunder; and

 

56


(d) Fourth, to the payment of future Rent and other damages payable by Tenant under this Lease.

31.9. All of Landlord’s rights, options and remedies hereunder shall be construed and held to be nonexclusive and cumulative. Landlord shall have the right to pursue any one or all of such remedies, or any other remedy or relief that may be provided by Applicable Laws, whether or not stated in this Lease. No waiver of any default of Tenant hereunder shall be implied from any acceptance by Landlord of any Rent or other payments due hereunder or any omission by Landlord to take any action on account of such default if such default persists or is repeated, and no express waiver shall affect defaults other than as specified in such waiver. Notwithstanding any provision of this Lease to the contrary, in no event shall Landlord be required to mitigate its damages with respect to any default by Tenant, except as required by Applicable Laws. Any such obligation imposed by Applicable Laws upon Landlord to relet the Premises after any termination of this Lease shall be subject to the reasonable requirements of Landlord to (a) lease to high quality tenants on such terms as Landlord may from time to time deem appropriate in its discretion and (b) develop the Project in a harmonious manner with a mix of uses, tenants, floor areas, terms of tenancies, etc., as determined by Landlord. Landlord shall not be obligated to relet the Premises to (y) any Tenant’s Affiliate or (z) any party (i) unacceptable to a Lender, (ii) that requires Landlord to make improvements to or re-demise the Premises, (iii) that desires to change the Permitted Use, (iv) that desires to lease the Premises for more or less than the remaining Term or (v) to whom Landlord or an affiliate of Landlord may desire to lease other available space in the Project or at another property owned by Landlord or an affiliate of Landlord.

31.10. Landlord’s termination of (a) this Lease or (b) Tenant’s right to possession of the Premises shall not relieve Tenant of any liability to Landlord that has previously accrued or that shall arise based upon events that occurred prior to the later to occur of (y) the date of Lease termination and (z) the date Tenant surrenders possession of the Premises.

31.11. To the extent permitted by Applicable Laws, Tenant waives any and all rights of redemption granted by or under any present or future Applicable Laws if Tenant is evicted or dispossessed for any cause, or if Landlord obtains possession of the Premises due to Tenant’s default hereunder or otherwise.

31.12. Landlord shall not be in default or liable for damages under this Lease unless Landlord fails to perform obligations required of Landlord within a reasonable time, but in no event shall such failure continue for more than thirty (30) days after written notice from Tenant specifying the nature of Landlord’s failure; provided, however, that if the nature of Landlord’s obligation is such that more than thirty (30) days are required for its performance, then Landlord shall not be in default if Landlord commences performance within such thirty (30) day period and thereafter diligently prosecutes the same to completion. In no event shall Tenant have the right to terminate or cancel this Lease or to withhold or abate rent or to set off any Claims against Rent as a result of any default or breach by Landlord of any of its covenants, obligations, representations, warranties or promises hereunder, except as may otherwise be expressly set forth in this Lease.

 

57


31.13. In the event of any default by Landlord, Tenant shall give notice by registered or certified mail to any (a) beneficiary of a deed of trust or (b) mortgagee under a mortgage covering the Premises, the Building or the Project and to any landlord of any lease of land upon or within which the Premises, the Building or the Project is located, and shall offer such beneficiary, mortgagee or landlord a reasonable opportunity to cure the default, including time to obtain possession of the Building or the Project by power of sale or a judicial action if such should prove necessary to effect a cure; provided that Landlord shall furnish to Tenant in writing, upon written request by Tenant, the names and addresses of all such persons who are to receive such notices.

32. Bankruptcy . In the event a debtor, trustee or debtor in possession under the Bankruptcy Code, or another person with similar rights, duties and powers under any other Applicable Laws, proposes to cure any default under this Lease or to assume or assign this Lease and is obliged to provide adequate assurance to Landlord that (a) a default shall be cured, (b) Landlord shall be compensated for its damages arising from any breach of this Lease and (c) future performance of Tenant’s obligations under this Lease shall occur, then such adequate assurances shall include any or all of the following, as designated by Landlord in its sole and absolute discretion:

32.1. Those acts specified in the Bankruptcy Code or other Applicable Laws as included within the meaning of “adequate assurance,” even if this Lease does not concern a shopping center or other facility described in such Applicable Laws;

32.2. A prompt cash payment to compensate Landlord for any monetary defaults or actual damages arising directly from a breach of this Lease;

32.3. A cash deposit in an amount at least equal to the then-current amount of the Security Deposit; or

32.4. The assumption or assignment of all of Tenant’s interest and obligations under this Lease.

33. Brokers.

33.1. Tenant represents and warrants that it has had no dealings with any real estate broker or agent in connection with the negotiation of this Lease other than Newmark Grubb Knight Frank and Transwestern I RBJ (collectively, “Broker”), and that it knows of no other real estate broker or agent that is or might be entitled to a commission in connection with this Lease. Landlord shall compensate Broker in relation to this Lease pursuant to a separate agreement between Landlord and Broker.

33.2. Tenant represents and warrants that no broker or agent has made any representation or warranty relied upon by Tenant in Tenant’s decision to enter into this Lease, other than as contained in this Lease.

33.3. Tenant acknowledges and agrees that the employment of brokers by Landlord is for the purpose of solicitation of offers of leases from prospective tenants and that no authority is granted to any broker to furnish any representation (written or oral) or warranty from Landlord unless expressly contained within this Lease. Landlord is executing this Lease in reliance upon Tenant’s representations, warranties and agreements contained within Sections 33.1 and 33.2.

 

58


33.4. Tenant agrees to indemnify, save, defend (at Landlord’s option and with counsel reasonably acceptable to Landlord) and hold the Landlord Indemnitees harmless from any and all cost or liability for compensation claimed by any broker or agent, other than Broker, employed or engaged by Tenant or claiming to have been employed or engaged by Tenant.

34. Definition of Landlord. With regard to obligations imposed upon Landlord pursuant to this Lease, the term “Landlord,” as used in this Lease, shall refer only to Landlord or Landlord’s then-current successor-in-interest. In the event of any transfer, assignment or conveyance of Landlord’s interest in this Lease or in Landlord’s fee title to or leasehold interest in the Property, as applicable, Landlord herein named (and in case of any subsequent transfers or conveyances, the subsequent Landlord) shall be automatically freed and relieved, from and after the date of such transfer, assignment or conveyance, from all liability for the performance of any covenants or obligations contained in this Lease thereafter to be performed by Landlord and, without further agreement, the transferee, assignee or conveyee of Landlord’s in this Lease or in Landlord’s fee title to or leasehold interest in the Property, as applicable, shall be deemed to have assumed and agreed to observe and perform any and all covenants and obligations of Landlord hereunder during the tenure of its interest in the Lease or the Property. Landlord or any subsequent Landlord may transfer its interest in the Premises or this Lease without Tenant’s consent.

35. Limitation of Landlord’s Liability.

35.1. If Landlord is in default under this Lease and, as a consequence, Tenant recovers a monetary judgment against Landlord, the judgment shall be satisfied only out of (a) the proceeds of sale received on execution of the judgment and levy against the right, title and interest of Landlord in the Building and the Project, (b) rent or other income from such real property receivable by Landlord or (c) the consideration received by Landlord from the sale, financing, refinancing or other disposition of all or any part of Landlord’s right, title or interest in the Building or the Project.

35.2. Neither Landlord nor any of its affiliates, nor any of their respective partners, shareholders, directors, officers, employees, members or agents shall be personally liable for Landlord’s obligations or any deficiency under this Lease, and service of process shall not be made against any shareholder, director, officer, employee or agent of Landlord or any of Landlord’s affiliates. No partner, shareholder, director, officer, employee, member or agent of Landlord or any of its affiliates shall be sued or named as a party in any suit or action, and service of process shall not be made against any partner or member of Landlord except as may be necessary to secure jurisdiction of the partnership, joint venture or limited liability company, as applicable. No partner, shareholder, director, officer, employee, member or agent of Landlord or any of its affiliates shall be required to answer or otherwise plead to any service of process, and no judgment shall be taken or writ of execution levied against any partner, shareholder, director, officer, employee, member or agent of Landlord or any of its affiliates.

 

59


35.3. Each of the covenants and agreements of this Article shall be applicable to any covenant or agreement either expressly contained in this Lease or imposed by Applicable Laws and shall survive the expiration or earlier termination of this Lease.

36. Joint and Several Obligations. If more than one person or entity executes this Lease as Tenant, then:

36.1. Each of them is jointly and severally liable for the keeping, observing and performing of all of the terms, covenants, conditions, provisions and agreements of this Lease to be kept, observed or performed by Tenant, and such terms, covenants, conditions, provisions and agreements shall be binding with the same force and effect upon each and all of the persons executing this Agreement as Tenant; and

36.2. The term “Tenant,” as used in this Lease, shall mean and include each of them, jointly and severally. The act of, notice from, notice to, refund to, or signature of any one or more of them with respect to the tenancy under this Lease, including any renewal, extension, expiration, termination or modification of this Lease, shall be binding upon each and all of the persons executing this Lease as Tenant with the same force and effect as if each and all of them had so acted, so given or received such notice or refund, or so signed.

37. Representations. Tenant guarantees, warrants and represents that (a) Tenant is duly incorporated or otherwise established or formed and validly existing under the laws of its state of incorporation, establishment or formation, (b) Tenant has and is duly qualified to do business in the state in which the Property is located, (c) Tenant has full corporate, partnership, trust, association or other appropriate power and authority to enter into this Lease and to perform all Tenant’s obligations hereunder, (d) each person (and all of the persons if more than one signs) signing this Lease on behalf of Tenant is duly and validly authorized to do so and (e) neither (i) the execution, delivery or performance of this Lease nor (ii) the consummation of the transactions contemplated hereby will violate or conflict with any provision of documents or instruments under which Tenant is constituted or to which Tenant is a party. In addition, Tenant guarantees, warrants and represents that none of (x) it, (y) its affiliates or partners nor (z) to the best of its knowledge, its members, shareholders or other equity owners or any of their respective employees, officers, directors, representatives or agents is a person or entity with whom U.S. persons or entities are restricted from doing business under regulations of the Office of Foreign Asset Control (“OFAC”) of the Department of the Treasury (including those named on OFAC’s Specially Designated and Blocked Persons List) or under any statute, executive order (including the September 24, 2001, Executive Order Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism) or other similar governmental action.

38. Confidentiality. Tenant shall keep the terms and conditions of this Lease and any information provided to Tenant or its employees, agents or contractors pursuant to Article 9 confidential and shall not (a) disclose to any third party any terms or conditions of this Lease or any other Lease-related document (including subleases, assignments, work letters, construction contracts, letters of credit, subordination agreements, non-disturbance agreements, brokerage agreements or estoppels) or (b) provide to any third party an original or copy of this Lease (or any Lease-related document). Landlord shall not release to any third party any non-public

 

60


financial information or non-public information about Tenant’s ownership structure that Tenant gives Landlord. Notwithstanding the foregoing, confidential information under this Section may be released by Landlord or Tenant under the following circumstances: (x) if required by Applicable Laws or in any judicial proceeding; provided that the releasing party has given the other party reasonable notice of such requirement, if feasible, (y) to a party’s attorneys, accountants, brokers and other bona fide consultants or advisers, investors, potential investors and potential business combination partners (with respect to this Lease only); provided such third parties agree to be bound by this Section or (z) to bona fide prospective assignees or subtenants of this Lease; provided they agree in writing to be bound by this Section.

39. Notices . Except as otherwise stated in this Lease, any notice, consent, demand, invoice, statement or other communication required or permitted to be given hereunder shall be in writing and shall be given by (a) personal delivery, (b) overnight delivery with a reputable international overnight delivery service, such as FedEx, or (c) facsimile or email transmission, so long as such transmission is followed within one (1) business day by delivery utilizing one of the methods described in Subsection 39(a) or (b). Any such notice, consent, demand, invoice, statement or other communication shall be deemed delivered (x) upon receipt, if given in accordance with Subsection 39(a); (y) one (1) business day after deposit with a reputable international overnight delivery service, if given if given in accordance with Subsection 39(b); or (z) upon transmission, if given in accordance with Subsection 39(c). Except as otherwise stated in this Lease, any notice, consent, demand, invoice, statement or other communication required or permitted to be given pursuant to this Lease shall be addressed to Tenant at the Premises, or to Landlord or Tenant at the addresses shown in Sections 2.9 and 2.10 or 2.11, respectively. Either party may, by notice to the other given pursuant to this Section, specify additional or different addresses for notice purposes.

40. Miscellaneous.

40.1. Landlord reserves the right to change the name of the Building or the Project in its sole discretion.

40.2. To induce Landlord to enter into this Lease, Tenant agrees that it shall furnish to Landlord, from time to time, within ten (10) business days after receipt of Landlord’s written request, the most recent year-end unconsolidated balance sheet, profit and loss statement, and statement of cash flow of Tenant reflecting Tenant’s financial condition audited by a nationally recognized accounting firm; provided that Tenant shall not be required to provide said statements more than one (1) time per year unless Tenant’s balance sheet, profit and loss statement, or statement of cash flow are restated or amended, in which case Tenant shall, within ten (10) business days after such restatement or amendment, deliver the restated balance sheet, profit and loss statement, or statement of cash flow, as the case may be, of Tenant to Landlord. Tenant shall, within ninety (90) days after the end of Tenant’s financial year, furnish Landlord with a certified copy of Tenant’s year-end unconsolidated balance sheet, profit and loss statement, and statement of cash flow of Tenant for the previous year audited by a nationally recognized accounting firm, and Tenant shall, if Tenant’s balance sheet, profit and loss statement, or statement of cash flow of Tenant are subsequently restated or amended, deliver the restated balance sheet, profit and loss statement, or statement of cash flow, as the case may be, to Landlord within ten (10) business days after such restatement or amendment. Tenant represents

 

61


and warrants that all balance sheets, profit and loss statements, and statements of cash flow, records and information furnished by Tenant to Landlord in connection with this Lease are true, correct and complete in all respects. If an audited balance sheet, profit and loss statement, and statement of cash flow are not otherwise prepared, an unaudited balance sheet, profit and loss statement, and statement of cash flow complying with generally accepted accounting principles and certified by the chief financial officer, or an employee of Tenant with a similar position if there is no chief financial officer, of Tenant as true, correct and complete in all respects shall suffice for purposes of this Section. If Tenant fails to deliver to Landlord any financial statement within the time period required under this Section, then Tenant shall be required to pay to Landlord an administrative fee equal to Five Hundred Dollars ($500) within five (5) business days after receiving written notice from Landlord advising Tenant of such failure (provided, however, that Landlord’s acceptance of such fee shall not prevent Landlord from pursuing any other rights or remedies under this Lease, at law or in equity). The provisions of this Section shall not apply at any time while Tenant is a corporation whose shares are traded on any nationally recognized stock exchange.

40.3. Submission of this instrument for examination or signature by Tenant does not constitute a reservation of or option for a lease, and shall not be effective as a lease or otherwise until execution by and delivery to both Landlord and Tenant.

40.4. The terms of this Lease are intended by the parties as a final, complete and exclusive expression of their agreement with respect to the terms that are included herein, and may not be contradicted or supplemented by evidence of any other prior or contemporaneous agreement.

40.5. Upon the request of either Landlord or Tenant, the parties shall execute a document in recordable form containing only such information as is necessary to constitute a Notice of Lease under Massachusetts law. All costs of preparing and recording such notice shall be borne by the requesting party. Within ten (10) days after receipt of written request from Landlord after the expiration or earlier termination of this Lease, Tenant shall execute a termination of any Notice of Lease recorded with respect hereto. Neither party shall record this Lease.

40.6. Where applicable in this Lease, the singular includes the plural and the masculine or neuter includes the masculine, feminine and neuter. The words “include,” “includes,” “included” and “including” mean “‘include,’ etc., without limitation.” The word “shall” is mandatory and the word “may” is permissive. The section headings of this Lease are not a part of this Lease and shall have no effect upon the construction or interpretation of any part of this Lease. Landlord and Tenant have each participated in the drafting and negotiation of this Lease, and the language in all parts of this Lease shall be in all cases construed as a whole according to its fair meaning and not strictly for or against either Landlord or Tenant.

40.7. Except as otherwise expressly set forth in this Lease, each party shall pay its own costs and expenses incurred in connection with this Lease and such party’s performance under this Lease; provided that, if either party commences an action, proceeding, demand, claim, action, cause of action or suit against the other party arising out of or in connection with this Lease, then the substantially prevailing party shall be reimbursed by the other party for all

 

62


reasonable costs and expenses, including reasonable attorneys’ fees and expenses, incurred by the substantially prevailing party in such action, proceeding, demand, claim, action, cause of action or suit, and in any appeal in connection therewith (regardless of whether the applicable action, proceeding, demand, claim, action, cause of action, suit or appeal is voluntarily withdrawn or dismissed).

40.8. Time is of the essence with respect to the performance of every provision of this

Lease.

40.9. Each provision of this Lease performable by Tenant shall be deemed both a covenant and a condition.

40.10. Notwithstanding anything to the contrary contained in this Lease, Tenant’s obligations under this Lease are independent and shall not be conditioned upon performance by Landlord.

40.11. Whenever consent or approval of either party is required, that party shall not unreasonably withhold, condition or delay such consent or approval, except as may be expressly set forth to the contrary.

40.12. Any provision of this Lease that shall prove to be invalid, void or illegal shall in no way affect, impair or invalidate any other provision hereof, and all other provisions of this Lease shall remain in full force and effect and shall be interpreted as if the invalid, void or illegal provision did not exist.

40.13. Each of the covenants, conditions and agreements herein contained shall inure to the benefit of and shall apply to and be binding upon the parties hereto and their respective heirs; legatees; devisees; executors; administrators; and permitted successors and assigns. This Lease is for the sole benefit of the parties and their respective heirs, legatees, devisees, executors, administrators and permitted successors and assigns, and nothing in this Lease shall give or be construed to give any other person or entity any legal or equitable rights. Nothing in this Section shall in any way alter the provisions of this Lease restricting assignment or subletting.

40.14. This Lease shall be governed by, construed and enforced in accordance with the laws of the state in which the Premises are located, without regard to such state’s conflict of law principles.

40.15. Tenant guarantees, warrants and represents that the individual or individuals signing this Lease have the power, authority and legal capacity to sign this Lease on behalf of and to bind all entities, corporations, partnerships, limited liability companies, joint venturers or other organizations and entities on whose behalf such individual or individuals have signed.

40.16. This Lease may be executed in one or more counterparts, each of which, when taken together, shall constitute one and the same document.

40.17. No provision of this Lease may be modified, amended or supplemented except by an agreement in writing signed by Landlord and Tenant.

 

63


40.18. No waiver of any term, covenant or condition of this Lease shall be binding upon Landlord unless executed in writing by Landlord. The waiver by Landlord of any breach or default of any term, covenant or condition contained in this Lease shall not be deemed to be a waiver of any preceding or subsequent breach or default of such term, covenant or condition or any other term, covenant or condition of this Lease.

40.19. To the extent permitted by Applicable Laws, the parties waive trial by jury in any action, proceeding or counterclaim brought by the other party hereto related to matters arising out of or in any way connected with this Lease; the relationship between Landlord and Tenant; Tenant’s use or occupancy of the Premises; or any claim of injury or damage related to this Lease or the Premises.

41. Rooftop Installation Area.

41.1. Tenant may use the portion of the Building identified as a “Rooftop Allocation Areas” on Exhibit A attached hereto (the “Rooftop Installation Area”) solely to operate, maintain, repair and replace rooftop antennae, mechanical equipment, communications antennas and other equipment installed by Tenant in the Rooftop Installation Area in accordance with this Article (“Tenant’s Rooftop Equipment”). Tenant’s Rooftop Equipment shall be only for Tenant’s use of the Premises for the Permitted Use.

41.2. Tenant shall install Tenant’s Rooftop Equipment at its sole cost and expense, at such times and in such manner as Landlord may reasonably designate, and in accordance with this Article and the applicable provisions of this Lease regarding Alterations. Tenant’s Rooftop Equipment and the installation thereof shall be subject to Landlord’s prior written approval, which approval shall not be unreasonably withheld. Among other reasons, Landlord may withhold approval if the installation or operation of Tenant’s Rooftop Equipment could reasonably be expected to damage the structural integrity of the Building or to transmit vibrations or noise or cause other adverse effects beyond the Premises to an extent not customary in first class laboratory buildings, unless Tenant implements measures that are acceptable to Landlord in its reasonable discretion to avoid any such damage or transmission.

41.3. Tenant shall comply with any roof or roof-related warranties. Tenant shall obtain a letter from Landlord’s roofing contractor within thirty (30) days after completion of any Tenant work on the rooftop stating that such work did not affect any such warranties. Tenant, at its sole cost and expense, shall inspect the Rooftop Installation Area at least annually, and correct any loose bolts, fittings or other appurtenances and repair any damage to the roof caused by the installation or operation of Tenant’s Rooftop Equipment. Tenant shall not permit the installation, maintenance or operation of Tenant’s Rooftop Equipment to violate any Applicable Laws, including any applicable noise ordinances, or constitute a nuisance. Tenant shall pay Landlord within thirty (30) days after demand (a) all applicable taxes, charges, fees or impositions imposed on Landlord by Governmental Authorities as the result of Tenant’s use of the Rooftop Installation Areas in excess of those for which Landlord would otherwise be responsible for the use or installation of Tenant’s Rooftop Equipment and (b) the amount of any increase in Landlord’s insurance premiums as a result of the installation of Tenant’s Rooftop Equipment. Upon Tenant’s written request to Landlord, Landlord shall use commercially reasonable efforts to cause other tenants to remedy any interference in the operation of Tenant’s Rooftop Equipment caused by any such tenants’ equipment installed after the applicable piece of Tenant’s Rooftop Equipment; provided, however, that Landlord shall not be required to request that such tenants waive their rights under their respective leases.

 

64


41.4. If Tenant’s Equipment (a) causes physical damage to the structural integrity of the Building, (b) interferes with any telecommunications, mechanical or other systems located at or near or servicing the Building or the Project that were installed prior to the installation of Tenant’s Rooftop Equipment, (c) interferes with any other service provided to other tenants in the Building or the Project by rooftop or penthouse installations that were installed prior to the installation of Tenant’s Rooftop Equipment or (d) interferes with any other tenants’ business, in each case in excess of that permissible under Federal Communications Commission regulations, then Tenant shall cooperate with Landlord to determine the source of the damage or interference and promptly repair such damage and eliminate such interference, in each case at Tenant’s sole cost and expense, within ten (10) days after receipt of notice of such damage or interference (which notice may be oral; provided that Landlord also delivers to Tenant written notice of such damage or interference within twenty-four (24) hours after providing oral notice).

41.5. Landlord reserves the right to cause Tenant to relocate Tenant’s Rooftop Equipment to comparably functional space on the roof or in the penthouse of the Building by giving Tenant prior written notice thereof. Landlord agrees to pay the reasonable costs thereof. Tenant shall arrange for the relocation of Tenant’s Rooftop Equipment within sixty (60) days after receipt of Landlord’s notification of such relocation. In the event Tenant fails to arrange for relocation within such sixty (60)-day period, Landlord shall have the right to arrange for the relocation of Tenant’s Rooftop Equipment in a manner that does not unnecessarily interrupt or interfere with Tenant’s use of the Premises for the Permitted Use.

42. Option to Extend Term. Tenant shall have the option (“Option”) to extend the Term by five (5) years as to the entire Premises (and no less than the entire Premises) upon the following terms and conditions. Any extension of the Term pursuant to the Option shall be on all the same terms and conditions as this Lease, except as follows:

42.1. Base Rent at the commencement of the Option term shall equal the greater of (a) one hundred percent (100%) of the then-current Base Rent (together with the annual increase specified in Section 8 hereof) and (b) the then-current fair market value for comparable office and laboratory space in the East Cambridge submarket of comparable age, quality, level of finish and proximity to amenities and public transit, and containing the systems and improvements present in the Premises as of the date that Tenant gives Landlord written notice of Tenant’s election to exercise the Option (“FMV”), and shall be further increased on each annual anniversary of the Option term commencement date by three percent (3%). Tenant may, no more than twelve (12) months prior to the date the Term is then scheduled to expire, request Landlord’s estimate of the FMV for the Option term. Landlord shall, within fifteen (15) days after receipt of such request, give Tenant a written proposal of such FMV. If Tenant gives written notice to exercise the Option, such notice shall specify whether Tenant accepts Landlord’s proposed estimate of FMV. If Tenant does not accept the FMV, then the parties shall endeavor to agree upon the FMV, taking into account all relevant factors, including (v) the size of the Premises, (w) the length of the Option term, (x) rent in comparable buildings in the relevant submarket, including concessions offered to new tenants, such as free rent, tenant improvement allowances and moving allowances, (y) Tenant’s creditworthiness and (z) the

 

65


quality and location of the Building and the Project. In the event that the parties are unable to agree upon the FMV within thirty (30) days after Tenant notifies Landlord that Tenant is exercising the Option, then either party may request that the same be determined as follows: a senior officer of a nationally recognized leasing brokerage firm with local knowledge of the East Cambridge laboratory/research and development leasing submarket (the “Baseball Arbitrator”) shall be selected and paid for jointly by Landlord and Tenant. If Landlord and Tenant are unable to agree upon the Baseball Arbitrator, then the same shall be designated by the local chapter of the Judicial Arbitration and Mediation Services or any successor organization thereto (the “JAMS”). The Baseball Arbitrator selected by the parties or designated by JAMS shall (y) have at least ten (10) years’ experience in the leasing of laboratory/research and development space in the East Cambridge submarket and (z) not have been employed or retained by either Landlord or Tenant or any affiliate of either for a period of at least ten (10) years prior to appointment pursuant hereto. Each of Landlord and Tenant shall submit to the Baseball Arbitrator and to the other party its determination of the FMV. The Baseball Arbitrator shall grant to Landlord and Tenant a hearing and the right to submit evidence. The Baseball Arbitrator shall determine which of the two (2) FMV determinations more closely represents the actual FMV. The arbitrator may not select any other FMV for the Premises other than one submitted by Landlord or Tenant. The FMV selected by the Baseball Arbitrator shall be binding upon Landlord and Tenant and shall serve as the basis for determination of Base Rent payable for the Option term. If, as of the commencement date of the Option term, the amount of Base Rent payable during the Option term shall not have been determined, then, pending such determination, Tenant shall pay Base Rent equal to the Base Rent payable with respect to the last year of the then-current Term. After the final determination of Base Rent payable for the Option term, the parties shall promptly execute a written amendment to this Lease specifying the amount of Base Rent to be paid during the Option term. Any failure of the parties to execute such amendment shall not affect the validity of the FMV determined pursuant to this Section.

42.2. The Option is not assignable separate and apart from this Lease.

42.3. The Option is conditional upon Tenant giving Landlord written notice of its election to exercise the Option at least twelve (12) months prior to the end of the expiration of the then-current Term. Time shall be of the essence as to Tenant’s exercise of the Option. Tenant assumes full responsibility for maintaining a record of the deadlines to exercise the Option. Tenant acknowledges that it would be inequitable to require Landlord to accept any exercise of the Option after the date provided for in this Section.

42.4. Notwithstanding anything contained in this Article to the contrary, Tenant shall not have the right to exercise the Option:

(a) During the time commencing from the date Landlord delivers to Tenant a written notice that Tenant is in default under any provisions of this Lease and continuing until Tenant has cured the specified default to Landlord’s reasonable satisfaction; or

(b) At any time after any Default as described in Article 31 of the Lease (provided, however, that, for purposes of this Section 42.4(b), Landlord shall not be required to provide Tenant with notice of such Default) and continuing until Tenant cures any such Default, if such Default is susceptible to being cured; or

 

66


(c) In the event that Tenant has defaulted in the performance of its obligations under this Lease two (2) or more times during the twelve (12)-month period immediately prior to the date that Tenant intends to exercise the Option, whether or not Tenant has cured such defaults.

42.5. The period of time within which Tenant may exercise the Option shall not be extended or enlarged by reason of Tenant’s inability to exercise such Option because of the provisions of Section 42.4.

42.6. All of Tenant’s rights under the provisions of the Option shall terminate and be of no further force or effect even after Tenant’s due and timely exercise of the Option if, after such exercise, but prior to the commencement date of the new term, (a) Tenant fails to pay to Landlord a monetary obligation of Tenant for a period of twenty (20) days after written notice from Landlord to Tenant, (b) Tenant fails to commence to cure a default (other than a monetary default) within thirty (30) days after the date Landlord gives notice to Tenant of such default or (c) Tenant has defaulted under this Lease two (2) or more times and a service or late charge under Section 31.1 has become payable for any such default, whether or not Tenant has cured such defaults.

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

 

67


IN WITNESS WHEREOF, the parties hereto have executed this Lease as a sealed Massachusetts instrument as of the date first above written.

LANDLORD:

BMR-HAMPSHIRE LLC,

a Delaware limited liability company

 

By:  

/s/ William Kane

Name:   William Kane
Title:   Senior Vice President East Coast Leasing

TENANT:

SURFACE ONCOLOGY, INC.,

a Delaware corporation

 

By:  

/s/ Detlev Biniszkiewicz

Name:   DETLEV BINISZKIEWICZ
Title:   CEO & PRESIDENT

 

68


EXHIBIT A

PREMISES

 

A-1


LOGO


LOGO


LOGO


LOGO


LOGO


LOGO


LOGO


LOGO


LOGO


LOGO


LOGO


EXHIBIT B

WORK LETTER

This Work Letter (this “Work Letter”) is made and entered into as of the 13th day of May, 2016, by and between BMR-HAMPSHIRE LLC, a Delaware limited liability company (“Landlord”), and SURFACE ONCOLOGY, INC., a Delaware corporation (“Tenant”), and is attached to and made a part of that certain Lease dated as of May 13 , 2016 (as the same may be amended, amended and restated, supplemented or otherwise modified from time to time, the “Lease”), by and between Landlord and Tenant for the Premises located at 50 Hampshire Street, Cambridge, Massachusetts. All capitalized terms used but not otherwise defined herein shall have the meanings given them in the Lease.

 

1. General Requirements.

1.1. Authorized Representatives.

(a) Landlord designates, as Landlord’s authorized representative (“Landlord’s Authorized Representative”), (i) Edward McDonald as the person authorized to initial plans, drawings, approvals and to sign change orders pursuant to this Work Letter and (ii) an officer of Landlord as the person authorized to sign any amendments to this Work Letter or the Lease. Tenant shall not be obligated to respond to or act upon any such item until such item has been initialed or signed (as applicable) by the appropriate Landlord’s Authorized Representative. Landlord may change either Landlord’s Authorized Representative upon one (1) business day’s prior written notice to Tenant.

(b) Tenant designates Jessica Fees (“Tenant’s Authorized Representative”) as the person authorized to initial and sign all plans, drawings, change orders and approvals pursuant to this Work Letter. Landlord shall not be obligated to respond to or act upon any such item until such item has been initialed or signed (as applicable) by Tenant’s Authorized Representative. Tenant may change Tenant’s Authorized Representative upon one (1) business day’s prior written notice to Landlord.

1.2. Schedule. The schedule for design and development of the Tenant Improvements, including the time periods for preparation and review of construction documents, approvals and performance, shall be in accordance with the schedule attached hereto as Attachment 1 (the “Schedule”). The Schedule shall be subject to adjustment as mutually agreed upon in writing by the parties, or as otherwise provided in this Work Letter.

1.3. Landlord’s Architects, Contractors and Consultants. The architect, engineering consultants, design team, general contractor and subcontractors responsible for the construction of the Tenant Improvements shall be selected by Landlord.

1.4. Construction Meetings. Landlord, its general contractor and Tenant shall reasonably cooperate to schedule and conduct regular construction meetings (approximately once per week, except as otherwise agreed to by the parties) regarding the progress of the Tenant Improvements and Landlord’s Work. During such meetings, Landlord shall use commercially reasonable efforts to notify Tenant of any potential delays in construction. Tenant’s representative shall have the right to attend such meetings via conference call or other reasonably agreed means.

 

B-1


2. Tenant Improvements. All Tenant Improvements shall be performed by Landlord’s contractor, at Tenant’s sole cost and expense (subject to Landlord’s obligations with respect to any portion of the TI Allowance used by Landlord in completing the Tenant Improvements) and in substantial accordance with the Approved Plans (as defined below), the Lease and this Work Letter. To the extent that the total projected cost of the Tenant Improvements (as projected by Landlord) exceeds the TI Allowance (such excess, the “Excess TI Costs”), Tenant shall pay the costs of the Tenant Improvements on a pari passu basis with Landlord as such costs become due, in the proportion of Excess TI Costs payable by Tenant to the TI Allowance payable by Landlord. If the cost of the Tenant Improvements (as projected by Landlord) increases over Landlord’s initial projection, then Landlord may notify Tenant and Tenant shall pay any additional Excess TI Costs with Landlord in the same manner that Tenant is required to pay the initial Excess TI Costs, as aforesaid. If Tenant fails to pay, or is late in paying, any sum due to Landlord under this Work Letter, then Landlord shall have all of the rights and remedies set forth in the Lease for nonpayment of Rent (including the right to interest and the right to assess a late charge), and for purposes of any litigation instituted with regard to such amounts the same shall be considered Rent. All material and equipment furnished by Landlord or its contractors as the Tenant Improvements shall be new or “like new,” and the Tenant Improvements shall be performed in a first-class, workmanlike manner.

2.1. Work Plans. Landlord and Tenant hereby approve the schematic plans for the Tenant Improvements, copies of which are attached as Attachment 2 to this Work Letter (the “Approved Schematic Plans”).

2.2. Construction Plans. Landlord shall prepare final plans and specifications for the Tenant Improvements that (a) are consistent with and are logical evolutions of the Approved Schematic Plans and (b) incorporate any other Tenant-requested (and Landlord-approved) Changes (as defined below). As soon as such final plans and specifications (“Construction Plans”) are completed, Landlord shall deliver the same to Tenant for Tenant’s approval, which approval shall not be unreasonably withheld, conditioned or delayed. Such Construction Plans shall be approved or disapproved by Tenant within five (5) days after delivery to Tenant. Tenant’s failure to respond within such five (5) day period shall be deemed approval by Tenant. If the Construction Plans are disapproved by Tenant, then Tenant shall notify Landlord in writing of its reasonable objections to such Construction Plans, and the parties shall confer and negotiate in good faith to reach agreement on the Construction Plans. Promptly after the Construction Plans are approved by Landlord and Tenant, two (2) copies of such Construction Plans shall be initialed and dated by Landlord and Tenant, and Landlord shall promptly submit such Construction Plans to all appropriate Governmental Authorities for approval. The Construction Plans so approved, and all change orders specifically permitted by this Work Letter, are referred to herein as the “Approved Plans.”

2.3. Changes to the Tenant Improvements. Any changes to the Approved Plans (each, a “Change”) shall be requested and instituted in accordance with the provisions of this Article 2 and shall be subject to the written approval of the non-requesting party in accordance with this Work Letter.

 

B-2


(a) Change Request. Either Landlord or Tenant may request Changes after Tenant approves the Approved Plans by notifying the other party thereof in writing in substantially the same form as the AIA standard change order form (a “Change Request”), which Change Request shall detail the nature and extent of any requested Changes, including (a) the Change, (b) the party required to perform the Change and (c) any modification of the Approved Plans and the Schedule, as applicable, necessitated by the Change. If the nature of a Change requires revisions to the Approved Plans, then the requesting party shall be solely responsible for the cost and expense of such revisions and any increases in the cost of the Tenant Improvements as a result of such Change. Change Requests shall be signed by the requesting party’s Authorized Representative.

(b) Approval of Changes. All Change Requests shall be subject to the other party’s prior written approval, which approval shall not be unreasonably withheld, conditioned or delayed. The non-requesting party shall have five (5) business days after receipt of a Change Request to notify the requesting party in writing of the non-requesting party’s decision either to approve or object to the Change Request. The non-requesting party’s failure to respond within such five (5) business day period shall be deemed approval by the non-requesting party.

3. Requests for Consent. Except as otherwise provided in this Work Letter, Tenant shall respond to all requests for consents, approvals or directions made by Landlord pursuant to this Work Letter within five (5) days following Tenant’s receipt of such request. Tenant’s failure to respond within such five (5) day period shall be deemed approval by Tenant.

4. TI Allowance.

4.1. Application of TI Allowance. Landlord shall contribute the TI Allowance and any Excess TI Costs advanced by Tenant to Landlord toward the costs and expenses incurred in connection with the performance of the Tenant Improvements, in accordance with Article 4 of the Lease. If the entire TI Allowance is not applied toward or reserved for the costs of the Tenant Improvements, then Tenant shall not be entitled to a credit of such unused portion of the TI Allowance. If the entire Excess TI Costs advanced by Tenant to Landlord are not applied toward the costs of the Tenant Improvements, then Landlord shall promptly return such excess to Tenant following completion of the Tenant Improvements. Tenant may apply the TI Allowance for the payment of construction and other costs in accordance with the terms and provisions of the Lease.

4.2. Approval of Budget for the Tenant Improvements. The parties agree that the initial budget for the Tenant Improvements is attached hereto as Attachment 3 (the “Approved Budget”). Tenant shall promptly reimburse Landlord for costs or expenses relating to the Tenant Improvements that exceed the amount of the TI Allowance, including paying any Excess TI Costs in accordance with this Work Letter.

5. Miscellaneous.

5.1. Incorporation of Lease Provisions. Sections 40.6 through 40.19 of the Lease are incorporated into this Work Letter by reference, and shall apply to this Work Letter in the same way that they apply to the Lease.

 

B-3


5.2. General. Except as otherwise set forth in the Lease or this Work Letter, this Work Letter shall not apply to improvements performed in any additional premises added to the Premises at any time or from time to time, whether by any options under the Lease or otherwise; or to any portion of the Premises or any additions to the Premises in the event of a renewal or extension of the original Term, whether by any options under the Lease or otherwise, unless the Lease or any amendment or supplement to the Lease expressly provides that such additional premises are to be delivered to Tenant in the same condition as the initial Premises.

5.3. Punch list. Within ten (10) days after the date of Substantial Completion of the Tenant Improvements, Landlord’s Authorized Representative and Tenant’s Authorized Representative shall inspect the Premises and identify “punch list” items of the Tenant Improvements (i.e., minor defects or conditions in the Tenant Improvements that do not materially and adversely interfere with Tenant’s use and occupancy of the Premises for the permitted use set forth in the Lease) and jointly prepare a written list of such “punch list” items. Landlord shall use commercially reasonable efforts to complete all “punch list” items within thirty (30) days after such inspection, subject to Force Majeure or any delay caused by the action or omission of Tenant, its employees, contractors or representatives.

5.4. Warranties. To the extent assignable, Landlord will assign all warranties obtained by Landlord in connection with the Tenant Improvements, including, without limitation, any equipment for the Premises installed by Landlord; provided, however, that, notwithstanding any such assignment, Landlord shall also retain the right to enforce such warranties against the applicable contractor, at Landlord’s sole option, and further provided that if any such warranties are not assignable, then Landlord, upon written notice from Tenant, shall use commercially reasonable efforts to enforce such non-assignable warranties. With respect to those warranties that have been assigned to Tenant, upon Tenant’s written request of Landlord and at Tenant’s sole cost and expense, Landlord shall reasonably cooperate with Tenant in enforcing such warranties; provided, however, that Landlord shall no have obligations under this sentence in connection with any litigation between Tenant and the provider of such warranty.

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

 

B-4


IN WITNESS WHEREOF, Landlord and Tenant have executed this Work Letter as a sealed Massachusetts instrument to be effective on the date first above written.

BMR-HAMPSHIRE LLC,

a Delaware limited liability company

 

By:  

/s/ William Kane

Name:   William Kane
Title:   Senior Vice President East Coast Leasing

TENANT:

SURFACE ONCOLOGY, INC.,

a Delaware corporation

 

By:  

/s/ Detlev Biniszkiewicz

Name:   DETLEV BINISZKIEWICZ
Title:   CEO & PRESIDENT

 

B-5


Attachment 1 to Work Letter

Schedule

[See attached]

 

B-6


LOGO


LOGO

 


LOGO

 


LOGO

 


Attachment 2 to Work Letter

Approved Schematic Plans

[See attached]

 

B-7


LOGO


LOGO

 


LOGO

 


LOGO

M E M O R A N D U M

To:            Chris Brown (JMA)

                  Tim Stoll at BMR

From:        Joe Kazlauskas and Bob Andrews

Date:          April 13, 2016 Revised

Subject:    50 Hampshire Street, Cambridge

                   Surface Oncology MEP Scope of Work

The intent of the below mechanical / electrical scope of work description is to capture the tenant improvement alterations for Surface Oncology based on the fit plan prepared by Arrowstreet dated 4/5/16, plus the equipment list dated 4/1/16 and our meeting on 4/12/16:

Fire Protection:

 

    Provide new sprinkler heads for tenant and common areas

 

    Rework branch lines to accommodate new head locations

 

    Existing mains to remain

Fire Alarm:

 

    Provide new devices to suit new tenant and common areas

 

    Extend cabling from existing system

 

    Provide additional modules needed to support new devices and interlocks needed

Plumbing

 

    In kitchen areas, provide cold water, domestic waste and vent, with an electric instant hot heater for hot water. Provide a cold water tap with filter for coffee maker and water system. Alternate price to provide cold water to refrigerator ice maker, and hot/cold to dishwasher in large kitchen with 30 gal electric water heater.

 

    Provide compressed air (1”) and vacuum (2”) distribution system to ceiling panels, closed labs equipment on equipment list (11 air, 10 vac) and 2 fume hoods.

 

    Each ceiling panel will have (1) CA and (1) Vac quick disconnect connections

 

    The large exterior lab will have (6) ceiling panels

 

    Small exterior lab will have (4) ceiling panels

 

    Large exterior lab will have three emergency shower / eyewash stations

 

    Small exterior lab will have two emergency shower / eyewash stations

 

LOGO


Surface Scope of Work

April 7, 2016

Page 2 of 3

 

    RO loop (1  14“) with drops at each lab sink, along with non-potable hot/cold, lab waste and vent

 

    Tissue culture labs will have (4) Vac drops and (4) CO2 drops into BSCs with turrets

 

    Small exterior lab without benching, TBD labs, microscopy, and flow cytometry will have (2) CA and (2) Vac drops down the wall.

 

    Storage will have cold water with filter and floor drain waste for ice machine

 

    Tank room will have CO2 manifold and bottles for distribution to incubators (10 CO2 drops, including drops to incubators)

 

    Fire wrap all lab waste piping in the 7th floor ceiling space, due to return air plenum

 

    Any N2 needed will be local supply with point-of-use canisters or dewars.

 

    TBD Lab will receive NPCW, NPHW, Lab waste, and Lab vent for future sink.

HVAC:

 

    Office area provide fan powered terminal units with hot water reheat to exterior zones and VAV with reheat to interior zones, connected to the existing base building main ductwork and piping loops, based on zone layout delivered by AHA on April 6, 2016

 

    Exterior office zones shall include:

 

    Large conference room B

 

    Huddle room B

 

    Main kitchen A

 

    Medium conference room A

 

    Two zones for corner open office area A

 

    Four addition zones for remaining open office area B, C, D, & E

 

    Interior office zones shall include:

 

    (3) Huddle rooms A, C, & D

 

    (2) Reception areas

 

    Medium conference room B

 

    Large conference room A o Phone rooms

 

    Common hallways

 

    (6) additional interior zones for open office space

 

    Provide new supply air, exhaust air, chilled and hot water mains from the new lab core shell systems to serve the lab areas based on the lab area zone layout

 

    Tissue culture A & B shall have (1) supply air valve with reheat, (1) exhaust air valve, (1) cooling only cassette type fan coil units. Tissue culture C & D shall have (1) supply air valve with reheat, (1) exhaust air valve, (1) cooling only cassette type fan coil unit for each room.

 

    TBD labs, small exterior lab without benching, flow cytometry, microscopy, waste storage, tank area, storage/ice, and lab corridors shall have (1) supply air valve with reheat, (1) exhaust air valve each

 

    Freezer farm shall have (1) supply air valve with reheat, (1) exhaust air valve, and (2) 3 ton cooling only split systems on generator power

 

    Large exterior lab shall have (4) supply air valve with reheat, (3) exhaust air valve, (4) cooling only cassette type fan coil units

 

    Small exterior lab shall have (2) supply air valve with reheat, (2) exhaust air valve, (2) cooling only cassette type fan coil units

 

    Lab 113 shall have (1) supply air valve with reheat, (1) exhaust air valve.


Surface Scope of Work

April 7, 2016

Page 3 of 3

 

    IT room A shall have two wall mounted 2 ton split system fan coils on generator power. IT room B shall have one 500 CFM ceiling type box fan ducted to ceiling plenum on generator power.

Electrical:

 

    Provide office and lab lighting throughout

 

    Provide exit signs and emergency lighting connected to the base building life safety generator throughout

 

    Each group of work stations shall have an 8 wire system, 3 circuit power feed and T/D drop.

 

    Each phone room shall have (1) outlet, (1) T/D

 

    Huddle rooms (3) outlets, (3) T/D

 

    Main kitchen power for appliances (refrigerator, coffee maker, water filter dispenser, microwave), (3) T/D, (4) convenience outlets. Small kitchen same, but two convenience outlets.

 

    Each printer copier area (2) duplex outlets, (2) T/D

 

    Large conference rooms (6) outlets, (6) T/D, center floor box, and power and TD to flat screen, AV conduits

 

    Reception areas shall have (4) outlets, (4) T/D

 

    Open office areas shall have convenience outlets, one per 20 feet

 

    See plumbing for quantity of ceiling panels, each ceiling panel shall have (2) dedicated 20 amp circuits, (2) T/D boxes, (4) receptacles

 

    Interior wall of all exterior labs shall have an outlet every 3 feet, with every third outlet on generator power, all will be 20 amp dedicated circuits

 

    Tissue culture shall have (4) dedicated 20 amp circuits for BSC’s, (4) dedicated generator power 20 amp circuits for incubators, and an additional (8) misc. circuits

 

    TBD labs, flow cytometry, microscopy, shall have (10) 20 amp circuits in each lab

 

    Freezer farm shall have (24) dedicated 20 amp generator power circuits, one every 3 feet along the perimeter wall, and an allocation for some center circuits

 

    Tank area shall have manifold circuits on generator power and (2) convenience outlets

 

    Waste area and storage/ice shall have (2) convenience outlets and power for the ice machine

 

    Corridors shall have convenience outlets every 50 feet

 

    IT room A shall have 2 quad outlets, four circuits, fed from generator power. IT room B shall have 1 quad outlet, two circuits, fed from generator power.

End of MEP Scope


    MORIARTY

50 HAMPSHIRE 8TH FLOOR

BIOMED REALTY

BASED ON ARROWSTREET DRAWINGS A2.01,A2.20 ,A5.01 DATED 4/6/16 AND AHA MEMO REVISED 4/13/16 ESTIMATE DATED 4-15-16

 

TRADE

   TOTAL
JMA
4/25/2016
     TOTAL
JMA
4/15/2016
 

TRADES

     

DEMO

   $ 15,000      $ 15,000  

CONCRETE

   $ 0      $ 0  

MASONRY

   $ 0      $ 0  

STRUCTURAL / MISC IRON

   $ 5,000      $ 5,000  

FINISH CARPENTRY

   $ 65,035      $ 75,310  

ROOFING

   $ 0      $ 0  

SOFP

   $ 8,250      $ 11,000  

DOORS

   $ 145,792      $ 148,092  

GLASS & GLAZING

   $ 118,316      $ 129,160  

DRYWALL

   $ 463,078      $ 468,078  

PORCELAIN TILE / INTERIOR STONE

   $ 936      $ 936  

ACT

   $ 131,474      $ 136,266  

EPOXY FLOORING

   $ 3,564      $ 3,564  

CARPET & RESILIENT

   $ 206,301      $ 222,070  

PAINTING

   $ 101,880      $ 108,534  

SPECIALTIES

   $ 21,640      $ 21,640  

EQUIPMENT

   $ 0      $ 0  

FURNISHINGS / LAB CASEWORK

   $ 474,200      $ 482,400  

HOIST OPERATORS

   $ 0      $ 0  

FIRE PROTECTION

   $ 110,325      $ 116,350  

PLUMBING

   $ 395,863      $ 502,369  

HVAC

   $ 1,184,817      $ 1,184,817  

ATC

   $ 249,260      $ 249,260  

ELECTRICAL

   $ 831,396      $ 988,064  

TEL/DATA - AV - SECURITY

     BY TENANT        BY TENANT  
  

 

 

    

 

 

 

SUBTOTAL DIRECT COST

   $ 4,532,127      $ 4,867,910  
  

 

 

    

 

 

 

SUBGUARD (1.15%)

     NIC        NIC  

DESIGN CONTINGENCY

     BY OWNER        BY OWNER  

MISC PERMITS & FEES ALLOW

   $ 15,000      $ 15,000  

UTILITY CONSUMPTION ALLOW

     BY OWNER        BY OWNER  

GENERAL CONDITIONS / JOB COSTS

   $ 600,000      $ 624,000  

BUILDING PERMIT (1.5%)

   $ 77,207      $ 82,604  

GL INSURANCE (1.1%)

   $ 57,468      $ 61,485  

CONSTRUCTION CONTINGENCY (3.0%)

   $ 154,414      $ 165,207  

FEE (3.0%)

   $ 163,086      $ 174,486  

GC BOND

     NIC        NIC  
  

 

 

    

 

 

 

GRAND TOTAL CONSTRUCTION

   $ 5,599,302      $ 5,990,692  
     JMA 4/15/16        JMA 4/15/16  
     ESTIMATE        ESTIMATE  

 


JMA ESTIMATE

50 HAMPSHIRE

BIOMED REALTY

BASED ON ARROWSTREET DRAWINGS A2.01,A2.20 ,A5.01 DATED 4/6/16 AND AHA MEMO REVISED 4/13/16 ESTIMATE DATED 4-15-16

VE SCOPE VERSION

 

AREA STUDY

   GSF      28035  

8TH FLOOR

     

OFFICE

     14,100     

LAB

     10,200     

CORE SHELL EXISTING

     2,220     
  

 

 

    

TOTAL

     26,520     

 

TRADE

   ITEM      QTY     UNIT      U.P.      COST      TOTAL  

DEMOLITION

                

MISC RELOCATES / DEMOLITION

        1       ALLOW        15,000.00      $ 15,000     
             

 

 

    

SUBTOTAL DEMOLITION

                 $ 15,000  

CONCRETE

                
                

 

 

 

SUBTOTAL CONCRETE

                 $ 0  

MASONRY

                
                

 

 

 

SUBTOTAL MASONRY

                 $ 0  

STRUCTURAL / MISC IRON WORK

                

MISC STRUCT / PADS

        1       ALLOW        7,500.00        NONE INCL     

ALLOW FOR BEAM PENS

        1       ALLOW        5,000.00      $ 5,000     
             

 

 

    

 

 

 

SUBTOTAL STRUCTURAL / MISC IRON WORK

                 $ 5,000  

FINISH CARPENTRY:

                

WALL BASE

                ALL VINYL     

SOLID SURFACE WINDOW SILLS IN LAB

        137       LF        75.00        nic     

SOLID SURFACE WINDOW SILLS IN OFFICE

                GWB ONLY     

ELEVATOR LOBBY UPGRADE

        1       LOT        15,000.00        see painting     

CONFERENCE ROOM MILLWORK

          ASSUME ALL FURNITURE BY OTHERS  

CAFE MILLWORK

                

UPPERS

        31       LF        400.00      $ 12,400     

LOWERS

        25       LF        450.00      $ 11,250     

TOPS

        25       LF        265.00      $ 6,625     

ISLAND

        20       LF        750.00      $ 15,000     

TOPS

        20       LF        525.00      $ 10,500     

OTHER MILLWORK / BUILT-INS

          ASSUME ALL FURNITURE BY OTHERS  

COPY ROOM BUILT INS

                

UPPERS / LOWERS

        8       LF        600.00      $ 4,800     

TOPS

        8       LF        120.00      $ 960     
                                $0         

STORAGE ROOM SHELVING

        40       LF        75.00      $ 3,000     

PHONE ROOM

                

WELLNESS ROOM TOPS

        0       LF        165.00      $ 0        PLAM  

OPEN AREABENCHES

        20       LF        1,250.00        FFE     

FEATURE WALL

        1       ALLOW        15,000.00        see painting     

CONFERENCE / PRIVATE OFFICE MILLWORK

          ASSUME ALL FURNITURE BY OTHERS  

LOCKERS

        50       EA        600.00        FFE     

RECEPTION DESK

        1       LOT        25,000.00        FFE     

 

2


JMA ESTIMATE

50 HAMPSHIRE

BIOMED REALTY

BASED ON ARROWSTREET DRAWINGS A2.01,A2.20 ,A5.01 DATED 4/6/16 AND AHA MEMO REVISED 4/13/16 ESTIMATE DATED 4-15-16

VE SCOPE VERSION

 

COAT CLOSETS

     10     LF      50.00      $ 500     
          

 

 

    

 

 

 

SUBTOTAL FINISH CARPENTRY

              $ 65,035  

ROOFING

             
             

 

 

 

SUBTOTAL ROOFING

              $ 0  

SOFP

             

FIREPROOFING PATCHING

     3     CD      2,750.00      $ 8,250     

K13 ACCOUSTIC COLORED SPRAY INSULATION

     3,327     SF      12.00        NIC     
          

 

 

    

 

 

 

SUBTOTAL SOFP

              $ 8,250  

DOORS (WOOD WITH HALF LITE)

             

OFFICE DOORS

     25     LVS      1,500.00      $ 37,500       
DOOR AND
HARDWARE
 
 

LAB SINGLES

     5     LVS      1,700.00      $ 8,500       

DOOR AND
HARDWARE
W/GLA
 
 
 

LAB DOUBLES/SINGLE AND HALF

     19     LVS      2,600.00      $ 49,400       

DOOR AND
HARDWARE
W/GLA
 
 
 

CARDREADER HWARDWARE AND POWER SUPPLY

     9     EA      2,200.00      $ 19,800       

SECURITY
WIRING BY
OWNER
 
 
 

CAPTURED ALUMINUM FRAMING SYSTEM ( SIMILAR TO FRAMEWORKS )

     1,672     SF      16.00      $ 26,752       

8’ high
system incl
doors
 
 
 

CAPTURED ALUMINUM FRAMING SYSTEM LAB TRANSOMS ( SIMILAR TO FRAMEWORKS )

     240     SF      16.00      $ 3,840     
          

 

 

    

 

 

 

SUBTOTAL DOORS

              $ 145,792  

GLASS AND GLAZING

             

STOREFRONT

     12     LF         

AREA

     108     SF      75.00      $ 8,100     

1/4” MAX THICK GLASS IN CAPTURED ALUMINUM FRAMING

     1,672     SF      28.00      $ 46,816       


STANDARD
MILL
FINISH
ALUMI
 
 
 
 

1/4 “ MAX THICK GLASS IN CAPTURED ALUMINUM FRAMING AT LAB TRANSOMS

     240     SF      30      $ 7,200     

BUTT GALZED RETURN PIECE AT PHONE /HUDDLE ROOMS

     11     LOC      1,000.00      $ 11,000     

GLASS DOORS

     2     EA      7,500.00      $ 15,000     

GLASS SLIDERS

     4     EA      4,500.00      $ 18,000     

MISC GLAZING

             

VISION PANELS

             

HALF

     24     EA      300.00      $ 7,200     

FILM

     1     LOT      5,000.00      $ 5,000     
          

 

 

    

 

 

 

SUBTOTAL GLASS AND GLAZING

              $ 118,316  

DRYWALL

             

PARTITIONS

             

EXTERIOR WALL

     640     LF         

ABOVE AND BELOW PUNCH WINDOWS

     315     LF      50.00      $ 15,750     

FURRING WALL BETWEEN WINDOWS

     325     LF      60.00      $ 19,500     

COLUMN ENCASEMENTS

     33     EA      750.00      $ 24,750     

GFRG

     0     EA      2,750.00      $ 0     

FULL HGT WALLS

     1294     LF      150.00      $ 194,100     

6 “ ABOVE FIN CEILING

     129     LF      115.00      $ 14,835     

SHAFT WALLS

     338     SF      14.00      $ 4,732     

5% NOT SHOWN

     64.7     LF      150.00      $ 9,705     

ABOVE RACO FRAMING

     209     LF      65.00      $ 13,585     

ALT TO FULL HGT ILO OF ABOVE

     0     LF      85      $ 0     

BLOCKING

             

MISC. BLOCKING

     1     LOT      10,000.00      $ 10,000     

PLYWOOD WALLS AT TELEDATA

     2     EA      3,000.00      $ 6,000     

BLOCKING AT PHONE ROOMS / OFFICES

     11     EA      250.00      $ 2,750     

BLOCKING AT KITCHENS

     2     RMS      750.00      $ 1,500     

BLOCKING AT PLUMBING WALL OUTLETS

     1     LOT      7,500.00      $ 7,500     

BLOCKING AT CONFERENCE ROOMS

     7     RMS      500.00      $ 3,500     

BLOCKING AT LAB WALL SHELVING

     1     LOT      3500.00      $ 3,500     

LEVEL 5 FINISH AT IDEA PAINT AND FELZ

     1,278     SF      5        NIC     

CEILINGS SOFFITS

             

CEILINGS

     2,223     SF      12.00      $ 26,676     

AT LAB ROOMS W/EPOXY FLOORS

     0     SF      12.00       
ABOVE
NOW
 
 
  

AT ELEVATOR LOBBIES

            
ABOVE
NOW
 
 
  

 

 

3


JMA ESTIMATE

50 HAMPSHIRE

BIOMED REALTY

BASED ON ARROWSTREET DRAWINGS A2.01,A2.20 ,A5.01 DATED 4/6/16 AND AHA MEMO REVISED 4/13/16 ESTIMATE DATED 4-15-16

VE SCOPE VERSION

 

AT CAFÉ SPACE

     0      SF      12.00        ABOVE NOW     

SOFFITS AT ACT TRANSITIONS

     400      LF      45.00      $ 18,000     

SOFFITS AT EXTERIOR WALL

     640      LF      40.00      $ 25,600     

SOFFITS AT TRANSITION TO OPEN CEILING AREA

     274      LF      105.00      $ 28,770     

RECESSED POCKET FOR MECHOSHADES

     315      LF      35.00      $ 11,025     

MISC

              

CUT AND PATCH EXISTING SHAFT WALLS

     1      ALLOW      20000.00      $ 20,000     

INSTALL RECESSED FIRE EXTINGUISHER CABS

     8      EA      100.00      $ 800     

INSTALL HM FRAMES

     0      EA      125.00      $ 0     

INSTALL CORNER GUARDS

     10      EA      50.00      $ 500     

REVEAL/PICTURE FRAME HANGERS

              NONE     
              

 

 

 

SUBTOTAL DRYWALL

               $ 463,078  

INTERIOR STONE & TILE

              

AT ELEVATOR LOBBIES

     0      SF      30.00      $ 0     

BACKSPLASH AT CAFÉ / KITCHENETTE

     36      SF      26.00      $ 936     

HOLD FOR FLOOR PREP

     0      SF      1.50      $ 0     

HOLD FOR MOISTURE MITIGATION

     0      SF      4.50      $ 0     

HOLD FOR PROTECTION

     0      SF      1.00      $ 0     
              

 

 

 

SUBTOTAL STONE & TILE WORK

               $ 936  

ACT

              

ACT- 2X2 ACOUSTIC TILE AT OFFICE AREAS/LAB AREAS ( BLENDED RATE )

     18,177      SF      5.75      $ 104,518     

ACT -2 X 2 AT LAB AREAS

     14,100      SF      6.50        ABOVE     

ACT-3 GASKETED AT TC LAB AND PROCEDURE

     965      SF      12.00      $ 11,580     

ACT 4X4 AT CONFERENCE ROOMS

     573      SF      12.00      $ 6,876     

HOLD FOR TRANSITIONS/TRIM/CUT AROUND DIFFUSERS, ETC

     1      HOLD      5,000.00      $ 5,000     

HOLD FOR PATCH / COME-BACK FOR MEP TRADES

     1      HOLD      3,500.00      $ 3,500     
              

 

 

 

SUBTOTAL ACT

               $ 131,474  

EPOXY FLOORING

              

EPOXY BASE

     44      LF      26.00      $ 1,144     

EPOXY FLOORS PER AST LEGEND

     121      SF      20.00      $ 2,420     
              

 

 

 

SUBTOTAL EPOXY FLOORING

               $ 3,564  

RESILIENT FLOORING & CARPET

              

PATTERNED VCT IN LAB AREAS

     9,638      SF      5.00      $ 48,190     

VINYL BASE

     4,291      LF      3.50      $ 15,019     

WELDED SEAM VINYL AND BASE AT TC AND PROCEDURE

     1,240      SF      12.00        NIC PER PLANS     

LUXURY VINYL TILE

     2,798      SF      12.00      $ 33,576     
            $ 0     

CARPET TILE PER PLANS

     1,343      SY      40.00      $ 53,720     

TRNASITION MATERIALS

     135      LF      50.00      $ 6,750     

HOLD FOR FLOOR PREP

     24,523      SF      1.25      $ 30,654     

HOLD FOR MOISTURE MITIGATION

     24,523      SF      2.25        NIC     

HOLD FOR FLOOR PROTECTION

     24,523      SF      0.75      $ 18,392     
              

 

 

 

SUBTOTAL RESILIENT FLOORING & CARPET

               $ 206,301  

PAINTING & WALLCOVERING

              

PAINT WALLS

     38619      SF      1.00      $ 38,619     

PAINT CEILINGS

     2,223      SF      1.00      $ 2,223     

PAINT EXPOSED CEILING AREAS

     3,327      SF      6.00      $ 19,962     

PAINT SOFFITS

     3,142      SF      2.00      $ 6,284     

PAINT DOORS & FRAMES

     0      EA      150.00      $ 0     

ACCENT COLORS

     1      LOT      3,500.00      $ 3,500     

EPOXY PAINT AT ROOMS WITH VINYL AND EPOXY

     396      SF      2.00      $ 792     

CUSTOM WALL COVERING GRAPHICS LARGE WALLS

     2      ALLOW      7,500.00      $ 15,000     

CUSTOM WALL COVERING GRAPHICS SMALL WALLS

     2      ALLOW      3,500.00      $ 7,000     

WALL COVERING IN CONFERENCE ROOMS

     306      SF      18.00        NIC     

 

4


JMA ESTIMATE

50 HAMPSHIRE

BIOMED REALTY

BASED ON ARROWSTREET DRAWINGS A2.01,A2.20 ,A5.01 DATED 4/6/16 AND AHA MEMO REVISED 4/13/16 ESTIMATE DATED 4-15-16

VE SCOPE VERSION

 

IDEA PAINT

     1,053        SF        8.00        NIC     

FELZ PRODUCT

     225        SF        18.00        NIC     

HOLD FOR TOUCHUP

     1        HOLD        5,000.00      $ 5,000     

HOLD FOR JOINT SEALERS AT WINDOWS

     2,520        LF        3.00        nic     

HOLD FOR WALL PROTECTION

     1        HOLD        3,500.00      $ 3,500     
              

 

 

 

SUBTOTAL PAINTING & WALLCOVERING

               $ 101,880  

SPECIALTIES

              

SPECIALTIES

              

FIRE EXTINGUISHERS

     8        EA        275.00      $ 2,200     

LAB ACCESSORIES

              

SOAP DISPENSERS

     5        EA        60.00      $ 300     

PAPER TOWEL DISPENSERS

     5        EA        60.00      $ 300     

CORNER GUARDS

     10        EA        250.00      $ 2,500     

BUMPER RAILS

     340        LF        26.00      $ 8,840     

MOTORIZED MOVEABLE WHITEBOARD

              NONE     

ACOUSTIC PANELS

              

ACOUSTICAL PANELS AT CONF RMS

     1        ALLOW        3,500.00        NIC     

HOLD FOR PROTECTION

     1        HOLD        750.00        nic     

FOLDING PARTITION

              

WINDOW TREATMENTS

              

MANUAL MECHOSHADE

     4,200        SF        9.00        NIC     

PREMIUM FOR BLACKOUT

              ASSUME NONE     

SHADES IN CONF ROOMS

              NONE     

BAG ,CLEAN AND REUSE EXISTING

     1        ALLOW        5000.00        5,000.00     

PROJECTIONS SCREENS

              NONE     

ALLOW FOR SIGNAGE

     1        ALLOW        2,500.00        2,500.00     
              

 

 

 

SUBTOTAL SPECIALTIES

               $ 21,640  

EQUIPMENT

              

APPLIANCES:

              

FULL FRIDGE

     2        EA        5,000.00        NIC     

UNDERCOUNTER

     0        EA        1,500.00        NIC     

MICROWAVE

     0        EA        500.00        NIC     

DISHWASHER

     0        EA        1,200.00        NIC     
            $ 0     

DELIVERY / DISTRIBUTION

     1        LOT        1,500.00        NIC     

ENVIRONMENTAL ROOMS

     1        EA        90000.00        NIC     
              

 

 

 

SUBTOTAL EQUIPMENT

               $ 0  

LAB CASEWORK

              

LABORATORY

              

6’ MOBILE ADJUSTABLE HEIGHT BENCHES

     50        EA        2850.00      $ 142,500     

CORE FRAME

              NOT INCLUDED     

SHELVING

              

WALL SHELVING ( 2 ROWS)

     328        LF        75.00      $ 24,600     

CORE SHELVING ( 2 ROWS)

     600        LF        75.00      $ 45,000     

WALL MOUNTED BENCHES

     164        LF        750.00      $ 123,000     

LAB SINKS

     11        EA        3700.00      $ 40,700     

SS HAND SINK

     0        EA        3500.00      $ 0     

UTILITY ACCESS CHASES

     11        EA        1500.00      $ 16,500     

EYEWASH

     11        EA        1800.00      $ 19,800     

EMERGENCY SHOWER STATIONS (ES-1)

     5        EA        3000.00      $ 15,000     

BIOSAFETY CABINETS

     11        EA        11000.00        BY OWNER     

FUME HOODS 5’

     3        EA        13000.00      $ 39,000        REDUCED PER EMAIL  

OVERHEAD SERVICE PANELS - OSP 1

     12        EA        675.00      $ 8,100     

CP-1

     0        EA        500.00      $ 0     

ALLOWANCE FOR CASEWORK NOT SHOWN

     1        ALLOW        45000.00        NIC     
              

 

 

 

SUBTOTAL LAB CASEWORK

               $ 474,200  

HOIST OPERATORS

              

ELEVATOR OPERATOR (30%)

     7        MOS        5715.60        NOT REQ     

OT OPERATOR (30%)

     7        MOS        3300.00        NOT REQ     

 

5


JMA ESTIMATE

50 HAMPSHIRE

BIOMED REALTY

BASED ON ARROWSTREET DRAWINGS A2.01,A2.20 ,A5.01 DATED 4/6/16 AND AHA MEMO REVISED 4/13/16 ESTIMATE DATED 4-15-16

VE SCOPE VERSION

 

SUBTOTAL HOIST OPERATORS

              

$

 

0

 

FIRE PROTECTION:

              

HEADS

     241      EA      325.00      $ 78,325      rework existing  

BRANCH MAINS

     450      LF      60.00      $ 27,000     

DRAIN DOWNS ASSOCIATED WITH AN OCCUPIED BUILDING

     1      ALLOW      5,000.00      $ 5,000     
              
              

SUBTOTAL FIRE PROTECTION

              

$

 

110,325

 

PLUMBING

              

EQUIPMENT

              

WATER HEATERS

     2      ALLOW      17500.00        W/BB        POT/NONPOT  

RODI SKID / DISTRIBUTION

     1      ALLOW      65000.00        W/BB     

DUPLEX LAB VACUUM PUMP SYSTEM

     1      ALLOW      45000.00        W/BB     

MANIFOLD

     0              W/BB     

DUPLEX LAB AIR COMPRESSOR SYSTEM

     1      ALLOW      45000.00        W/BB     

MANIFOLD

     0              W/BB     

PH NEUTRALIZATION SYSTEM

     1      ALLOW      65000.00        W/BB     

LN TANK AND VAPORIZER

              NIC     

MANIFOLDS

              

CO2

     1      LOT      5000.00      $ 5,000     

N

     1      LOT      5000.00        NIC     

DOMESTIC FIXTURES

              

KITCHENETTE SINKS

     2      EA      2,500.00      $ 5,000     

WELLNESS ROOM SINKS

     0      EA      2,500.00      $ 0     

FRIG ICEMAKER CONNECTIONS

     4      EA      750.00      $ 3,000     

INSTA HOT WATER HEATERS

     2      EA      1,250.00      $ 2,500     

DOMESTIC WET PIPING

              

CW PIPING

     194      LF      50.00      $ 9,700     

HW, HWR PIPING

     194      LF      50.00      $ 9,700     

SANITARY / VENT TO STACKS

     388      LF      52.00      $ 20,176     

INSULATION

     388      LF      10.00      $ 3,880     

LAB FIXTURES

              

FLOOR SINKS

     0      EA      4500.00      $ 0     

EYEWASH

     5      EA      1000.00      $ 5,000     

EMERGENCY SHOWER

     5      EA      1500.00      $ 7,500     

HOOKUP TO SINKS BY LAB FURNISHINGS

     11      EA      950.00      $ 10,450     

PIPING

              

DROPS

              

TYPE 1 OSP

     20      EA      750.00      $ 15,000     

TYPE 1 WALL

     10      EA      750.00      $ 7,500     

LAB WASTE AND VENT

              

VENT

     700      LF      50.00      $ 35,000     

WASTE

     608      LF      70.00      $ 42,560     

FIRE WRAP LAB WASTE IN 7TH FLOOR CEILING

     548      LF      30.00      $ 16,440     

DRAINS AT ICE MACHINE ROOMS

     1      EA      2500.00      $ 2,500     

NCW PIPING DISTRIBUTION

     344      LF      50.00      $ 17,200     

NHW&R PIPING DISTRIBUTION

     344      LF      50.00      $ 17,200     

FILTER AT ICE MACHINE ROOM

     1      EA      1500.00      $ 1,500     

TEMPERED WATER S&R DISTRIBUTION

     344      LF      50.00      $ 17,200     

RODI S&R PIPING DISTRIBUTION

     344      LF      50.00      $ 17,200     

CONNECTIONS TO POLISHERS

     11      EA      500.00      $ 5,500     

COMPRESSED AIR PIPING DISTRIBUTION

     320      LF      52.00      $ 16,640     

DROPS

     10      EA      750.00      $ 7,500     

CO2 PIPING DISTRIBUTION

     214      LF      52.00      $ 11,128     

DROPS TO INC

     10      EA      750.00      $ 7,500     

VAC PIPING DISTRIBUTION

     320      LF      52.00      $ 16,640     

DROPS TO BSC

     11      EA      750.00      $ 8,250     

N PIPING DISTRIBUTION

     238      LF      52.00        NONE     

QUICK DISCONNECTS AT OVERHEAD PANELS

     20      EA      60.00      $ 1,200     

PIPING TO WALL OUTLETS

     200      LF      52.00      $ 10,400     

INSULATION FOR LAB PIPING

     1,377      LF      12.00      $ 16,524     

MISCELLANEOUS

              

ATLAS RO DRINKING WATER

              NIC BY OWNER     

COORDINATION / DRAWINGS

     1      LOT      10000.00      $ 10,000     

STARTUP / COMMISSIONING

     75      HRS      125.00      $ 9,375     

RIGGING

     1      LOT      4000.00      $ 4,000     
              

 

 

 

SUBTOTAL PLUMBING -

               $ 395,863  

 

6


JMA ESTIMATE

50 HAMPSHIRE

BIOMED REALTY

BASED ON ARROWSTREET DRAWINGS A2.01,A2.20 ,A5.01 DATED 4/6/16 AND AHA MEMO REVISED 4/13/16 ESTIMATE DATED 4-15-16

VE SCOPE VERSION

 

HVAC                                  

EQUIPMENT

             

EXHAUST VAVS W/OUT COILS

     17       EA        1,600.00      $ 27,200     

LAB SAV W/ HW COILS

     17       EA        2,000.00      $ 34,000     

FCU COOLING ONLY CASSETTE TYPE

     10       EA        3,600.00      $ 36,000     

3 TON SPLIT SYSTEM AT FREEZER FARMS

     2       EA        17,500.00      $ 35,000     

2 TON SPLIT SYSTEM AT IDF ROOMS

     1       EA        16,000.00      $ 16,000     

500 CFM BOX FAN DUCTED TO PLENUM AT IT ROOM

     1       EA        1,800.00      $ 1,800     

VENTURI BOX

     3       EA        2,600.00      $ 7,800     

HUMIDIFIERS

             NONE     

VAVS WITH COILS

     6       EA        1,800.00      $ 10,800     

VAVS WITH NO COILS

     6       EA        1,600.00      $ 9,600     

FPT W/ HW COILS

     11       EA        2,100.00      $ 23,100     

FIN TUBE RADIATION

     515       LF        120.00        NIC     

HEAT PUMPS

     0       EA        5,000.00      $ 0     

DUCTWORK & DISTRIBUTION

             

SPECIALTY EXHAUSTS

             NONE     

SUPPLY DUCT

     26580       LBS        12.50      $ 332,250     

SS PREMIUM

             NONE     

EXHAUST DUCT

     15300       LBS        12.50      $ 191,250     

MECHANICAL / SHEETMETAL PERMIT

     1.2        523500.00      $ 6,282     

INSULATION

     18986       SF        4.00      $ 75,944     

R/G/D’S

             

LINEAR DIFFUSERS

     160       EA        300.00      $ 48,000     

STANDARD CEILING DIFFUSERS

     12       EA        135.00      $ 1,620     

EXHAUST GRILLES

     40       EA        85.00      $ 3,400     

FUME HOOD CONNECTIONS

     3       EA        500.00      $ 1,500     

LAB EXHAUST PORTS

     3       EA        500.00      $ 1,500     

PIPING / VALVES

             

HOT WATER

             

SUPPLY / RETURN

             

HWSR LOOP

     444       LF        60.00      $ 26,640     

FIN TUBE / TERMINAL BOX CONN.

     1020       LF        45.00      $ 45,900     

CHILLED WATER

             

SUPPLY / RETURN

             

CHWSR LOOP

     356       LF        60.00      $ 21,360     

FIN TUBE / TERMINAL BOX CONN.

     300       LF        45.00      $ 13,500     

INSULATION

             

LARGE

     800       LF        15.00      $ 12,000     

TYPICAL

     1320       LF        8.00      $ 10,560     

CITY WATER

             NONE     

STEAM

             NONE     

CONDENSER WATER

     0       LF        50.00      $ 0     

INSULATION

     0       LF        5.00      $ 0     

CONDENSATE DRAIN

     150       LF        45.00      $ 6,750     

INSULATION

     150       LF        5.00      $ 750     

MISCELLANEOUS

             

REBALANCE AND OTHER CORE/SHELL TI RELATED MODS

     1       ALLOW        15000.00      $ 15,000     

FILTER CHANGES (LEED)

     1       HOLD        3500.00      $ 3,500     

FIREWATCHES

     1       HOLD        15000.00      $ 15,000     

ENGINEERING/DRAWINGS/COORDINATION

     1       LOT        15000.00      $ 15,000     

BALANCING G/R/D’S

     212       EA        50.00      $ 10,600     

RIGGING

     1       LOT        7500.00      $ 7,500     

START-UP / COMMISSIONING

     80       HRS        125.00      $ 10,000     

SUBCONTRACTOR MARKUP

     10.00        1077106.00      $ 107,711     
             

 

 

 

SUBTOTAL HVAC

              $ 1,184,817  

ATC

             

FUME HOODS

     3       EA        5,120.00      $ 15,360     

FPT/VAV BOXES W/ REHEAT

     40       EA        1,800.00      $ 72,000     

VAV COOLING ONLY

     0       EA        1,200.00      $ 0     

EVAV

     17       EA        1,400.00      $ 23,800     

FIN TUBE

     23       EA        550.00        NIC     

O2 DEPLETION

             ASSUME NONE     

HEAT PUMPS

     0       EA        1,500.00      $ 0     

HUMIDIFIERS

             ASSUME NONE     

CO2 SENSORS

     2       EA        750.00      $ 1,500     

 

7


JMA ESTIMATE

50 HAMPSHIRE

BIOMED REALTY

BASED ON ARROWSTREET DRAWINGS A2.01,A2.20 ,A5.01 DATED 4/6/16 AND AHA MEMO REVISED 4/13/16 ESTIMATE DATED 4-15-16

VE SCOPE VERSION

 

AIR FLOW STATIONS

     2      EA      4,850.00     $ 9,700    

COMBO FLOW STATIONS

             nic    

WATER FLOW METERS

             nic    

FCUS

     10      EA      1,600.00     $ 16,000    

SPLIT SYSTEMS

     2      EA      2,800.00     $ 5,600    

LIGHTING INTERFACE WORK

     1      LOT      17,500.00     $ 17,500    

ELECTRICAL METER INTEGRATION

             nic    

MISC INFRASTUCTURE

     1      LOT      15,000.00     $ 15,000    

FULL TIME PM

     1.5      MO      24,000.00     $ 36,000    

PLUMBING FLOW METERS

             nic    

ALARM POINTS

     1      ALLOW      20,000.00     $ 20,000    

SUB MARKUP ON CONTROLS

     1      LOT      16800.00     $ 16,800    
            

 

 

 

SUBTOTAL ATC

             $ 249,260  

ELECTRICAL

            

NORMAL POWER DISTRIBUTION

            

BUS TAPS

     1      EA      3,200.00     $ 3,200    

DRY TYPE TRANSFORMERS

            

SMALL

     1      EA      6,500.00     $ 6,500    

LARGE

     1      EA      9,000.00     $ 9,000    

SWITCHBOARDS

     1      EA      15,000.00       nic    

DISTRIBUTION PANELS

     1      EA      10,000.00     $ 10,000    

HV PANEL

     1      EA      6,000.00     $ 6,000    

LV PANELS IN SPACE

     4      EA      4,000.00     $ 16,000    

FEEDERS IN CLOSET

     2      EA      5,000.00     $ 10,000    

FEEDS TO LAB FLR PANELS

     400      LF      70.00     $ 28,000    

OPTIONAL STANDBY POWER

            

FEEDER TO GENSET GEAR

     120      LF      100.00     $ 12,000    

PANELS

            

SWITCHBOARDS

     1      EA      15,000.00       nic    

DISTRIBUTION

     1      EA      10,000.00     $ 10,000    

HIGH VOLTAGE

     1      EA      6,500.00     $ 6,500    

LOW VOLTAGE

     2      EA      5,500.00     $ 11,000    

TRANSFORMERS

     1      EA      10,000.00     $ 10,000    

FEEDERS

            

FEEDS TO LAB FLR PANELS

     400      LF      50.00     $ 20,000    

LIGHTING

            

LIGHTING IN OFFICE AREA

     10,225      SF      12.00     $ 122,700    

LIGHTING IN LAB AREA

     10,200      SF      14.00     $ 142,800    

SPECIALTY LIGHTING IN CONF ,HUDDLE ETC PER NOTES

     3,875      SF      12.00     $ 46,500    

SPECIALTY LARGE PENDANTS

     17      EA      1,500.00       ABOVE FOR NOW    

SPECAILTY SMALL PENDANTS

     56      EA      650.00       ABOVE FOR NOW    

target discount on lighting packge

     1      allow      (100,000.00   ($ 100,000  

LIGHTING CONTROLS

            

HEAD END

     1      LOT      25,000.00     $ 25,000    

OCCUPANCY SENSORS

     43      EA      300.00     $ 12,900    

OTHER CONTROLLERS

     15      EA      500.00     $ 7,500    

POWER

            

DEDICATED POWER IN TEL/DATA CLOSETS

     2      RMS      3,500.00     $ 7,000    

GFI OUTLETS

     8      EA      130.00     $ 1,040    

DUPLEX OUTLETS

     86      EA      120.00     $ 10,320    

DOUBLE DUPLEX OUTLETS

     0      EA      140.00     $ 0    

FURNITURE FEEDS

     20      EA      800.00     $ 16,000    

FLOOR BOXES

     5      EA      2,500.00     $ 12,500    

POKE THRUS

     5      EA      1,250.00     $ 6,250    

OSP (2 DEDICATED OUTLETS EACH)

     48      EA      750.00     $ 36,000    

OSP BRANCH CIRCUITS

     48      EA      225.00     $ 10,800    

WIRE MOLD

     156      LF      65.00     $ 10,140    

EXTERIOR LAB WALL OUTLETS

     55      EA      165.00     $ 9,075    

TISSUE CULTURE BSC OUTLETS

     11      EA      165.00     $ 1,815    

TC INCUBATOR OUTLETS ON E POWER

     11      EA      175.00     $ 1,925    

TC MISC OUTLETS

     12      EA      165.00     $ 1,980    

TBD , FLOW , MICROS ETC ROOMS OUTLETS

     40      EA      165.00     $ 6,600    

FREEZER FARM OUTLETS

     30      EA      175.00     $ 5,250    

TANK AREA OUTLETS

     4      EA      175.00     $ 700    

WASTE AREA AND STORAGE

     5      EA      165.00     $ 825    

PREMIUM FOR DECIACTED CIRCUITS

     154      EA      225.00     $ 34,650    

CORRDIOR OUTLETS

     14      EA      165.00     $ 2,310    

 

8


JMA ESTIMATE

50 HAMPSHIRE

BIOMED REALTY

BASED ON ARROWSTREET DRAWINGS A2.01,A2.20 ,A5.01 DATED 4/6/16 AND AHA MEMO REVISED 4/13/16 ESTIMATE DATED 4-15-16

VE SCOPE VERSION

 

MECHANICAL & EQUIPMENT WIRING

             

HVAC BOXES/EXHAUST FCU’S

     74     EA      450.00      $ 33,300     

DISHWASHER CONNECTIONS

     2     EA      450.00      $ 900     

FCU

     10     EA      1,500.00        above     

SPLIT SYSTEMS

     2     EA      2,250.00        above     

PH NEUTRALIZATION SYSTEMS

     1     EA      3000.00        NIC -LOW VOLT     

POWER HVAC CONTROLS EQUIPMENT

     1     LOT      12500.00      $ 12,500     

FUME HOOD CONNECTIONS

     3     EA      1500.00      $ 4,500     

EXPLOSION PROOF FUME HOOD CONNECTIONS

             EXCL     

WIRE COLD / ENVIRONMENTAL ROOMS

     0     EA      3,000.00      $ 0     

LAB EQUIPMENT

     1     ALLOW      20,000.00      $ 20,000     

FIRE ALARM

     54     DEV      600.00      $ 32,400     

TEMP HEAT DETECTORS ILO SPRINKLERS IN OCC BLDG

     1     ALLOW      17,000.00      $ 17,000     
           $ 0     

RACEWAY

           $ 0     

TEL/DATA

     1     LOT      3,500.00      $ 3,500     

CABLE TRAY

             NIC     

A/V IN-ROOM RACEWAY

     9     RMS      3,500.00      $ 31,500     

SECURITY RACEWAY

     1     LOT      7,500.00      $ 7,500     

MISC

             

COORDINATION DRAWINGS

     1     LOT      10,000.00      $ 10,000     

PERMIT

     1     LOT      5,000.00      $ 5,000     

COMMISSIONING

     50     MH      150.00      $ 7,500     

HOLD FOR TEMP LIGHTS, LIFE SAFETY

     26,520     SF      0.30      $ 7,956     

SUBCONTRACTOR MARKUP

     6.00        784336.00      $ 47,060     
             

 

 

 
SUBTOTAL ELECTRICAL               $ 831,396  
TEL/DATA              

TEL/DATA WIRING ALLOWANCE

             BY TENANT     
             

 

 

 
SUBTOTAL TEL/DATA               $ 0  
AUDIO VISUAL WIRING / EQUIPMENT              

AUDIO/VIDEO ALLOWANCE

             BY TENANT     
             

 

 

 

SUBTOTAL AUDIO VISUAL WIRING / EQUIPMENT

              $ 0  

SECURITY

             

ALLOWANCE

     26,520     SF         10.00 BY TENANT     
             

 

 

 

SUBTOTAL SECURITY

              $ 0  
             

 

 

 

SUBTOTAL DIRECT COSTS

           $ 4,532,127      $ 4,532,127  
              $ 171  

 

9


Attachment 3 to Work Letter

Budget

[See attached]

 

B-8


BioMed Realty Trust

50 Hampshire Street

Surface - Conceptual Development Budget

5/2/16

 

50 Hampshire Street-Surface

         32,018 rsf                            

TI|HARD COST 

                

Hard Cost | CM Estimate

     $ 5,599,302         $ 174.88        / sf      JMA Estimate 4/27/16
    

 

 

       

 

 

    

 

 

    

Hard Cost Contingency

     1.5   $ 83,990         $ 2.62        / sf     
    

 

 

       

 

 

    

 

 

    

SUB-TOTAL-TI HARD COST

     $ 5,683,292         $ 177.50        /sf     

TI|SOFT COST 

                

Design Fees

     $ 403,200         $ 12.59        / sf      AST Proposal 3/25/16
    

 

 

       

 

 

    

 

 

    

Design Reimbursables

     $ 8,100         $ 0.25        / sf      AST Proposal 3/25/16
    

 

 

       

 

 

    

 

 

    

Building Shutdown Fees

     $ 50,000         $ 1.56        / sf      BMR Allowance
    

 

 

       

 

 

    

 

 

    

Commissioning

     $ 35,000         $ 1.09        / sf      BMR Allowance 
    

 

 

       

 

 

    

 

 

    

Soft Cost Contingency

     1.5   $ 7,445         $ 0.23        / sf     
    

 

 

       

 

 

    

 

 

    

Development Fee

     3.0   $  185,611         $ 5.80        / sf     
    

 

 

       

 

 

    

 

 

    

SUB-TOTAL - TI SOFT COST

     $ 689,356         $ 21.53        / sf     

TOTAL PROJECT COST 

     $ 6,372,647         $ 199.03        / sf     

TENANT IMPROVEMENT ALLOWANCE 

     $ 4,802,700         $ 150.00        / sf     

EXCESS TENANT IMPROVEMENT 

     $  1,569,947         $ 49.03        / sf     


EXHIBIT B-1

TENANT WORK INSURANCE SCHEDULE

Tenant shall be responsible for requiring all of Tenant contractors doing construction or renovation work to purchase and maintain such insurance as shall protect it from the claims set forth below which may arise out of or result from any Tenant Work whether such Tenant Work is completed by Tenant or by any Tenant contractors or by any person directly or indirectly employed by Tenant or any Tenant contractors, or by any person for whose acts Tenant or any Tenant contractors may be liable:

1. Claims under workers’ compensation, disability benefit and other similar employee benefit acts which are applicable to the Tenant Work to be performed.

2. Claims for damages because of bodily injury, occupational sickness or disease, or death of employees under any applicable employer’s liability law.

3. Claims for damages because of bodily injury, or death of any person other than Tenant’s or any Tenant contractors’ employees.

4. Claims for damages insured by usual personal injury liability coverage which are sustained (a) by any person as a result of an offense directly or indirectly related to the employment of such person by Tenant or any Tenant contractors or (b) by any other person.

5. Claims for damages, other than to the Tenant Work itself, because of injury to or destruction of tangible property, including loss of use therefrom.

6. Claims for damages because of bodily injury or death of any person or property damage arising out of the ownership, maintenance or use of any motor vehicle.

Tenant contractors’ Commercial General Liability Insurance shall include premises/operations (including explosion, collapse and underground coverage if such Tenant Work involves any underground work), elevators, independent contractors, products and completed operations, and blanket contractual liability on all written contracts, all including broad form property damage coverage.

Tenant contractors’ Commercial General, Automobile, Employers and Umbrella Liability Insurance shall be written for not less than limits of liability as follows:

 

 

a. Commercial General Liability:

 

Bodily Injury and Property Damage

  Commercially reasonable amounts, but in any event no less than $1,000,000 per occurrence and $2,000,000 general aggregate, with $2,000,000 products and completed operations aggregate.

 

B-1-1


  b. Commercial Automobile Liability:   $1,000,000 per accident
 

Bodily Injury and Property

Damage

 
  c. Employer’s Liability:  
 

Each Accident

  $500,000
 

Disease – Policy Limit

  $500,000
 

Disease – Each Employee

  $500,000
 

d. Umbrella Liability:

 

Bodily Injury and Property Damage

  Commercially reasonable amounts (excess of coverages a, b and c above), but in any event no less than $5,000,000 per occurrence / aggregate.

All subcontractors for Tenant contractors shall carry the same coverages and limits as specified above, unless different limits are reasonably approved by Landlord. The foregoing policies shall contain a provision that coverages afforded under the policies shall not be canceled or not renewed until at least thirty (30) days’ prior written notice has been given to the Landlord. Certificates of insurance including required endorsements showing such coverages to be in force shall be filed with Landlord prior to the commencement of any Tenant Work and prior to each renewal. Coverage for completed operations must be maintained for the lesser of ten (10) years and the applicable statue of repose following completion of the Tenant Work, and certificates evidencing this coverage must be provided to Landlord. The minimum A.M. Best’s rating of each insurer shall be A- VII. Landlord and its mortgagees shall be named as an additional insureds under Tenant contractors’ Commercial General Liability, Commercial Automobile Liability and Umbrella Liability Insurance policies as respects liability arising from work or operations performed, or ownership, maintenance or use of autos, by or on behalf of such contractors. Each contractor and its insurers shall provide waivers of subrogation with respect to any claims covered or that should have been covered by valid and collectible insurance, including any deductibles or self-insurance maintained thereunder.

Such coverage shall include bodily injury, sickness, disease, death or mental anguish or shock sustained by any person; property damage, including physical injury to or destruction of tangible property (including the resulting loss of use thereof), clean-up costs and the loss of use of tangible property that has not been physically injured or destroyed; and defense costs, charges and expenses incurred in the investigation, adjustment or defense of claims for such damages. Coverage shall apply to both sudden and non-sudden pollution conditions including the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any watercourse or body of water. Claims-made coverage is permitted, provided the policy retroactive date is continuously maintained prior to the Term Commencement Date, and coverage is continuously maintained during all periods in which Tenant occupies the Premises. Coverage shall be maintained with limits of not less than $1,000,000 per incident with a $2,000,000 policy aggregate.

 

B-1-2


EXHIBIT B-2

LANDLORD’S WORK

 

    (1) 100% Outside Air (OA) Air Handling Unit (AHU)

 

    (1) Air Cooled Water Chiller

 

    (2) Boilers

 

    (1) Tenant Generator for Stand-By Power

 

    (1) Central Lab Exhaust with Heat Recovery

 

    Base Building Shared Lab Services:

 

    R.O. Tank and vertical distribution

 

    Lab Waste pH Tank and vertical distribution

 

    Compressed Air

 

    Central Vacuum

 

    Chemical Storage

 

    Lab Waste Storage

 

B-2-1


EXHIBIT C

ACKNOWLEDGEMENT OF TERM COMMENCEMENT DATE

AND TERM EXPIRATION DATE

THIS ACKNOWLEDGEMENT OF TERM COMMENCEMENT DATE AND TERM EXPIRATION DATE is entered into as of [                     ], 20[        ], with reference to that certain Lease (the “Lease”) dated as of [                    ], 20[                ], by SURFACE ONCOLOGY, INC., a Delaware corporation (“Tenant”), in favor of BMR-HAMPSHIRE LLC, a Delaware limited liability company (“Landlord”). All capitalized terms used herein without definition shall have the meanings ascribed to them in the Lease.

Tenant hereby confirms the following:

1. Tenant accepted possession of the Premises for use in accordance with the Permitted Use on [                    ], 20[        ]. Tenant first occupied the Premises for the Permitted Use on [                    ], 20[        ].

2. The Premises are in good order, condition and repair.

3. The Tenant Improvements are Substantially Complete.

4. All conditions of the Lease to be performed by Landlord as a condition to the full effectiveness of the Lease have been satisfied, and Landlord has fulfilled all of its duties in the nature of inducements offered to Tenant to lease the Premises.

5. In accordance with the provisions of Article 4 of the Lease, the Term Commencement Date is [                    ], 20[        ], and, unless the Lease is terminated prior to the Term Expiration Date pursuant to its terms, the Term Expiration Date shall be [                    ], 20[        ].

6. The Lease is in full force and effect, and the same represents the entire agreement between Landlord and Tenant concerning the Premises[, except [                    ]].

7. Tenant has no existing defenses against the enforcement of the Lease by Landlord, and there exist no offsets or credits against Rent owed or to be owed by Tenant.

8. The obligation to pay Rent is presently in effect and all Rent obligations on the part of Tenant under the Lease commenced to accrue on [                    ], 20[        ], with Base Rent payable on the dates and amounts set forth in the chart below:

 

Dates

   Approximate
Square Feet of
Rentable Area
    

Base Rent per Square
Foot of Rentable Area

   Monthly
Base Rent
     Annual Base
Rent
 

[        ]/[        ]/[         ]-

     32,018      $73.00 annually      $194,776.17        $2,337,314.00  

[        ]/[        ]/[         ]

           

 

C-1


9. The undersigned Tenant has not made any prior assignment, transfer, hypothecation or pledge of the Lease or of the rents thereunder or sublease of the Premises or any portion thereof.

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

 

C-2


IN WITNESS WHEREOF, Tenant has executed this Acknowledgment of Term Commencement Date and Term Expiration Date as of the date first written above.

 

TENANT:

SURFACE ONCOLOGY, INC.,

a Delaware corporation

By:                                                                           
Name:                                                                      
Title:                                                                        

 

C-3


EXHIBIT D

PLAN OF LAB AND OFFICE ZONES

[See Attached]

 

D-1


LOGO

 


EXHIBIT E

FORM OF LETTER OF CREDIT

[On letterhead or L/C letterhead of Issuer]

LETTER OF CREDIT

Date:                     , 20        

                                                                              (the “Beneficiary”)

                                                                              

                                                                              

Attention:                                                             

L/C. No.:                                                              

Loan No. :                                                            

Ladies and Gentlemen:

We establish in favor of Beneficiary our irrevocable and unconditional Letter of Credit numbered as identified above (the “L/C”) for an aggregate amount of $                    , expiring at         :00 p.m. on                      or, if such day is not a Banking Day, then the next succeeding Banking Day (such date, as extended from time to time, the “Expiry Date”). “Banking Day” means a weekday except a weekday when commercial banks in                      are authorized or required to close.

We authorize Beneficiary to draw on us (the “Issuer”) for the account of                      (the “Account Party”), under the terms and conditions of this L/C.

Funds under this L/C are available by presenting the following documentation (the “Drawing Documentation”): (a) the original L/C and (b) a sight draft substantially in the form of Attachment 1, with blanks filled in and bracketed items provided as appropriate. No other evidence of authority, certificate, or documentation is required.

Drawing Documentation must be presented at Issuer’s office at                      on or before the Expiry Date by personal presentation, courier or messenger service, or fax. Presentation by fax shall be effective upon electronic confirmation of transmission as evidenced by a printed report from the sender’s fax machine. After any fax presentation, but not as a condition to its effectiveness, Beneficiary shall with reasonable promptness deliver the original Drawing Documentation by any other means. Issuer will on request issue a receipt for Drawing Documentation.

We agree, irrevocably, and irrespective of any claim by any other person, to honor drafts drawn under and in conformity with this L/C, within the maximum amount of this L/C, presented to us on or before the Expiry Date, provided we also receive (on or before the Expiry Date) any other Drawing Documentation this L/C requires.

 

E-1


We shall pay this L/C only from our own funds by check or wire transfer, in compliance with the Drawing Documentation.

If Beneficiary presents proper Drawing Documentation to us on or before the Expiry Date, then we shall pay under this L/C at or before the following time (the “Payment Deadline”): (a) if presentment is made at or before noon of any Banking Day, then the close of such Banking Day; and (b) otherwise, the close of the next Banking Day. We waive any right to delay payment beyond the Payment Deadline. If we determine that Drawing Documentation is not proper, then we shall so advise Beneficiary in writing, specifying all grounds for our determination, within one Banking Day after the Payment Deadline.

Partial drawings are permitted. This L/C shall, except to the extent reduced thereby, survive any partial drawings.

We shall have no duty or right to inquire into the validity of or basis for any draw under this L/C or any Drawing Documentation. We waive any defense based on fraud or any claim of fraud.

The Expiry Date shall automatically be extended by one year (but never beyond                      (the “Outside Date”)) unless, on or before the date 90 days before any Expiry Date, we have given Beneficiary notice that the Expiry Date shall not be so extended (a “Nonrenewal Notice”). We shall promptly upon request confirm any extension of the Expiry Date under the preceding sentence by issuing an amendment to this L/C, but such an amendment is not required for the extension to be effective. We need not give any notice of the Outside Date.

Beneficiary may from time to time without charge transfer this L/C, in whole but not in part, to any transferee (the “Transferee”). Issuer shall look solely to Account Party for payment of any fee for any transfer of this L/C. Such payment is not a condition to any such transfer. Beneficiary or Transferee shall consummate such transfer by delivering to Issuer the original of this L/C and a Transfer Notice substantially in the form of Attachment 2, purportedly signed by Beneficiary, and designating Transferee. Issuer shall promptly reissue or amend this L/C in favor of Transferee as Beneficiary. Upon any transfer, all references to Beneficiary shall automatically refer to Transferee, who may then exercise all rights of Beneficiary. Issuer expressly consents to any transfers made from time to time in compliance with this paragraph.

Any notice to Beneficiary shall be in writing and delivered by hand with receipt acknowledged or by overnight delivery service such as FedEx (with proof of delivery) at the above address, or such other address as Beneficiary may specify by written notice to Issuer. A copy of any such notice shall also be delivered, as a condition to the effectiveness of such notice, to:                          (or such replacement as Beneficiary designates from time to time by written notice).

No amendment that adversely affects Beneficiary shall be effective without Beneficiary’s written consent.

This L/C is subject to and incorporates by reference: (a) the International Standby Practices 98 (“ISP 98”); and (b) to the extent not inconsistent with ISP 98, Article 5 of the Uniform Commercial Code of the State of New York.

 

E-2


Very truly yours,

[Issuer Signature]

 

E-3


ATTACHMENT 1 TO EXHIBIT E

FORM OF SIGHT DRAFT

[BENEFICIARY LETTERHEAD]

TO:

[Name and Address of Issuer]

SIGHT DRAFT

AT SIGHT, pay to the Order of                     , the sum of                      United States Dollars ($                    ). Drawn under [Issuer] Letter of Credit No.                      dated                     .

[Issuer is hereby directed to pay the proceeds of this Sight Draft solely to the following account:

                             .]

[Name and signature block, with signature or purported signature of Beneficiary]

Date:                                 

 

E-1-1


ATTACHMENT 2 TO EXHIBIT E

FORM OF TRANSFER NOTICE

[BENEFICIARY LETTERHEAD]

TO:

[Name and Address of Issuer] (the “Issuer”)

TRANSFER NOTICE

By signing below, the undersigned, Beneficiary (the “Beneficiary”) under Issuer’s Letter of Credit No.                      dated                      (the “L/C”), transfers the L/C to the following transferee (the “Transferee”):

[Transferee Name and Address]

The original L/C is enclosed. Beneficiary directs Issuer to reissue or amend the L/C in favor of Transferee as Beneficiary. Beneficiary represents and warrants that Beneficiary has not transferred, assigned, or encumbered the L/C or any interest in the L/C, which transfer, assignment, or encumbrance remains in effect.

[Name and signature block, with signature or purported signature of Beneficiary]

Date:                                              ]

 

E-2-1


EXHIBIT F

RULES AND REGULATIONS

NOTHING IN THESE RULES AND REGULATIONS (“RULES AND REGULATIONS”) SHALL SUPPLANT ANY PROVISION OF THE LEASE. IN THE EVENT OF A CONFLICT OR INCONSISTENCY BETWEEN THESE RULES AND REGULATIONS AND THE LEASE, THE LEASE SHALL PREVAIL.

1. No Tenant Party shall encumber or obstruct the common entrances, lobbies, elevators, sidewalks and stairways of the Building(s) or the Project or use them for any purposes other than ingress or egress to and from the Building(s) or the Project.

2. Except as specifically provided in the Lease, no sign, placard, picture, advertisement, name or notice shall be installed or displayed on any part of the outside of the Premises or the Building(s) without Landlord’s prior written consent. Landlord shall have the right to remove, at Tenant’s sole cost and expense and without notice, any sign installed or displayed in violation of this rule.

3. If Landlord objects in writing to any curtains, blinds, shades, screens, hanging plants or other similar objects attached to or used in connection with any window or door of the Premises or placed on any windowsill, and (a) such window, door or windowsill is visible from the exterior of the Premises and (b) such curtain, blind, shade, screen, hanging plant or other object is not included in plans approved by Landlord, then Tenant shall promptly remove such curtains, blinds, shades, screens, hanging plants or other similar objects at its sole cost and expense.

4. Deliveries shall be made no earlier than 7 a.m. and no later than 6 p.m. and are subject to local municipal noise ordinances. No deliveries shall be made that impede or interfere with other tenants in or the operation of the Project. Movement of furniture, office equipment or any other large or bulky material(s) through the Common Area shall be restricted to such hours as Landlord may designate and shall be subject to reasonable restrictions that Landlord may impose

5. Tenant shall not place a load upon any floor of the Premises that exceeds the load per square foot that (a) such floor was designed to carry or (b) is allowed by Applicable Laws. Fixtures and equipment that cause noises or vibrations that may be transmitted to the structure of the Building(s) to such a degree as to be objectionable to other tenants shall be placed and maintained by Tenant, at Tenant’s sole cost and expense, on vibration eliminators or other devices sufficient to eliminate such noises and vibrations to levels reasonably acceptable to Landlord and the affected tenants of the Project.

6. Tenant shall not use any method of HVAC other than that approved in writing by Landlord or present at the Project and serving the Premises as of the Execution Date.

7. Tenant shall not install any radio, television or other antennae; cell or other communications equipment; or other devices on the roof or exterior walls of the Premises except in accordance with the Lease. Tenant shall not interfere with radio, television or other digital or electronic communications at the Project or elsewhere.

 

F-1


8. Canvassing, peddling, soliciting and distributing handbills or any other written material within, on or around the Project (other than within the Premises) are prohibited. Tenant shall cooperate with Landlord to prevent such activities by any Tenant Party.

9. Tenant shall store all of its trash, garbage and Hazardous Materials in receptacles within its Premises or in receptacles designated by Landlord outside of the Premises. Tenant shall not place in any such receptacle any material that cannot be disposed of in the ordinary and customary manner of trash, garbage and Hazardous Materials disposal. Any Hazardous Materials transported through Common Area shall be held in secondary containment devices. Tenant shall be responsible, at its sole cost and expense, for Tenant’s removal of its trash, garbage and Hazardous Materials. Tenant is encouraged to participate in the waste removal and recycling program in place at the Project.

10. The Premises shall not be used for lodging or for any improper, immoral or objectionable purpose. No cooking shall be done or permitted in the Premises; provided, however, that Tenant may use (a) equipment approved in accordance with the requirements of insurance policies that Landlord or Tenant is required to purchase and maintain pursuant to the Lease for brewing coffee, tea, hot chocolate and similar beverages, (b) microwave ovens for employees’ use and (c) equipment shown on plans approved by Landlord; provided, further, that any such equipment and microwave ovens are used in accordance with Applicable Laws.

11. Tenant shall not, without Landlord’s prior written consent, use the name of the Project, if any, in connection with or in promoting or advertising Tenant’s business except as Tenant’s address.

12. Tenant shall comply with all safety, fire protection and evacuation procedures and regulations established by Landlord or any Governmental Authority.

13. Tenant assumes any and all responsibility for protecting the Premises from theft, robbery and pilferage, which responsibility includes keeping doors locked and other means of entry to the Premises closed.

14. Tenant shall not modify any locks to the Premises without Landlord’s prior written consent, which consent Landlord shall not unreasonably withhold, condition or delay. Tenant shall furnish Landlord with copies of keys, pass cards or similar devices for locks to the Premises.

15. Tenant shall cooperate and participate in all reasonable security programs affecting the Premises.

16. Tenant shall not permit any animals in the Project, other than for service animals or for use in laboratory experiments.

17. Bicycles shall not be taken into the Building(s) (including the elevators and stairways of the Building) except into areas designated by Landlord.

 

F-2


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

19. Discharge of industrial sewage shall only be permitted if Tenant, at its sole expense, first obtains all necessary permits and licenses therefor from all applicable Governmental Authorities.

 

20. Smoking is prohibited at the Project.

21. The Project’s hours of operation are currently 24 hours a day, seven days a week, except that the Fitness Center is available for use by authorized employees of Tenant between the hours of 5:00 am and 8:00 pm, Monday through Friday (excluding any non-business days that fall during such 5-day period).

22. Tenant shall comply with all orders, requirements and conditions now or hereafter imposed by Applicable Laws or Landlord (“Waste Regulations”) regarding the collection, sorting, separation and recycling of waste products, garbage, refuse and trash generated by Tenant (collectively, “Waste Products”), including (without limitation) the separation of Waste Products into receptacles reasonably approved by Landlord and the removal of such receptacles in accordance with any collection schedules prescribed by Waste Regulations.

23. Tenant, at Tenant’s sole cost and expense, shall cause the Premises to be exterminated on a monthly basis to Landlord’s reasonable satisfaction and shall cause all portions of the Premises used for the storage, preparation, service or consumption of food or beverages to be cleaned daily in a manner reasonably satisfactory to Landlord, and to be treated against infestation by insects, rodents and other vermin and pests whenever there is evidence of any infestation. Tenant shall not permit any person to enter the Premises or the Project for the purpose of providing such extermination services, unless such persons have been approved by Landlord. If requested by Landlord, Tenant shall, at Tenant’s sole cost and expense, store any refuse generated in the Premises by the consumption of food or beverages in a cold box or similar facility.

24. If Tenant desires to use any portion of the Common Area for a Tenant-related event, Tenant must notify Landlord in writing at least thirty (30) days prior to such event on the form attached as Attachment 1 to this Exhibit, which use shall be subject to Landlord’s prior written consent, not to be unreasonably withheld, conditioned or delayed. Notwithstanding anything in this Lease or the completed and executed Attachment to the contrary, Tenant shall be solely responsible for setting up and taking down any equipment or other materials required for the event, and shall promptly pick up any litter and report any property damage to Landlord related to the event. Any use of the Common Area pursuant to this Section shall be subject to the provisions of Article 28 of the Lease.

Landlord may waive any one or more of these Rules and Regulations for the benefit of Tenant or any other tenant, but no such waiver by Landlord shall be construed as a waiver of such Rules and Regulations in favor of Tenant or any other tenant, nor prevent Landlord from thereafter enforcing any such Rules and Regulations against any or all of the tenants of the Project, including Tenant. These Rules and Regulations are in addition to, and shall not be

 

F-3


construed to in any way modify or amend, in whole or in part, the terms covenants, agreements and conditions of the Lease. Landlord reserves the right to make such other and reasonable additional rules and regulations as, in its judgment, may from time to time be needed for safety and security, the care and cleanliness of the Project, or the preservation of good order therein; provided, however, that Tenant shall not be obligated to adhere to such additional rules or regulations until Landlord has provided Tenant with written notice thereof. Tenant agrees to abide by these Rules and Regulations and any such additional rules and regulations issued or adopted by Landlord. Tenant shall be responsible for the observance of these Rules and Regulations by all Tenant Parties.

 

F-4


ATTACHMENT 1 TO EXHIBIT F

REQUEST FOR USE OF COMMON AREA

REQUEST FOR USE OF COMMON AREA

 

Date of Request:                                                                                                                                                                                          

Landlord/Owner:                                                                                                                                                                                         

Tenant/Requestor:                                                                                                                                                                                       

Property Location:                                                                                                                                                                                       

Event Description:                                                                                                                                                                                       

                                                                                                                                                                                                                     

                                                                                                                                                                                                                     

Proposed Plan for Security & Cleaning:                                                                                                                                                    

                                                                                                                                                                                                                     

                                                                                                                                                                                                                     

Date of Event:                                                                                                                                                                                             

Hours of Event: (to include set-up and take down):                                                                                                                                  

Location at Property (see attached map):                                                                                                                                                  

Number of Attendees:                                                                                                                                                                                

Open to the Public? [        ] YES [        ] NO

Food and/or Beverages? [        ] YES [        ] NO

If YES:

•  Will food be prepared on site? [        ] YES [        ] NO

•  Please describe:                                                                                                                                                                        

•  Will alcohol be served? [        ] YES [        ] NO

•  Please describe:                                                                                                                                                                        

•  Will attendees be charged for alcohol? [        ] YES [        ] NO

 

F-1-1


•  Is alcohol license or permit required? [        ] YES [        ] NO

•  Does caterer have alcohol license or permit: [        ] YES [        ] NO [        ] N/A

Other Amenities (tent, booths, band, food trucks, bounce house, etc.):                                                                                                 

                                                                                                                                                                                                                     

                                                                                                                                                                                                                     

Other Event Details or Special Circumstances:                                                                                                                                         

                                                                                                                                                                                                                     

                                                                                                                                                                                                                     

                                                                                                                                                                                                                     

                                                                                                                                                                                                                     

The undersigned certifies that the foregoing is true, accurate and complete and he/she is duly authorized to sign and submit this request on behalf of the Tenant/Requestor named above.

[INSERT NAME OF TENANT/REQUESTOR]

 

By:                                                                           
Name:                                                                      
Title:                                                                        
Date:                                                                        

 

F-1-2


EXHIBIT G

PTDM

[See attached]

 

G-1


LOGO

PTDM Ordinance – AMENDMENT – FINAL DECISION

Project: 50 Hampshire Street (also known as 205 Broadway)

Project Number: F-9

Applicant: Bulfinch Companies, Inc.

Contact: Robert Schlager

Address: First Needham Place, 250 First Avenue, Suite 200, Needham, MA 02194

Date of Application: 10/23/01

Decision Deadline: 12/26/01

Date of Issue: 12/14/01

This form indicates the FINAL decision of the Parking and Transportation Demand Management Planning Officer with respect to the PTDM plan submitted for the project listed above. Please review the enclosed attachments, which include information about ongoing monitoring and reporting relative to this project.

Decision:

☐   Approve (attachment: approval letter and copy of plan)

  Approve with Conditions (attachment: letter of conditions and copy of plan)

☐  Deny (attachment: reason for denial and copy of plan)

 

/s/ Catherine E. Preston

Catherine E. Preston, AICP
PTDM Planning Officer

 

LOGO


LOGO

December 14, 2001

Robert Schlager

Bulfinch Companies, Inc.

First Needham Place, 250 First Avenue, Suite 200

Needham, MA 02194

Dear Mr. Schlager:

The attached form indicates my final decision on the Parking and Transportation Demand Management plan that was submitted for the project located at 205 Broadway, a/k/a 50-60 Hampshire Street. The final decision is an approval with conditions, reflecting changes that must be made to your plan. This letter spells out the conditions that are placed on your plan, as well as recommendations for additional TDM programs that will further improve your non-SOV mode split.

The TDM program for 50-60 Hampshire Street includes a meaningful set of measures to encourage the use of non-Single Occupant Vehicle modes, the results of which have already been seen in monitoring. You are to be commended for the steps you have already taken to limit SOV trips to this site. By incorporating all tenants into the PTDM plan, you have further illustrated your commitment to successful and effective implementation of these measures, which will help to reduce the site’s traffic and air quality impacts.

Plan Conditions

The following conditions are placed on the PTDM plan for 205 Broadway:

Much of the success of the PTDM plan has been attributable to programs implemented by Camp, Dresser and McKee (CDM), the primary tenant in 50 Hampshire Street. In order to ensure that such successes are continued through various tenancies and expanded to include the rest of the tenants in 50 and 60 Hampshire, the owner shall incorporate a full set of PTDM measures into future leases. While the owner is not required to ask current tenants without such lease requirement to implement the same array of measures undertaken by CDM, it is anticipated that, as the leases come up for renewal, all tenants will implement an equally comprehensive program.

 

  CONDITION: Future leases will include provisions to ensure that a full complement of TDM measures will be implemented such that they are available to employees of all tenants in 50 and 60 Hampshire Street. While details may differ from tenant to tenant, TDM programs under new leases must be equally comprehensive in scope to those described in the approved plan.

 

LOGO


Additional Recommendations

In addition to the conditions listed above, I am recommending the implementation of the following additional TDM measures. If the current plan fails to reach the stated mode split goal, implementing these programs will help to achieve that goal.

 

  Subsidize MBTA passes for on-site employees. These subsidies typically cover at least 50% of the cost of passes, including commuter rail passes.

 

  Provide financial incentives for those who bike or walk to work.

 

  Study and/or provide shuttle service, alone or with other area employers, to the Green Line.

I look forward to continuing to work with you as you implement the elements of this plan and monitor your success. If you have any questions, please feel free to contact me by phone at 617-349-4673 or by email at cpreston@ci.cambridge.ma.us.

Sincerely,

 

/s/ Catherine E. Preston
Catherine E. Preston, AICP
PTDM Planning Officer

 

cc:   

Beth Rubenstein, Assistant City Manager for Community Development

Susanne Rasmussen, Director of Environmental and Transportation Planning

Susan Clippinger, Director of Traffic, Parking, and Transportation

 

● Page 2


 

Parking and Transportation Demand Management Plan

Amendment

 

 

 

LOGO

50 Hampshire Street

Office Development

 

  

Cambridge, Massachusetts

 

  

 

Prepared for   

BHX, LLC, as sole trustee for 205 Broadway Realty Trust

250 First Avenue, Suite 200

Needham, MA 02194

781 707-4000

Prepared by    VHB/Vanasse Hangen Brustlin, Inc.
  

Transportation, Land Development, Environmental Services

101 Walnut Street

   P.O. Box 9151
  

Watertown, Massachusetts 02272

617 924-1770

   September 6, 2001


VHB    Vanasse Hang      Brustlin, Inc.

 

 

Introduction

 

  This Parking and Transportation Demand Management Plan is a revised version of the original plan submitted by BHX, LLC on June 28, 1999 and accepted by the City of Cambridge on July 2, 1999. Per the comment letter from the City of Cambridge dated November 21, 2000, this revised plan recognizes the other tenants of 50 and 60 Hampshire Street as part of the overall PTDM. commitments and includes measures for these other tenants. Where appropriate, information gathered from the June 2001 PTDM Monitoring Report is included to provide description of the activity at the 50 Hampshire Street garage.

 

  This revised Parking and Transportation Demand Management Plan has been prepared in accordance with the Municipal Code of the City of Cambridge (Chapter 10.18), adopted on November 16, 1998. Per the ordinance, following are the project facts, projections, commitments, and certification.

 

 

Project Facts and Projections

 

 

Project Description

 

  205 Broadway Realty Trust has constructed an approximately 180,000 square foot office building and a 221-space parking structure at 50 Hampshire Street (also known as 205 Broadway), Cambridge, Massachusetts. Access to the site is provided through a driveway on Broadway.

 

  The project site is located along Broadway in the southeastern corner of Cambridge, Massachusetts. Land uses in the area include business, commercial, and residential uses. Regional and local vehicular access to the site is provided by a number of roadways including Broadway, Moore Street, Hampshire Street, Cambridge Street, Massachusetts Avenue, and Memorial Drive. The site area is served by MBTA bus routes (#85 and #64), and is within close proximity (approximately 0.5 miles) to the Central Square and Kendall Square T-stations.

 

 

Tenants

 

  Per the Parking and Transportation Demand Management ordinance, the PTDM plan must cover all companies parking in the 50 Hampshire Street parking structure. Tenants from both 50 Hampshire Street building and the 60 Hampshire Street building utilize the parking structure at 50 Hampshire Street. The 60 Hampshire Street building predates the construction of the above building and parking facilities at 50 Hampshire Street; tenants historically used the surface parking lot formally located at 60 Hampshire Street.

 

1


VHB    Vanasse Hang      Brustlin, Inc.

 

  The main tenant of the 50 Hampshire Street building is Camp Dresser & McKee, Inc. (CDM), who relocated from their former location at Ten Cambridge Center. In addition, Atasca, a restaurant, occupies retail space on the ground floor of the building fronting on Hampshire Street. Companies occupying the additional space on the ground floor of the building do not utilize the 50 Hampshire Street parking garage. Variagenics, Inc. is the only tenant in the 60 Hampshire Street Building and occupies all of the space in that building. At the time of this PTDM amendment, both 50 and 60 Hampshire Street are 100 percent occupied. Table 1 presents the square footage occupied and the number of allocated parking spaces for each tenant using the 50 Hampshire Street garage.

 

Table 1      
Lease and Parking Space Summary      

Tenant

   Square Footage
Occupied
     Number of Parking
Spaces
 

Camp Dresser & McKee

     180,000        200 1 

Variagenics

     39,014        15  

Atasca

     1,952        2 2 

 

1 Three of these spaces are subleased to Atasca.
2 Three additional spaces are subleased from Camp Dresser and McKee.

 

 

Parking Supply

 

  Before construction of the 50 Hampshire Street building, the site contained an approximately 100-space surface parking lot that was used by the employees and visitors of the adjacent 38,000 square foot office building at 60 Hampshire Street (205 Broadway), formerly occupied by Tofias Fleishman Shapiro. As part of the development of 50 Hampshire Street, the surface parking lot was replaced by the 180,000 square foot office building and 221 structured parking spaces. These spaces are used solely by the employees and visitors of the 50 and 60 Hampshire Street buildings. There are limited off-site parking opportunities in the area within walking distance. On-street parking is provided for Cambridge residents only and is heavily enforced by the City; a few public parking garages are located in the area, but they are distant from the site.

 

 

Vehicle-Trip Generation and Distribution

 

  As part of the PTDM monitoring effort, driveway and garage entrance/exit counts were conducted to determine the vehicle trip generation of the companies at 50 and 60 Hampshire Street. The morning peak hour at the pick-up/drop-off turn out along Hampshire Street was 7:45 - 8:45 AM, when an average of ten vehicle trips were generated. The evening peak hour occurred from 4:45 - 5:45 PM. During this time 16 vehicle trips were generated. The turn out also serves as a stop for the Kendall Square shuttle. The shuttle makes seven morning peak hour stops and three evening peak hour stops.

 

2


VHB    Vanasse Hang      Brustlin, Inc.

 

  From the data collected, it was determined that the morning peak hour for the parking garage is 7:00 - 8:00 AM. During this time, 70 entering trips and 11 exiting trips were observed. Four entering and 56 exiting trips were observed during the evening peak hour, which occurred from 4:00 - 5:00 PM. These peak hour trips are summarized in Table 2.

 

Table 2         
Vehicle-Trip Generation Summary         

Time Period

   Garage      Pick-up /Drop-off      Total Vehicle-Trips  

Morning Peak Hour

        

Enter

     70        10        80  

Exit

     11        10        21  
  

 

 

    

 

 

    

 

 

 

Total

     81        20        101  

Evening Peak Hour

        

Enter

     4        16        20  

Exit

     56        16        72  
  

 

 

    

 

 

    

 

 

 

Total

     60        32        92  

 

Source: VHB Driveway counts, May 2001

 

  It is important to note that the project was projected to generate approximately 155 morning and 155 evening peak hour trips based on ITE Trip Generation, 6th Edition1 and assuming a 60 percent vehicle mode share. Driveway counts show that actual vehicle trips fall approximately 53 percent below these estimates.

 

  Original trip distribution estimates indicated that approximately 40 percent of the employees driving to work will arrive from the north, 30 percent will arrive via Broadway from the east, 20 percent will arrive from the west via Broadway and/or Hampshire Street, and the remaining 10 percent will arrive from the south via Windsor Street, Portland Street, and other local roadways. The place of origin of the employees at the site and their likely travel routes was estimated based on 1990 census journey-to-work data and zip code data for current CDM employees. It is assumed that these estimates are accurate and that current trips generated follow this distribution pattern.

 

  It should be noted that the development is located in proximity to Kendall Square and the Citizens Bank building. This area provides several opportunities within walking distance for eating, banking, and running errands, thus minimizing vehicle-trips during the day.

q

 

1  Institute of Transportation Engineers (ITE), Trip Generation, ^th Edition Land Use Code 714.

 

3


VHB    Vanasse Hang      Brustlin, Inc.

 

 

Parking Utilization

 

  Parking utilization counts indicate that the peak parking period for the 50 Hampshire Street garage occurs from 1:00 - 2:00 PM. During this time, 155 of the 221 parking spaces are utilized. This represents 67 percent peak occupancy.

 

 

Commitments

 

  Per the Parking and Transportation Demand Management ordinance, the PTDM plan must cover all companies parking in the 50 Hampshire Street parking structure. The building owner is committed to working with the Cambridge Office of Work Force Development and the Parking and Transportation Demand Management planning officer to implement the vehicle trip reduction measures for all applicable tenants as described below. The existing automobile mode split for the census tract 3524 (where the project is located) is 62 percent. Accordingly, consistent with City practice, the mode split goal for this project shall be 56 percent, based on a ten percent reduction from the 1990 Census data. The annual PTDM monitoring survey completed in June 2001 indicates that the overall drive alone mode share for all occupants of the 50 Hampshire Street garage is 47 percent. This is less than the drive alone target of 56 percent set by the City in the Original PTDM plan.

 

  However, pursuant to standard City calculations, the parking provided for this project can only accommodate a 37 percent mode split. This is a result of providing less parking, which is expected to discourage SOV travel. Accordingly, although the mode split goal to which the building owner commits—and to which any enforcement may apply—under this PTDM plan remains 56 percent, the building owner understands that if the single occupant vehicle mode split exceeds 37 percent despite the reduced parking availability in the project, then appropriate additional reasonable measures to reduce SOV levels will be implemented on a voluntary basis to reduce any neighborhood impacts.

 

 

Transportation Demand Management Plan

 

  The owner is committed to implementing transportation demand management (TDM) strategies to minimize the number of single-occupant vehicle commuters and reduce peak hour demands to the site. The TDM plan for the site will include charging employees for parking, participation in the Charles River TMA, preferential parking for carpools and vanpools, staggered and flexible work hours, transit service information, shuttle services to the Kendall Square T-stop, ridesharing programs, bicycle amenities, and on-site employee services.

 

4


VHB    Vanasse Hang      Brustlin, Inc.

 

  CDM currently provides a modest TDM program, including flexible work hours, and charging employees for parking to further encourage the use of alternate modes to commute to the site. Variagenics does not currently provide a TDM program. However, as indicated below the company is willing to work with the owner to institute a TDM program comparable to CDM. Each of the TDM strategies proposed by the building owner and/or the tenants of 50 or 60 Hampshire Street (CDM and Variagenics) for the new site are discussed below.

 

 

Parking Charges

 

  Camp Dresser & McKee will continue to charge employees for parking to encourage the use of alternate modes to commute to the site. This will provide an economic disincentive to each individual employee to drive, thereby providing a strong motivation to use transit, walk, bike, or carpool.

 

 

Charles River Transportation Management Association

 

  The Charles River Transportation Management Association (TMA), which was established in 1994, provides assistance with preparing and implementing transportation demand management programs for companies in East Cambridge and the surrounding areas. The TMA provides shuttle services between the Kendall Square and Central Square MBTA stations and participating employers, and coordinates ridematching services and a Guaranteed Ride Home (GRH) program (GRH program is described below), among other TDM strategies. The building owner became a member of the Charles River TMA upon occupancy of the building.

 

 

Preferential Parking for Carpools and Vanpools

 

  The building owner will provide a minimum of 22 (10 percent of total supply) preferential parking for carpoolers and vanpoolers. These spaces will be clearly signed and/or marked for ridesharers only. Ridesharers will be required to register with their employers to receive a rideshare parking space permit to display in their vehicle. The use of these spaces will be monitored periodically to ensure that they serve ridesharers only. Preferential parking spaces are currently provided per the driver/carpooler’s preference and are generally located on the basement and second levels nearest the elevator lobbies.

 

 

Alternative Work Programs

 

  CDM and Variagenics will provide information to their employees on staggered and flexible/compressed work hours and telecommuting aimed at providing added convenience to their employees and reducing peak hour trips. Allowing some flexibility in work times sometimes allows persons to carpool or vanpool. It may also enable persons to utilize bus services because of the bus schedules. Flexible work hour programs can have a significant impact when bus services and vanpooling

 

5


VHB    Vanasse Hang      Brustlin, Inc.

 

  opportunities are fairly limited. Staggering work hours can allow people to commute to work on either side of a peak traffic period, reducing the number of vehicles entering the site during the peak hour. Compressed work-weeks and telecommuting minimize the total number of trips being made overall to the site.

 

 

Public Transportation Incentives

 

  CDM and Variagenics will post transit service information as a means of encouraging the use of public transit. As previously mentioned, the site area is served by MBTA bus routes (#85 and #64), and is within proximity to the Central Square and Kendall Square T-stations.

 

 

Shuttle to the Kendall Square T-Stop

 

  As an additional incentive to use public transit, the project proponent will continue to provide a shuttle to the Kendall Square T-station. This shuttle is provided in partnership with the 210 Broadway building, and will operate between 7 AM and 11 AM and 3 PM and 7 PM. The shuttle will operate between the site and Kendall Square via Broadway. Stops are provided at the site (serving both 50 and 60 Hampshire Street and 210 Broadway) and at Kendall Square.

 

 

Ridesharing Program

 

  Ridesharing programs are provided to encourage commuters to ride in vehicles with other commuters, rather than drive alone. The most common forms of ridesharing are carpools and vanpools. This program includes:

 

    Carpool/vanpool Incentives: Ridematching services provide an opportunity for employees to determine whether there are other commuters who share the same travel characteristics and would be available to form a carpool or vanpool. Ridematching services are offered through the Charles River TMA for the benefit of all tenants. The transportation coordinator will also coordinate ridesharing services with CARAVAN for Commuters, if the TMA is not doing so. Additionally, the transportation coordinator provides an area for employees to post information regarding carpools for those not interested in participating in the RideSource database.

 

   

Guaranteed Ride Home Program: Guaranteed ride home programs are established to provide assurances that employees who participate in carpooling, vanpooling, bicycling, walking, or transit use will have viable and convenient travel options if work-related activity or an emergency requires that they miss their regular ride/walk home. This service is provided through the Charles River TMA with the implementation of the carpooling program, and is also made available to other users of alternative modes of transportation. These modes have been

 

6


VHB    Vanasse Hang      Brustlin, Inc.

 

 

expanded to include employees who walk or bike to work, in order to provide these employees with additional flexibility in making their commute decisions. The project proponent is working with the TMA and the City to determine the most effective method to implement and operate the program, per the TMA’s general policy for providing the GRH service. Similar to other GRHs, limits on use (such as the number of times a month it can be used) have been implemented to ensure that the program serves the non-SOV commuting population and that it is viewed as an incentive for non-SOV travel.

 

    Promotional Activities: The proponent provides new tenant employees with information concerning carpooling and transit schedules. Additionally, the project proponent will host transportation information fairs annually and distribute promotional materials semiannually to remind employees and tenants of the available ridesharing and transit commuting alternatives, as well as walking and bicycling and alternative work hour options. The City will be invited to participate in these promotional efforts.

 

 

Provision of Bicycle and Pedestrian Amenities

 

  The project proponent provides secure, covered bicycle storage areas for their tenants employees and visitors interested in bicycling to work. The tenant provides information relative to these bicycle facilities and amenities to their employees. Bicycle racks are provided on site, and a secure storage area is provided in the building sufficient to accommodate a minimum of twenty-two bicycles (10 percent of parking supply). Showers and locker facilities are provided within the building for employees to use. The proponent also provides short-term bicycle parking near the main entrance to the building, to accommodate visitors traveling by bicycle. This facility provides short-term storage for commuters, as well as a secure place for bicycle couriers to leave their bicycles.

 

  The project driveway has been designed to provide a level crossing for pedestrians and to maintain adequate sight distance for both vehicles and pedestrians. Additionally, the building façade has been designed to provide adequate sight distance so that exiting vehicles can clearly see pedestrians

 

 

Designation of Transportation Coordinator

 

  CDM and Variagenics each designate a transportation coordinator to implement and oversee the day-to-day operations of the TDM program. Those individuals will be available to provide employees with information regarding their commuting options and will coordinate program elements with the Charles River TMA. The transportation coordinators will be responsible to post alternative mode information at one or more highly visible locations in 50 Hampshire Street. The posted information will include descriptions of the various sponsored TDM programs, as well as bus and subway schedules, and maps of local public transit routes and/or other relevant information. The information will be kept up to date, and will be supplemented by internal mailings and electronic mailings of updates or changes in any TDM programs.

 

7


VHB    Vanasse Hangen      Brustlin, Inc.

 

 

Encouragement of Electric Vehicles

 

  The project proponent will encourage the use of electric vehicles by committing to provide an electric vehicle charging stand within 60 days for each employee who requests that one be installed. The employee requesting the charging station must use an electric vehicle to commute to and from the site.

 

 

Marketing of TDM Programs

 

  To promote all non-SOV alternatives to commuting, CDM and Variagenics will provide new employees information concerning carpooling, transit schedules, alternative work hours, walking, bicycling, etc. Additionally, the project proponent will host transportation information fairs annually and distribute promotional materials semiannually to remind employees and tenants of the available ridesharing and transit commuting alternatives, as well as walking and bicycling and alternative work hour options. The City will be invited to participate in these promotional efforts.

 

  All information provided by The Bulfinch Companies, the Charles River TMA, or the tenant is posted within CDM break/copy rooms on employee bulletin boards. CDM and Variagenics also post commuting information on their web site. All materials provided to The Bulfinch Companies will be delivered to the proper authorities as directed.

 

 

Office of Workforce Development

 

  The project proponent will continue to encourage tenants to work with the Cambridge Office of Workforce Development to facilitate the hiring of qualified Cambridge residents at the 50 and 60 Hampshire Street businesses. Currently, CDM actively recruits from the Neighbors for a Better Community Inc. on a regular basis.

 

 

Monitoring and Reporting Plan

 

  The building owner remains committed to completing an annual PTDM monitoring report. The PTDM monitoring and reporting effort will continue to include:

 

    Yearly employee surveys to determine the mode split for the project and whether the mode split commitment is being met.

 

8


VHB    Vanasse Hang      Brustlin, Inc.

 

    Driveway and parking utilization counts, to be conducted at two-year intervals to provide additional information on the project’s trip generation. (The development has completed 2001 driveway and parking is currently in its alternate year.)

 

    A report to be filed with the City each and every year reporting yearly mode split information and alternate year driveway count information.

 

  The initial monitoring report was completed and submitted to the City of Cambridge in July 2001, containing information from employee and parking data collected in May 2001. This report indicates that building employees achieve a 47 percent drive-alone mode share meeting the commitment established in the original PTDM plan. In addition driveway and parking utilization counts indicate that the projects trip generation is below that originally estimated.

 

 

Certification

 

  “I hereby certify that a commercial parking permit has been obtained for each parking space being used for commercial parking. None of the other existing or proposed parking spaces at this parking facility have been or will be available as commercial parking space until a commercial parking permit has been obtained.”

 

/s/ Robert A. Schlager                    
Robert A. Schlager, Member
BHX, LLC, as sole trustee for 205 Broadway Realty Trust
c/o The Bulfinch Companies
250 First Avenue, Suite 200
Needham, Massachusetts 02494

 

9


 

Parking and Transportation Demand Management Plan

 

 

50 Hampshire Street

Office Development

 

  

Cambridge, Massachusetts

 

  

 

Prepared for   

BHX, LLC, as sole trustee for 205 Broadway Realty Trust

250 First Avenue, Suite 200

Needham, MA 02194

781 707-4000

Prepared by    VHB/Vanasse Hangen Brustlin, Inc.
  

Transportation, Land Development, Environmental Services

101 Walnut Street

   P.O. Box 9151
  

Watertown, Massachusetts 02272

617 924-1770

   June 28, 1999


VHB    Vanasse Hangen      Brustlin, Inc.

 

 

Introduction

 

  This Parking and Transportation Demand Management Plan has been prepared in accordance with the ordinance to the Municipal Code of the City of Cambridge (Chapter 10.18), adopted on November 16, 1998. Per the ordinance, following are the project facts, projections, commitments, and certification.

 

 

Project Facts and Projections

 

 

Project Description

 

  205 Broadway Realty Trust is currently constructing an approximately 180,000 square feet office building and a 221-space parking structure at 50 Hampshire Street (aka 205 Broadway), Cambridge, Massachusetts. Access to the site will be provided through a driveway on Broadway. The building will be occupied by Camp Dresser & McKee, Inc. (CDM), who will be relocating from their current location at Ten Cambridge Center. CDM expects to house approximately 600 employees at this new building.

 

  The project site is located along Broadway in the southeastern comer of Cambridge, Massachusetts. Land uses in the area include business, commercial, and residential. Regional and local vehicular access to the site is provided by a number of roadways including Broadway, Moore Street, Hampshire Street, Cambridge Street, Massachusetts Avenue, and Memorial Drive, The site area is served by MBTA bus routes (#85 and #64), and is within close proximity (approximately 0.5 miles) to the Central Square and Kendall Square T-stations.

 

 

Parking Supply

 

  Before construction of the building began, the site contained an approximately 100- space surface parking lot that was used by the employees and visitors of the adjacent 38,000 square foot office building at 60 Hampshire Street (aka 205 Broadway), formerly occupied by Tofias Fleishman Shapiro. As part of the development of 50 Hampshire Street, the surface parking lot is being replaced by the 180,000 square foot office building and 221 structured parking spaces, These spaces will be used solely by the employees and visitors of the 50 and 60 Hampshire Sheet buildings. There are limited off-site parking opportunities in the area within walking distance. On-street parking is provided for Cambridge residents only and is heavily enforced; a few public parking garages are located in the area, but they are distant from the site.

 


VHB    Vanasse Hangen      Brustlin, Inc.

 

 

Project Vehicle-Trip Generation

 

  The number of weekday daily and peak hour vehicle-trips projected to be generated by the CDM building and associated parking were estimated based on trip rates published by the Institute of Transportation Engineers (ITE) in the Trip Generation 6th Edition report using Land Use Code 714, Corporate Headquarters. These rates were then adjusted to reflect the various modes of travel to be used (private automobile, public transportation, walking/bicycling) based on 1990 census journey-to-work data. Table 1 summarizes the projected daily and morning and evening peak hour vehicle trips.

 

Table 1

Vehicle-Trip Generation Summary

 

  

Time Period

   Total Vehicle-Trips  

Average Weekday*

     840  

Morning Peak Hour**

  

Enter

     145  

Exit

     10  

Total

     155  

Evening Peak Hour**

  

Enter

     20  

Exit

     135  

Total

     155  

 

Source: ITE, Trip Generation, 6th Edition, LUC 714, Corporate Headquarters (180 ksf), 60 % vehicle-mode share

* Two-way traffic volumes expressed In vehicles per day.
** Traffic volumes expressed in vehicles per hour.

 

  As shown in Table 1, the project is projected to generate approximately 840 vehicle- trips (420 entering and 420 exiting) on a typical weekday, The project will generate 155 vehicle-trips (145 entering and 10 exiting) during the morning peak hour and 155 vehicle-trips (20 entering and 135 exiting) during the evening peak hour.

 

  It should be noted that the development is located in close proximity to Kendall Square and the US Trust building. This area provide several opportunities within walking distance for eating, banking, and running errands, thus minimizing vehicle-trips during the day.

 


VHB    Vanasse Hangen      Brustlin, Inc.

 

 

Trip Distribution

 

  The place of origin of the future employees at the site and their likely travel routes was estimated based on 1990 census journey-to-work data and zip code data for current CDM employees. Based on this data, it is anticipated that approximately 40 percent of the employees driving to work will arrive from the north, 30 percent will arrive via Broadway from the east, 20 percent will arrive from the west via Broadway and/or Hampshire Street, and the remaining 10 percent will arrive from the south via Windsor Street, Portland Street, and other local roadways.

 

 

Commitments

 

  Per the Parking and Transportation Demand Management ordinance, the project proponent is committed to working with the Cambridge Office of Work Force Development and the Parking and Transportation Demand Management planning officer to implement the vehicle trip reduction measures described below. The existing automobile mode split for the census tract 3524 (where the project is located) is 62 percent. Accordingly, consistent with City practice, the mode split goal for this project shall be 56 percent, based on a ten percent reduction from the 1990 Census data.

 

  However, pursuant to standard City calculations, the parking provided for this project can only accommodate a 37 percent mode split. This is a result of providing less parking, which is expected to discourage SOV travel. Accordingly, although the mode split goal to which the project proponent commits—and to which any enforcement may apply—under this PTDM plan remains 56 percent, the project proponent understands (hat if the single occupant vehicle mode split exceeds 37 percent despite the reduced parking availability in the project, then appropriate additional reasonable measures to reduce SOV levels will be implemented on a voluntary basis to reduce any neighborhood impacts.

 

 

Transportation Demand Management Plan

 

  The project proponent is committed to implementing transportation demand management (TDM) strategies to minimize the number of single-occupant vehicle commuters and reduce peak hour demands to the site. The TDM plan for the site will include charging employees for parking, participation in the Charles River TMA, preferential parking for carpools and vanpools, staggered and flexible work hours, transit service information, shuttle services to the Kendall Square T-stop, ridesharing programs, bicycle amenities, and on-site employee services.

 

  CDM currently provides a modest TDM program, including flexible work hours, and charging employees for parking to further encourage the use of alternate modes to commute to the site. Each of the TDM strategies proposed by the project proponent and/or the tenant (CDM) for the new site are discussed below.

 


VHB    Vanasse Hangen      Brustlin, Inc.

 

 

Parking Charges

 

  CDM will charge employees for parking to encourage the use of alternate modes to commute to the site. This will provide an economic disincentive to each individual employee to drive, thereby providing a strong motivation to use transit, walk, bike, or carpool.

 

 

Charles River Transportation Management Association

 

  The Charles River Transportation Management Association (TMA), which was established in 1994, provides assistance with preparing and implementing transportation demand management programs for companies in East Cambridge and the surrounding areas. The TMA provides shuttle services between the Kendall Square and Central Square MBTA stations and participating employers, and coordinates ridematching services and a Guaranteed Ride Home (GRH) program (GRH program is described below), among other TDM strategies. The project proponent will join the TMA upon occupancy of the building.

 

 

Preferential Parking for Carpools and Vanpools

 

  The project proponent will provide a minimum of twenty-two (10 percent of total supply) preferential parking for carpoolers and vanpoolers. These will be designated, convenient spaces near the entrance to the building. These spaces will be clearly signed and/or marked for ridesharers only. Ridesharers will be required to register with their employers to receive a rideshare parking space permit to display in their vehicle. The use of these spaces will be monitored periodically to ensure that they serve ridesharers only.

 

 

Alternative Work Programs

 

  CDM will provide information to their employees on staggered and flexible/compressed-work hours and telecommuting aimed at providing added convenience to their employees and reducing peak hour trips. Allowing some flexibility in work times sometimes allows persons to carpool or vanpool. It-may also enable persons to utilize bus services because of the bus schedules. Flexible work hour programs can have a significant impact when bus services and vanpooling opportunities are fairly limited. Staggering work hours can allow people to commute to work on either side of a peak traffic period, reducing the number of vehicles entering the site during the peak hour. Compressed work weeks and telecommuting minimize the total number of trips being made overall to the site.

 


VHB    Vanasse Hangen      Brustlin, Inc.

 

 

Public Transportation Incentives

 

  CDM will post transit service information as a means of encouraging the use of public transit. As previously mentioned, the site area is served by MBTA bus routes (#85 and #64), and is within close proximity to the Central Square and Kendall Square T-stations.

 

 

Shuttle to the Kendall Square T-Stop

 

  As an additional incentive to use public transit, the project proponent will provide a shuttle to the Kendall Square T-station. This shuttle will either be provided by the proponent itself, or may be provided through the Charles River TMA or other service. This shuttle will be provided in partnership with the 210 Broadway building, and will operate between 7 AM and 11 AM and 3 PM and 7 PM. The shuttle will operate between the site and Kendall Square via Broadway, stops will be provided at the site (serving both 50 and 60 Hampshire Street and 210 Broadway) and at Kendall Square.

 

 

Ridesharing Program

 

  Ridesharing programs are provided to encourage commuters to ride in vehicles with other commuters, rather than drive alone. The most common forms of ridesharing are carpools and vanpools. This program includes:

 

    Carpool/vanpool Incentives: Ridematching services provide an-opportunity for employees to determine whether there are other commuters who share the same travel characteristics and would be available to form a carpool or vanpool. Ridematching services will be offered through the Charles River TMA for the benefit of the employees housed therein. The transportation coordinator will also coordinate ridesharing services with CARAVAN for Commuters, if the TMA is not doing so. Additionally, the transportation coordinator will provide an area for employees to post information regarding carpools for those not interested in participating in the RideSource database.

 

    Guaranteed Ride Home Program: Guaranteed ride home programs are established to provide assurances that employees who participate in carpooling, vanpooling, bicycling, walking, or transit use will have viable and convenient travel options if work-related activity or an emergency requires that they miss their regular ride/walk home. This service will be provided through the Charles River TMA with the implementation of the carpooling program, and will also be made available to other users of alternative modes of transportation. These modes have been expanded to include employees who walk or bike to work, in order to provide these employees with additional flexibility in making their commute decisions. The project proponent will work with the TMA and the City to determine the most effective method to implement and operate the program, per

 


VHB    Vanasse Hangen      Brustlin, Inc.

 

  the TMA’s general policy for providing the GRH service. It is anticipated that, similar to other GRHs, limits on use (such as the number of times a month it can be used), etc. will be implemented to ensure that the program serves the non-SOV commuting population and that it is viewed as an incentive for non-SOV travel.

 

    Promotional Activities: The tenant will provide their new employees information concerning carpooling and transit schedules. Additionally, the tenants will host transportation information fairs annually to remind employees and tenants of the available ridesharing and transit commuting alternatives, as well as walking and bicycling and alternative work hour options. The tenant will invite the City to participate in these promotional efforts.

 

 

Provision of Bicycle and Pedestrian Amenities

 

  The project proponent will provide secure, covered bicycle storage areas for their employees and visitors interested in bicycling to work. The tenant will provide information relative to these bicycle facilities and amenities to their employees. Bicycle racks will be provided on site, and a secure storage area will be provided in the building sufficient to accommodate a minimum of twenty-two bicycles (10 percent of parking supply). Showers and locker facilities will be provided within the building for employees use. The proponent will also provide short-term, parking near the main entrance to the building, to accommodate visitors travelling by bicycle. This facility will provide short-term storage for commuters, as well as a secure place for bicycle couriers to leave their bicycles.

 

  The project driveway has been designed to provide a level crossing for pedestrians and to maintain adequate sight distance for both vehicles and pedestrians. Additionally, the building façade has been designed to provide adequate sight distance so that exiting vehicles can clearly see pedestrians. If it is determined that sight distance may be an issue, a warning device will be installed to inform pedestrians that a vehicle is preparing to exit the garage.

 

 

Designation of Transportation Coordinator

 

  CDM will designate a transportation coordinator to implement and oversee the day- to-day operations of the TDM program. This person will be available to provide employees information regarding their commuting options and will coordinate program elements with the Charles River TMA. The transportation coordinator will be responsible to post alternative mode information at one or more highly visible locations in 50 Hampshire Street. The posted information will include descriptions of the various sponsored TDM programs, as well as bus and subway schedules, and maps of local public transit routes and/or other relevant information. The information will be kept up to date, and will be supplemented by internal mailings and electronic mailings of updates or changes in any TDM programs.

 


VHB    Vanasse Hangen      Brustlin, Inc.

 

 

Encouragement of Electric Vehicles

 

  The project proponent will encourage the use of electric vehicles by committing to provide an electric vehicle charging stand within 60 days for each employee who requests that one be installed. The employee requesting the charging station must use an electric vehicle to commute to and from the site.

 

 

Marketing of TDM Programs

 

  To promote all non-SOV alternatives to commuting, CDM will provide new employees information concerning carpooling, transit schedules, alternative work hours, walking, bicycling, etc. Additionally, the project proponent will host transportation information fairs annually to remind employees and tenants of the available ridesharing and transit commuting alternatives, as well as walking and bicycling and alternative work hour options. The City will be invited to participate in these promotional efforts.

 

  CDM will also post commuting information on their web site and place information on commuter information bulletin boards located throughout the building.

 

 

Monitoring and Reporting Plan

 

  The project proponent will commit to implementing a monitoring and reporting plan. This plan will include the following:

 

    yearly employee surveys to determine the mode split for the project, which will be used to determine if the mode split commitment is being met. These surveys will include mode share information, as well as subjective questions to determine the employees attitudes regarding TDM strategies.

 

    driveway and parking utilization counts, to be conducted after one year and then every other year to provide additional information on the project’s trip generation.

 

    a report to be filed with the City on the date of issue of the certificate of occupancy for the building. One year later, and each and every year thereafter, yearly mode split information shall be reported every year on that date. In addition, driveway counts for 50 Hampshire Street shall be reported every two years, beginning one year after the certificate of occupancy is issued.

 

    if the certificate of occupancy is issued between January 1 and June 30, the monitoring shall take place between the months of September or October; if the certificate of occupancy is issued between July 1 and December 31, monitoring shall take place between the months of April and May. The timing of this

 


VHB    Vanasse Hangen      Brustlin, Inc.

 

  monitoring shall be done in order to capture the most realistic assessment of the performance of the project possible, while giving the proponent adequate time to compile the results and report them to the City.

 

 

Certification

 

  “I hereby certify that a commercial parking permit has been obtained for each parking space being used for commercial parking. None of the other existing or proposed parking spaces at this parking facility have been or will be available as commercial parking spaces until a commercial parking permit therefor has been obtained.”

 

/s/ Robert A. Schlager                    
Robert A. Schlager, Member
BHX, LLC, as sole trustee for 205 Broadway Realty Trust
The Bulfinch Companies
250 First Avenue, Suite 200.
Needham, Massachusetts 02494

 

8


LOGO


LOGO


LOGO


LOGO


LOGO


LOGO


EXHIBIT H

TENANT’S PROPERTY

 

H-1


EXHIBIT I

FORM OF ESTOPPEL CERTIFICATE

 

To:    BMR-HAMPSHIRE LLC
   17190 Bernardo Center Drive
   San Diego, California 92128
   Attention: Vice President, Real Estate Legal
   BioMed Realty, L.P.
   17190 Bernardo Center Drive
   San Diego, California 92128
Re:    [PREMISES ADDRESS] (the “Premises”) at 50 Hampshire Street, Cambridge, Massachusetts (the “Property”)

The undersigned tenant (“Tenant”) hereby certifies to you as follows:

1. Tenant is a tenant at the Property under a lease (the “Lease”) for the Premises dated as of [            ], 20[    ]. The Lease has not been cancelled, modified, assigned, extended or amended [except as follows: [            ]], and there are no other agreements, written or oral, affecting or relating to Tenant’s lease of the Premises or any other space at the Property. The lease term expires on [            ], 20[    ].

2. Tenant took possession of the Premises, currently consisting of [            ] square feet, on [            ], 20[    ], and commenced to pay rent on [            ], 20[    ]. Tenant has full possession of the Premises, has not assigned the Lease or sublet any part of the Premises, and does not hold the Premises under an assignment or sublease[, except as follows: [            ]].

3. All base rent, rent escalations and additional rent under the Lease have been paid through [            ], 20[    ]. There is no prepaid rent[, except $[            ], and the amount of security deposit is $[            ] in the form of a letter of credit. Tenant currently has no right to any future rent abatement under the Lease.

4. Base rent is currently payable in the amount of $[            ] per month.

5. Tenant is currently paying estimated payments of additional rent of $[            ] per month on account of real estate taxes, insurance, management fees and Common Area maintenance expenses.

6. All work to be performed for Tenant under the Lease has been performed as required under the Lease and has been accepted by Tenant[, except [            ]], and all allowances to be paid to Tenant, including allowances for tenant improvements, moving expenses or other items, have been paid.

7. The Lease is in full force and effect, free from default and free from any event that could become a default under the Lease, and Tenant has no claims against the landlord or offsets or defenses against rent, and there are no disputes with the landlord. Tenant has received no notice of prior sale, transfer, assignment, hypothecation or pledge of the Lease or of the rents payable thereunder[, except [            ]].

 

I-1


8. Tenant has no rights or options to purchase the Property.

9. To Tenant’s knowledge, no hazardous wastes have been generated, treated, stored or disposed of by or on behalf of Tenant in, on or around the Premises or the Project in violation of any environmental laws.

10. The undersigned has executed this Estoppel Certificate with the knowledge and understanding that [INSERT NAME OF LANDLORD, PURCHASER OR LENDER, AS APPROPRIATE] or its assignee is [acquiring the Property/making a loan secured by the Property] in reliance on this certificate and that the undersigned shall be bound by this certificate. The statements contained herein may be relied upon by [INSERT NAME OF PURCHASER OR LENDER, AS APPROPRIATE], [LANDLORD], BioMed Realty, L.P., BRE Edison Parent L.P., and any [other] mortgagee of the Property and their respective successors and assigns.

Any capitalized terms not defined herein shall have the respective meanings given in the Lease.

Dated this [        ] day of [            ], 20[    ].

[            ],

a [            ]

 

By:  

 

Name:  

 

Title:  

 

 

I-2


FIRST AMENDMENT TO LEASE

THIS FIRST AMENDMENT TO LEASE (this “Amendment”) is entered into as of this 28th day of February, 2017, by and between BMR-HAMPSHIRE LLC, a Delaware limited liability company (“Landlord”), and SURFACE ONCOLOGY, INC., a Delaware corporation (“Tenant”).

RECITALS

A. WHEREAS, Landlord and Tenant are parties to that certain Lease dated as of May 13, 2016 (as the same may have been amended, supplemented or modified from time to time, the “Existing Lease”), whereby Tenant leases certain premises (the “Premises”) from Landlord located on the eighth (8th) floor of the building known as 50 Hampshire Street in Cambridge, Middlesex County, Massachusetts (the “Building”);

B. WHEREAS, Landlord and Tenant desire to replace Exhibit A in the Existing Lease with a new Exhibit A; and

C. WHEREAS, Landlord and Tenant desire to modify and amend the Existing Lease only in the respects and on the conditions hereinafter stated.

AGREEMENT

NOW, THEREFORE, Landlord and Tenant, in consideration of the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, agree as follows:

1. Definitions. For purposes of this Amendment, capitalized terms shall have the meanings ascribed to them in the Existing Lease unless otherwise defined herein. The Existing Lease, as amended by this Amendment, is referred to collectively herein as the “Lease.” From and after the date hereof, the term “Lease,” as used in the Existing Lease, shall mean the Existing Lease, as amended by this Amendment.

2. Premises Plan. Exhibit A to the Existing Lease is hereby deleted and replaced in its entirety with Exhibit A attached to this Amendment. For clarity, the Rentable Area of the Premises set forth in the Existing Lease shall remain unmodified.

3. Broker. Tenant represents and warrants that it has not dealt with any broker or agent in the negotiation for or the obtaining of this Amendment, and agrees to reimburse, indemnify, save, defend (at Landlord’s option and with counsel reasonably acceptable to Landlord, at Tenant’s sole cost and expense) and hold harmless the Landlord Indemnitees for, from and against any and all cost or liability for compensation claimed by any such broker or agent employed or engaged by it or claiming to have been employed or engaged by it.

4. No Default. Tenant represents, warrants and covenants that, to the best of Tenant’s knowledge, Landlord and Tenant are not in default of any of their respective obligations under the Existing Lease and no event has occurred that, with the passage of time or the giving of notice (or both) would constitute a default by either Landlord or Tenant thereunder.

BioMed Realty form dated 3/27/15


5. Notices. Tenant confirms that, notwithstanding anything in the Lease to the contrary, notices delivered to Tenant pursuant to the Lease should be sent to:

Prior to Term Commencement Date:

Surface Oncology, Inc.

215 First Street

Cambridge, MA 02142

Attn: Jessica Fees

After the Term Commencement Date:

Surface Oncology, Inc.

50 Hampshire Street

Cambridge, MA 02139

Attn: Jessica Fees

6. Effect of Amendment. Except as modified by this Amendment, the Existing Lease and all the covenants, agreements, terms, provisions and conditions thereof shall remain in full force and effect and are hereby ratified and affirmed. In the event of any conflict between the terms contained in this Amendment and the Existing Lease, the terms herein contained shall supersede and control the obligations and liabilities of the parties.

7. Successors and Assigns. Each of the covenants, conditions and agreements contained in this Amendment shall inure to the benefit of and shall apply to and be binding upon the parties hereto and their respective heirs, legatees, devisees, executors, administrators and permitted successors and assigns and sublessees. Nothing in this section shall in any way alter the provisions of the Lease restricting assignment or subletting.

8. Miscellaneous. This Amendment becomes effective only upon execution and delivery hereof by Landlord and Tenant. The captions of the paragraphs and subparagraphs in this Amendment are inserted and included solely for convenience and shall not be considered or given any effect in construing the provisions hereof. All exhibits hereto are incorporated herein by reference. Submission of this instrument for examination or signature by Tenant does not constitute a reservation of or option for a lease, and shall not be effective as a lease, lease amendment or otherwise until execution by and delivery to both Landlord and Tenant.

9. Authority. Tenant guarantees, warrants and represents that the individual or individuals signing this Amendment have the power, authority and legal capacity to sign this Amendment on behalf of and to bind all entities, corporations, partnerships, limited liability companies, joint venturers or other organizations and entities on whose behalf such individual or individuals have signed.

10. Counterparts; Facsimile and PDF Signatures. This Amendment may be executed in one or more counterparts, each of which, when taken together, shall constitute one and the

 

2


same document. A facsimile or portable document format (PDF) signature on this Amendment shall be equivalent to, and have the same force and effect as, an original signature.

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

 

3


IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as a sealed Massachusetts instrument as of the date and year first above written.

LANDLORD:

BMR-HAMPSHIRE LLC,

a Delaware limited liability company

 

By:  

/s/ William Kane

Name:  

William Kane

Title:  

Senior Vice President

East Coast Leasing

TENANT:

SURFACE ONCOLOGY, INC.,

a Delaware corporation

By:  

/s/ Detlev Biniszkiewicz

Name:  

Detlev Biniszkiewicz

Title:  

CEO & President


EXHIBIT A

PREMISES


LOGO

 

5/9/2016 12:42:27 PM
© Copyright Arrowstreet Inc.
50 HAMPSHIRE May 9, 2016
50 Hampshire Street PREMISES PLAN. BASEMENT SUITE 800
Cambridge, MA 3 / 64” = 1’- 0”
PREMISES PLAN NOTES AND LEGEND
TENANT PREMISES
NOTES.
A. USE OR STORAGE OF HAZARDOUS MATERIALS IS PROHIBITED IN THE BASEMENT, AND RETAIL AREAS.
B. REFER TO FIRST AND EIGHTH FLOOR PLANS FOR CONTROL AREA INFORMATION.
BASEMENT


LOGO

 

5/9/2016 12:42:27 PM
© Copyright Arrowstreet Inc.
CONTROL AREA #1
WASTE STORAGE ROOM TENANT 800 ALLOWANCE FOR MAX ALLOWABLE QUANTITIES PER 781 CMR SECTION 307: 32.8%
CONTROL AREA #2
WASTE STORAGE ROOM TENANT 800 ALLOWANCE FOR MAX ALLOWABLE QUANTITIES PER 781 CMR SECTION 307: 32.8%
LOADING DOCK
BUILDING LOBBY
CHEM. WASTE
CHEM. STORAGE
NOTES.
A. USE OR STORAGE OF HAZARDOUS MATERIALS IS PROHIBITED IN THE BASEMENT, AND RETAIL AREAS.
B. REFER TO FIRST AND EIGHTH FLOOR PLANS FOR CONTROL AREA INFORMATION.
C. MAX ALLOWABLE QUANTITIES TOTAL PER CONTROL AREA AT LEVEL ONE IS 100%, PER 781 CMR, SECTION 307. UP TO (4) CONTROL AREAS ARE PERMITTED AT GROUND LEVEL.
PREMISES PLAN NOTES AND LEGEND
TENANT PREMISES
50 HAMPSHIRE May 9, 2016
50 Hampshire Street PREMISES PLAN. GROUND LEVEL SUITE 800
Cambridge, MA 3 / 64” = 1’- 0”
GROUND LEVEL


LOGO

 

5/9/2016 12:42:28 PM
© Copyright Arrowstreet Inc.
50 HAMPSHIRE May 9, 2016
50 Hampshire Street PREMISES PLAN. LEVEL 2nd SUITE 800
Cambridge, MA 3 / 64” = 1’- 0”
SD
FITNESS CENTER
NOTES.
A. USE OR STORAGE OF HAZARDOUS MATERIALS IS PROHIBITED IN THE BASEMENT, AND RETAIL AREAS.
B. REFER TO FIRST AND EIGHTH FLOOR PLANS FOR CONTROL AREA INFORMATION.
PREMISES PLAN NOTES AND LEGEND
TENANT PREMISES
SECOND LEVEL


LOGO

 

5/9/2016 12:42:28 PM
© Copyright Arrowstreet Inc.
NOTES.
A. USE OR STORAGE OF HAZARDOUS MATERIALS IS PROHIBITED IN THE BASEMENT, AND RETAIL AREAS.
B. REFER TO FIRST AND EIGHTH FLOOR PLANS FOR CONTROL AREA INFORMATION.
PREMISES PLAN NOTES AND LEGEND
TENANT PREMISES
50 HAMPSHIRE May 9, 2016
50 Hampshire Street PREMISES PLAN. LEVEL 3rd SUITE 800
Cambridge, MA 3 / 64” = 1’- 0”
THIRD LEVEL


LOGO

 

5/9/2016 12:42:29 PM
© Copyright Arrowstreet Inc.
NOTES.
A. USE OR STORAGE OF HAZARDOUS MATERIALS IS PROHIBITED IN THE BASEMENT, AND RETAIL AREAS.
B. REFER TO FIRST AND EIGHTH FLOOR PLANS FOR CONTROL AREA INFORMATION.
PREMISES PLAN NOTES AND LEGEND
TENANT PREMISES
50 HAMPSHIRE May 9, 2016
50 Hampshire Street PREMISES PLAN. LEVEL 4th SUITE 800
Cambridge, MA 3 / 64” = 1’- 0”
FOURTH LEVEL


LOGO

 

5/9/2016 12:42:30 PM
© Copyright Arrowstreet Inc.
NOTES.
A. USE OR STORAGE OF HAZARDOUS MATERIALS IS PROHIBITED IN THE BASEMENT, AND RETAIL AREAS.
B. REFER TO FIRST AND EIGHTH FLOOR PLANS FOR CONTROL AREA INFORMATION.
PREMISES PLAN NOTES AND LEGEND
TENANT PREMISES
FIFTH LEVEL
50 HAMPSHIRE May 9, 2016
50 Hampshire Street PREMISES PLAN. LEVEL 5th SUITE 800
Cambridge, MA 3 / 64” = 1’- 0”


LOGO

 

5/9/2016 12:42:30 PM
© Copyright Arrowstreet Inc.
NOTES.
A. USE OR STORAGE OF HAZARDOUS MATERIALS IS PROHIBITED IN THE BASEMENT, AND RETAIL AREAS.
B. REFER TO FIRST AND EIGHTH FLOOR PLANS FOR CONTROL AREA INFORMATION.
PREMISES PLAN NOTES AND LEGEND
TENANT PREMISES
SIXTH LEVEL
50 HAMPSHIRE May 9, 2016
50 Hampshire Street PREMISES PLAN. LEVEL 6th SUITE 800
Cambridge, MA 3 / 64” = 1’- 0”


LOGO

 

5/9/2016 12:42:31 PM
© Copyright Arrowstreet Inc.
NOTES.
A. USE OR STORAGE OF HAZARDOUS MATERIALS IS PROHIBITED IN THE BASEMENT, AND RETAIL AREAS.
B. REFER TO FIRST AND EIGHTH FLOOR PLANS FOR CONTROL AREA INFORMATION.
PREMISES PLAN NOTES AND LEGEND
TENANT PREMISES
50 HAMPSHIRE May 9, 2016
50 Hampshire Street PREMISES PLAN. LEVEL 7th SUITE 800
Cambridge, MA 3 / 64” = 1’- 0”
SEVENTH LEVEL


LOGO

 

1/25/2017 4:02:27 PM
© Copyright Arrowstreet Inc.
NOTES.
A. USE OR STORAGE OF HAZARDOUS MATERIALS IS PROHIBITED IN THE BASEMENT, AND RETAIL AREAS.
B. REFER TO FIRST AND EIGHTH FLOOR PLANS FOR CONTROL AREA
INFORMATION.
C. TENANT 800 ALLOWANCE FOR MAX ALLOWABLE QUANTITIES (MAQ) AT LEVEL
8, PER 781 CMR, SECTION 307: 5.0%. PER
781 CMR, SECTION 307, UP TO (2) CONTROL AREAS ARE PERMITTED AT EIGHTH LEVEL.
PERCENTAGE BASED ON SINGLE CONTROL AREA FOR THE ENTIRE FLOOR. MAX ALLOWABLE QUANTITIES MAY BE INCREASED IF TENANT DECIDES TO SEGREGATE ALL OR A PORTION OF THEIR PREMISES TO MEET CONTROL AREA SEPARATION AREA REQUIREMENTS PER 780 CMR.
PREMISES PLAN NOTES AND LEGEND
TENANT PREMISES
50 HAMPSHIRE January 25, 2017
50 Hampshire Street PREMISES PLAN. LEVEL 8th SUITE 800
Cambridge, MA 1 / 2” = 1’- 0”
EIGHTH LEVEL


LOGO

 

5/9/2016 12:42:32 PM
© Copyright Arrowstreet Inc.
NOTES.
A. USE OR STORAGE OF HAZARDOUS MATERIALS IS PROHIBITED IN THE BASEMENT, AND RETAIL AREAS.
B. REFER TO FIRST AND EIGHTH FLOOR PLANS FOR CONTROL AREA INFORMATION.
PREMISES PLAN NOTES AND LEGEND
TENANT PREMISES
50 HAMPSHIRE May 9, 2016
50 Hampshire Street PREMISES PLAN. LEVEL 9th SUITE 800
Cambridge, MA 3 / 64” = 1’- 0”
NINTH LEVEL


LOGO

 

5/9/2016 12:42:33 PM
© Copyright Arrowstreet Inc.
NOTES.
A. USE OR STORAGE OF HAZARDOUS MATERIALS IS PROHIBITED IN THE BASEMENT, AND RETAIL AREAS.
B. REFER TO FIRST AND EIGHTH FLOOR PLANS FOR CONTROL AREA INFORMATION.
NOTE 1
ALL NEW TENANT EQUIPMENT SUBJECT TO MEET ALL CODES INCLUDING CAMBRIDGE SOUND ORDINANCE
REQUIREMENTS.
MITIGATION AS REQUIRED TO MEET THESE REQUIREMENTS FOR NEW TENANT EQUIPMENT SHALL BE BY TENANT
NOTE 2
ROOFTOP ALLOCATION AREAS ARE NOT INCLUDED IN RSF.
PREMISES PLAN NOTES AND LEGEND
TENANT PREMISES
ROOFTOP ALLOCATION AREAS
50 HAMPSHIRE May 9, 2016
50 Hampshire Street ROOFTOP ALLOCATION AREAS. SUITE 800
Cambridge, MA 3 / 64” = 1’- 0”
SEE NOTES 1&2 SUITE 800
ROOFTOP ALLOCATION AREA
BOILER ROOM
MACHINE ROOM
ROOF LEVEL


EX-10.18

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

Exhibit 10.18

COLLABORATION AGREEMENT

by and between

SURFACE ONCOLOGY, INC.

and

NOVARTIS INSTITUTES FOR BIOMEDICAL RESEARCH, INC.

 


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

TABLE OF CONTENTS

 

1.

 

DEFINITIONS

     1  

2.

 

GOVERNANCE

     30  

3.

 

RESEARCH

     43  

4.

 

OPTION PURCHASE, GRANT AND EXERCISE OF OPTIONS

     46  

5.

 

DEVELOPMENT

     52  

6.

 

COMMERCIALIZATION

     68  

7.

 

REGULATORY

     76  

8.

 

MANUFACTURE

     86  

9.

 

LICENSES

     95  

10.

 

PAYMENTS

     107  

11.

 

CONFIDENTIALITY AND PUBLICATION

     123  

12.

 

REPRESENTATIONS, WARRANTIES AND COVENANTS

     126  

13.

 

INDEMNIFICATION; LIMITATION OF LIABILITY; INSURANCE

     137  

14.

 

INTELLECTUAL PROPERTY

     140  

15.

 

TERM AND TERMINATION

     157  

16.

 

MISCELLANEOUS

     165  

Confidential

 

-i-


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

EXHIBITS AND SCHEDULES

Exhibit A-1: Determination of Component Values

Exhibit A-2: Manufacturing Costs for Combinations

Exhibit B: Manufacturing Costs

Exhibit C: Form of Option Exercise Notice

Exhibit D: Form of Option Purchase Notice

Exhibit E: Initial JSC Representatives

Exhibit F: T1 Research Plan

Exhibit G: Surface T1 Target Third Party Agreements

Exhibit H-1: CD47 Research Plan

Exhibit H-2: IL-27 Research Plan

Exhibit H-3: [***] Research Plan

Exhibit H-4: [***] Research Plan

Exhibit I: Surface Option Target Third Party Agreements

Exhibit J: Form of Option Selection Notice

Exhibit K: Surface Manufacturing Third Party Agreements

Exhibit L: Form of Invoice

Exhibit M: Royalty Calculation Examples

Exhibit N: Disclosure Obligation

Schedule 1.1.158: Option IND Package Information

Schedule 1.1.167: Option Tox Package Information

Schedule 12.2: Exceptions to Representations and Warranties

Confidential

 

-ii-


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

COLLABORATION AGREEMENT

THIS COLLABORATION AGREEMENT (this “Agreement”), entered into as of January 9, 2016 (the “Effective Date”), is entered into by and between Surface Oncology, Inc., a corporation organized and existing under the Laws of the State of Delaware (“Surface”), and Novartis Institutes for BioMedical Research, Inc., a corporation organized and existing under the Laws of the State of Delaware (“Novartis”). Surface and Novartis are referred to in this Agreement individually as a “Party” and collectively as the “Parties”.

RECITALS:

WHEREAS, Surface discovers, researches and develops next-generation approaches to cancer immunotherapy based on proprietary insights about novel immunotherapy targets and emerging areas of cancer immuno-biology;

WHEREAS, Novartis and its Affiliates possess expertise in discovering, developing, manufacturing, marketing, and selling pharmaceutical products worldwide; and

WHEREAS, Surface and Novartis desire to collaborate to research, develop and commercialize new cancer immunotherapies, and Novartis would obtain certain rights to the technology and products discovered in such collaboration.

NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants herein contained, the Parties hereby agree as follows:

1. DEFINITIONS

1.1. Definitions.

Unless specifically set forth to the contrary herein, the following terms, whether used in the singular or plural, will have the respective meanings set forth below:

1.1.1.AAA” has the meaning set forth in Section 16.3.3.

1.1.2. Accounting Standards” means, GAAP, with respect to Surface and IFRS, with respect to Novartis, in each case, as generally and consistently applied throughout the Party’s organization. Each Party shall promptly notify the other in the event that it changes the Accounting Standards pursuant to which its records are maintained; provided, however, that each Party may only use internationally recognized accounting principles (e.g. IFRS, GAAP, etc.).

1.1.3. Acquirer” means, collectively, the Third Party referenced in the definition of Change of Control and such Third Party’s Affiliates, other than the applicable Party in the definition of Change of Control and such Party’s Affiliates, determined as of immediately prior to the closing of such Change of Control.

1.1.4. Adimab Agreement” means that certain Development and Option Agreement, dated as of July 3, 2014, by and between Adimab, LLC (“Adimab”) and Surface, as such agreement may be amended, restated or otherwise replaced from time to time to the extent permitted under Section 12.4.3 of this Agreement.

 

Confidential

 


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

1.1.5. Additional Development Activities” has the meaning set forth in Section 5.2.2.4(a).

1.1.6. Additional Development Data Package” has the meaning set forth in Section 5.2.2.4(d).

1.1.7. Additional Development Opt-In Date” has the meaning set forth in Section 5.2.2.4(d).

1.1.8. Additional Development Opt-In Notice” has the meaning set forth in Section 5.2.2.4(d).

1.1.9.Additional Development Proposal” has the meaning set forth in Section 5.2.2.4(a).

1.1.10. Affiliate” means, with respect to a Person, any other Person that controls, is controlled by, or is under common control with such Person. For purposes of this Agreement, a Person will be deemed to control another Person if it owns or controls, directly or indirectly, more than fifty percent (50%) of the equity securities of such other Person entitled to vote in the election of directors (or, in the case that such other Person is not a corporation, for the election of the corresponding managing authority), or otherwise has the power to direct the management and policies of such other Person. The Parties acknowledge that in the case of certain entities organized under the laws of certain countries outside the United States, the maximum percentage ownership permitted by law for a foreign investor may be less than fifty percent (50%), and that in such case such lower percentage will be substituted in the preceding sentence, provided that such foreign investor has the power to direct the management and policies of such entity.

1.1.11. Alliance Manager” has the meaning set forth in Section 2.1.

1.1.12. Annual Net Sales” mean Net Sales recorded in a given Calendar Year.

1.1.13. Antibody” means any [***] provided however, that solely for purposes of Section 12.5, the term “Antibody” shall be deemed to include those molecules that meet the criteria of (a) through (c) and for which [***] For clarity, [***]

 

Confidential

 

- 2 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

1.1.14. Antibody Candidates” means the T1 Antibody Candidates, the Option Target Antibody Candidates, the Regional Antibody Candidates and the Global Antibody Candidates.

1.1.15. Antitrust Laws” means any federal, state or foreign law, regulation or decree, including the HSR Act, designed to prohibit, restrict or regulate actions for the purpose or effect of monopolization or restraint of trade.

1.1.16. Audited Party” has the meaning set forth in Section 10.12.3.

1.1.17. Auditing Party” has the meaning set forth in Section 10.12.3.

1.1.18. Auditor” has the meaning set forth in Section 10.12.3.

1.1.19. Bankruptcy Code” has the meaning set forth in Section 15.4.

1.1.20. Bankrupt Party” has the meaning set forth in Section 9.7.

1.1.21. Biosimilar Application” means an application submitted to the FDA under subsection (k) of Section 351 of the PHSA, or any analogous application submitted to a Regulatory Authority in the United States or in another country in the world.

1.1.22. Biosimilar Product” means, with [***] a product that [***]

1.1.23. BLA” means (a) a Biologics License Application as defined in the FD&C Act and the regulations promulgated thereunder, (b) a Marketing Authorization Application (“MAA”) in the EU, or (c) any equivalent or comparable application, registration or certification in any other country or region.

 

Confidential

 

- 3 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

1.1.24. Brief” has the meaning set forth in Section 16.3.4.2(b).

1.1.25. Business Day” means a day other than a Saturday, Sunday or a bank or other public holiday in Massachusetts or New York in the United States or Basel, Switzerland.

1.1.26. Calendar Quarter” means the respective periods of three (3) consecutive calendar months ending on March 31, June 30, September 30 and December 31 of each Calendar Year.

1.1.27. Calendar Year” means each successive period of twelve (12) months commencing on January 1 and ending on December 31.

1.1.28. cGCP” means the ethical, scientific, and quality standards required by FDA for designing, conducting, recording, and reporting trials that involve the participation of human subjects, as set forth in FDA regulations in 21 C.F.R. Parts 11, 50, 54, 56, and 312 and related FDA guidance documents, and by the International Conference on Harmonization E6: Good Clinical Practices Consolidated Guideline, or as otherwise required by applicable Laws.

1.1.29. cGLP” means current good laboratory practice as required by the FDA under 21 C.F.R. part 58 and all applicable FDA rules, regulations, orders and guidances, and the requirements with respect to current good laboratory practices prescribed by the European Community, the OECD (Organization for Economic Cooperation and Development Council) and the ICH Guidelines, or as otherwise required by applicable Laws.

1.1.30. cGMP” means current good manufacturing practices as required by the FDA under provisions of 21 C.F.R. parts 210 and 211 and all applicable FDA rules, regulations, orders and guidances, and the requirements with respect to current good manufacturing practices prescribed by the European Community under provisions of “The Rules Governing Medicinal Products in the European Community, Volume 4, Good Manufacturing Practices, Annex 13, Manufacture of Investigational Medicinal Products, July 2003,” or as otherwise required by applicable Laws.

1.1.31. Change of Control” means, with respect to a Party, (a) a merger or consolidation of such Party with a Third Party that results in the voting securities of such Party outstanding immediately prior thereto, or any securities into which such voting securities have been converted or exchanged, ceasing to represent at least fifty percent (50%) of the combined voting power of the surviving entity or the parent of the surviving entity immediately after such merger or consolidation, (b) a transaction or series of related transactions in which a Third Party, together with its Affiliates, becomes the direct or indirect beneficial owner of fifty percent (50%) or more of the combined voting power of the outstanding securities of such Party, or (c) the sale or other transfer to a Third Party of all or substantially all of such Party’s and its controlled Affiliates’ assets.

 

Confidential

 

- 4 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

1.1.32. Clinical Study” means a Phase 1 Study, Phase 2 Study, Phase 3 Study, Post-Marketing Study, Supplemental Study or other study (including a non-interventional study) in humans to obtain information regarding the product, including information relating to the safety, tolerability, pharmacological activity, pharmacokinetics, dose ranging or efficacy of the product.

1.1.33. Clinical Study Phase” means a Phase 1 Study, Phase 2 Study or Phase 3 Study, as applicable.

1.1.34. Collaboration” means the collaboration of the Parties under this Agreement, including the Research, Development, Commercialization and Manufacture of Antibody Candidates and Licensed Products in the Field.

1.1.35. Collaboration Component” means, with respect to a Combination, the portion of such Licensed Product comprising an Antibody Candidate. If the applicable Combination includes more than one Antibody Candidate, then “Collaboration Component” shall refer to each such Antibody Candidate.

1.1.36. Collaboration In-License” has the meaning set forth in Section 9.5.1.3.

1.1.37. Combination” means any Combination Product or Combination Therapy.

1.1.38. Combination Product” means a product that includes an Antibody Candidate and at least one (1) additional active ingredient that is not an Antibody Candidate that is either co-formulated or administered through a single formulation, including, for clarity, an Antibody Candidate comprising a bi-specific Antibody. [***] For clarity [***]

1.1.39. Combination Therapy” means a therapy that includes an Antibody Candidate and at least one (1) additional active ingredient that is not an Antibody Candidate [***]

 

Confidential

 

- 5 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

1.1.40. Combination Trial” means a Clinical Study that is designed to provide safety, dose ranging, dose selection or efficacy data for a Combination.

1.1.41. Commercialization or Commercialize” means any and all activities directed to marketing, promoting, distributing, importing, exporting, using, offering to sell or selling a product, and activities directed to obtaining Pricing Approvals, as applicable.

1.1.42. Commercialization Plans” means, collectively, the T1 Commercialization Plan, the Novartis Commercialization Plan, the Surface Commercialization Plan and the Global Licensed Product Commercialization Plan.

1.1.43. Commercially Reasonable Efforts” means, with respect to a Party [***]

1.1.44. Committee” means the Joint Steering Committee, Joint Research Committee, Joint Development Committee or Joint Commercialization Committee, or any other subcommittee established under Section 2.2.3.11, as applicable.

1.1.45. Competing Program” means a Surface Competing Program or a Novartis Competing Program, as applicable.

Confidential

 

- 6 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

1.1.46. Competitive Infringement” means, [***] where the making, using, selling, offering for sale, or importing, by any Third Party (other than any Sublicensee or authorized purchaser or other transferee of such Licensed Product), of any pharmaceutical product comprising [***] For clarity, [***]

1.1.47. Competitive (Novartis) Infringement” means Competitive Infringement with respect to any Licensed Product in the Novartis Territory, but does not include any Competitive (Surface) Infringement.

1.1.48. Competitive (Surface) Infringement” any means Competitive Infringement with respect to any Regional Licensed Product in the Surface Territory, and does not include any Competitive (Novartis) Infringement.

1.1.49. Completion” means, with respect to a Phase 1 Safety Study of a Licensed Product, [***] days from the date of the last patient last dose for such Phase 1 Safety Study (and for clarity not any later portions of the applicable Phase 1 Study, other than such Phase 1 Safety Study as so defined).

1.1.50. “Component” means a Collaboration Component or a Party Component.

1.1.51. Component Value” means, with respect to a Component of a Combination, the value of such Component as determined in accordance with Exhibit A-1.

1.1.52. Confidential Information” means any and all confidential or proprietary information and data and all other scientific, pre-clinical, clinical, regulatory, manufacturing, marketing, financial and commercial information or data, whether communicated in writing or orally or by any other method, which is or has been provided by one Party to the other Party in connection with this Agreement.

1.1.53. Control” means, with respect to any Patents or Know-How, the possession (whether by ownership, license or sublicense, other than by a license, sublicense or other right granted (but not assignment) pursuant to this Agreement) by a Party of the ability to assign or grant to the other Party the licenses, sublicenses or rights to access and use such Patents or Know-How as provided for in this Agreement, without, other than with respect to any In-Licenses, paying any consideration to any Third Party (now or in the future) or violating the terms of any agreement or other arrangement with any Third Party in existence as of the time such Party would be required hereunder to grant such license, sublicense, or rights of access and use. Notwithstanding anything in this Agreement to the contrary, [***]

 

Confidential

 

- 7 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

1.1.54. Cover”, “Covering” or “Covered” with respect to each Licensed Product, means that, but for a license granted to a Person under a claim included in a Patent, the use, sale, offer for sale or importation of such Licensed Product in the Field in the Territory by such Person would infringe such claim.

1.1.55. CREATE Act” has the meaning set forth in Section 14.1.2.

1.1.56. CRO” means a contract research organization.

1.1.57. Develop” and “Development” means any and all clinical drug development activities conducted before or after obtaining Regulatory Approval that are reasonably related to or leading to the development, preparation, and submission of data and information to a Regulatory Authority for the purpose of obtaining, supporting or expanding Regulatory Approval or to the appropriate body for obtaining, supporting or expanding Pricing Approval, including all activities related to pharmacokinetic profiling, design and conduct of Clinical Studies, regulatory affairs, statistical analysis, report writing, and regulatory filing creation and submission (including the services of outside advisors and consultants in connection therewith).

1.1.58. Development Costs” means, with respect to a Licensed Target, those costs and expenses [***]

 

Confidential

 

- 8 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

1.1.59. Developmental Milestone Event” has the meaning set forth in Section 10.7.

1.1.60. Developmental Milestone Payment” has the meaning set forth in Section 10.7.

1.1.61. Development Plans” means, collectively, the T1 Development Plan, the RLP Development Plan, and the Global Development Plan.

1.1.62. Disputes” has the meaning set forth in Section 16.3.1.

1.1.63. DOJ” means the U.S. Department of Justice.

1.1.64. Dollars” or “$” means the legal tender of the United States of America.

1.1.65. Early Global Development Term” means, on a Global Target-by-Global Target basis, the time period commencing on the [***] and ending upon the date of [***]

1.1.66. Early RLP Development Term” means, on a Regional Target-by-Regional Target basis, the time period commencing on [***] and ending upon the [***]

1.1.67. Effective Date” has the meaning set forth in the preamble.

1.1.68. “EMA” means the European Medicines Agency and any successor Governmental Authority having substantially the same function.

1.1.69. Equity Agreements” means (a) Series A-1 Stock Purchase Agreement, by and among Surface and the Purchaser listed on Schedule 1 thereto, dated as of the Effective Date; (b) Amendment No. 1 to Investors’ Rights Agreement, by and among Surface and the investors party thereto, dated as of the Effective Date; (c) Amendment No. 1 to Voting Agreement, by and among Surface and the stockholders party thereto, dated as of the Effective Date; (d) Amendment No. 1 to Right of First Refusal and Co-Sale Agreement, by and among Surface and the stockholders party thereto, dated as of the Effective Date; and (e) Participation Agreement, by and between Surface and Novartis, dated as of the Effective Date, in each case ((a)-(e)) as may be amended or restated from time to time.

1.1.70. EU” means the European Union, as its membership may be constituted from time to time, and any successor thereto.

 

Confidential

 

- 9 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

1.1.71. Exclusivity Period” means (a) for each Option Target, from the [***] until the earliest of [***]

1.1.72. Executive Officer” means, for Surface, its Chief Executive Officer, and for Novartis, its President or another senior executive designee with responsibilities and seniority comparable thereto; provided that any of the foregoing individuals may designate the Chief Financial Officer as his/her designee for financial related matters. In the event that the position of any of the Executive Officers identified in this Section 1.1.72 no longer exists due to a Change of Control, corporate reorganization, corporate restructuring or the like that results in the elimination of the identified position, the applicable Executive Officer will be replaced with another executive officer with responsibilities and seniority comparable to the eliminated Executive Officer.

1.1.73. Existing Novartis In-License” means any agreements entered into by Novartis or an Affiliate with a Third Party prior to the Effective Date, including any amendments or restatements thereto during the Term in accordance with Section 12.4.3, pursuant to which Novartis or any of its Affiliates Controls any Novartis Technology, but excluding any Collaboration In-License to which Novartis or its Affiliates is a Party.

1.1.74. Existing Surface In-License” means any agreements entered into by Surface or an Affiliate with a Third Party prior to the Effective Date, including any amendments or restatements thereto during the Term in accordance with Section 12.4.3, pursuant to which Surface or any of its Affiliates Controls any Surface Technology, but excluding any Collaboration In-License to which Surface or its Affiliates is a Party.

1.1.75. Expedited Arbitration” has the meaning set forth in Section 16.3.4.1.

1.1.76. Expedited Dispute” has the meaning set forth in Section 16.3.4.1.

1.1.77. FDA” means the United States Food and Drug Administration or any successor agency thereto.

1.1.78. FD&C Act” means the United States Federal Food, Drug and Cosmetic Act, as amended.

1.1.79. Field” means [***]

 

Confidential

 

- 10 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

1.1.80. Finance Officers” has the meaning set forth in Section 10.6.1.

1.1.81. First Commercial Sale” means, on a Licensed Product-by-Licensed Product, and country-by-country basis, the first commercial sale in an arms’ length transaction of a Licensed Product to a Third Party by a Party or any of its Related Parties in such country following receipt of applicable Regulatory Approval of such Licensed Product in such country. For clarity, the First Commercial Sale shall not include any distribution or other sale solely for patient assistance, named patient use, compassionate use, or test marketing programs or non-registrational studies or similar programs or studies where the Licensed Product is supplied without charge or at the actual manufacturing cost thereof (without allocation of indirect costs or any markup).

1.1.82. FTC” means the U.S. Federal Trade Commission or any successor agency thereto.

1.1.83. “FTE” means a full-time scientific or technical person, or in the case of less than a full-time scientific or technical person, a full-time equivalent scientific or technical person year, carried out by an appropriately qualified employee of a Party or its Related Parties, based on [***] person-hours per year. For clarity, indirect personnel (including support functions such as managerial, financial, legal or business development) shall not constitute FTEs.

1.1.84. FTE Costs” means, for any period, the FTE Rate multiplied by the number of FTE’s in such period. For clarity, FTEs will be pro-rated on a daily basis if necessary.

1.1.85. FTE Rate” means [***] per one (1) full FTE per full twelve (12) month Calendar Year, [***] Notwithstanding the foregoing, for any Calendar Year during the Term that is less than a full year, the above referenced rate will be proportionately reduced to reflect such portion of FTEs for such full Calendar Year.

1.1.86. GAAP” means generally accepted accounting principles as practiced in the United States, as consistently applied.

1.1.87. Global Antibody Candidate” means, on a Global Target-by-Global Target basis, any Antibody that [***]

 

Confidential

 

- 11 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

1.1.88. Global Development Plan” has the meaning set forth in Section 5.3.2.

1.1.89. Global Licensed Product” means, on a Global Target-by-Global Target basis [***]

1.1.90. Global Licensed Product Commercialization Plan” has the meaning set forth in Section 6.3.2.

1.1.91. Global Net Sales Royalty” has the meaning set forth in Section 10.9.2.

1.1.92. Global Option” means an Option that is (a) designated as a Global Option in accordance with Section 4.2.3, or (b) otherwise designated as or converted into a Global Option in accordance with the terms of this Agreement.

1.1.93. Global Royalty Rates” has the meaning set forth in Section 10.9.2.

1.1.94. Global Target” means an [***]

1.1.95. GLP Toxicology Study” means a toxicology study, in species that satisfies applicable regulatory requirements, using applicable cGLP that meets the standard necessary for submission as part of an IND Filing with the applicable Regulatory Authority.

1.1.96. Global Transition Activities” has the meaning set forth in Section 5.3.3.

1.1.97. Global Transition Plan” has the meaning set forth in Section 5.3.3.

1.1.98. Governmental Authority” means any applicable government authority, court, tribunal, arbitrator, agency, department, legislative body, commission or other instrumentality of (a) any government of any country or territory, (b) any nation, state, province, county, city or other political subdivision thereof or (c) any supranational body.

 

Confidential

 

- 12 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

1.1.99. HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

1.1.100.HSR Filing” has the meaning set forth in Section 4.2.6.6.

1.1.101. IFRS” means International Financial Reporting Standards, as consistently applied.

1.1.102.IL-27” means [***]

1.1.103. IND” means an Investigational New Drug application, clinical trial application or similar application or submission for approval to conduct human clinical investigations filed with or submitted to a Regulatory Authority in conformance with the requirement of such Regulatory Authority, and any amendments thereto.

1.1.104. “IND Acceptance” means the acceptance by a Regulatory Authority in a Major Market Country of an IND.

1.1.105. IND Filing” means the filing with a Regulatory Authority in a Major Market Country of an IND.

1.1.106.Indemnified Party” has the meaning set forth in Section 13.4.

1.1.107.Indemnifying Party” has the meaning set forth in Section 13.4.

1.1.108. Indication” means a disease or pathological condition for which clinical results for such disease or condition and a separate BLA application or a supplement (or other addition) to an existing BLA application is required for the purpose of obtaining Regulatory Approval in a country.

1.1.109. Initiation” means, with respect to a Clinical Study of a Licensed Product, [***]

1.1.110. In-Licenses” means, collectively, all Existing Surface In-Licenses, all Existing Novartis In-Licenses and all Collaboration In-Licenses.

1.1.111. IP Committee” means the intellectual property advisory committee as more fully described in Section 14.3.1.

1.1.112.JCC” has the meaning set forth in Section 2.5.1.

 

Confidential

 

- 13 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

1.1.113.JDC” has the meaning set forth in Section 2.4.1.

1.1.114. Joint Collaboration IP” means, collectively, (a) [***]

1.1.115.JRC” has the meaning set forth in Section 2.3.1.

1.1.116.JSC” has the meaning set forth in Section 2.2.1.

1.1.117. Know-How” means all commercial, technical, scientific and other know-how and information, trade secrets, knowledge, technology, methods, processes, practices, formulae, instructions, skills, techniques, procedures, experiences, ideas, technical assistance, designs, drawings, assembly procedures, computer programs, specifications, data and results (including biological, chemical, pharmacological, toxicological, pharmaceutical, physical and analytical, preclinical, clinical, safety, manufacturing and quality control data and know-how, including regulatory data, study designs and protocols), and Materials, in all cases, whether or not confidential, proprietary, patented or patentable, in written, electronic or any other form now known or hereafter developed.

1.1.118. Late Global Development Term” means, on a Global Target-by-Global Target basis, the time period commencing [***] and ending upon [***]

1.1.119. Late RLP Development Term” means, on a Regional Target-by-Regional Target basis, the time period commencing [***] and ending [***]

1.1.120. Laws” means all applicable laws, statutes, rules, regulations, orders, judgments, injunctions, ordinances or other pronouncements having the binding effect of law of any Governmental Authority, including if either Party is or becomes subject to a legal obligation to a Regulatory Authority or other Governmental Authority (such as a corporate integrity agreement or settlement agreement with a Governmental Authority).

1.1.121.Lead Party” has the meaning set forth in Section 14.4.2.3(a).

1.1.122. Licensed Products” means collectively, the T1 Licensed Products, the Global Licensed Products, and the Regional Licensed Products.

 

Confidential

 

- 14 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

1.1.123. Licensed Targets” means the T1 Target, the Regional Targets and the Global Targets.

1.1.124.Losses” has the meaning set forth in Section 13.1.

1.1.125. Loss of Market Exclusivity” shall mean [***]

1.1.126.MAA” shall have the meaning in Section 1.1.23.

1.1.127. Major Market Countries” means the [***]

1.1.128. Manufacturing” or “Manufacture” means all activities related to the manufacture of Antibody Candidates or Licensed Products, including, but not limited to, manufacturing supplies for Research, Development or Commercialization, packaging, in-process and finished product testing, release of product or any component or ingredient thereof, quality assurance and quality control activities related to manufacturing and release of product, ongoing stability tests, storage, shipment, and regulatory activities related to any of the foregoing.

1.1.129. Manufacturing Costs” has the meaning set forth on Exhibit B, subject to Section 8.3.2.3.

1.1.130. Mark-Up” means a [***]

1.1.131. Materials” means all tangible compositions of matter, devices, articles of manufacture, assays, biological, chemical or physical materials and other similar materials.

1.1.132.Milestone Payments” has the meaning set forth in Section 10.8.

1.1.133. Net Sales” means, with respect to a Licensed Product, the net sales on behalf of a Party and any of its Related Parties for any Licensed Product sold to Third Parties (other than Sublicensees) in bona fide, arms-length transactions, as determined in accordance with such Party’s Accounting Standards as consistently applied, less a deduction of [***] percent [***%] for direct expenses related to the sales of

 

Confidential

 

- 15 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

Licensed Product(s), distribution and warehousing expenses and uncollectible amounts on previously sold Licensed Products. The deductions booked on an accrual basis by such Party and its Affiliates under its Accounting Standards to calculate the recorded net sales from gross sales include the following:

1.1.133.1. [***]

1.1.133.2. [***]

1.1.133.3. [***]

1.1.133.4. [***]

1.1.133.5. [***]

1.1.133.6. [***]

1.1.133.7. [***] and

1.1.133.8. [***]

 

Confidential

 

- 16 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

With respect to a Combination, [***]

1.1.134.Net Sales Royalties” means the Regional Net Sales Royalty, the T1 Net Sales Royalty and the Global Net Sales Royalty.

1.1.135.Non-Bankrupt Party” has the meaning set forth in Section 9.7.

1.1.136. Non-Proposing Party” has the meaning set forth in Section 5.2.2.4(a).

1.1.137. Novartis Collaboration IP” means [***]

1.1.138. Novartis Competing Program” has the meaning set forth in Section 12.5.2.2(a).

1.1.139. Novartis Component” means a Party Component Controlled by Novartis or its Related Parties.

1.1.140.Novartis Deferral Notice” has the meaning set forth in Section 4.2.3.2.

1.1.141.Novartis Election” has the meaning set forth in Section 8.3.1.3.

1.1.142.Novartis Indemnitees” has the meaning set forth in Section 13.2.

1.1.143. Novartis In-Licenses” means any Existing Novartis In-License or any Collaboration In-License to which Novartis is a party.

1.1.144. Novartis Know-How” means Know-How Controlled by Novartis or its Affiliates during the Term that is reasonably necessary for Surface to Research, Develop, Commercialize or Manufacture Antibody Candidates or Licensed Products in the Field in the Surface Territory, other than Novartis’s interest in Joint Collaboration IP, and Novartis Collaboration IP.

 

Confidential

 

- 17 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

1.1.145. Novartis Option Target Manufacturing Election” has the meaning set forth in Section 8.2.3.

1.1.146. Novartis Patents” means [***]

1.1.147. Novartis Regional Net Sales Royalty” has the meaning set forth in Section 10.9.3.1.

1.1.148. Novartis Regional Royalty Rate” has the meaning set forth in Section 10.9.3.1.

1.1.149.Novartis RLP Trademarks” has the meaning set forth in Section 14.9.2.2.

1.1.150. Novartis Technology” means, collectively, Novartis Know-How, Novartis Patents, Novartis Collaboration IP and Novartis’s interest in Joint Collaboration IP.

1.1.151. Novartis Territory” means (a) with respect to any T1 Licensed Product, worldwide, (b) with respect to any Regional Licensed Product, all countries and territories of the world other than the Surface Territory, and (c) with respect to any Global Licensed Product, worldwide.

1.1.152. Novartis Territory Commercialization Plan” has the meaning set forth in Section 6.2.3.

1.1.153.Other Patents” has the meaning set forth in Section 14.3.3.1.

1.1.154.Option” has the meaning set forth in Section 4.1.1.

1.1.155. Option Exercise Date” means, on an Option-by-Option basis, the date on which an Option Exercise Notice delivered by Novartis to Surface for such Option pursuant to Section 4.2.6 takes effect.

1.1.156. Option Exercise Notice” means the written notice Novartis delivers to Surface to exercise an Option with respect to an Option Target, in the form set forth on Exhibit C, containing the information set forth in such form.

 

Confidential

 

- 18 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

1.1.157. Option Exercise Period” means, on an Option-by-Option basis, [***]

1.1.158. Option IND Package” means, on an Option Target-by-Option Target basis, [***] the information set forth on Schedule 1.1.158 for such Option Target.

1.1.159.Option Purchase Fee” has the meaning set forth in Section 10.3.

1.1.160. Option Purchase Notice” means the written notice Novartis delivers to Surface to purchase an Option for an Option Target, in the form set forth on Exhibit D, containing the information set forth in such form.

1.1.161. Option Purchase Period” means, on an Option Target-by-Option Target basis, the time period commencing [***] and ending [***].

1.1.162.Option Selection Notice” has the meaning set forth in Section 4.2.3.1.

1.1.163. Option Target” means any of the following: (a) CD47 (NCBI Entrez Gene ID:961), [***] (d) IL-27.

1.1.164. Option Target Antibody Candidate” means, on an Option Target-by-Option Target basis, any Antibody that (a) Specifically Binds to such Option Target, and (b) is Researched by or on behalf of Surface or its Related Parties pursuant to this Agreement under the applicable Option Target Research Program; provided that after a Change of Control of a Party, [***]

 

Confidential

 

- 19 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

1.1.165. Option Target Research Plan” has the meaning set forth in Section 3.2.1.

1.1.166. Option Target Research Program” has the meaning set forth in Section 3.2.1.

1.1.167. Option Tox Package” means, on an Option Target-by-Option Target basis, the information set forth on Schedule 1.1.167 for such Option Target.

1.1.168.Opt-Out Notice” has the meaning set forth in Section 5.2.9.

1.1.169. Opt-Out Right” means Surface’s right to opt-out of the Development and Commercialization of all Regional Antibody Candidates and Regional Licensed Products for a Regional Target in accordance with Section 5.2.9.

1.1.170. Out-of-Pocket Costs” means, with respect to certain activities hereunder [***]

1.1.171. Party Component” means, with respect to a Combination, the portion of such Licensed Product comprising any active ingredient(s) other than an Antibody Candidate. If the applicable Combination includes more than one such active ingredient, then “Party Component” shall refer to each such active ingredient.

1.1.172. Patent” means all patents and patent applications and all substitutions, divisions, continuations, continuations-in-part, any patent issued with respect to any such patent applications, any reissue, reexamination, utility models or designs, renewal or extension (including any supplementary protection certificate) of any such patent, and any confirmation patent or registration patent or patent of addition based on any such patent, and all counterparts thereof in any country.

1.1.173. Patent(s) Costs” means the out-of-pocket costs and expenses paid to outside legal counsel and other Third Parties (including to any licensor pursuant to any in-license), and filing and maintenance expenses, incurred in Prosecuting and Maintaining Patents and enforcing and defending them.

1.1.174. Person” means any natural person, corporation, unincorporated organization, partnership, association, sole proprietorship, joint stock company, joint venture, limited liability company, trust or government, or Governmental Authority, or any other similar entity.

 

Confidential

 

- 20 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

1.1.175. Phase 1 Safety Study” means [***]

1.1.176. Phase 1 Study” means a clinical study of an investigational product in patients with the primary objective of characterizing its safety, tolerability, and pharmacokinetics and identifying a recommended dose and regimen for future studies as described in 21 C.F.R. 312.21(a), or a comparable Clinical Study prescribed by the relevant Regulatory Authority in a country other than the United States. The investigational product can be administered to patients as a single agent or in combination with other investigational or marketed agents and [***]

1.1.177. Phase 2 Study” means a clinical study of an investigational product in patients with the primary objective of characterizing its activity in a specific disease state as well as generating more detailed safety, tolerability, and pharmacokinetics information as described in 21 C.F.R. 312.21(b), or a comparable Clinical Study prescribed by the relevant Regulatory Authority in a country other than the United States including a human clinical trial that is also designed to satisfy the requirements of 21 C.F.R. 312.21(a) or corresponding foreign regulations and is subsequently optimized or expanded to satisfy the requirements of 21 C.F.R. 312.21(b) (or corresponding foreign regulations) or otherwise to enable a Phase 3 Clinical Study (e.g., a phase 1/2 trial). The investigational product can be administered to patients as a single agent or in combination with other investigational or marketed agents and [***]

1.1.178. Phase 3 Study” means a clinical study of an investigational product in patients that incorporates accepted endpoints for confirmation of statistical significance of efficacy and safety with the aim to obtain Regulatory Approval in any country as described in 21 C.F.R. 312.21(c), or a comparable Clinical Study prescribed by the relevant Regulatory Authority in a country other than the United States. The investigational product can be administered to patients as a single agent or in combination with other investigational or marketed agents [***]

1.1.179. PHSA” means the United States Public Health Service Act, as amended.

 

Confidential

 

- 21 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

1.1.180.Potential In-License” has the meaning set forth in Section 9.5.1.3.

1.1.181. Post-Marketing Study” means a non-human or human clinical study of a Licensed Product initiated after receipt of Regulatory Approval for such Licensed Product in a country or territory, that is required by the Regulatory Authority in such country or territory to maintain the Regulatory Approval for such Licensed Product in such country or territory, but excluding any Supplemental Study.

1.1.182. Pricing Approval” means such governmental approval, agreement, determination or decision establishing prices for a Licensed Product that can be charged or reimbursed in regulatory jurisdictions where the applicable Governmental Authorities approve or determine the price or reimbursement of pharmaceutical products.

1.1.183. Pricing Matters” means all issues and decisions regarding (a) price, price terms and other contract terms with respect to Licensed Product sales, including discounts, rebates, other price concessions and service fees to payors and purchasers and (b) reimbursement programs applicable to a Licensed Product. For clarity, [***]

1.1.184. Product Global Trademarks” means the Trademarks used, or intended for use, in connection with the distribution, marketing, promotion and sale of the T1 Licensed Products and Global Licensed Products by Novartis and its Related Parties in the Novartis Territory. Product Global Trademarks specifically exclude the corporate names and logos of the Parties and their Affiliates.

1.1.185.Promotional Materials” has the meaning set forth in Section 6.2.5.2.

1.1.186.Proposing Party” has the meaning set forth in Section 5.2.2.4(a).

1.1.187.Prosecution and Maintenance” means, with regard to a particular Patent, the preparation, filing, prosecution and maintenance of such Patent, as well as re-examinations, reissues and the like with respect to that Patent, together with the conduct of interferences, the defense of oppositions and other similar proceedings with respect to that Patent.

1.1.188. Prosecution Patents” means (a) all Patents within the Surface Technology that are Controlled by Surface as of the Effective Date and (b) all Patents within the Surface Collaboration IP that, in each case ((a) and (b)), [***]

 

Confidential

 

- 22 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

1.1.189. Regional [***] Activities” has the meaning set forth in Section 4.2.6.4.

1.1.190. Regional [***] Candidate” has the meaning set forth in Section 4.2.6.4.

1.1.191. Regional Antibody Candidate” means, on a Regional Target-by-Regional Target basis, any Antibody that [***]

1.1.192. Regional Licensed Product” means, on a Regional Target-by-Regional Target basis, a [***]

1.1.193. Regional Option” means an Option that is designated as a Regional Option in accordance with Section 4.2.3.

1.1.194. Regional Net Sales Royalty” has the meaning set forth in Section 10.9.3.2.

1.1.195. Regional Royalty Rates” has the meaning set forth in Section 10.9.3.2.

1.1.196. Regional Target” means an Option Target that is designated as a Regional Target in accordance with Section 4.2.6.2 and with respect to which an Option has been exercised pursuant to Section 4.2.6.4.

1.1.197. Regulatory Approval” means a BLA, together with all other approvals (including, but not limited to, where applicable, Pricing Approval and schedule classifications), product or establishment licenses, registrations or authorizations (including, but not limited to, marketing authorizations) of any Regulatory Authority that may be necessary for the marketing, sale and commercialization of a pharmaceutical product in any country or region in the Territory.

 

Confidential

 

- 23 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

1.1.198. Regulatory Authority” means any Governmental Authority involved in granting approvals for the Development, Manufacturing, Commercialization, Pricing Approval of Licensed Products, including the FDA, the EMA, the Japanese Ministry of Health, Labour and Welfare and the Pharmaceuticals and Medical Devices Agency in Japan.

1.1.199. Regulatory Materials” means any regulatory application, submission, notification, communication, correspondence, registration, Regulatory Approvals and other filings made to, received from or otherwise conducted with a Regulatory Authority related to Developing, Manufacturing, obtaining marketing authorization, marketing, selling or otherwise Commercializing a pharmaceutical product in a particular country or jurisdiction.

1.1.200. Related Party” means a Party’s Affiliates and permitted Sublicensees.

1.1.201. Research” or “Researching” means activities, other than Development, related to the design, discovery, generation, identification, profiling, characterization, production, process development, cell line development, pre-clinical development or non-clinical or pre-clinical studies of drug candidates and products.

1.1.202. Research Plans” means, collectively, the T1 Research Plan and each of the Option Target Research Plans.

1.1.203. Research Programs” means, collectively, the T1 Research Program and each of the Option Target Research Programs.

1.1.204. Research Term” means, [***]

1.1.205.Research Target” means the T1 Target and the Option Targets.

 

Confidential

 

- 24 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

1.1.206. Restricted Technology” means Surface Technology, Novartis Technology, and any Confidential Information of either Party or its Related Parties provided under or developed in connection with the Collaboration.

1.1.207. [***]

1.1.208. [***]

1.1.209. [***]

1.1.210.RLP Branding Strategy has the meaning set forth in Section 6.2.5.1.

1.1.211. RLP Commercial Strategy” has the meaning set forth in Section 6.2.2.

1.1.212. RLP Development Activities” means collectively, [***]

1.1.213.RLP Development Budget” has the meaning set forth in Section 5.2.2.2.

1.1.214.RLP Development Plan” has the meaning set forth in Section 5.2.2.1.

1.1.215. RLP Trademarks” means the Trademarks used, or intended for use, in connection with the distribution, marketing, promotion and sale of the Regional Licensed Products. RLP Trademarks specifically exclude the corporate names and logos of the Parties and their Affiliates and Sublicensees. RLP Trademarks include both the Surface RLP Trademarks and the Novartis RLP Trademarks.

1.1.216. Royalty Patents” means [***]

1.1.217. “Royalty Rates” means the Regional Royalty Rates, the T1 Royalty Rates and the Global Royalty Rates.

1.1.218.Royalty Term” has the meaning set forth in Section 10.10.1.

1.1.219. Safety Concern” means (a) any safety concern required to be reported under 21 C.F.R. § 312.32(c)(1)(iii) (“Findings from animal or in vitro testing”) if an IND with respect to such Antibody Candidate or Licensed Product was open at the time of the observation or (b) a toxicity or drug safety issue or a Serious Adverse Event reasonably related to or observed in connection with Research, Development or Commercialization activities with respect to an Antibody Candidate or Licensed Product.

 

Confidential

 

- 25 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

1.1.220.Sales Milestone Event” has the meaning set forth in Section 10.8.

1.1.221. Sales Milestone Payment” has the meaning set forth in Section 10.9.

1.1.222.SDEA” has the meaning set forth in Section 7.4.

1.1.223. Serious Adverse Event” means an adverse drug experience or circumstance that results in any of the following outcomes (a) death, (b) life-threatening condition, (c) inpatient hospitalization or a significant prolongation of existing hospitalization, (d) persistent or significant disability or incapacity or substantial disruption of the ability to conduct normal life functions, (e) or a congenital anomaly/birth defect or (f) significant intervention required to prevent permanent impairment or damage.

1.1.224. Specifically Bind” means, [***]

1.1.225. Sublicensee” means a Third Party to which a Party or its Affiliate has granted or grants rights, as permitted under this Agreement, to Research, Develop, Manufacture or Commercialize any Antibody Candidates or Licensed Product(s), or any further sublicensee of such rights (regardless of the number of tiers, layers or levels of sublicenses of such rights).

1.1.226. Supplemental Study” is any Clinical Study (other than any Post-Marketing Study) for an additional indication or other label expansion for a Licensed Product beyond the initial Indication contemplated by the Development Plan.

1.1.227. Supply Agreement” means any supply agreement entered into by the Parties pursuant to Section 8.

1.1.228. Surface Collaboration IP” means [***]

 

Confidential

 

- 26 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

1.1.229. Surface Competing Program” has the meaning set forth in Section 12.5.2.1(a).

1.1.230. Surface Component” means a Party Component Controlled by Surface or its Related Parties.

1.1.231.Surface Election” has the meaning set forth in Section 8.3.1.3.

1.1.232.Surface Indemnitees” has the meaning set forth in Section 13.1.

1.1.233. Surface In-Licenses” means any Existing Surface In-License or any Collaboration In-License to which Surface is a party.

1.1.234. Surface Know-How” means [***]

1.1.235. Surface Regional Net Sales Royalty” has the meaning set forth in Section 10.9.3.2.

1.1.236. Surface Regional Royalty Rate” has the meaning set forth in Section 10.9.3.2.

1.1.237. Surface Patents” means [***]

1.1.238.Surface RLP Trademarks” has the meaning set forth in Section 14.9.2.2.

1.1.239. Surface Technology” means Surface Know-How, Surface Patents, Surface Collaboration IP and Surface’s interest in Joint Collaboration IP.

1.1.240. Surface Territory” means, with respect to any Regional Licensed Product, the United States.

1.1.241. Surface Territory Commercialization Plan” has the meaning set forth in Section 6.2.4.

 

Confidential

 

- 27 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

1.1.242. T1 Antibody Candidate” means any Antibody that [***]

1.1.243. T1 Commercialization Plan” has the meaning set forth in Section 6.1.2.

1.1.244. T1 Development Information” has the meaning set forth in Section 5.1.2.

1.1.245. T1 Development Plan” has the meaning set forth in Section 5.1.3.

1.1.246. T1 Licensed Product” means a [***]

1.1.247.T1 Net Sales Royalty” has the meaning set forth in Section 10.9.1.

1.1.248.T1 Research Plan” has the meaning set forth in Section 3.1.1.

1.1.249.T1 Research Program” has the meaning set forth in Section 3.1.1.

1.1.250.T1 Royalty Rates” has the meaning set forth in Section 10.9.1.

1.1.251.T1 Target” means CD73 [***]

1.1.252.T1 Transition Activities” has the meaning set forth in Section 5.1.2.

1.1.253.T1 Transition Plan” has the meaning set forth in Section 5.1.2.

 

Confidential

 

- 28 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

1.1.254.Target” means a Licensed Target or Option Target, as applicable.

1.1.255. Tax” and “Taxation” means any form of tax or taxation, levy, duty, charge or withholding (including any related fine, penalty, addition to tax, surcharge or interest) imposed by, or payable to, a governmental authority.

1.1.256. Technical Failure” [***]

1.1.257. Territory” means (a) with respect to Surface, the Surface Territory and (b) with respect to Novartis, the Novartis Territory.

1.1.258.Term” has the meaning set forth in Section 15.1.

1.1.259. Third Party” means any Person other than Novartis, Surface or their respective Affiliates.

1.1.260. Third Party Acquisition” has the meaning set forth in Section 12.5.2.1(a).

1.1.261.Third Party Payment” has the meaning set forth in Section 9.5.1.

1.1.262. Trademark” means any trademark, trade name, service mark, service name, brand, domain name, trade dress, logo, slogan or other indicia of origin or ownership, including the goodwill and activities associated with each of the foregoing.

1.1.263. United States” or “U.S.” means the United States and its territories, possessions and commonwealths.

1.1.264. Valid Claim” means a claim of a Patent that (a) has not been rejected, revoked or held to be invalid or unenforceable by a court or other authority of competent jurisdiction, from which decision no appeal can be further taken, or (b) has not been finally abandoned, disclaimed or admitted to be invalid or unenforceable through reissue or disclaimer. In order to be a Valid Claim, any claim being prosecuted in a pending patent application must be prosecuted in good faith and not have been pending for more than [***] years from the filing date of the first utility patent application (or equivalent concept in any such country) in the patent application family in the country in question, in which case it will cease to be considered a Valid Claim until the patent issues and recites said claim.

 

Confidential

 

- 29 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

2. GOVERNANCE

2.1. Alliance Manager. Promptly following the Effective Date, each Party will designate an individual to facilitate communication and coordination of the Parties’ activities under this Agreement relating to Antibody Candidates and Licensed Products and to provide support and guidance to the JSC (each, an “Alliance Manager”). Each Alliance Manager may also serve as a representative of its respective Party on one or more Committees.

2.2. Joint Steering Committee.

2.2.1. Purpose; Formation. Within [***] days after the Effective Date, the Parties will establish a joint steering committee (the “JSC”) that will monitor and provide strategic oversight of the activities under this Agreement and facilitate communications between the Parties with respect to the Research, Development, Manufacture and Commercialization of Antibody Candidates and Licensed Products, all in accordance with this Section 2.2.

2.2.2. Composition. Each Party will initially appoint [***] representatives to the JSC, all of whom will have sufficient seniority within the applicable Party to make decisions arising within the scope of the JSC’s responsibilities. The Parties’ initial representatives to the JSC are set forth on Exhibit E. The JSC may change its size from time to time by mutual consent of its members, provided that the JSC will consist at all times of an equal number of representatives of each of Surface and Novartis. Each Party may replace its JSC representatives at any time upon written notice to the other Party. The JSC may invite non-members to participate in the discussions and meetings of the JSC, provided that such participants have no voting authority at the JSC and are bound under written obligation of confidentiality no less protective of the Parties’ Confidential Information than those set forth in this Agreement. The JSC will be co-chaired, with one chairperson designated by Surface and [***] designated by Novartis, whose responsibilities will include conducting meetings, including, when feasible, ensuring that objectives for each meeting are set and achieved. Responsibility for running each meeting of the JSC will alternate between the chairpersons from meeting-to-meeting, with Surface’s chairperson running the first meeting. The Alliance Managers will work with the chairpersons to prepare and circulate agendas and to ensure the preparation of minutes. The chairpersons have no additional powers or rights beyond those held by the other JSC representatives.

2.2.3. Specific Responsibilities. In addition to its overall responsibility for monitoring and providing strategic oversight with respect to the Parties’ activities under this Agreement, the JSC will in particular have the following responsibilities:

2.2.3.1. review and discuss the Research by the Parties with respect to the T1 Antibody Candidates and Option Target Antibody Candidates, including whether a Technical Failure has occurred with respect to Option Target Antibody Candidates;

 

Confidential

 

- 30 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

2.2.3.2. review and discuss the Development of Regional Antibody Candidates;

2.2.3.3. review and discuss the Commercialization of Regional Licensed Products and any other ongoing related activities;

2.2.3.4. review, discuss and oversee Manufacturing for the T1 Antibody Candidates and Option Antibody Candidates, including the supply chain for Antibody Candidates;

2.2.3.5. facilitate the flow of information between the Parties with respect to T1 Antibody Candidates, Regional Antibody Candidates, Global Antibody Candidates and Licensed Products;

2.2.3.6. review and discuss reports from the JRC, JDC and JCC, and provide guidance thereto and direct the activities of such Committees, and review and approve all Research Plans and each RLP Development Plan, and, in each case, all amendments thereto;

2.2.3.7. review and discuss the entry of any Collaboration In-Licenses with respect to the Research, Development, Manufacture or Commercialization of any Antibody Candidates or Licensed Products;

2.2.3.8. review, discuss and coordinate the Parties’ scientific presentation and publication strategy relating to the Regional Licensed Products in the Territory;

2.2.3.9. review and facilitate discussion of proposed publications and resolve disputes with respect thereto taking into consideration Section 11.2.1;

2.2.3.10. attempt to resolve issues presented to it by, and disputes within, the JRC, JDC or JCC, or any other subcommittee;

2.2.3.11. establish such additional joint subcommittees as it deems necessary to achieve the objectives and intent of this Agreement; and

2.2.3.12. perform such other functions as appropriate, and direct each other Committee to perform such other functions as appropriate, to further the purposes of this Agreement, in each case as agreed in writing by the Parties or as expressly provided in this Agreement.

 

Confidential

 

- 31 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

2.2.4. Meetings. The JSC will meet at least once per [***] during the Term unless the Parties mutually agree in writing to a different frequency. No later than [***] Business Days prior to any meeting of the JSC (or such shorter time period as the Parties may agree), the Alliance Managers will prepare and circulate an agenda for such meeting; provided, however, that either Party may propose additional topics to be included on such agenda, either prior to or in the course of such meeting. Either Party may also call a special meeting of the JSC (by videoconference, teleconference or in person) by providing at least [***] Business Days prior written notice to the other Party if such Party reasonably believes that a significant matter must be addressed prior to the next scheduled meeting, in which event such Party will work with the chairperson of the JSC and the Alliance Managers of both Parties to provide the members of the JSC no later than [***] Business Days prior to the special meeting with an agenda for the meeting and materials reasonably adequate to enable an informed decision on the matters to be considered. The JSC may meet in person, by videoconference or by teleconference. Notwithstanding the foregoing, at least one (1) meeting per [***] will be in person unless the Parties mutually agree in writing to waive such requirement. In-person JSC meetings will be held at locations alternately selected by Surface and by Novartis. Each Party will bear the expense of its respective JSC members’ participation in JSC meetings. Meetings of the JSC will be effective only if at least [***] representative of each Party (which representative is not such Party’s Alliance Manager) is present or participating in such meeting. The Alliance Managers will be responsible for preparing reasonably detailed written minutes of all JSC meetings that reflect material decisions made and action items identified at such meetings. The Alliance Managers will send draft meeting minutes to each member of the JSC for review and approval within [***] Business Days after each JSC meeting. Such minutes will be deemed approved unless [***] of the JSC objects to the accuracy of such minutes within [***] Business Days of receipt. Minutes will be officially endorsed by the JSC at the next JSC meeting, and will be signed by the Alliance Managers.

2.3. Joint Research Committee.

2.3.1. Formation; Composition; Dissolution. Within [***] days after the Effective Date, the Parties will establish a committee to oversee the Research of Antibody Candidates and Licensed Products in accordance with the Research Plan(s) and to coordinate the Research activities of the Parties with respect thereto (the “JRC”). Each Party will initially appoint [***] representatives to the JRC, with each representative having knowledge and expertise in the Research of compounds and products similar to the Antibody Candidates and Licensed Products and having sufficient seniority within the applicable Party to make decisions arising within the scope of the JRC’s responsibilities. The JRC may change its size from time to time, provided that the JRC will consist at all times of an equal number of representatives of each of Surface and Novartis. Each Party may replace its JRC representatives at any time upon written notice

 

Confidential

 

- 32 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

to the other Party. The JRC may invite non-members to participate in the discussions and meetings of the JRC, provided that such participants have no voting authority at the JRC and are bound under written obligation of confidentiality no less protective of the Parties’ Confidential Information than those set forth in this Agreement. The JRC will be co-chaired, with one chairperson designated by Surface and [***] designated by Novartis, whose responsibilities will include conducting meetings, including, when feasible, ensuring that objectives for each meeting are set and achieved. Responsibility for running each meeting of the JRC will alternate between the chairpersons from meeting-to-meeting, with Surface’s chairperson running the first meeting. Subject to Section 2.8, after Completion of the last Phase 1 Study for the last Antibody Candidate or Licensed Product, the Parties agree that the JRC will be automatically dissolved with no further action required by either Party.

2.3.2. Specific Responsibilities of the JRC. The JRC has the following responsibilities:

2.3.2.1. oversee and review Research responsibilities for T1 Antibody Candidate and Option Antibody Candidates;

2.3.2.2. discuss, prepare and approve for submission to the JSC the Research Plans and all amendments thereto;

2.3.2.3. oversee the conduct of the T1 Research Plan and Option Target Research Plans;

2.3.2.4. create, implement, review the overall strategy and approve protocols and the selection and use of Third Parties for Research of T1 Antibody Candidates and Option Antibody Candidates, including the design of all nonclinical studies, preclinical studies and GLP Toxicology Studies, conducted under the Research Plans;

2.3.2.5. decide whether and when to initiate or discontinue any nonclinical studies, preclinical studies or GLP Toxicology Studies for T1 Antibody Candidates and Option Antibody Candidates under the Research Plans, provided that nothing is intended to limit a Party’s ability to comply with applicable Law or manage subject safety;

2.3.2.6. review, discuss and oversee Manufacturing for the Research of T1 Antibody Candidates and Option Antibody Candidates, including the supply chain for Antibody Candidates;

 

Confidential

 

- 33 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

2.3.2.7. allocate budgeted resources and determine priorities for each nonclinical study, preclinical study and GLP Toxicology Study for T1 Antibody Candidates and Option Antibody Candidates included under the Research Plans;

2.3.2.8. facilitate the flow of information between the Parties with respect to the Research of T1 Antibody Candidates and Option Antibody Candidates;

2.3.2.9. facilitate the flow of information between the Parties with respect to the Research activities for the T1 Research Program and Option Target Research Programs; and

2.3.2.10. perform such other functions as may be appropriate to further the purposes of this Agreement, as directed by the JSC in accordance with Section 2.2.3.12 or as expressly provided in this Agreement.

2.3.3. Meetings. The JRC will meet at least once per [***] unless the Parties mutually agree in writing to a different frequency. No later than [***] prior to any meeting of the JRC (or such shorter time period as the Parties may agree), the Alliance Managers will prepare and circulate an agenda for such meeting; provided, however, that either Party will be free to propose additional topics to be included on such agenda, either prior to or in the course of such meeting. Either Party may also call a special meeting of the JRC (by videoconference, teleconference or in person) by providing at least [***] prior written notice to the other Party if such Party reasonably believes that a significant matter must be addressed prior to the next scheduled meeting, in which event such Party will work with the Alliance Manager to provide the members of the JRC no later than [***] prior to the special meeting with an agenda for the meeting and materials reasonably adequate to enable an informed decision. The JRC may meet in person, by videoconference, or by teleconference. In-person JRC meetings will be held at locations in the United States alternately selected by Surface and by Novartis or at any other location mutually agreed by the members of the JRC. Each Party will report to the JRC on all material issues relating to the Research of Antibody Candidates promptly after such issues arise. Each Party will bear the expense of its respective JRC members’ participation in JRC meetings. The JRC chairperson will be responsible for preparing reasonably detailed written minutes of JRC meetings that reflect all decisions made and action items identified at such meetings. The JRC chairperson will send meeting minutes to each member of the JRC for review and approval within [***] after each JRC meeting. Minutes will be deemed approved unless [***] members of the JRC objects to the accuracy of such minutes within [***] of receipt. Minutes will be officially endorsed by the JRC at the next JRC meeting, and will be signed by the Alliance Managers.

 

Confidential

 

- 34 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

2.3.4. Decision-Making. Subject to the remainder of this Section 2.3.4 and Section 2.6, the JRC will act by unanimous agreement. The representatives from each Party have, collectively, [***] vote on behalf of that Party. If the JRC cannot reach unanimous agreement on an issue that comes before the JRC within [***] of the meeting such issue was raised and over which the JRC has oversight, then the Parties will refer such matter to the JSC for resolution in accordance with Section 2.6.

2.4. Joint Development Committee.

2.4.1. Formation; Composition; Dissolution. No later than [***] after the Initiation of the first GLP Toxicology Study for any Antibody Candidate or Licensed Product, the Parties will establish a committee to (a) oversee the Development of Regional Licensed Antibody Candidates and Regional Licensed Products in accordance with the Development Plan(s) for the same and to coordinate the Development activities of the Parties with respect thereto, and (b) facilitate the flow of information between the Parties with respect to, and provide a forum to discuss, the Development of T1 Antibody Candidates, T1 Licensed Products, Global Antibody Candidates and Global Licensed Products (the “JDC”). Each Party will initially appoint [***] representatives to the JDC, with each representative having knowledge and expertise in the Development of compounds and products similar to the Antibody Candidates and Licensed Products and having sufficient seniority within the applicable Party to make decisions arising within the scope of the JDC’s responsibilities. The JDC may change its size from time to time, provided that the JDC will consist at all times of an equal number of representatives of each of Surface and Novartis. Each Party may replace its JDC representatives at any time upon written notice to the other Party. The JDC may invite non-members to participate in the discussions and meetings of the JDC, provided that such participants have no voting authority at the JDC and are bound under written obligation of confidentiality no less protective of the Parties’ Confidential Information than those set forth in this Agreement. The JDC will be co-chaired, with one chairperson designated by Surface and [***] designated by Novartis, whose responsibilities will include conducting meetings, including, when feasible, ensuring that objectives for each meeting are set and achieved. Responsibility for running each meeting of the JDC will alternate between the chairpersons from meeting-to-meeting, with Novartis’s chairperson running the first meeting. Subject to Section 2.8, upon later of [***] the Parties agree that the JDC will be automatically dissolved with no further action required by either Party.

2.4.2. Specific Responsibilities of the JDC. The JDC has the following responsibilities:

2.4.2.1. oversee and review Development responsibilities for each Regional Antibody Candidate and Regional Licensed Product;

 

Confidential

 

- 35 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

2.4.2.2. discuss, prepare and approve for submission to the JSC all RLP Development Plans, and all amendments to RLP Development Plans for Regional Antibody Candidates and Regional Licensed Products;

2.4.2.3. oversee the conduct of all RLP Development Plans;

2.4.2.4. create, implement and review the overall strategy for Development, including the design of all Clinical Studies for Regional Antibody Candidates and Regional Licensed Products, conducted under the RLP Development Plans, as applicable;

2.4.2.5. decide whether and when to initiate or discontinue any Clinical Study for any Regional Antibody Candidate or Regional Licensed Product under each RLP Development Plan, as applicable, provided that nothing is intended to limit a Party’s ability to comply with applicable Law or manage subject safety;

2.4.2.6. allocate budgeted resources and determine priorities for each Clinical Study for Regional Antibody Candidates and Regional Licensed Products included under each RLP Development Plan;

2.4.2.7. oversee the conduct of all Clinical Studies for Regional Antibody Candidates and Regional Licensed Products included under each RLP Development Plan;

2.4.2.8. facilitate the flow of information between the Parties with respect to the Development of T1 Antibody Candidates, T1 Licensed Products, Regional Antibody Candidates, Regional Licensed Products, Global Antibody Candidates or Global Licensed Products;

2.4.2.9. allocate primary responsibility as between the Parties for tasks relating to the Development of Regional Antibody Candidates where not already specified in the RLP Development Plans therefor;

2.4.2.10. review, discuss and oversee Manufacturing for the Development of Regional Antibody Candidates and Regional Licensed Products, including the supply chain for Regional Antibody Candidates and Regional Licensed Products;

 

Confidential

 

- 36 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

2.4.2.11. create, implement and review the overall strategy regarding Regulatory Approval of Regional Licensed Products in the Territory;

2.4.2.12. without limitation to Section 2.4.2.11, review the regulatory strategy with respect to discussions with and commitments to or agreements with Regulatory Authorities (including post-approval commitments) with respect to Regional Licensed Product labeling, risk management or Clinical Studies;

2.4.2.13. without limitation to Section 2.4.2.12, review and approve any material submission to, or any material agreement with or material commitment made to, a Regulatory Authority with respect to a Regional Licensed Product, such as any BLA or MAA, or any submission, agreement or commitment with respect to Licensed Product labeling, any risk management plans or post-approval commitment for such Licensed Product;

2.4.2.14. facilitate the flow of information between the Parties with respect obtaining Regulatory Approval for Regional Licensed Products; and

2.4.2.15. perform such other functions as may be appropriate to further the purposes of this Agreement, as directed by the JSC in accordance with Section 2.2.3.12 or as expressly provided in this Agreement.

2.4.3. Meetings. The JDC will meet at least once per [***] unless the Parties mutually agree in writing to a different frequency. No later than [***] prior to any meeting of the JDC (or such shorter time period as the Parties may agree), the Alliance Managers will prepare and circulate an agenda for such meeting; provided, however, that either Party will be free to propose additional topics to be included on such agenda, either prior to or in the course of such meeting. Either Party may also call a special meeting of the JDC (by videoconference, teleconference or in person) by providing at least [***] prior written notice to the other Party if such Party reasonably believes that a significant matter must be addressed prior to the next scheduled meeting, in which event such Party will work with the Alliance Manager to provide the members of the JDC no later than [***] prior to the special meeting with an agenda for the meeting and materials reasonably adequate to enable an informed decision. The JDC may meet in person, by videoconference, or by teleconference. In-person JDC meetings will be held at locations in the United States alternately selected by Surface and by Novartis or at any other location mutually agreed by the members of the JDC. Each Party will report to the JDC on all material issues

 

Confidential

 

- 37 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

relating to the Development of Antibody Candidates and Licensed Products for and in the Territory promptly after such issues arise. Each Party will bear the expense of its respective JDC members’ participation in JDC meetings. The JDC chairperson will be responsible for preparing reasonably detailed written minutes of JDC meetings that reflect all decisions made and action items identified at such meetings. The JDC chairperson will send meeting minutes to each member of the JDC for review and approval within [***] after each JDC meeting. Minutes will be deemed approved unless [***] members of the JDC objects to the accuracy of such minutes within [***] of receipt. Minutes will be officially endorsed by the JDC at the next JDC meeting, and will be signed by the Alliance Managers.

2.4.4. Decision-Making. Subject to the remainder of this Section 2.4.4 and Section 2.6, the JDC will act by unanimous agreement. The representatives from each Party have, collectively, [***] on behalf of that Party. If the JDC cannot reach unanimous agreement on an issue that comes before the JDC within [***] of the meeting such issue was raised and over which the JDC has oversight, then the Parties will refer such matter to the JSC for resolution in accordance with Section 2.6.

2.5. Joint Commercialization Committee.

2.5.1. General. The Parties will establish a committee, no later than completion of the first Phase 2 Clinical Study for the first Regional Licensed Product, to (a) oversee Commercialization of Regional Licensed Products in the Territory, and (b) facilitate the flow of information between the Parties with respect to, and provide a forum to discuss, the Commercialization of T1 Antibody Candidates, T1 Licensed Products, Global Antibody Candidates and Global Licensed Products (the “JCC”).

2.5.2. Formation; Composition. Each Party will initially appoint [***] representatives to the JCC, with each representative having knowledge and expertise in the commercialization of products similar to the Regional Licensed Products and having sufficient seniority within the applicable Party to make decisions arising within the scope of the JCC’s responsibilities. The JCC may change its size from time to time by mutual consent of its members, provided that the JCC will consist at all times of an equal number of representatives of each of Surface and Novartis. Each Party may replace its JCC representatives at any time upon written notice to the other Party. The JCC may invite non-members to participate in the discussions and meetings of the JCC, provided that such participants have no voting authority at the JCC and are bound under written obligation of confidentiality no less protective of the Parties’ Confidential Information than those set forth in this Agreement. The JCC will be co-chaired, with one chairperson designated by Surface and [***] designated by Novartis, whose responsibilities will include conducting meetings, including, when feasible, ensuring that objectives for each meeting are set and achieved. Responsibility for running each meeting of the JCC will alternate between the chairpersons from meeting-to-meeting, with Novartis’s chairperson running the first meeting.

 

Confidential

 

- 38 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

2.5.3. Specific Responsibilities of the JCC. Subject to any limitations under applicable Law, including Antitrust Laws, the JCC has the following responsibilities:

2.5.3.1. discuss, prepare and approve for submission to the JSC the Commercialization Plan for each Regional Licensed Product, including, in each case, any amendments thereto;

2.5.3.2. oversee implementation of each Commercialization Plan for a Regional Licensed Product;

2.5.3.3. review and discuss Commercialization activities with respect to Regional Licensed Products;

2.5.3.4. facilitate the flow of information between the Parties with respect to the Commercialization of T1 Antibody Candidates, T1 Licensed Products, Regional Antibody Candidates, Regional Licensed Products, Global Antibody Candidates or Global Licensed Products;

2.5.3.5. allocate between the Parties primary responsibility for tasks relating to Commercialization of Regional Licensed Products in their respective Territory in a manner consistent with Section 6;

2.5.3.6. oversee forecasting and market planning with respect to Regional Licensed Products;

2.5.3.7. review and discuss strategies with respect to Pricing Matters for Regional Licensed Products in the Territory, to the extent operationally feasible and not prohibited by applicable Law;

2.5.3.8. review, discuss and oversee Manufacturing for the Commercialization of Regional Licensed Products, including the supply chain for Regional Licensed Products;

2.5.3.9. manage Trademarks as contemplated by Section 14.9; and

2.5.3.10. perform such other functions as appropriate to further the purposes of this Agreement, as directed by the JSC in accordance with Section 2.2.3.12 or as expressly provided in this Agreement.

 

Confidential

 

- 39 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

2.5.4. Meetings. The JCC will meet at least once per [***] unless the Parties mutually agree in writing to a different frequency. No later than [***] prior to any meeting of the JCC (or such shorter time period as the Parties may agree), the Alliance Managers will prepare and circulate an agenda for such meeting; provided, however, that either Party will be free to propose additional topics to be included on such agenda, either prior to or in the course of such meeting. Either Party may also call a special meeting of the JCC (by videoconference, teleconference or in person) by providing at least [***] prior written notice to the other Party if such Party reasonably believes that a significant matter must be addressed prior to the next scheduled meeting, in which event such Party will work with the chairperson of the JCC to provide the members of the JCC no later than [***] prior to the special meeting with an agenda for the meeting and materials reasonably adequate to enable an informed decision. The JCC may meet in person, by videoconference, or by teleconference. In-person JCC meetings will be held at locations in the United States alternately selected by Surface and by Novartis or at any other location mutually agreed by the members of the JCC. Meetings of the JCC will be effective only if at least one (1) representative of each Party is present or participating in such meeting. Each Party will report to the JCC on all material issues relating to the Commercialization of Regional Licensed Products promptly after such issues arise. Each Party will bear the expense of its respective JCC members’ participation in JCC meetings. The JCC chairperson will be responsible for preparing reasonably detailed written minutes of JCC meetings that reflect all decisions made and action items identified at such meetings. The JCC chairperson will send meeting minutes to each member of the JCC for review and approval within [***] after each JCC meeting. Minutes will be deemed approved unless [***] members of the JCC object to the accuracy of such minutes within [***] of receipt. Minutes will be officially endorsed by the JCC at the next JCC meeting, and will be signed by the Alliance Managers.

2.5.5. Decision-Making. Subject to the remainder of this Section 2.5.5 and Section 2.6, the JCC will act by unanimous agreement. The representatives from each Party have, collectively, [***] on behalf of that Party. If the JCC cannot reach unanimous agreement on an issue that comes before the JCC within [***] of the meeting such issue was raised and over which the JCC has oversight, then the Parties will refer such matter to the JSC for resolution in accordance with Section 2.6.3 and Section 2.6; provided that any issues arising under Section 2.5.3.7 shall not be subject to such escalation or decision-making authority, and instead shall be determined by each Party in its respective Territory. For clarity, any and all such communications or strategy involving the Commercialization activities shall be limited to those permitted under applicable Law, including Antitrust Laws.

2.6. Resolution of Committee Disputes.

2.6.1. Within Operating Committees. All decisions within the JRC, JDC and JCC will be made by unanimous agreement and all decisions within the other Committees, other than the JSC, will be made by unanimous agreement. If a dispute arises which cannot be resolved within the JRC, JDC, JCC or such other Committees, then if such dispute relates to a matter within the jurisdiction of the applicable Committee, the representatives of either Party may cause such matter to be referred to the JSC for resolution as provided in Section 2.6.2.

 

Confidential

 

- 40 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

2.6.2. Decision Making Within the JSC. In addition to resolving issues specifically delegated to it, the JSC has the authority to resolve disputes within the jurisdiction of the JRC, JDC, JCC and any other Committees that the Parties may subsequently create to assist in governance of this Agreement, but otherwise has no authority except where expressly specified elsewhere in this Agreement or mutually agreed by the Parties in writing. The representatives from each Party have, collectively, [***] on behalf of that Party, and all decisions within the JSC (whether originating there, or referred to it by an operating Committee) will be made by unanimous agreement. If a matter is referred by an operating Committee to the JSC, the JSC will use good faith efforts, in compliance with this Section 2.6.2, to resolve promptly such matter. If the JSC is unable to reach unanimous agreement, within [***] after a Party affirmatively states that a decision needs to be made, on any issue for which it is responsible, either Party may elect to submit such issue to the Parties’ Executive Officers in accordance with Section 2.6.3.

2.6.3. Referral to Executive Officers. If a Party makes an election under Section 2.6.2 to refer a matter to the Executive Officers, the JSC will submit in writing the respective positions of the Parties to their respective Executive Officers. Such Executive Officers will use good faith efforts, in compliance with this Section 2.6.3, to resolve promptly such matter, which good faith efforts will include at least one meeting between such Executive Officers within [***] after the JSC’s submission of such matter to them. If the Executive Officers are unable to reach unanimous agreement on any such matter, (i) if the matter relates to [***] provided, however, that [***] (ii) if the matter relates to [***] (iii) if the matter relates to [***] (iv) if the matter relates to [***] and (v) [***]

 

Confidential

 

- 41 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

Notwithstanding anything herein to the contrary, no exercise of a Party’s decision-making authority on any such matters may, without the other Party’s prior written consent (i) result in a material increase in the other Party’s or its Related Parties’ obligations, costs or expenses under this Agreement or any Research Plan, Development Plan or Commercialization Plan, or (ii) otherwise conflict with this Agreement.

2.6.4. Good Faith. In conducting themselves on committees, and in exercising their rights under this Section 2.6, all representatives of both Parties will consider diligently, reasonably and in good faith all input received from the other Party, and will use reasonable efforts to reach unanimous agreement on all matters before them. In exercising any decision-making authority granted to it under this Section 2.6, each Party will act based on its good faith judgment taking into consideration such Party’s obligations to use Commercially Reasonable Efforts with respect to Research, Development or Commercialization activities as provided in this Agreement.

2.7. General Committee Authority. Each Committee has solely the powers expressly assigned to it in this Section 2. No Committee will have any power to amend, modify, or waive compliance with this Agreement. It is expressly understood and agreed that the control of decision-making authority by Surface or Novartis, as applicable, pursuant to Section 2.6, so as to resolve a disagreement or deadlock on a Committee for any matter will not authorize either Party to perform any function or exercise any decision-making right not delegated to a Committee or such Party, and that neither Surface nor Novartis has any right to unilaterally modify, amend or waive its own compliance with, the terms of this Agreement.

2.8. Discontinuation of Participation on a Committee. The activities to be performed by each Committee will solely relate to governance under this Agreement, and are not intended to be or involve the delivery of services. Subject to Sections 2.3.1 and 2.4.1, each Committee will continue to exist until the Parties mutually agree to disband the Committee. If each Committee is not disbanded pursuant to the preceding sentence, Surface will have the right, but not the obligation, to discontinue Surface’s participation on each Committee no earlier than [***] after the expiration of the Research Term with respect to any Licensed Target, other than a Regional Targets. If Surface exercises such right to discontinue its participation, Surface will provide prompt written notice to Novartis of such election including the applicable Licensed Target, and Novartis will have the sole right and authority to take any action that had been within each Committee’s purview previously with respect to the applicable Antibody Candidates or Licensed Products within such Licensed Target identified in Surface’s written notice.

 

Confidential

 

- 42 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

3. RESEARCH

3.1. T1 Target.

3.1.1. Overview. Surface will be responsible for performing Research of T1 Antibody Candidates in accordance with this Agreement and the T1 Research Plan during the Research Term (the “T1 Research Program”). An initial draft of the research plan for the T1 Research Program, to be finalized by the JRC, is attached as Exhibit F (the “T1 Research Plan”). In the event of any inconsistency between the T1 Research Plan and this Agreement, the terms of this Agreement will prevail. During and after the expiration of the T1 Research Term, each Party will have the right, but not the obligation, to perform Research of T1 Antibody Candidates in accordance with this Agreement.

3.1.2. Diligence; Standards of Conduct. During the Research Term, Surface (itself or through its Affiliates or by permitted subcontracting pursuant to Section 3.1.7) will use Commercially Reasonable Efforts to [***] Surface will conduct its activities under the T1 Research Plan in a good scientific manner and in compliance with applicable Law.

3.1.3. Oversight. The T1 Research Program will be conducted under the oversight of the JRC, which will have the responsibilities outlined in this Agreement.

3.1.4. Research Costs. During the Research Term, Surface will be responsible for [***] of all costs and expenses incurred by or on behalf of Surface in connection with the T1 Research Program. During and after the expiration of the Research Term for the T1 Research Program, each Party will be responsible for [***] of all costs and expenses incurred by or on behalf of such Party or its Related Parties in connection with Research of T1 Antibody Candidates.

3.1.5. Research Reports. Surface will keep the JRC informed regarding the progress of Research activities for the T1 Research Program during the Research Term, including a review of results and progress against timelines in the T1 Research Plan on a [***] basis. Following any dissolution of the JRC, Surface will continue to provide Novartis with written updates on its and its Related Parties’ ongoing Research activities with respect to any TI Antibody Candidate on a [***] basis.

3.1.6. Research Records. Surface will maintain scientific records in sufficient detail and in good scientific manner appropriate for patent and regulatory purposes, and in compliance with cGLP with respect to activities intended to be submitted in regulatory filings (including INDs), which will fully and accurately reflect all work done and results achieved in the performance of the Research activities by or on behalf of Surface with respect to potential T1 Antibody Candidates.

 

Confidential

 

- 43 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

3.1.7. Third Parties. Surface will be entitled to utilize the services of Third Parties to perform its Research activities under this Section 3.1, provided that (a) Surface will require that such Third Party operates in a manner consistent with the terms of this

Agreement and is reasonably acceptable to Novartis, and (b) Surface will remain at all times fully liable for its responsibilities. Surface will require that any Third Party agreement entered into pursuant to this Section 3.1.7 (x) include confidentiality and non-use provisions that are no less stringent than those set forth in Section 11.1 (but of duration customary in confidentiality agreements entered into for a similar purpose), other than the agreements listed on Schedule 12.2.1, each of which contains reasonable and customary confidentiality and non-use provisions; and (y) except as identified on Exhibit G, obtain ownership of, or a fully sublicensable license (or an exclusive option to obtain such license) under and to, any Know-How and Patents that are developed by such Third Party in the performance of its obligations under such agreement and are reasonably necessary or useful to Research, Develop, Manufacture or Commercialize T1 Antibody Candidates or T1 Licensed Products in the Field. For clarity, the foregoing requirement to obtain ownership of, or a fully sublicensable license (or an exclusive option to obtain such license) shall not apply to any improvements to the proprietary core or platform technology owned or in-licensed by any such Third Party or its Affiliates unless such improvements are reasonably necessary to Research, Develop, Manufacture or Commercialize those Antibody Candidates or Licensed Products with respect to which such Third Party or its Affiliate conducted its activities under such Third Party agreement. Surface will be solely responsible for direction of and communications with such Third Party.

3.2. Option Targets.

3.2.1. Overview. On an Option Target-by-Option Target basis, Surface will be responsible for performing Research of Option Target Antibody Candidates in accordance with this Agreement and the Option Target Research Plan for the applicable Option Target during the Research Term (each an “Option Target Research Program”). An initial draft of each of the Option Target research plans for each of the Option Target Research Programs is attached as Exhibit H-1, H-2, H-3 and H-4, respectively (each an “Option Target Research Plan”). In the event of any inconsistency between an Option Target Research Plan and this Agreement, the terms of this Agreement will prevail.

3.2.2. Diligence; Standards of Conduct. On an Option Target-by-Option Target basis, during the Research Term, Surface (itself or through its Affiliates or by permitted subcontracting pursuant to Section 3.2.6) will use Commercially Reasonable Efforts to [***] Surface will conduct its activities under the Option Target Research Plans in a good scientific manner and in compliance with applicable Law.

3.2.3. Research Costs. During the Research Term, Surface will be responsible for [***] of all costs and expenses incurred by or on behalf of Surface in connection with the Option Target Research Programs.

 

Confidential

 

- 44 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

3.2.4. Research Reports. Surface will keep the JRC informed regarding the progress of Research activities for the Option Target Research Programs during the Research Term, including a review of results and progress against timelines in the applicable Option Target Research Plan on a [***] basis.

3.2.5. Research Records. Surface will maintain scientific records in sufficient detail and in good scientific manner appropriate for Patent and regulatory purposes, and in compliance with cGLP with respect to activities intended to be submitted in regulatory filings (including INDs), which will fully and accurately reflect all work done and results achieved in the performance of the Research activities by or on behalf of Surface with respect to potential Option Target Antibody Candidates.

3.2.6. Third Parties. Surface will be entitled to utilize the services of Third Parties to perform its Research activities under this Section 3.2, provided that (a) Surface will require that such Third Party operates in a manner consistent with the terms of this Agreement and is reasonably acceptable to Novartis and (b) Surface will remain at all times fully liable for its responsibilities. Surface will require that any Third Party agreement entered into pursuant to this Section 3.2.6 (x) include confidentiality and non-use provisions that are no less stringent than those set forth in Section 11.1 (but of duration customary in confidentiality agreements entered into for a similar purpose), other than the agreements set forth on Schedule 12.2.1, each of which contains reasonable and customary confidentiality and non-use provisions; and (y) except as identified on Exhibit I obtain ownership of, or a fully sublicensable license (or an exclusive option to obtain such license) under and to, any Know-How and Patents that are developed by such Third Party in the performance of its obligations under such agreement and are reasonably necessary or useful to Research, Develop, Manufacture or Commercialize Option Target Antibody Candidates or Option Target Licensed Products in the Field. For clarity, the foregoing requirement to obtain ownership of, or a fully sublicensable license (or an exclusive option to obtain such license) shall not apply to any improvements to the proprietary core or platform technology owned or in-licensed by any such Third Party or its Affiliates unless such improvements are reasonably necessary to Research, Develop, Manufacture or Commercialize those Antibody Candidates or Licensed Products with respect to which such Third Party or its Affiliate conducted its activities under such Third Party agreement. Surface will be solely responsible for direction of and communications with such Third Party.

 

Confidential

 

- 45 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

3.3. Technical Failure. On an Option Target-by-Option Target basis, if the JSC determines that a Technical Failure has occurred with respect to such Option Target within the Research Term, then Surface’s obligation to use Commercially Reasonable Efforts to [***] shall be suspended for the remainder of the Research Term; provided, however, that Surface will resume Commercially Reasonable Efforts to Research Option Target Antibody Candidates for the remainder of the Research Term for any Option Target for which Technical Failure previously occurred, but where changes in circumstance would render continuing activities consistent with the use of Commercially Reasonable Efforts. Notwithstanding any such Technical Failure, during the Exclusivity Period with respect to such Option Target (a) Novartis may, in its sole discretion, purchase the Option for such Option Target by issuing an Option Purchase Notice in accordance with Section 4.1 of this Agreement, or (b) if Novartis has already delivered an Option Purchase Notice with respect to such Option Target, exercise its Option with respect to such Option Target by issuing an Option Exercise Notice. If Novartis opts not to purchase or exercise its Option with respect to such Option Target, then the Option for such Option Target will terminate with the consequences set forth in Section 4.2.7 and elsewhere in this Agreement.

4. OPTION PURCHASE, GRANT AND EXERCISE OF OPTIONS

4.1. Option Purchase Rights.

4.1.1. Option Purchase. On an Option Target-by-Option Target basis, Surface hereby grants Novartis the right, but not the obligation, to purchase up to a total of four (4) exclusive option rights with respect to the Option Targets (each an “Option”). For each Option Target, promptly [***] Surface will (a) provide to Novartis the Option Tox Package with respect to the applicable Option Target, and (b) afford reasonable access during normal business hours to Surface’s personnel by Novartis and its representatives as Novartis may reasonably request to assist Novartis in deciding whether to purchase the Option for such Option Target. In addition, during the Option Purchase Period, Novartis may, in its sole discretion, reasonably request that Surface provide to Novartis other information and documentation relating to such Option Target Antibody Candidate, and Surface will provide such information and documentation in the possession or control of Surface to Novartis within [***] weeks after the date of Novartis’ request; provided that, for clarity, any such information delivery that occurs after the expiration of the Option Purchase Period will not extend such Option Purchase Period. For each Option, Novartis will be entitled to purchase the applicable Option by providing a completed Option Purchase Notice with respect to the applicable Option to Surface at any time during the applicable Option Purchase Period for such Option and paying the Option Purchase Fee in accordance with Section 10.3. If Novartis purchases the applicable Option for an Option Target during the Option Purchase Period, then Novartis will be entitled to exercise the Option with respect to such Option Target as set forth in Section 4.2.

 

Confidential

 

- 46 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

4.1.2. Option Purchase Not Exercised. For each Option, if Novartis does not deliver to Surface an Option Purchase Notice with respect to an Option Target during the Option Purchase Period, or if Novartis elects and delivers written notice to Surface to terminate an Option prior to expiration of the applicable Option Purchase Period, then (a) Novartis’s Option with respect to such Option Target will expire, (b) the Research Term with respect to such Option Target will terminate, (c) each Party’s rights and obligations under this Agreement with respect to such Option Target and any Option Target Antibody Candidates relating thereto (including the right to exercise the Option under Section 4.2 and the exclusivity under Section 12.5) will terminate, and (d) each Party will thereafter be free to research, develop, manufacture or commercialize, alone or with one or more Third Parties, any Antibodies or products relating to such Option Target, in each case without any further obligation to the other Party.

4.2. Options.

4.2.1. Grant. Surface hereby grants Novartis the right, but not the obligation, to exercise up to a total of three (3) Options with respect to any three (3) Option Targets for which (a) Novartis has purchased an Option in accordance with Section 4.1, and (b) Surface has received IND Acceptance with respect to such Option Target. Each Option will be designated as either a Regional Option or a Global Option in accordance with the selection mechanism set forth in Section 4.2.3.

4.2.2. Information Sharing for Options. For each of the Options, promptly after the first IND Acceptance with respect to an Option Target, Surface will (a) provide to Novartis the Option IND Package with respect to the applicable Option Target, and (b) afford reasonable access during normal business hours to Surface’s personnel by Novartis and its representatives as Novartis may reasonably request to assist Novartis in deciding whether to exercise the Option for such Option Target. In addition, during the Option Exercise Period, Novartis may, in its sole discretion, reasonably request that Surface provide to Novartis other information and documentation relating to the Option Target, and Surface will provide such information and documentation in the possession or control of Surface to Novartis within [***] weeks after the date of Novartis’ request; provided that, for clarity, any such information delivery that occurs after the expiration of the Option Exercise Period will not extend such Option Exercise Period.

4.2.3. Selection Mechanism. For each Option, the Parties will determine if the Option for such Option Target will be a “Regional Option” or a “Global Option” in accordance with the following procedure:

4.2.3.1. First Option. Contemporaneously with the delivery of the Option IND Package for the first Option Target, Surface will provide written notice in the form set forth on Exhibit J (the “Option Selection Notice”) to Novartis indicating whether the Option for the first Option Target will be a Regional Option or a Global Option.

 

Confidential

 

- 47 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

4.2.3.2. Second Option. Contemporaneously with the delivery of the Option Exercise Notice for the second Option Target, Novartis will provide an Option Selection Notice to Surface indicating whether the Option for the second Option Target will be a Regional Option or a Global Option or whether Novartis will terminate its rights to such Option Target in accordance with Section 4.2.7. Notwithstanding the foregoing, Novartis, in its sole discretion, may indicate that Novartis elects to defer its right to select the Option structure until the third Option Target achieves an IND Acceptance in accordance with Section 4.2.3.3 and instead permit Surface to issue an Option Selection Notice to Novartis for the second Option Target (the “Novartis Deferral Notice”). In the event that Novartis issues the Novartis Deferral Notice, Surface will provide an Option Selection Notice to Novartis within [***] after receipt of the Novartis Deferral Notice indicating whether the Option for the second Option Target will be a Regional Option or a Global Option.

4.2.3.3. Third Option. Contemporaneously with the delivery of the Option IND Package for the third Option Target, Surface will provide an Option Selection Notice to Novartis indicating whether the Option for the third Option Target will be a Regional Option or a Global Option. Notwithstanding the foregoing, if Novartis provided a Novartis Deferral Notice in accordance with Section 4.2.3.2, then contemporaneously with the delivery of the Option Exercise Notice for the third Option Target, Novartis will provide an Option Selection Notice to Surface indicating whether the Option for the third Option Target will be a Regional Option or a Global Option or whether Novartis will terminate its rights to such Option Target in accordance with Section 4.1.2.

4.2.4. Regional Option Grants. For each Option that is designated as a Regional Option in accordance with Section 4.2.3, Surface hereby grants to Novartis an exclusive option, but not the obligation, to obtain an exclusive license on the terms set forth in Section 9.2 to such Option Target and all associated Option Target Antibody Candidates. Each Regional Option may be exercised by Novartis at any time during the applicable Option Exercise Period for such Regional Option in accordance with the terms and conditions set forth in Section 4.2.6.

4.2.5. Global Option Grants. For each Option that is designated as a Global Option in accordance with Section 4.2.3, Surface hereby grants Novartis an exclusive option, but not the obligation, to obtain an exclusive license on the terms set forth in Section 9.3 to such Option Target and all associated Option Target Antibody Candidates. Each Global Option may be exercised by Novartis at any time during the applicable Option Exercise Period for such Global Option in accordance with the terms and conditions set forth in Section 4.2.6.

 

Confidential

 

- 48 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

4.2.6. Exercise of an Option.

4.2.6.1. Option Exercise Notice. Novartis will exercise an Option, if at all, by properly delivering a completed Option Exercise Notice in respect of such Option to Surface at any time during the applicable Option Exercise Period for such Option. For clarity, Novartis will be entitled to exercise a maximum of three (3) Options, and thereafter all rights and obligations with respect to any remaining Option Target will terminate in accordance with Section 4.2.7.

4.2.6.2. Exercise of Regional Options. On the applicable Option Exercise Date for the exercise of any Regional Option, all Option Target Antibody Candidates for such Option Target will automatically be deemed “Regional Antibody Candidates”, the applicable Option Target will automatically be deemed a “Regional Target” for all purposes under this Agreement, the license from Surface to Novartis for such Regional Antibody Candidates and associated Regional Licensed Products set forth in Section 9.2 will automatically, with no further action by any Party, go into full force and effect, and all of the obligations of Surface and Novartis with respect to such Regional Licensed Products, including the payment obligations relating thereto, will become the binding obligations of the applicable Party in respect of such Regional Antibody Candidates and Regional Licensed Products.

4.2.6.3. Exercise of Global Options. On the applicable Option Exercise Date for the exercise of any Global Option, all Option Target Antibody Candidates for such Option Target will automatically be deemed a “Global Antibody Candidates” and the applicable Option Target will automatically be deemed a “Global Target” for all purposes under this Agreement, the license from Surface to Novartis to such Global Antibody Candidates and associated Global Licensed Products set forth in Section 9.3 will automatically, with no further action by any Party, go into full force and effect, and all of the obligations of Surface and Novartis with respect to such Global Licensed Products, including the payment obligations relating thereto, will become the binding obligations of the applicable Party in respect of such Global Antibody Candidates and Global Licensed Products.

 

Confidential

 

- 49 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

4.2.6.4. Regional [***] Candidate. Notwithstanding anything herein to the contrary, in the event Novartis exercises an Option with respect to [***] pursuant to Section 4.2.6 and [***] is a Regional Target under this Agreement, then either Party may, pursuant to Section 5.2.2.4(a), present a proposal to the JDC requesting the right to Develop and Commercialize (“Regional [***] Activities”) one (1) or more Antibodies that Specifically Binds to any of the [***] other than that Antibody Candidate [***] exercised in connection with the Option for [***] (“Regional [***] Candidate”). Subject to Section 2.4.4, if JDC decides that the Parties will conduct the Regional [***] Activities with respect to the Regional [***] Candidate, then such Regional [***] Candidate will be treated as “Regional Antibody Candidate” or “Regional Licensed Product” on the same basis as all other Antibody Candidates for [***] that were exercised under the Option. However, if the JDC is unable to agree that the Parties will conduct the Regional [***] Activities, then either Party will be entitled, if permitted under Section 5.2.2.4(c), to proceed with the Regional [***] Activities of such Regional [***] Candidate by itself in its respective Territory; provided that (a) such Party’s rights will be limited to those Regional [***] Activities with respect to the Regional [***] Candidate and associated Regional Licensed Product solely in such Party’s Territory, (b) all associated Regional Licensed Products will be royalty-bearing Regional Licensed Products under this Agreement; and (c) the Non-Proposing Party shall, pursuant to Section 5.2.2.4(d) have the right to opt-in with respect to the Regional [***] Candidate. For the avoidance of doubt, Surface will have no rights to conduct Regional [***] Activities in the event [***] is a Global Target.

4.2.6.5. Research, Development and Commercialization Following Option Exercise. Following the Option Exercise Date for a Regional Option, (a) each Party will have the right, but not the obligation, to perform Research of Regional Antibody Candidates in accordance with this Agreement, (b) each Party will be responsible for [***] of all costs and expenses incurred by or on behalf of such Party or its Related Parties in connection with Research of Regional Antibody Candidates, and (c) the Development and Commercialization of Regional Antibody Candidates and Regional Licensed Products for such Regional Target will thereafter be governed by Sections 5.2 and 6.2, respectively. Following the Option Exercise Date for a Global Option, (x) each Party will have the right, but not the obligation, to perform Research of Global Antibody Candidates in accordance with this Agreement, (y) each Party will be responsible for [***] of all costs and expenses incurred by or on behalf of such Party or its Related Parties in connection with Research of Global Antibody Candidates, and (z) the Development and Commercialization of Global Antibody Candidates and Global Licensed Product

 

Confidential

 

- 50 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

for such Global Target will thereafter be governed by Sections 5.3 and 6.3, respectively. Following any dissolution of the JRC or JDC, Surface will continue to provide Novartis with written updates on its and its Related Parties’ ongoing Research activities with respect to any Regional Antibody Candidate and Global Antibody Candidate on a [***] basis.

4.2.6.6. Further Assurances and Transaction Approvals in Connection with Option. Novartis shall specify in each Option Exercise Notice provided with respect to an Option Target pursuant to Section 4.2.6, whether, in Novartis’ reasonable opinion, the Parties would be required by applicable Laws to file with the FTC and the Antitrust Division of the DOJ, any notification and report form under the HSR Act (an “HSR Filing”) with respect to Novartis’ exercise of the Option for such Option Target. The Parties will reasonably cooperate with one another to the extent necessary in the preparation of any such HSR Filing. Novartis shall be responsible for all filing fees associated with any such HSR Filing. The Parties shall each use Commercially Reasonable Efforts to ensure that applicable waiting period under the HSR Act or any applicable comparable foreign law in the Territory expires or is terminated as soon as practicable. Notwithstanding the foregoing, nothing in this Section 4.2.6 shall require either Party or such Party’s Affiliates to (a) disclose to the other Party any information that is subject to obligations of confidentiality owed to Third Parties (nor shall either Party be required to conduct joint meetings with any Governmental Authority in which such information might be shared with the other Party), or (b) to commit to any divestiture, license (in whole or in part) or any arrangement to hold separate (or any similar arrangement) with respect to any of its products or assets.

4.2.7. Termination of Option. On an Option-by-Option basis, if (a) Novartis does not deliver to Surface an Option Exercise Notice with respect to an Option during the Option Exercise Period, (b) Novartis makes an HSR Filing with respect to the exercise of an Option for an Option Target, but the applicable waiting period under the HSR Act with respect to such HSR Filing does not expire or is not terminated within [***] days after the filing date, or (c) Novartis elects, in its sole discretion, to deliver written notice to Surface to terminate an Option prior to the expiration of the applicable Option Exercise Period, then (i) Novartis’s Option with respect to such Option Target will expire, (ii) the Research Term with respect to such Option Target will terminate, (iii) each Party’s rights and obligations under this Agreement with respect to such Option Target and any Option Target Antibody Candidates relating thereto (including exclusivity under Section 12.5), will terminate, and (iv) each Party will thereafter be free to Research, Develop, Manufacture or Commercialize, alone or with one or more Third Parties, any Antibodies or products relating to such Option Target, in each case without any further obligation to the other Party. For clarity, Novartis will be entitled to exercise a maximum of three (3) Options, and thereafter all rights and obligations with respect to any remaining Option Target will terminate in accordance with this Section 4.2.7.

 

Confidential

 

- 51 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

5. DEVELOPMENT

5.1. T1 Antibody Candidates and T1 Licensed Products.

5.1.1. Overview. Novartis will have the sole right to Develop T1 Antibody Candidates and T1 Licensed Products in the Novartis Territory.

5.1.2. Transition. By no later than [***] for a T1 Licensed Product, Surface will prepare and provide to Novartis a draft plan for the transition of the Development of such T1 Licensed Products from Surface to Novartis or its designee (a “T1 Transition Plan”). The T1 Transition Plan for each T1 Licensed Product will require Surface to, as soon as reasonably practicable following the Research Term: (a) transfer to Novartis of a copy of all Know-How Controlled by Surface that is reasonably necessary or useful for Development of such T1 Antibody Candidates or T1 Licensed Products, or obtaining or maintaining Regulatory Approval for such T1 Licensed Products in the Novartis Territory, including information and materials reasonably requested by Novartis, in a format reasonably acceptable to Novartis (which will be specified in such T1 Transition Plan, along with the process of transferring such Know-How); (b) assign to Novartis any INDs and other Regulatory Materials submitted to, or filed with, any Regulatory Authority with respect to such T1 Antibody Candidates or T1 Licensed Products, including any drug master files maintained by or on behalf of Surface solely related thereto (provided however that Surface will not be required to transfer any drug master files maintained by or on behalf of any Third Party, including any contract manufacturers); (c) transfer to Novartis a copy of all written correspondence with any Regulatory Authority with respect to such T1 Antibody Candidates or T1 Licensed Products and all written minutes of meetings and memoranda of oral communications with any Regulatory Authority with respect to such T1 Antibody Candidates or T1 Licensed Products; and (d) transfer to Novartis a copy of any other information or materials reasonably requested by Novartis that are reasonably necessary or useful for Development of such T1 Antibody Candidates or T1 Licensed Products in the Novartis Territory, including if so reasonably requested by Novartis, and Third Party agreements relating solely thereto (the items described in clauses (a) through (d) collectively, “T1 Development Information”). The T1 Transition Plan for each T1 Licensed Product will also describe any Development activities with respect to such T1 Licensed Product that Surface is required to perform as requested by Novartis and mutually agreed upon by the Parties (collectively, “T1 Transition Activities”). Each Party will use Commercially Reasonable Efforts to perform the obligations assigned to it under the T1 Transition Plan in accordance with any timelines set forth therein, and [***]

5.1.3. T1 Development Plan. Within [***] days prior to the anticipated expiration date of the Research Term with respect to the T1 Target, Novartis will provide the JDC with a work plan and time table for the Development activities, including Clinical Studies, to be undertaken with respect to T1 Antibody Candidates and T1 Licensed Products in the Novartis Territory (a “T1 Development Plan”). The terms of,

 

Confidential

 

- 52 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

and Development activities set forth in, each T1 Development Plan will at all times be designed to be in compliance with all applicable Laws and in accordance with professional and ethical standards customary in the pharmaceutical industry. Novartis will update the T1 Development Plan for such T1 Antibody Candidates and T1 Licensed Products [***] and will provide such updated T1 Development Plan to the JDC.

5.1.4. Diligence. Novartis will use Commercially Reasonable Efforts to (a) [***] and (b) perform all Development activities for the T1 Antibody Candidates and T1 Licensed Products in accordance with the T1 Development Plan. Without limiting the foregoing, at all times during the Term, [***]

5.1.5. Costs. Novartis will be responsible for [***] Development Costs for the Development of T1 Antibody Candidates or T1 Licensed Products.

5.1.6. Records; Reports; Information Sharing.

5.1.6.1. Development Activities. Following the transition period with respect to a T1 Licensed Product, once per [***] Novartis will provide to Surface, through the JDC, an update regarding Development activities conducted by or on behalf of Novartis with respect to such T1 Licensed Product, as well as any Clinical Studies with respect to such T1 Licensed Products conducted by Novartis.

5.1.6.2. Scientific Records. Novartis will maintain scientific records, in sufficient detail and in sound scientific manner appropriate for Patent and regulatory purposes and in compliance with cGLP with respect to activities intended to be submitted in regulatory filings (including INDs and BLAs), which will reflect all material work done and results achieved in the performance of the Development activities and Clinical Studies with respect to T1 Licensed Products.

 

Confidential

 

- 53 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

5.1.6.3. Personnel. During the period commencing after the completion of the T1 Transition Activities and ending upon Regulatory Approval of the first T1 Licensed Product, Novartis may request that Surface reasonably make available for consultation regarding the Development of T1 Antibody Candidates and T1 Licensed Products certain of its employees engaged in Research and Development activities with respect to such T1 Antibody Candidates and T1 Licensed Products. Surface will reasonably cooperate with Novartis to provide (a) up to [***] hours of consultation without charge to Novartis, and (b) any additional hours of consultation as Novartis may reasonably request, for which Novartis will pay Surface a rate of [***] per hour of such consultation services.

5.1.7. Third Parties. The Parties will be entitled to utilize the services of Third Parties to perform their respective Development activities under this Section 5.1, provided that (a) each Party will require that such Third Party operates in a manner consistent with the terms of this Agreement and in the case of Surface, reasonably acceptable to Novartis and (b) each Party will remain at all times fully liable for its respective responsibilities. Each Party will require that any Third Party agreement entered into pursuant to this Section 5.1.7 (x) include confidentiality and non-use provisions that are no less stringent than those set forth in Section 11.1 (but of duration customary in confidentiality agreements entered into for a similar purpose), other than Existing Novartis In-Licenses and the agreements listed on Schedule 12.2.1, each of which contains reasonable and customary confidentiality and non-use provisions; and (y) except as identified on Exhibit G, obtain ownership of, or a fully sublicensable license (or an exclusive option to obtain such license) under and to, any Know-How and Patents that are developed by such Third Party in the performance of its obligations under such agreement and are reasonably necessary or useful to Research, Develop, Manufacture or Commercialize T1 Antibody Candidates or T1 Licensed Products in the Field. For clarity, the foregoing requirement to obtain ownership of, or a fully sublicensable license (or an exclusive option to obtain such license) shall not apply to any improvements to the proprietary core or platform technology owned or in-licensed by any such Third Party or its Affiliates unless such improvements are reasonably necessary to Research, Develop, Manufacture or Commercialize those Antibody Candidates or Licensed Products with respect to which such Third Party or its Affiliate conducted its activities under such Third Party agreement. The Party utilizing the services of a Third Party service provider will be solely responsible for direction of and communications with such Third Party.

5.2. Regional Antibody Candidates and Regional Licensed Products.

5.2.1. Overview. Subject to the oversight of the JSC and the JDC, on a Regional Target-by-Regional Target basis:

5.2.1.1. Surface will be primarily responsible for Development of all Regional Antibody Candidates and Regional Licensed Products in accordance with this Agreement and the RLP Development Plan for such Regional Target during the Early RLP Development Term.

 

Confidential

 

- 54 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

5.2.1.2. Unless Surface exercises its Opt-Out Right in accordance with Section 5.2.9, the Parties will collaborate on further global Development of Regional Antibody Candidates and Regional Licensed Products in accordance with this Agreement and the RLP Development Plan during the Late RLP Development Term, with each Party’s responsibility for Development activities specifically related to obtaining Regulatory Approval in its Territory.

5.2.2. Development Plans.

5.2.2.1. RLP Development Plans. On a Regional Target-by-Regional Target basis, the Development activities that are necessary or useful to be undertaken for the applicable Regional Antibody Candidates and Regional Licensed Products to achieve initial Regulatory Approval will be mutually agreed upon by the Parties and set forth in reasonable detail in a written work plan and time table (each, as updated from time to time, a “RLP Development Plan”) . The initial RLP Development Plan for each Regional Target will be included in the Option IND Package for such Regional Target provided by Surface to Novartis under Section 4.2.2, and within [***] days after the Option Exercise Date for such Regional Target, or as soon as reasonably practicable thereafter, the JDC will review, update and approve such RLP Development Plan. Each RLP Development Plan will allocate responsibility for the performance of each RLP Development Activity to one or both of the Parties in their respective Territories. The terms of, and Development activities set forth in, each RLP Development Plan will at all times be designed to be in compliance with all applicable Laws and in accordance with professional and ethical standards customary in the pharmaceutical industry. The Parties will update the applicable RLP Development Plan for such Regional Antibody Candidates and Regional Licensed Products [***] and will provide such updated RLP Development Plan to the JDC. The JDC will review and approve each RLP Development Plan submitted to it in accordance with Section 2.4.4.

 

Confidential

 

- 55 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

5.2.2.2. RLP Development Budgets. Each RLP Development Plan will contain a [***] rolling budget covering the anticipated RLP Development Activities to be performed during the then-current Calendar Year (broken down by Calendar Quarter) and the next Calendar Year (broken down by Calendar Quarter), and a forecast of the budgets for each subsequent Calendar Year thereafter through completion of all RLP Development Activities set forth in any such RLP Development Plan, provided that each initial RLP Development Plan will also include such a budget for the partial Calendar Year commencing as of the date of such RLP Development Plan and ending December 31 of such Calendar Year (each such two-year budget plus any such partial Calendar Year is a “RLP Development Budget”). Each RLP Development Budget will be updated [***] by the JDC in accordance with Section 5.2.2.3. The initial RLP Development Budget for a Regional Target, and each update thereto, will be prepared by the JDC, based on (a) the Parties’ good faith estimation of the anticipated RLP Development Activities to be conducted during the relevant [***] year period and (b) information prepared by the Parties in good faith for their own internal planning processes relating to anticipated RLP Development Activities for such Regional Target, a summary of which will be provided to the JDC for review and incorporation into the RLP Development Budget. Each RLP Development Budget will include an itemized list of the applicable RLP Development Activities to be performed during the [***] year period covered by such RLP Development Budget, with detailed line item entries for each RLP Development Activity setting forth the costs directly related to such RLP Development Activity (broken out to show Out-of-Pocket Costs and FTE Costs for FTEs directly engaged to perform such RLP Development Activity) and specifying what Party or Third Party is responsible for performing the applicable RLP Development Activity, which itemized list may include:

(i) Any material preclinical, non-clinical studies or GLP Toxicology Studies, itemized by study;

(ii) Clinical Studies, including (A) the following costs itemized by Clinical Study: [***] and (B) the following information itemized by Clinical Study: [***] and

(iii) allocation of responsibility for Manufacturing the applicable Regional Antibody Candidates and Regional Licensed Products.

 

Confidential

 

- 56 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

5.2.2.3. Managing and Amending RLP Development Plans and RLP Development Budgets. The JDC will update and amend the applicable RLP Development Plan from time-to-time as it deems necessary and, until such time as no further RLP Development Activities are occurring or expected to occur with respect to such Regional Target.

5.2.2.4. Supplemental Studies; Regional [***] Candidates.

(a) Additional Development Proposals. If a Party desires to conduct (i) a Supplemental Study of a Regional Licensed Product for a Regional Target for the purpose of seeking Regulatory Approval to market such Regional Licensed Product, or (ii) Regional [***] Activities, such Party (the “Proposing Party,” and such other Party, the “Non-Proposing Party”) will submit to the JDC a proposal to add such Supplemental Study or Regional [***] Activities, as applicable, to the applicable RLP Development Plan (an “Additional Development Proposal”). Each Additional Development Proposal will describe in reasonable detail the applicable Regional Target or Regional [***] Candidate, the Supplemental Study(ies) or Regional [***] Activities that the Proposing Party desires to conduct, including a synopsis of the trial or activities, the proposed enrollment criteria, number of patients to be included, endpoints to be measured, and statistical design and powering (the “Additional Development Activities”), as well as a proposed timeline and budget and an analysis of the business opportunity and revenue potential for such Additional Development Activities.

(b) JDC Decision Regarding Additional Development Activities. The JDC will approve or reject an Additional Development Proposal within [***] days after receipt thereof from the Proposing Party as set forth in this Section 5.2.2.4.

(i) If the JDC approves an Additional Development Proposal, upon such an approval, the applicable RLP Development Plan will be amended to include the Additional Development Activities, including the proposed timeline and budget for such Additional Development Activities, set forth in such Additional Development Proposal (as may be amended by the JDC) upon such approval. Any Additional Development Activities included in a RLP Development Plan pursuant to this Section 5.2.2.4 will be deemed to be RLP Development Activities for all purposes under Section 5.2.3.2.

 

Confidential

 

- 57 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

(ii) If the JDC fails to approve an Additional Development Proposal, upon such a failure, the Supplemental Study or Regional [***] Activities proposed in the Additional Development Proposal will not be deemed an RLP Development Activity for any purpose under this Agreement, and Sections 5.2.2.4(c) and 5.2.2.4(d) will apply.

(c) Independent Performance of Additional Development Activities.

(i) If, the JDC fails to approve for inclusion in the RLP Development Plan an Additional Development Proposal proposed by Surface for a Supplemental Study(ies) for such Regional Licensed Product or Regional [***] Activities for such Regional [***] Candidate, Surface may, upon notice to Novartis, conduct the proposed Supplemental Study(ies) or Regional [***] Activities at its own expense; provided, however, that if Novartis determines reasonably and in good faith that the performance of such proposed Supplemental Study(ies) or Regional [***] Activities would pose Safety Concerns or other ethical concerns, then Surface will not undertake such Supplemental Study(ies) or Regional [***] Activities, unless and until Novartis determines that such Additional Development Activities should be permitted.

(ii) If the JDC fails to approve for inclusion in the RLP Development Plan an Additional Development Proposal proposed by Novartis for a Supplemental Study(ies) for such Regional Licensed Product or Regional [***] Activities for such Regional [***] Candidate, Novartis may, upon notice to Surface, conduct the proposed Supplemental Study(ies) or Regional [***] Activities at its own expense; provided, however, that if Surface determines reasonably and in good faith that the performance of such proposed Supplemental Study(ies) or Regional [***] Activities would pose Safety Concern or other ethical concerns, then Novartis will not undertake such Supplemental Study(ies) or Regional [***] Activities, unless and until Surface determines that such Additional Development Activities should be permitted.

(iii) Notwithstanding anything in Section 7.1.3 to the contrary, if the JDC does not approve an Additional Development Proposal, unless and until the Non-Proposing Party delivers an Additional Development Opt-In Notice with respect to such Additional Development Activity, as described in Section 5.2.2.4(d), the Non-Proposing Party will not have any rights under Section 7.1.3 with respect to any information or data generated from any Supplemental Study or Regional [***] Activity that was the

 

Confidential

 

- 58 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

subject of the unapproved Additional Development Proposal or from any future information or data generated from any future Clinical Studies with respect to the same Indication or the applicable Regional [***] Candidate, other than to use such information or data to determine whether to deliver an Additional Development Opt-In Notice in accordance with Section 5.2.2.4(d) or as permitted pursuant to the SDEA.

(d) Opt-In for Additional Development Activities. In the event that the Proposing Party conducts a Supplemental Study or Regional [***] Activity pursuant to Section 5.2.2.4(c), the Proposing Party will provide to the Non-Proposing Party (i) [***] (the “Additional Development Data Package”). The Non-Proposing Party shall have the one-time right to elect, in its sole discretion and upon written notice to the Proposing Party no later than [***] days after the date the Additional Development Data Package is made available to the Non-Proposing Party (an “Additional Development Opt-In Notice”), to opt in with respect to any Supplemental Study or Regional [***] Activity that was the subject of such Additional Development Proposal that the Proposing Party elected to conduct in accordance with Section 5.2.2.4(c), and then (A) such Supplemental Study or Regional [***] Activity, as applicable, will be deemed to be an RLP Development Activity under the RLP Development Plan for the applicable Regional Target from and after the date on which such Additional Development Opt-In Notice is received by the Proposing Party (the “Additional Development Opt-In Date”); (B) the then-current plan and budget of the Proposing Party with respect to such Supplemental Study or Regional [***] Activity, as applicable, will be deemed to be included within, and part of, the RLP Development Plan for such Regional Licensed Product as of the Additional Development Opt-In Date, and will control with respect to such Supplemental Study or Regional [***] Activity unless and until an amendment to the RLP Development Plan providing for a different or modified plan and budget is approved by the JDC; and (C) the Non-Proposing Party will have all rights granted to it under Section 7.1.3 with respect to the information and data generated from such Supplemental Study or Regional [***] Activity as if such Supplemental Study or Regional [***] Activity was conducted under the RLP Development Plan for such Regional Licensed Product, provided that, (1) the Non-Proposing Party’s right to so opt-in with respect to such Additional Development Activities, triggering the results described in the foregoing clauses (A) through (C), is conditioned on the payment by the Non-Proposing Party to the Proposing Party of a payment of [***]

 

Confidential

 

- 59 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

of those costs and expenses incurred by the Proposing Party prior to the Additional Development Opt-in Date that the Non-Proposing Party should have paid in connection with such Additional Development Activities had such Additional Development Activities been included in the RLP Development Plan pursuant to Section 5.2.2.4(b)(i); and (2) any future Development Costs with respect to such Regional Licensed Product, including any future Clinical Studies, will be allocated in accordance with Section 5.2.4.

5.2.3. Diligence; Standards of Conduct.

5.2.3.1. Novartis Diligence. On a Regional Target-by-Regional Target basis, Novartis will use Commercially Reasonable Efforts to (a) [***] and (b) perform the RLP Development Activities allocated to it under the RLP Development Plan for such Regional Antibody Candidates and Regional Licensed Products for such Regional Target in accordance with the RLP Development Plan.

5.2.3.2. Surface Diligence. On a Regional Target-by-Regional Target basis, Surface will use Commercially Reasonable Efforts to (a) [***] and (b) perform the RLP Development Activities allocated to it under the RLP Development Plan for such Regional Antibody Candidates and Regional Licensed Products for such Regional Target in accordance with the RLP Development Plan.

5.2.4. Development Costs.

5.2.4.1. With respect to each Regional Target, Surface will be responsible for [***] of all Development Costs for the Development of Regional Antibody Candidates or Regional Licensed Products for such Regional Target during the Early RLP Development Term.

5.2.4.2. With respect to each Regional Target, Surface will be responsible for [***] of all Development Costs and Novartis will be responsible for [***] of all Development Costs, in each case for the Development of all Regional Antibody Candidates or Regional Licensed Products during the Late RLP Development Term.

 

Confidential

 

- 60 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

5.2.5. Novartis Development. Novartis will use Commercially Reasonable Efforts to conduct its Development of each Regional Licensed Product in accordance with the applicable RLP Development Plan, as such RLP Development Plan may be amended in accordance with this Agreement, in sound scientific manner and in compliance with applicable Law.

5.2.6. Surface Development. Surface will use Commercially Reasonable Efforts to conduct its Development of each Regional Licensed Product for the Surface Territory in accordance with the applicable terms of the RLP Development Plan, as such RLP Development Plan may be amended in accordance with this Agreement, in sound scientific manner and in compliance with applicable Law.

5.2.7. Records; Reports; Information Sharing.

5.2.7.1. Development Activities Reports. On a Regional Target-by-Regional Target basis, each Party will periodically provide to the JDC, on a [***] basis, or more frequently as reasonably requested by the JDC, an update regarding Development activities conducted by or on behalf of such Party with respect to Regional Antibody Candidates and Regional Licensed Products for such Regional Target, as well as any Supplemental Studies, Regional [***] Activities and Post-Marketing Studies conducted by or on behalf of such Party with respect to Regional Antibody Candidates and Regional Licensed Products for such Regional Target. The Parties will periodically report to the JDC, but in no event less than on a [***] basis, regarding their respective activities conducted under the RLP Development Plan for Regional Antibody Candidates and Regional Licensed Products for such Regional Target. In addition, each Party will promptly share with the other Party all material developments and information that it comes to possess relating to the Development of any Regional Antibody Candidates and Regional Licensed Products for such Regional Target, including (a) Safety Concerns for Regional Antibody Candidates or Regional Licensed Products, and (b) study reports and data generated from Clinical Studies of such Regional Antibody Candidates and Regional Licensed Products for such Regional Target; provided however, that excluding Safety Concerns or as required under the SDEA, a Party as Proposing Party will not be obligated to share any study reports and data generated from Clinical Studies for any Additional Development Activities (including Regional [***] Activities)

 

Confidential

 

- 61 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

conducted by or on behalf of the Proposing Party where the Non-Proposing Party has not exercised an Additional Development Opt-in Notice other than to permit the Non-Proposing Party data to determine whether to deliver an Additional Development Opt-In Notice in accordance with Section 5.2.2.4(d).

5.2.7.2. Scientific Records. Each Party will maintain scientific records, in sufficient detail and in sound scientific manner appropriate for Patent and regulatory purposes and in compliance with cGLP with respect to activities intended to be submitted in regulatory filings (including INDs and BLAs), which will fully and accurately reflect all work done and results achieved in the performance of the Development activities, Clinical Studies, Regional [***] Activities and Supplemental Studies with respect to Regional Antibody Candidates and Regional Licensed Products by such Party.

5.2.7.3. Information Exchange and Development Assistance. Until the expiration or termination of the final RLP Development Plan, upon the reasonable request of the other Party, each Party will provide to the other Party, without additional compensation and in a commercially reasonable format, Know-How Controlled by such Party or its Related Parties that is licensed to the other Party under this Agreement (i.e., Know-How included in Novartis Technology for Novartis and Know-How included in Surface Technology for Surface) to the extent that it is reasonably necessary or useful for Development of Regional Antibody Candidates or Regional Licensed Products in the requesting Party’s Territory or for obtaining or maintaining Regulatory Approval for Regional Licensed Products in the requesting Party’s Territory, including copies of (a) all scientific information and data related to such Regional Antibody Candidates or Regional Licensed Products (including all data made, collected or otherwise generated in the conduct of any pre-clinical studies, Clinical Studies, Supplemental Studies or Regional [***] Activities for which a Party as Non- Proposing Party has exercised its Additional Development Opt-In Notice, or early access/named patient programs for the Regional Licensed Products, as well as CMC information), and (b) protocols and investigator brochures, in each case, that are reasonably necessary for the other Party (or its Related Parties) to perform its obligations or exploit its rights under this Agreement with respect to such Regional Antibody Candidates or Regional Licensed Products.

 

Confidential

 

- 62 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

5.2.7.4. Personnel. Each Party may request, through the JDC or the other Party’s Alliance Manager, that the other Party reasonably make available for consultation regarding the Development of such Regional Antibody Candidates or Regional Licensed Products certain of its employees engaged in Development activities and Supplemental Studies or Regional [***] Activities for which a Party as Non-Proposing Party has exercised its Additional Development Opt-In Notice, with respect to such Regional Antibody Candidates or Regional Licensed Products. The JDC or the Alliance Managers will reasonably coordinate, upon reasonable notice during normal business hours and at their respective places of employment, consultation between the Parties on the progress of the Development for such Regional Antibody Candidates or Regional Licensed Products, including any Supplemental Studies or Regional [***] Activities for which a Party as Non-Proposing Party has exercised its Additional Development Opt-In Notice.

5.2.8. Third Parties. The Parties will be entitled to utilize the services of Third Parties to perform their respective Development under this Section 5.2, provided that (a) each Party will require that such Third Party operates in a manner consistent with this Agreement and reasonably acceptable to the other Party, (b) each Party will remain at all times fully liable for its respective responsibilities and (c) the Parties will make reasonable efforts to share, through the JDC, information regarding any prior experience with specific CROs that are anticipated to be engaged to perform work under the RLP Development Plan. Each Party will require that any Third Party agreement entered into pursuant to this Section 5.2.8 (x) include confidentiality and non-use provisions that are no less stringent than those set forth in Section 11.1 (but of duration customary in confidentiality agreements entered into for a similar purpose), other than Existing Novartis In-Licenses and the agreements listed on Schedule 12.2.1, each of which contains reasonable and customary confidentiality and non-use provisions; and (y) except as identified on Exhibit I, obtain ownership of, or a fully sublicensable license (or an exclusive option to obtain such license) under and to, any Know-How and Patents that are developed by such Third Party in the performance of such agreement and are reasonably necessary or useful to Research, Develop, Manufacture or Commercialize Regional Antibody Candidates or Regional Licensed Products in the Field. For clarity, the foregoing requirement to obtain ownership of, or a fully sublicensable license (or an exclusive option to obtain such license) shall not apply to any improvements to the proprietary core or platform technology owned or in-licensed by any such Third Party or its Affiliates unless such improvements are reasonably necessary to Research, Develop, Manufacture or Commercialize those Antibody Candidates or Licensed Products with repect to which such Third Party or its Affiliate conducted its activities under such Third Party agreement. The Party utilizing the services of a Third Party service provider will be solely responsible for direction of and communications with such Third Party, but such Party will provide the other Party with reasonably detailed updates regarding any such activities from time to time.

 

Confidential

 

- 63 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

5.2.9. Opt-Out Right. On a Regional Target-by-Regional Target basis, at any time during the Early RLP Development Term or the Late RLP Development Term, Surface has the right, at its sole discretion, to opt-out of further Development and Commercialization of all Regional Antibody Candidates or Regional Licensed Products for such Regional Target upon [***] prior written notice to Novartis (the “Opt-Out Notice”). The Opt-Out Notice will clearly identify the applicable Regional Target and associated Regional Antibody Candidates and Regional Licensed Products. Upon the delivery of an Opt-Out Notice, Surface’s then on-going funding commitments and Development Activities, will continue until [***] from the date of the Opt-Out Notice. In the event that Surface delivers an Opt-Out Notice with respect to a Regional Target, the following will automatically occur (without any further action by the Parties) upon such date, (a) the Regional Target will convert to a Global Target, (b) all Regional Antibody Candidates and Regional Licensed Products will convert to Global Antibody Candidates and Global Licensed Products, respectively, (c) the licenses set forth in Section 9.2 will terminate, and (d) the licenses set forth in Section 9.3 will apply to such new Global Target, Global Antibody Candidates and Global Licensed Products. For the sake of clarity, Surface will not be reimbursed, in whole or in part, for any Development Costs incurred prior to the end of such [***] period with respect to the Regional Antibody Candidates or Regional Licensed Products for which an Opt-Out Right was exercised.

5.3. Global Antibody Candidates and Global Licensed Products.

5.3.1. Overview. On a Global Target-by-Global Target basis:

5.3.1.1. Surface will be responsible for Development of all Global Antibody Candidates and Global Licensed Products in accordance with this Agreement and the Global Development Plan for such Global Target during the Early Global Development Term.

5.3.1.2. Novartis will be responsible for further Development of Global Antibody Candidates and Global Licensed Products in accordance with this Agreement and the Global Development Plan during the Late Global Development Term.

5.3.2. Global Development Plan. On a Global Target-by-Global Target basis, the Development activities that are necessary or useful to be undertaken for the applicable Global Antibody Candidates or Global Licensed Products to achieve initial Regulatory Approval for each of the Indications selected by Novartis using Commercially Reasonable Efforts in the Major Market Countries (including the design of

 

Confidential

 

- 64 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

the initial Phase 1 Study) will be set forth in reasonable detail in a written work plan and time table (each, a “Global Development Plan”). The initial Global Development Plan for each Global Target will be included in the Option IND Package for such Global Target provided by Surface to Novartis under Section 4.2.2. The terms of, and Development activities set forth in, each Global Development Plan will at all times be designed to be in compliance with all applicable Laws and in accordance with professional and ethical standards customary in the pharmaceutical industry. Novartis will update the Global Development Plan for such Global Antibody Candidates and Global Licensed Products [***] and will provide such updated Global Development Plan to the JDC.

5.3.3. Transition. On a Global Target-by-Global Target basis, by no later than [***] Surface will prepare and provide to Novartis a draft plan for the transition of the Development of the Global Antibody Candidates and Global Licensed Products for such Global Target from Surface to Novartis (a “Global Transition Plan”). The Global Transition Plan for each Global Target will require Surface to, as soon as reasonably practicable following the Research Term: (a) transfer to Novartis a copy of all Know-How Controlled by Surface that is reasonably necessary or useful for Development of Global Antibody Candidates or Global Licensed Products for such Global Target, or obtaining or maintaining Regulatory Approval for such Global Licensed Products in the Novartis Territory, including information and materials reasonably requested by Novartis, in a format reasonably acceptable to Novartis (which will be specified in such Global Transition Plan, along with the process of transferring such Know-How); (b) assign to Novartis all INDs and other Regulatory Materials submitted to, or filed with, any Regulatory Authority with respect to such Global Antibody Candidates or Global Licensed Products, including any drug master files maintained by or on behalf of Surface solely related thereto (provided however that Surface will not be required to transfer any drug master files maintained by or on behalf of any Third Party, including any contract manufacturer); (c) transfer to Novartis a copy of all written correspondence with any Regulatory Authority with respect to such Global Antibody Candidates or Global Licensed Products and all written minutes of meetings and memoranda of oral communications with any Regulatory Authority with respect to such Global Antibody Candidates or Global Licensed Products; and (d) transfer to Novartis any other a copy of information or materials reasonably requested by Novartis that are reasonably necessary or useful for Development of such Global Antibody Candidates or Global Licensed Products in the Novartis Territory, including if so reasonably requested by Novartis, and Third Party agreements relating solely thereto. The Global Transition Plan for each Global Target will also describe any Development activities with respect to Global Antibody Candidates or Global Licensed Products for such Global Target that Surface is required to perform as requested by Novartis and mutually agreed upon by the Parties (collectively, “Global Transition Activities”). Each Party will use Commercially Reasonable Efforts to perform the obligations assigned to it under the Global Transition Plan in accordance with any timelines set forth therein and, subject to Section 5.2.3.2, [***]

 

Confidential

 

- 65 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

5.3.4. Diligence; Standards of Conduct. On a Global Target-by-Global Target basis, Novartis will use Commercially Reasonable Efforts to (a) [***] and (b) perform all Development activities for the Global Antibody Candidates and Global Licensed Products for such Global Target in accordance with the Global Development Plan. On a Global Target-by-Global Target basis, Surface will use Commercially Reasonable Efforts to (x) [***] and (y) perform all Development activities for the Global Antibody Candidates and Global Licensed Products for such Global Target in accordance with the Global Development Plan that Surface agrees to perform at Novartis’ request.

5.3.5. Development Costs.

5.3.5.1. With respect to each Global Target, Surface will be responsible for [***] of all Development Costs for the Development of Global Antibody Candidates or Global Licensed Products for such Global Target during the Early Global Development Term.

5.3.5.2. With respect to each Global Target, Novartis will be responsible for [***] of all Development Costs for the Development of Global Antibody Candidates or Global Licensed Products for such Global Target during the Late Global Development Term.

5.3.6. Records; Reports; Information Sharing.

5.3.6.1. Development Activities; Reports. On a Global Target-by-Global Target basis and until the transition of Development to Novartis, each Party will periodically (a) provide to the JDC, on a [***] basis, an update regarding Development activities conducted by or on behalf of such Party with respect to Global Antibody Candidates or Global Licensed Products for such Global Target, and (b) report to the JDC, but in no event less than on a [***] basis, regarding their respective activities conducted under the Global Transition Plan for Global Antibody Candidates and Global Licensed Products for such Global Target. Following the transition period with respect to a Global Target, once per [***] Novartis will provide to Surface, through the JDC, an update regarding Development activities conducted by or on behalf of Novartis with respect to such Global Target Antibody Candidates and Global Licensed Product, as well as

 

Confidential

 

- 66 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

any Clinical Studies with respect to such Global Target Antibody Candidates and Global Licensed Product conducted by Novartis. The Parties will share any Safety Concerns with respect to such Global Antibody Candidates and Global Licensed Products in accordance with the SDEA.

5.3.6.2. Scientific Records. Each Party will maintain scientific records, in sufficient detail and in sound scientific manner appropriate for Patent and regulatory purposes and in compliance with cGLP with respect to activities intended to be submitted in regulatory filings (including INDs and BLAs), which will reflect all material work done and results achieved in the performance of the Development activities and Clinical Studies with respect to Global Antibody Candidates and Global Licensed Products by such Party.

5.3.6.3. Information Exchange and Development Assistance. Until the expiration or termination of the final Global Development Plan, upon the reasonable request of Novartis, Surface will provide to Novartis, without additional compensation and in a commercially reasonable format, a copy of Know-How Controlled by Surface or its Related Parties that is licensed to Novartis under this Agreement (i.e. Know-How included in Surface Technology for Surface) to the extent that it is reasonably necessary or useful for Development of Global Antibody Candidates or Global Licensed Products or for obtaining or maintaining Regulatory Approval for Global Licensed Products, including copies of (a) all scientific information and data related to such Global Antibody Candidates or Global Licensed Products (including all data made, collected or otherwise generated in the conduct of any pre-clinical studies, Clinical Studies, Supplemental Studies or early access/named patient programs for the Global Licensed Products, as well as CMC information), and (b) protocols and investigator brochures, in each case, that are reasonably necessary for Novartis (or its Related Parties) to perform its obligations or exploit its rights under this Agreement with respect to such Global Antibody Candidates or Global Licensed Products.

5.3.6.4. Personnel. During the period commencing after the completion of the Global Transition Activities and ending upon Regulatory Approval of the first Global Licensed Product, Novartis may request that Surface reasonably make available for consultation regarding the Development of Global

 

Confidential

 

- 67 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

Antibody Candidates and Global Licensed Products certain of its employees engaged in Research and Development activities with respect to such Global Antibody Candidates and Global Licensed Products. Surface will reasonably cooperate with Novartis to provide (a) up to [***] hours of consultation without charge to Novartis, and (b) any additional hours of consultation as Novartis may reasonably request, for which Novartis will pay Surface a rate of [***] per hour of such consultation services.

5.3.7. Third Parties. The Parties will be entitled to utilize the services of Third Parties to perform their respective Development under this Section 5.3.7, provided that (a) each Party will require that such Third Party operates in a manner consistent with the terms of this Agreement and, in the case of Surface, reasonably acceptable to Novartis and (b) each Party will remain at all times fully liable for its respective responsibilities. Each Party will require that any such Third Party agreement entered into pursuant to this Section 5.3.7 (x) include confidentiality and non-use provisions that are no less stringent than those set forth in Section 11.1 (but of duration customary in confidentiality agreements entered into for a similar purpose), other than Existing Novartis In-Licenses and the agreements listed on Schedule 12.2.1, each of which contains reasonable and customary confidentiality and non-use provisions; and (y) except as identified on Exhibit I, obtain ownership of, or a fully sublicensable license (or an exclusive option to obtain such license) under and to, any Know-How and Patents that are developed by such Third Party in the performance of such agreement and are reasonably necessary or useful to Research, Develop, Manufacture or Commercialize Global Antibody Candidates or Global Licensed Products in the Field. For clarity, the foregoing requirement to obtain ownership of, or a fully sublicensable license (or an exclusive option to obtain such license) shall not apply to any improvements to the proprietary core or platform technology owned or in-licensed by any such Third Party or its Affiliates unless such improvements are reasonably necessary to Research, Develop, Manufacture or Commercialize those Antibody Candidates or Licensed Products with respect to which such Third Party or its Affiliate conducted its activities under such Third Party agreement. The Party utilizing the services of a Third Party service provider will be solely responsible for direction of and communications with such Third Party.

6. COMMERCIALIZATION

6.1. T1 Licensed Products.

6.1.1. Responsibility, Cost and Diligence. Novartis will be solely responsible, at its expense, for all Commercialization activities relating to T1 Licensed Products in the Field in the Novartis Territory. Novartis will use Commercially Reasonable Efforts to (a) Commercialize each T1 Licensed Product for which Novartis has obtained Regulatory Approval within the Novartis Territory, and (b) perform all Commercialization activities for T1 Licensed Products in accordance with the T1 Commercialization Plan.

 

Confidential

 

- 68 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

6.1.2. T1 Commercialization Plan. No less than [***], and [***] thereafter, Novartis will prepare and deliver to Surface, through the JSC, (a) a high level summary of the Commercialization and Development Activities performed with respect to such T1 Licensed Product in the Novartis Territory during the just-completed Calendar Year and (b) a high level summary of the Commercialization and Development activities to be undertaken with respect to such T1 Licensed Product in the then-current Calendar Year, including any plans to obtain further Regulatory Approvals and launch such T1 Licensed Products in countries in the Novartis Territory in which Novartis is not then Commercializing such T1 Licensed Products, and the dates by which any such activities are targeted to be accomplished (the “T1 Commercialization Plan”).

6.1.3. First Commercial Sale Reporting Obligations. With respect to each T1 Licensed Product, Novartis will provide Surface with written notice of the First Commercial Sale of such T1 Licensed Product in the Novartis Territory.

6.1.4. Advertising and Promotional Materials.

6.1.4.1. T1 Branding. Novartis will have the sole right, from time to time during the Term, to develop (and thereafter modify and update) a global branding strategy (including global positioning, messages, logo, colors and other visual branding elements) for each T1 Licensed Product for use in the Field throughout the Novartis Territory.

6.1.4.2. Promotional Materials. Novartis will be responsible for the creation, preparation, production, reproduction and filing with the applicable Regulatory Authorities, of relevant written sales, promotion and advertising materials relating to each T1 Licensed Product for use in the Novartis Territory. All such Promotional Materials will be compliant with applicable Law. If permitted under applicable Law, Novartis will include a reference in such TI Promotional Materials to such T1 Licensed Product as being sold under license from Surface.

6.1.5. Sales and Distribution. Novartis and its Related Parties will be solely responsible for booking sales and will warehouse and distribute T1 Licensed Products in the Novartis Territory.

 

Confidential

 

- 69 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

6.1.6. Recalls, Market Withdrawals or Corrective Actions. In the event that any Regulatory Authority issues or requests a recall or takes a similar action in connection with a T1 Licensed Product, Novartis will have the sole right to decide whether to conduct a recall and the manner in which any such recall will be conducted. [***]

6.2. Regional Licensed Products.

6.2.1. Responsibility, Cost and Diligence.

6.2.1.1. Novartis. On a Regional Target-by-Regional Target basis, Novartis will be solely responsible, at its expense, for all Commercialization activities relating to Regional Licensed Products in the Field in the Novartis Territory. On a Regional Target-by-Regional Target basis, Novartis will use Commercially Reasonable Efforts to (a) Commercialize each Regional Licensed Product for which Novartis has obtained Regulatory Approval within the Novartis Territory, and (b) perform all Commercialization activities for such Regional Licensed Product in accordance with the RLP Commercialization Strategy.

6.2.1.2. Surface. On a Regional Target-by-Regional Target basis, Surface will be solely responsible, at its expense, for all Commercialization activities relating to Regional Licensed Products in the Field in the Surface Territory. On a Regional Target-by-Regional Target basis, Surface will use Commercially Reasonable Efforts to (a) Commercialize each Regional Licensed Product for which Surface has obtained Regulatory Approval within the Surface Territory, and (b) perform all Commercialization activities for each Regional Licensed Product in accordance with the RLP Commercialization Strategy.

6.2.2. RLP Commercial Strategy. Within [***] Novartis will provide and within [***] days after such provision the JCC will, subject to applicable Law including Antitrust Laws, review, update and approve a written summary of the global Commercial strategy for such Regional Licensed Product (the “RLP Commercial Strategy”). For clarity, any and all such communications and strategy involving the Commercialization of Regional Licensed Products shall be limited to those permitted under applicable Law, including Antitrust Laws.

 

Confidential

 

- 70 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

6.2.3. Novartis Territory Commercialization Plan. No less than [***] Novartis will prepare and deliver to the JCC for review a reasonable written plan that summarizes the Commercialization activities to be undertaken with respect to such Regional Licensed Product in the Novartis Territory in the next Calendar Year (the “Novartis Territory Commercialization Plan”). The Novartis Territory Commercialization Plan for a Regional Licensed Product will subsequently be updated and modified by Novartis, from time to time at its discretion and no less frequently than [***] based upon, among other things, Novartis’s Commercialization activities with respect to such Regional Licensed Product in the Novartis Territory, a copy of which updated plan Novartis will provide to the JCC. Notwithstanding the foregoing, in the event of any disagreement between the Parties regarding the Novartis Territory Commercialization Plan for a Regional Licensed Product pursuant to Section 2.5.5, the Novartis representatives on the JCC will have final decision-making authority over the preparation and updating of such Novartis Territory Commercialization Plan, provided that such decisions do not materially adversely affect the Commercialization of such Regional Licensed Product in the Surface Territory.

6.2.4. Surface Territory Commercialization Plan. No less than [***] Surface will prepare and deliver to the JCC for review a reasonable written plan that summarizes the Commercialization activities to be undertaken with respect to such Regional Licensed Product in the Surface Territory in the next Calendar Year (the “Surface Territory Commercialization Plan”). The Surface Territory Commercialization Plan for a Regional Licensed Product will subsequently be updated and modified by Surface, from time to time at its discretion and no less frequently than [***] based upon, among other things, Surface’s Commercialization activities with respect to such Regional Licensed Product in the Surface Territory, a copy of which updated plan Surface will provide to the JCC. Notwithstanding the foregoing, in the event of any disagreement between the Parties regarding the Surface Territory Commercialization Plan for a Regional Licensed Product pursuant to Section 2.5.5, the Surface representatives on the JCC will have final decision-making authority over the preparation and updating of such Surface Territory Commercialization Plan, provided that such decisions do not materially adversely affect the Commercialization of such Regional Licensed Product in the Novartis Territory.

6.2.5. Advertising and Promotional Materials.

6.2.5.1. RLP Branding. Each Party will use Commercially Reasonable Efforts to develop (and thereafter modify and update) a branding strategy (including positioning, colors, other visual branding elements and Novartis RLP Trademarks and Surface RLP Trademarks in accordance with Section 14.9.2) for each Regional Licensed Product for use in the Field for its Territory (each a “RLP Branding Strategy”), which the JCC will, in accordance with Sections 2.5.3.3 and 2.5.5, review, coordinate and approve, and which the Parties

 

Confidential

 

- 71 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

will, following such review and approval, implement. Each Party will submit its RLP Branding Strategy for a Regional Licensed Product to the JCC at least [***] (or more frequently if reasonably requested by the other Party). Each Party will consider in good faith any timely comments by the other Party with respect to its RLP Branding Strategy, but will have final decision-making authority with respect to such its RLP Branding Strategy in its Territory. Notwithstanding the foregoing, each Party will use Commercially Reasonable Efforts to ensure that (a) its RLP Branding Strategy complies with applicable Laws in its Territory, and (b) that any branding elements selected for inclusion in its RLP Branding Strategy do not infringe any Third Party trademarks or other intellectual property rights. If any such RLP Branding Strategy infringes Third Party trademarks or other intellectual property rights or otherwise does not comply with applicable Law in the Territory in which such RLP Branding Strategy is used, the affected Party will take action to end such infringement or other noncompliance (including by modifying its RLP Branding Strategy) in its Territory and the other Party will not be obligated to implement its RLP Branding Strategy in its Territory pursuant to this Section unless and until such infringement or noncompliance is ended.

6.2.5.2. Surface A&P. Surface will be responsible for the creation, preparation, production, reproduction and filing with the applicable Regulatory Authorities, of relevant written sales, promotion and advertising materials relating to each Regional Licensed Product (“Promotional Materials”) for use in the Surface Territory. All such Promotional Materials will be compliant with applicable Law and, if applicable, consistent in all material respects with the Surface Territory Commercialization Plan and, if applicable, consistent in all material respects with the RLP Branding Strategy for such Regional Licensed Product in the Surface Territory. Surface will submit representative samples of its Promotional Materials developed by it for use in the Surface Territory to the JCC at least [***] (or more frequently if reasonably requested by Novartis). Surface will consider in good faith any timely comments Novartis may have with respect to any such Promotional Materials, but will have final decision-making authority in the Surface Territory with respect to such Promotional Materials. Notwithstanding the foregoing, Surface will incorporate any changes to Promotional Materials requested by Novartis in a timely fashion in cases where Novartis indicates that it believes in good faith that such change is necessary to enable Novartis to comply with any applicable Law.

 

Confidential

 

- 72 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

6.2.5.3. Novartis A&P. Novartis will be responsible for the creation, preparation, production, reproduction and filing with the applicable Regulatory Authorities, of relevant Promotional Materials relating to each Regional Licensed Product for use in the Novartis Territory. All such Promotional Materials will be compliant with applicable Law, consistent in all material respects with the Novartis Territory Commercialization Plan and, if applicable, consistent in all material respects with the RLP Branding Strategy for such Regional Licensed Product in the Novartis Territory. Novartis will submit representative samples of its Promotional Materials developed by it for use in the Novartis Territory to the JCC at least [***] thereafter (or more frequently if reasonably requested by Surface). Novartis will consider in good faith any timely comments Surface may have with respect to any such Promotional Materials, but will have final decision-making authority in the Novartis Territory with respect to such Promotional Materials. Notwithstanding the foregoing, Novartis will incorporate any changes to Promotional Materials requested by Surface in a timely fashion in cases where Surface indicates that it believes in good faith that such change is necessary to enable Surface to comply with any applicable Law.

6.2.5.4. Reporting Obligations. Each Party will report to the JCC in writing, on an [***] basis in the first [***] following the first Regulatory Approval of such Regional Licensed Product in the Field in such Party’s Territory (for the period ending December 31 of the prior Calendar Year), summarizing in reasonable detail such Party’s Commercialization activities for such Regional Licensed Product performed to date (or updating such report for activities performed since the last such report was given hereunder, as applicable). In addition, each Party will provide the other Party with written notice of the First Commercial Sale of each Regional Licensed Product in such Party’s Territory as soon as reasonably practicable after such event; provided, however, that such Party will inform the other Party of such event prior to public disclosure of such event by such Party. Each Party will provide such other information to the JCC as the other Party may reasonably request with respect to Commercialization of such Regional Licensed Product and will keep such JCC reasonably informed of such Party’s Commercialization activities with respect to such Regional Licensed Product.

 

Confidential

 

- 73 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

6.2.6. Commercialization Reporting Obligations. Each Party and its Related Parties will be responsible for booking sales of the Regional Licensed Products sold in its Territory. Each Party and its Related Parties may warehouse Regional Licensed Products both inside and outside of such Party’s Territory, provided that any sales with respect to such Regional Licensed Products are booked in such Party’s Territory. If a Party receives any orders for any Regional Licensed Product in the other Party’s Territory, it will refer such orders to the other Party, to the extent it is not prohibited from doing so under applicable Law. Moreover, each Party and its Related Parties will, using Commercially Reasonable Efforts, be solely responsible for handling all returns of any Regional Licensed Product sold in its Territory, as well as all aspects of Regional Licensed Product order processing, invoicing and collection, distribution, inventory and receivables of Regional Licensed Products sold in its Territory.

6.2.7. Recalls, Market Withdrawals or Corrective Actions. In the event that any Regulatory Authority issues or requests a recall or takes a similar action in connection with a Regional Licensed Product in a Territory, or in the event either Party determines that an event, incident or circumstance has occurred that may result in the need for a recall or market withdrawal of a Regional Licensed Product in its Territory, the Party notified of such recall or similar action, or the Party that desires such recall or similar action, will as promptly as possible, notify the other Party’s Alliance Manager and JCC representatives thereof by telephone or e-mail. Each Party, in consultation with the other Party, will decide whether to conduct a recall of a Regional Licensed Product in its own Territory and the manner in which any such recall will be conducted (except in the case of a government mandated recall, when such Party may act without such advance notice but will notify the other Party as soon as possible thereafter). Except as may otherwise be agreed to by the Parties, [***] Each Party will make available all of its pertinent records that may be reasonably requested by the other Party in order for a Party to effect a recall of a Regional Licensed Product in its Territory. The Parties’ rights and obligations under this Section 6.2.7 will be subject to the terms of any supply agreement(s), including any SDEA or quality related agreements entered into between the Parties. In the event of a conflict between the provisions of any such supply agreement, SDEA or quality related agreements and this Section 6.2.7, the provisions of such supply agreement, SDEA or quality related agreements will govern.

6.2.8. Ex-Territory Sales; Export Monitoring.

 

Confidential

 

- 74 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

6.2.8.1. Ex-Territory Sales. Subject to applicable Law, neither Party will engage in any advertising or promotional activities relating to any Regional Licensed Product directed primarily to customers or other buyers or users of such Regional Licensed Product located outside its Territory or accept orders for Regional Licensed Products from or sell Regional Licensed Products into such other Party’s Territory for its own account, and if a Party receives any order for any Regional Licensed Product in the other Party’s Territory, it will refer such orders to the other Party. The Parties expressly acknowledge and agree that applicable Law may prevent or limit a Party from taking action to prevent exports from one EU country to another.

6.2.8.2. Export Monitoring. Each Party and its Related Parties will use Commercially Reasonable Efforts to monitor and prevent exports of Regional Licensed Products from its own Territory for Commercialization in the other Party’s Territory using methods permitted under applicable Law that are commonly used in the industry for such purpose (if any), and will promptly inform the other Party of any such exports of Regional Licensed Products from its Territory, and any actions taken to prevent such exports. Each Party agrees to take reasonable actions requested in writing by the other Party that are consistent with applicable Law to prevent exports of Regional Licensed Products from its Territory for Commercialization in the other Party’s Territory. The Parties expressly acknowledge and agree that applicable Law may prevent or limit a Party from taking action to prevent exports from one EU country to another.

6.2.9. Combinations. Net Sales received by the Parties or their respective Related Parties in respect of certain Combinations in the Surface Territory shall be allocated between the Parties in accordance with the provisions of Exhibit A.

6.3. Global Licensed Products.

6.3.1. Responsibility, Cost and Diligence. Novartis will be solely responsible, at its expense, for all Commercialization activities relating to Global Licensed Products in the Field in the Novartis Territory. Novartis will use Commercially Reasonable Efforts to (a) Commercialize each Global Licensed Product for which Novartis has obtained Regulatory Approval in the Novartis Territory, and (b) perform all Commercialization activities for each Global Licensed Product in accordance with the Global Licensed Product Commercialization Plan.

6.3.2. Commercialization Plan. No less than [***] and [***] thereafter, Novartis will prepare and deliver to Surface, through the JSC, (a) a high level summary of the Commercialization activities

 

Confidential

 

- 75 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

performed with respect to such Global Licensed Product in the Novartis Territory during the just-completed Calendar Year, and (b) a high level summary of the Commercialization activities to be undertaken with respect to such Global Licensed Product in the then-current Calendar Year (the “Global Licensed Product Commercialization Plan”).

6.3.3. First Commercial Sale Reporting Obligations. With respect to a Global Licensed Product, Novartis will provide Surface with written notice of the First Commercial Sale of such Global Licensed Product in the Novartis Territory.

6.3.4. Advertising and Promotional Materials.

6.3.4.1. Global Licensed Product Branding. Novartis will have the sole right, from time to time during the Term, to develop (and thereafter modify and update) a global branding strategy (including global positioning, messages, logo, colors and other visual branding elements) for each Global Licensed Product for use in the Field throughout the Novartis Territory.

6.3.4.2. Promotional Materials. Novartis will be responsible for the creation, preparation, production, reproduction and filing with the applicable Regulatory Authorities, of relevant written sales, promotion and advertising materials relating to each Global Licensed Product for use in the Novartis Territory. All such Promotional Materials will be compliant with applicable Law. If permitted under applicable Law, Novartis will include a reference in such Global Licensed Promotional Materials to such Global Licensed Product as being sold under license from Surface.

6.3.5. Sales and Distribution. Novartis and its Related Parties will be solely responsible for booking sales and will warehouse and distribute Global Licensed Products in the Novartis Territory.

6.3.6. Recalls, Market Withdrawals or Corrective Actions. In the event that any Regulatory Authority issues or requests a recall or takes a similar action in connection with a Global Licensed Product, Novartis will have the sole right to decide whether to conduct a recall and the manner in which any such recall will be conducted. [***]

7. REGULATORY

7.1. T1 Licensed Products.

7.1.1. Regulatory Filings and Interactions.

 

Confidential

 

- 76 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

7.1.1.1. Ownership of Regulatory Filings. Novartis will own all INDs, NDAs, Regulatory Materials and related regulatory documentation with respect to any T1 Licensed Product, including any drug master files maintained by or on behalf of Surface solely with respect thereto (provided however that Surface will not be obligated to transfer any drug master files maintained by or on behalf of any Third Party, including any contract manufacturer). At Novartis’s request following [***] for the T1 Research Program, Surface will promptly assign and transfer to Novartis all INDs, Regulatory Materials and other regulatory documentation in the Novartis Territory with respect to such T1 Licensed Product that is in the possession or control of Surface, including any drug master files maintained by or on behalf of Surface solely with respect thereto, and each Party will submit all filings, letters and other documentation necessary to effect such assignment and transfer to the applicable Regulatory Authority as soon as reasonably practicable, but no later than [***] after such request for such T1 Licensed Product. For clarity, Surface will not be required to transfer any drug master files maintained by or on behalf of any Third Party, including any contract manufacturer; provided that Novartis has access to or rights to cross-reference those drug master files pursuant to Section 7.1.3 to permit Novartis to comply with its regulatory obligation in connection with the Research, Development, Manufacture, and Commercialization of T1 Licensed Products. Surface hereby appoints Novartis as Surface’s agent for all matters related to each T1 Licensed Product involving Regulatory Authorities in the Novartis Territory during the period beginning on the Effective Date for the T1 Licensed Product and ending on the date that the transfer of all INDs, Regulatory Materials and related regulatory documents in the Novartis Territory that relate to such T1 Licensed Product, including any drug master files maintained by or on behalf of Surface solely with respect thereto, becomes effective, and Novartis hereby accepts such appointment.

7.1.1.2. Responsibilities for Regulatory Matters. Novartis will, using Commercially Reasonable Efforts, be solely responsible for all regulatory matters relating to T1 Licensed Products in the Novartis Territory, including (a) overseeing, monitoring and coordinating all regulatory actions, communications and filings with, and submissions to, each Regulatory Authority in the Novartis Territory with respect to T1 Licensed Products; (b) interfacing, corresponding and meeting with each Regulatory Authority in the Novartis Territory with respect to T1 Licensed Products; and (c) seeking and maintaining all Regulatory Materials in the Novartis Territory with respect to T1 Licensed Products.

 

Confidential

 

- 77 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

7.1.1.3. Communications with Regulatory Authorities. Novartis will provide Surface, through the JDC, as part of the [***] updates regarding Development activities described in Section 5.1.6.1, with a brief description in English, of the principal issues raised in any material communication with any Regulatory Authority in the Novartis Territory with respect to any T1 Licensed Product during the preceding Calendar Quarter. For purposes of this Section 7.1.1.3, “material communication” with Regulatory Authorities include meetings with Regulatory Authorities and Regulatory Authority questions or concerns regarding significant issues, including any of the following: key product quality attributes (e.g., purity), safety findings affecting the platform (e.g., Serious Adverse Events, emerging safety signals), clinical or nonclinical findings affecting patient safety, or lack of efficacy.

7.1.1.4. Regulatory Meetings. Novartis will use Commercially Reasonable Efforts, to the extent reasonably practicable, to permit Surface to have, at Surface’s expense, mutually acceptable representatives of Surface attend, solely as a non-participating observer, material, substantive meetings including pre-IND meetings, with the Governmental Authorities pertaining to Research of such T1 Licensed Product; provided, however, that (a) if required by the Governmental Authority, attendance by Surface will be permitted; (b) attendance by Surface representatives will not prevent participation of a Novartis representative due to restrictions imposed by Regulatory Agencies on the number of attendees; and (c) Novartis will not be obligated to change the schedule of such meeting in order to accommodate the schedule of Surface’s representatives. Novartis will provide Surface, through the JDC, with [***] updates of substantive meetings with the Governmental Authorities in the Novartis Territory pertaining to the Development of each T1 Licensed Product. For clarity, Novartis has the right to attend, at Novartis’ expense, any material, substantive meetings held by or on behalf of Surface, including pre-IND meetings, with the Governmental Authorities pertaining to such T1 Licensed Product.

 

Confidential

 

- 78 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

7.1.1.5. Submissions. With respect to each T1 Licensed Product, Novartis will provide Surface with written notice of each of the following events (a) within a reasonable period of time after the occurrence of such event in the Novartis Territory: (i); the submission of any filings or applications for Regulatory Approval (other than INDs) of such T1 Licensed Product to any Regulatory Authority; and (ii) receipt or denial of Regulatory Approval for such T1 Licensed Product; and (b) on a [***] basis, a summary of any INDs (including orphan drug applications and designations) that were filed for such T1 Licensed Product during such preceding [***] and those anticipated to be filed within the upcoming [***] provided, however, that Novartis will inform Surface of any such events under (a) or (b) prior to public disclosure of such event by Novartis.

7.1.2. Costs of Regulatory Affairs. [***] costs and expenses incurred in connection with applying for Regulatory Approval with respect to T1 Licensed Products in the Novartis Territory, and related regulatory affairs activities.

7.1.3. Right of Reference. Surface hereby grants to Novartis, and at the request of Novartis will grant to Novartis’s Related Parties, a “Right of Reference,” as that term is defined in 21 C.F.R. § 314.3(b) (or any successor rule or analogous Law recognized outside of the United States), to, and a right to copy, access, and otherwise use, all information and data (including all CMC information as well as data made, collected or otherwise generated in the conduct of any Clinical Studies or early access/named patient programs for the T1 Licensed Products) included in or used in support of any drug master file maintained by or on behalf of Surface (including its Related Parties) that relates to any T1 Licensed Product to the extent necessary or useful to Research, Develop, Manufacture or Commercialize T1 Licensed Products in the Novartis Territory. Notwithstanding anything to the contrary in this Agreement, Surface will not withdraw or inactivate any regulatory filing that Novartis or its Related Parties reference or otherwise use pursuant to this Section 7.1.3.

7.2. Regional Licensed Products.

7.2.1. Regulatory Filings and Interactions.

7.2.1.1. Responsibilities.

(a) Pursuant to the RLP Development Plan for a Regional Licensed Product and, except as otherwise provided in such RLP Development Plan, or set forth in Section 7.2.1.1(b) below, each Party will be solely responsible for all regulatory matters relating to such Regional Licensed Product in its Territory and will own all INDs, NDAs, Regulatory Materials and related regulatory documents

 

Confidential

 

- 79 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

in its Territory with respect to such Regional Licensed Product, including any drug master files maintained by or on behalf of such Party solely with respect thereto in such Territory, which will be and remain such Party’s sole responsibility. At Novartis’s request, [***] for a Regional Licensed Product, Surface will promptly assign and transfer to Novartis all INDs, Regulatory Materials and other regulatory documentation in the Novartis Territory with respect to such Regional Licensed Product that is in the possession and control of Surface, and each Party will submit to the applicable Regulatory Authority all filings, letters and other documentation necessary to effect such assignment and transfer as soon as practicable and no later than [***] after such request for such Regional Licensed Product, in each case, including any drug master files maintained by or on behalf of Surface solely with respect thereto. For clarity, Surface will not be required to transfer any drug master files maintained by or on behalf of any Third Party, including any contract manufacturer; provided that Novartis has access to or rights to cross-reference those drug master files pursuant to Section 7.2.3 to permit Novartis to comply with its regulatory obligation in connection with the Research, Development, Manufacture, and Commercialization of Regional Licensed Products. Each Party will have the sole right to (i) oversee, monitor and coordinate all regulatory actions, communications and filings with, and submissions to, each Regulatory Authority in its Territory with respect to such Regional Licensed Product; (ii) interface, correspond and meet with each Regulatory Authority in its Territory with respect to such Regional Licensed Product, and (iii) seek and maintain all regulatory filings in its Territory with respect to such Regional Licensed Product.

(b) Notwithstanding the foregoing, and solely with respect to the first Phase 1 Safety Study conducted under a RLP Development Plan, Surface will have the right, but not the obligation, to draft the protocol, develop the IND strategy, and file INDs globally, including in the Novartis Territory, after input and review by Novartis, and, if Surface exercises such right, Surface will use reasonable efforts to address any concerns raised by Novartis in connection with such activities. If Surface files INDs in the Novartis Territory as set forth above, then, unless otherwise agreed by the Parties, promptly following [***] Surface will assign the INDs in the Novartis Territory to Novartis and from that point forward, Novartis will be primarily responsible for the related regulatory activities with respect thereto in the Novartis Territory. Novartis will reimburse Surface for its portion of Development Costs incurred by Surface in accordance with Section 5.2.3.2 with respect to the performance of activities described in this Section 7.2.1.1, including drafting protocols, developing IND strategies and preparing and submitting INDs. If Surface does not exercise such right to file INDs in the Novartis Territory, then Novartis will draft the protocol, develop the IND strategy, and file the INDs in the Novartis Territory.

 

Confidential

 

- 80 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

(c) Communications with Regulatory Authorities. Each Party will notify the JDC, including a brief description in English, of the principal issues raised in each material communication with Regulatory Authorities with respect to such Regional Licensed Product within [***] after receipt thereof. Upon request, each Party will provide to the other Party: (a) at the requesting Party’s expense, a summary translation of such material communications in English, (b) at the requesting Party’s expense, complete copies of the original correspondence in their native language, or (c) at the requesting Party’s expense, a full translation of such material communications in English, in each case of (a) through (c) within a reasonable period of time following such request. For the purposes of this Section 7.2, “material communications” with Regulatory Authorities include meetings with Regulatory Authorities and Regulatory Authority questions or concerns with respect to significant issues, including any of the following: key product quality attributes (e.g., purity), safety findings affecting the platform (e.g., Serious Adverse Events, emerging safety signals), clinical or nonclinical findings affecting patient safety, lack of efficacy or receipt or denial of Regulatory Approval.

7.2.1.2. Regulatory Meetings. Each Party will provide the other Party with reasonable advance notice of all substantive meetings with the Governmental Authorities in its Territory pertaining to each Regional Licensed Product, or with as much advance notice as practicable under the circumstances. Each Party will use Commercially Reasonable Efforts, to the extent reasonably practicable, to permit the other Party to have, at the other Party’s expense, mutually acceptable representatives of the other Party attend, solely as a non-participating observer, material, substantive meetings, including pre-IND and end of Phase 2 Study meetings, with the Governmental Authorities within either its or the other Party’s Territory pertaining to such Regional Licensed Product; provided, however, that (a) if required by the Governmental Authority, attendance by the other Party will be permitted; (b) attendance by the representatives of the other Party will not prevent participation of a representative of the Party in charge of its Territory due to restrictions imposed by Regulatory Agencies on the number of attendees; and (c) neither Party will be obligated to change the schedule of such meeting in order to accommodate the schedule of the other Party’s representatives. In the event that Surface exercises its rights pursuant to Section 7.2.1.1 to files INDs in the Novartis Territory, then prior to the acceptance or approval of the IND, Surface will provide Novartis with reasonable advance notice of all substantive meetings with Regulatory Authorities in the Novartis Territory pertaining to such Regional Licensed Product, or with as much advance notice as practicable

 

Confidential

 

- 81 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

under the circumstances. Surface will use reasonable efforts, to the extent reasonably practicable, to permit Novartis to have, at Novartis’s expense, mutually acceptable representatives of Novartis to attend, as full and equal participants, material, substantive meetings, including pre-IND meetings, with Regulatory Authorities in the Novartis Territory pertaining to such Regional Licensed Product.

7.2.1.3. Submissions. Each Party will provide the other Party with written notice of each of the following events with regard to each Regional Licensed Product (a) within a reasonable period of time following the occurrence thereof, to the extent notice was not provided prior to the Option Exercise Date for such Regional Licensed Product: (i) the submission of any filings or applications for Regulatory Approval (other than INDs) of such Regional Licensed Product in such Party’s Territory to any Regulatory Authority; and (ii) receipt or denial of Regulatory Approval for such Regional Licensed Product; and (b) on a [***] basis, a summary of any INDs (including orphan drug applications and designations) that were filed for such Regional Licensed Product during such preceding [***] and those anticipated to be filed within the upcoming [***] provided, however, that each Party will inform the other Party of such event under (a) or (b) prior to public disclosure of such event by such Party.

7.2.2. Costs of Regulatory Affairs. Except as provided in Section 5.3.5, [***] costs and expenses incurred in connection with applying for, obtaining and maintaining Regulatory Approval with respect to Regional Licensed Products in its Territory, and related regulatory affairs activities.

7.2.3. Right of Reference. Each Party hereby grants to the other Party, and at the request of the other Party will grant to the other Party’s Related Parties, a “Right of Reference,” as that term is defined in 21 C.F.R. § 314.3(b) (or any successor rule or analogous Law recognized outside of the United States), to, and a right to copy, access, and otherwise use, all information and data (including all CMC information as well as data made, collected or otherwise generated in the conduct of any Clinical Studies or upon exercise of the Additional Development Opt-In Right, Supplemental Studies or Regional [***] Activities, or early access/named patient programs for the Regional Licensed Products) included in or used in support of any regulatory filing, Regulatory Approval, drug master file or other regulatory documentation (including orphan drug applications and designations) maintained on behalf of such Party (or its Related Parties) that relates to any Regional Licensed Product, to the extent necessary or useful to obtain Regulatory Approval of a Regional Licensed Product in the Novartis Territory or the Surface Territory, as applicable, and such Party will provide a signed statement to this

 

Confidential

 

- 82 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

effect, if requested by the other Party, in accordance with 21 C.F.R. § 314.50(g)(3) (or any successor or analogous Law outside of the United States). In addition, upon reasonable request of either Party (on behalf of itself or a Sublicensee), the other Party will obtain and provide to the requesting Party certificates or other formal or official attestations concerning the regulatory status of the Regional Licensed Products in the Novartis Territory or the Surface Territory, as applicable (e.g., Certificates of Free Sale, Certificates for Export, Certificates to Foreign Governments), at the requesting Party’s request, and provided further that such attestations are reasonably necessary for the requesting Party to exercise its rights under this Agreement. Notwithstanding anything to the contrary in this Agreement other than for Safety Concerns, neither Party will withdraw or inactivate any regulatory filing that the other Party references or otherwise uses pursuant to this Section 7.2.3. For clarity, the benefit of any regulatory vouchers [***]

7.3. Global Licensed Products.

7.3.1. Regulatory Filings and Interactions.

7.3.1.1. Ownership of Regulatory Filings. Novartis will own all INDs, NDAs, Regulatory Materials and related regulatory documentation submitted to any Regulatory Authority with respect to any Global Licensed Product, including any drug master files maintained by or on behalf of Surface solely with respect thereto. At Novartis’s request following [***] for a Global Licensed Product, Surface will promptly assign and transfer to Novartis all INDs, Regulatory Materials and other regulatory documentation in the Novartis Territory with respect to such Global Licensed Product that is in the possession or control of Surface, including any drug master files maintained by or on behalf of Surface solely with respect thereto, and each Party will submit all filings, letters and other documentation necessary to effect such assignment and transfer to the applicable Regulatory Authority as soon as reasonably practicable, but no later than [***] after such request for such Global Licensed Product. For clarity, Surface will not be required to transfer any drug master files maintained by or on behalf of any Third Party, including any contract manufacturer; provided that Novartis has access to or rights to cross-reference those drug master files pursuant to Section 7.3.3 to permit Novartis to comply with its regulatory obligation in connection with the Research, Development, Manufacture, and Commercialization of Global Licensed Products. Surface hereby appoints Novartis as Surface’s agent for all matters related to each Global Licensed

 

Confidential

 

- 83 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

Product involving Regulatory Authorities in the Novartis Territory during the period beginning on the Option Exercise Date for such Global Licensed Product and ending on the date that the transfer of all INDs, Regulatory Materials and related regulatory documents in the Novartis Territory that relate to such Global Licensed Product, including any drug master files maintained by or on behalf of Surface solely with respect thereto, becomes effective, and Novartis hereby accepts such appointment.

7.3.1.2. Responsibilities for Regulatory Matters. Novartis will, using Commercially Reasonable Efforts, be solely responsible for all regulatory matters relating to Global Licensed Products in the Novartis Territory, including (i) overseeing, monitoring and coordinating all regulatory actions, communications and filings with, and submissions to, each Regulatory Authority in the Novartis Territory with respect to Global Licensed Products; (ii) interfacing, corresponding and meeting with each Regulatory Authority in the Novartis Territory with respect to Global Licensed Products; and (iii) seeking and maintaining all Regulatory Materials in the Novartis Territory with respect to Global Licensed Products.

7.3.1.3. Communications with Regulatory Authorities. Novartis will provide Surface, through the JDC, as part of the [***] updates regarding Development activities described in Section 5.3.6.1, with a brief description in English, of the principal issues raised in any material communication with any Regulatory Authority in the Novartis Territory with respect to any Global Licensed Product during the preceding Calendar Quarter. For purposes of this Section 7.3.1.3, “material communication” with Regulatory Authorities include meetings with Regulatory Authorities and Regulatory Authority questions or concerns regarding significant issues, including any of the following: key product quality attributes (e.g., purity), safety findings affecting the platform (e.g., Serious Adverse Events, emerging safety signals), clinical or nonclinical findings affecting patient safety, or lack of efficacy.

7.3.1.4. Regulatory Meetings. Novartis will use Commercially Reasonable Efforts, to the extent reasonably practicable, to permit Surface to have, at Surface’s expense, mutually acceptable representatives of Surface attend, solely as a non-participating observer, material, substantive meetings, including pre-IND meetings, with the Governmental Authorities

 

Confidential

 

- 84 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

pertaining to Research of such Global Licensed Product should such meetings be deemed necessary by Novartis; provided, however, that (a) if required by the Governmental Authority, attendance by Surface will be permitted; (b) attendance by Surface representatives will not prevent participation of a Novartis representative due to restrictions imposed by Regulatory Agencies on the number of attendees; and (c) Novartis will not be obligated to change the schedule of such meeting in order to accommodate the schedule of Surface’s representatives. Novartis will provide Surface, through the JDC, with [***] updates of substantive meetings with the Governmental Authorities in the Novartis Territory pertaining to the Development of each Global Licensed Product.

7.3.1.5. Submissions. With respect to each Global Licensed Product, Novartis will provide Surface with prompt written notice of each of the following events (a) within a reasonable period of time after the occurrence of such event in the Novartis Territory: (i) the submission of any filings or applications for Regulatory Approval (other than INDs) of such Global Licensed Product to any Regulatory Authority; and ii) receipt or denial of Regulatory Approval for such Global Licensed Product; and (b) on a [***] basis, a summary of any INDs (including orphan drug applications and designations) that were filed for such Global Licensed Product during such preceding [***] and those anticipated to be filed within the upcoming [***] provided, however, that Novartis will inform Surface of any such events under (a) or (b) prior to public disclosure of such event by Novartis.

7.3.2. Costs of Regulatory Affairs. Except as set forth in Section 5.3.5, [***] incurred in connection with applying for Regulatory Approval with respect to Global Licensed Products in the Novartis Territory, and related regulatory affairs activities.

7.3.3. Right of Reference. Surface hereby grants to Novartis, and at the request of Novartis will grant to Novartis’s Related Parties, a “Right of Reference,” as that term is defined in 21 C.F.R. § 314.3(b) (or any successor rule or analogous Law recognized outside of the United States), to, and a right to copy, access, and otherwise use, all information and data (including all CMC information as well as data made, collected or otherwise generated in the conduct of any Clinical Studies or early access/named patient programs for the Global Licensed Products) included in or used in support of any drug master file maintained on behalf of Surface or its Related Parties that relates to any Global Licensed Product to the extent necessary or useful to Research, Develop, Manufacture or Commercialize Global Licensed Products in the Novartis Territory.

 

Confidential

 

- 85 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

Notwithstanding anything to the contrary in this Agreement, Surface will not withdraw or inactivate any regulatory filing that Novartis or its Related Parties reference or otherwise use pursuant to this Section 7.3.3.

7.4. Pharmacovigilance. The Parties will cooperate with regard to the reporting and handling of safety information involving the Regional Antibody Candidates or Regional Licensed Products in accordance with the applicable regulatory Laws and regulations on pharmacovigilance and clinical safety. Within such time to ensure that all regulatory requirements are met, the Parties shall negotiate in good faith and enter into a Safety Data Exchange Agreement (“SDEA”), which will define the pharmacovigilance responsibilities of the Parties and include safety data exchange procedures to enable each Party (and their respective related Third Parties, if any) to comply with all of its legal and regulatory obligations related to such Regional Antibody Candidates or Regional Licensed Products.

8. MANUFACTURE

8.1. T1 Antibody Candidates and T1 Licensed Products.

8.1.1. Manufacturing Responsibilities.

8.1.1.1. Subject to the oversight of the JRC, Surface has the sole responsibility to Manufacture (or have Manufactured) T1 Antibody Candidates for use in the T1 Research Program in accordance with the T1 Research Plan. Surface will Manufacture (or have Manufactured) such T1 Antibody Candidates in accordance with Novartis quality standards.

8.1.1.2. Subject to the oversight of the JDC, Surface has the sole responsibility to Manufacture (or have Manufactured) T1 Antibody Candidates and T1 Licensed Products for use in the first Phase 1 Safety Study for the T1 Antibody Candidates and T1 Licensed Products in accordance with the T1 Development Plan. Surface will Manufacture (or have Manufactured) such T1 Antibody Candidates in accordance with Novartis quality standards.

8.1.1.3. Other than the first Phase 1 Safety Study for the T1 Antibody Candidates and T1 Licensed Products, Novartis has the sole responsibility to Manufacture (or have Manufactured) T1 Antibody Candidates and T1 Licensed Products for use in Development and Commercialization of such T1 Antibody Candidates and T1 Licensed Products in the Novartis Territory.

 

Confidential

 

- 86 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

8.1.2. Manufacturing Costs.

8.1.2.1. Surface will be responsible for [***] of all Manufacturing Costs relating to T1 Antibody Candidates incurred by or on behalf of Surface to support the T1 Research Program.

8.1.2.2. Novartis will pay to Surface [***] of reasonable Manufacturing Costs relating to the first Phase 1 Safety Study for T1 Antibody Candidates and T1 Licensed Products set forth in the Novartis approved budget for such Phase 1 Safety Study.

8.1.2.3. Other than the first Phase 1 Safety Study for the T1 Antibody Candidates and T1 Licensed Products, Novartis will be responsible for [***] of all Manufacturing Costs relating to T1 Antibody Candidates and T1 Licensed Products for use in the Research, Development and Commercialization of such T1 Antibody Candidates and T1 Licensed Products in the Novartis Territory incurred by or on behalf of Novartis.

8.1.3. Manufacturing Contracts. Surface will, at such time as determined by the JSC, use Commercially Reasonable Efforts to assign to Novartis or its designee all then-existing Manufacturing contracts with Third Party contract manufacturers that are solely related to the Manufacture of any T1 Antibody Candidates or T1 Licensed Products and that Novartis agrees to assume.

8.2. Option Antibody Candidates.

8.2.1. Manufacturing Responsibilities. Subject to the oversight of the JRC, Surface has the sole responsibility to Manufacture (or have Manufactured) Option Target Antibody Candidates, including CD47 Option Target Antibody Candidates, for use in the Option Target Research Programs in accordance with the Option Target Research Plans.

8.2.2. Manufacturing Costs. Surface will be responsible for [***] of all Manufacturing Costs incurred by or on behalf of Surface relating to Option Target Antibody Candidates, including CD47 Option Target Antibody Candidates, for use in the Option Target Research Programs. For clarity, responsibility for Manufacturing Clinical Study material will be allocated as set forth in under Sections 8.3 or 8.4, as applicable.

8.2.3. Novartis Manufacturing Election. Notwithstanding Sections 8.2.1 and 8.2.2, with respect to Option Target Antibody Candidates other than CD47 Option Target Antibody Candidates, Novartis shall have the right, on an Option Target-by-Option Target basis, exercisable at or about the time of selection by the JRC of the lead Option

 

Confidential

 

- 87 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

Target Antibody Candidate for the applicable Option Target, to Manufacture (or have Manufactured) Option Target Antibody Candidates for use in the applicable Option Target Research Program in accordance with the Option Target Research Plan (a “Novartis Option Target Manufacturing Election”).

8.2.3.1. If Novartis makes a Novartis Option Target Manufacturing Election with respect to an Option Target (a) Novartis shall have sole responsibility to Manufacture (or have Manufactured) (i) effective upon such election, Option Target Antibody Candidates for such Option Target for use in the applicable Option Target Research Program; and (ii) effective upon Novartis’ exercise of an Option with respect to such Option Target, Antibody Candidates and Licensed Products associated with such Licensed Target for use in the first Phase 1 Safety Study in accordance with the applicable Development Plan, and (b) Novartis will be responsible for [***] of all Manufacturing Costs incurred by or on behalf of Novartis (i) effective upon such election, Option Target Antibody Candidates for use in the applicable Option Target Research Program and (ii) effective upon Novartis’ exercise of an Option with respect to such Option Target, Antibody Candidates and Licensed Products to support the first Phase 1 Safety Study for the applicable Antibody Candidates and Regional Licensed Products, including reasonable costs (calculated in the same manner as Development Costs) incurred by or on behalf of Surface to effect a technology transfer (to the extent necessary) to Novartis for purposes of Manufacturing pursuant to the Novartis Option Target Manufacturing Election.

8.2.3.2. If Novartis makes a Novartis Option Target Manufacturing Election with respect to an Option Target and thereafter does not purchase an Option with respect to such Option Target in accordance with Section 4.1.1 or exercise a purchased Option with respect to such Option Target in accordance with Section 4.2.6, then Novartis shall, (a) within [***] of expiration of the Option Purchase Period or Option Exercise Period, as applicable, provide to Surface or Surface’s designated contract manufacturer(s), copies of all material data, reports, records and information in Novartis’s possession and Control to the extent that such data, reports, records and information are used in the Manufacture of the applicable Antibody Candidates; (b) as soon as reasonably practicable, transfer to a Third Party approved by Novartis (such approval not to be unreasonably withheld, conditioned or delayed), those cell lines and master cell banks to

 

Confidential

 

- 88 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

the extent used solely in the Manufacture of the applicable Antibody Candidates; (c) within such [***] period if Surface so requests, and to the extent permitted under Novartis’s obligations to Third Parties, use Commercially Reasonable Efforts to transfer to Surface any Third Party agreements relating solely to the Manufacture of the applicable Antibody Candidates to which Novartis is a party, subject to any required consents of such Third Party, which Novartis will use Commercially Reasonable Efforts to obtain promptly; and (d) use Commercially Reasonable Efforts to continue to supply Surface with Antibody Candidates then being Manufactured (at the time of expiration of the Option Purchase Period or Option Exercise Period, as applicable) until the earlier of (i) Surface having established a source of supply for the applicable Antibody Candidates or (ii) [***] after expiration of the Option Purchase Period or Option Exercise Period, as applicable.

8.2.3.3. In addition, to (a) through (d) set forth in Section 8.2.3.2 above, Novartis will grant to Surface a worldwide, royalty-bearing non-exclusive license (with the right to sublicense subject to Section 9.2.2.4, mutatis mutandis) under such Know-How and Patents both (a) Controlled by Novartis as of the date of expiration of the Option Purchase Period or Option Exercise Period, as applicable and (b) necessary to Manufacture the applicable Antibody Candidate and corresponding Licensed Product (it being understood and agreed that with respect to any such Patents or Know-How that are in-licensed by Novartis or any of its Related Parties, Surface will be responsible for any payments due to a Third Party with respect thereto and Surface’s rights will be subject to the terms of the applicable Third Party agreement), solely to the extent necessary to Manufacture such Antibody Candidate and corresponding Licensed Products in the Field (the “Option License”); provided that the Parties agree to negotiate in good faith commercially reasonable financial terms for such Option License, subject to Expedited Arbitration if the Parties are unable to agree on such financial terms within [***] following the date of expiration of the Option Purchase Period or Option Exercise Period, as applicable; provided further that after completion of such Expedited Arbitration, Surface will have the right to reject such Option License upon written notice to Novartis within [***] after the completion of the Expedited Arbitration, in which case, the Option License will not take effect and Surface will have no obligation to pay the amounts specified in such Expedited Arbitration.

 

Confidential

 

- 89 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

8.3. Regional Antibody Candidates and Regional Licensed Products.

8.3.1. Manufacturing Responsibilities.

8.3.1.1. Phase 1 Safety Study. Subject to Section 8.2.3, and subject to the oversight of the JDC, Surface has the sole responsibility to Manufacture (or have Manufactured) Regional Antibody Candidates and Regional Licensed Products for use in the first Phase 1 Safety Study for the Regional Antibody Candidates and Regional Licensed Products in accordance with the RLP Development Plan.

8.3.1.2. Development. Other than the first Phase 1 Safety Study for the Regional Antibody Candidates and Regional Licensed Products (subject to Section 8.2.3), Novartis has the sole responsibility to Manufacture (or have Manufactured) Regional Antibody Candidates and Regional Licensed Products for use in Development of such Regional Antibody Candidates and Regional Licensed Products in the Novartis Territory and the Surface Territory. Novartis will use Commercially Reasonable Efforts to Manufacture sufficient Regional Licensed Products for use in all Clinical Studies provided for in the then-applicable RLP Development Plan and the Parties shall discuss in good faith engaging a Third Party contract manufacturer as a second source in order to ensure adequate supply. In the event of a shortage of Regional Licensed Products for Development, (a) the available Regional Licensed Products shall be allocated first to those Clinical Studies contemplated in the then-applicable RLP Development Plan and thereafter to Supplemental Studies in the order that such Supplemental Studies were initiated and (b) the Parties will in good faith discuss and agree upon a plan to increase supply volume as necessary, which plan may include utilization of a second source supplier.

8.3.1.3. Commercialization. Novartis shall have the right to determine whether it is willing to Manufacture Regional Antibody Candidates and Regional Licensed Products for use in Commercialization of such Regional Antibody Candidates and Regional Licensed Products in the Surface Territory and shall communicate such determination by written notice to Surface no later than Initiation of the first Phase 3 Study. If Novartis

 

Confidential

 

- 90 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

notifies Surface that it is willing to Manufacture Regional Antibody Candidates and Regional Licensed Products for use in Commercialization in the Surface Territory in accordance with the foregoing, then, Surface may elect, by written notice to Novartis no later than [***] after its receipt of such notice from Novartis whether to utilize Novartis for such Commercial Manufacturing in the Surface Territory or to retain a Third Party contract manufacturer(s) for such purpose. If either Novartis is not willing to provide such Commercial supply (a “Novartis Election”) or Surface elects not to utilize Novartis for such Commercial supply (a “Surface Election”), then Novartis shall effect a technology transfer to a Third Party contract manufacturer(s) to enable such Third Party to provide Commercial supply of Regional Antibody Candidates and Regional Licensed Products for use in the Surface Territory, provided that such Third Party contract manufacturer(s) is approved by Novartis, such approval not to be unreasonably withheld, conditioned or delayed. The cost of such technology transfer shall be borne by (a) Novartis in the case of a Novartis Election; and (b) Surface in the case of either (i) a Surface Election or (ii) any request for a second technology transfer, whether in the case of a Novartis Election or Surface Election; provided, however that Surface may not require of Novartis more than [***] such transfers for any Regional Licensed Product. Further, in the case of a Novartis Election, Novartis shall remain responsible for Manufacturing Commercial supply for use in the Surface Territory until the earlier of (x) such time as the technology transfer is completed or (y) [***] If Novartis is willing to Manufacture Regional Antibody Candidates and Regional Licensed Products for use in Commercialization in the Surface Territory and Surface elects to utilize Novartis for such Commercial Manufacturing in the Surface Territory, the terms of supply of such Regional Antibody Candidates and Regional Licensed Products for use in Commercialization of such Regional Antibody Candidates and Regional Licensed Products in the Surface Territory will be set forth in the RLP Supply Agreement.

8.3.2. Manufacturing Costs.

8.3.2.1. Phase 1 Safety Study. Subject to Section 8.2.3, Surface will be responsible for [***] of all Manufacturing Costs relating to Regional Antibody Candidates and Global Licensed Products incurred by or on behalf of Surface to support the first Phase 1 Safety Study for Regional Antibody Candidates and Regional Licensed Products.

 

Confidential

 

- 91 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

8.3.2.2. Development. Novartis will be responsible for [***] of all Manufacturing Costs relating to Regional Antibody Candidates and Regional Licensed Products incurred by or on behalf of Novartis for use in the Development of such Regional Antibody Candidates and Regional Licensed Products in the Novartis Territory. Other than the first Phase 1 Safety Study for the Regional Antibody Candidates and Regional Licensed Products (subject to Section 8.2.3), Surface shall reimburse Novartis for [***] of all Manufacturing Costs relating to Regional Antibody Candidates and Regional Licensed Products incurred by or on behalf of Novartis for use in the Development of such Regional Antibody Candidates and Regional Licensed Products in the Surface Territory. For clarity, costs incurred by the Parties in connection with the Manufacture of Regional Antibody Candidates and Regional Licensed Products for use in the Development of such Regional Antibody Candidates and Regional Licensed Products in the Novartis Territory or the Surface Territory in accordance with the applicable RLP Development Plan shall constitute Development Costs to be allocated between the Parties in accordance with Section 5.2.4.2.

8.3.2.3. Commercialization. Each Party shall be responsible for [***] of all Manufacturing Costs relating to Regional Licensed Products for use by such Party or its Related Parties in the Commercialization of Regional Licensed Products in such Party’s Territory. With respect to Regional Licensed Products (including any Component of a Regional Licensed Product that is a Combination) purchased by Surface from Novartis for use in the Surface Territory, Surface shall pay Novartis an amount equal to Commercial Manufacturing Cost for such Regional Licensed Products. For purposes hereof, “Commercial Manufacturing Cost” shall be calculated as follows:

(i) With respect to any Regional Licensed Product which is not a Combination, an amount equal to Manufacturing Cost plus a Mark-Up. The Mark-Up shall be set forth in the RLP Supply Agreement to be entered into between the Parties; in the event the Parties are unable to agree upon such Mark-Up, the dispute shall be submitted to Expedited Arbitration for resolution.

 

Confidential

 

- 92 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

(ii) With respect to any Regional Licensed Product which is a Combination, an amount specified on Exhibit A-2. Any Mark-Up set forth in such Exhibit shall be set forth in the RLP Supply Agreement to be entered into between the Parties; in the event the Parties are unable to agree upon such Mark-Up, the dispute shall be submitted to Expedited Arbitration for resolution.

8.3.3. Manufacturing and Supply Agreements.

8.3.3.1. The terms under which Novartis will Manufacture and supply Regional Antibody Candidates and Regional Licensed Products to Novartis pursuant to Section 8.3 will be set forth in a supply agreement to be entered into between the Parties (the “RLP Supply Agreement”) within [***] of either Party’s written request. The RLP Supply Agreement will contain customary terms and conditions, including quality, and otherwise be consistent with this Agreement and Novartis quality standards.

8.3.3.2. Subject to Section 8.2.3, Surface will, at such time as determined by the JSC, use Commercially Reasonable Efforts to assign to Novartis or its designee all then-existing Manufacturing contracts with Third Party contract manufacturers that are solely related to the Manufacture of any Regional Antibody Candidates or Regional Licensed Products and that Novartis agrees to assume.

8.4. Global Antibody Candidates and Global Licensed Products.

8.4.1. Manufacturing Responsibilities.

8.4.1.1. Subject to Section 8.2.3 and subject to the oversight of the JDC, Surface has the sole responsibility to Manufacture (or have Manufactured) Global Antibody Candidates and Global Licensed Products for use in the first Phase 1 Safety Study for the Global Antibody Candidates and Global Licensed Products in accordance with the Global Development Plan.

8.4.1.2. Other than the first Phase 1 Safety Study for the Global Antibody Candidates and Global Licensed Products (subject to Section 8.2.3), Novartis has the sole responsibility to Manufacture (or have Manufactured) Global Antibody Candidates and Global Licensed Products for use in Development and Commercialization of such Global Antibody Candidates and Global Licensed Products in the Novartis Territory.

 

Confidential

 

- 93 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

8.4.2. Manufacturing Costs.

8.4.2.1. Subject to Section 8.2.3, Surface will be responsible for [***] of all Manufacturing Costs relating to Global Antibody Candidates and Global Licensed Products incurred by or on behalf of Surface to support the first Phase 1 Safety Study for Global Antibody Candidates and Global Licensed Products.

8.4.2.2. Other than the first Phase 1 Safety Study for the Global Antibody Candidates and Global Licensed Products (subject to Section 8.2.3), Novartis will be responsible for [***] of all Manufacturing Costs relating to Global Antibody Candidates and Global Licensed Products for use in the Research, Development and Commercialization of such Global Antibody Candidates and Global Licensed Products by or on behalf of Novartis in the Novartis Territory.

8.4.3. Manufacturing Agreements. Surface will, at such time as determined by the JSC, use Commercially Reasonable Efforts to assign to Novartis or its designee all then-existing Manufacturing contracts with Third Party contract manufacturers that are solely related to the Manufacture of any Global Antibody Candidates or Global Licensed Products and that Novartis agrees to assume .

8.5. Third Parties. The Parties will be entitled to utilize the services of Third Parties to perform their respective Manufacturing activities under this Section 8, provided that (a) [***] (b) each Party will require that such Third Party operates in a manner consistent with the terms of this Agreement, and (c) each Party will remain at all times fully liable for its respective responsibilities contracted to such Third Party. Each Party will require that any such Third Party agreement entered into pursuant to this Section 8.5 (x) include confidentiality and non-use provisions that are no less stringent than those set forth in Section 11.1 (but of duration customary in confidentiality agreements entered into for a similar purpose), other than Existing Novartis In-Licenses and the agreements listed on Schedule 12.2.1, each of which contains reasonable and customary confidentiality and non-use provisions; and (y) except as identified on Exhibit K, obtain ownership of, or a fully sublicensable license (or an exclusive option to obtain such license) under and to, any Know-How and Patents that are developed by such Third Party in the performance of such agreement and are reasonably necessary or useful to Research, Develop, Manufacture or Commercialize Antibody Candidates or Licensed Products in the Field. For clarity, the foregoing requirement to obtain ownership of, or a fully sublicensable license (or an exclusive option to obtain such license) shall not apply to any background or foundational Know-How or Patents owned or in-licensed by a Third Party contract manufacturer or its

 

Confidential

 

- 94 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

Affiliates (including any improvements thereto) unless such background or foundational Know-How or Patents (or improvements thereto) are reasonably necessary to Research, Develop, Manufacture or Commercialize those Antibody Candidates or Licensed Products in the Field with respect to which such Third Party or its Affiliate conducted its activities under such Third Party agreement. The Party utilizing the services of a Third Party service provider will be solely responsible for direction of and communications with such Third Party. [***]

9. LICENSES

9.1. T1 Target.

9.1.1. Research and Development License. Subject to the terms and conditions of this Agreement, effective upon the Effective Date, Surface hereby grants Novartis a non-transferable (except as provided in Section 16.1), sublicensable (subject to Section 9.1.4) exclusive (even as to Surface) license under Surface Technology to Research and Develop T1 Antibody Candidates and T1 Licensed Products in the Field anywhere in the world. Notwithstanding the foregoing, Surface retains the right under the Surface Technology, without the right to grant licenses or sublicenses without Novartis’ prior written consent, to Research T1 Antibody Candidates and T1 Licensed Products in the Field anywhere in the world as and to the extent provided in any approved T1 Research Plan or as otherwise permitted under Section 3.1.1 or elsewhere under this Agreement.

9.1.2. Commercialization License. Subject to the terms and conditions of this Agreement, effective upon the Effective Date, Surface hereby grants Novartis a non-transferable (except as provided in Section 16.1), sublicensable (subject to Section 9.1.4), royalty-bearing, exclusive (even as to Surface) license under Surface Technology to Commercialize T1 Licensed Products in the Field anywhere in the world.

9.1.3. Manufacturing Licenses. Subject to the terms and conditions of this Agreement, effective upon the Effective Date, Surface hereby grants Novartis a non-transferable (except as provided in Section 16.1), sublicensable (subject to Section 9.1.4), exclusive (even as to Surface) license under Surface Technology to Manufacture T1 Antibody Candidates and T1 Licensed Products anywhere in the world for Research, Development and Commercialization in the Novartis Territory. Notwithstanding the foregoing, Surface retains the right under the Surface Technology, without the right to grant licenses or sublicenses without Novartis’ prior written consent, to Manufacture T1 Antibody Candidates and T1 Licensed Products in the Field anywhere in the world for Research as and to the extent provided in any approved T1 Research Plan or permitted under Section 8.1.1 of this Agreement or as permitted elsewhere under this Agreement.

 

Confidential

 

- 95 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

9.1.4. Sublicensing Terms.

9.1.4.1. Novartis will have the right to sublicense any of its rights under Sections 9.1.1, 9.1.2 and 9.1.3 to any of its Affiliates or to any Third Party (which sublicensed rights may be further sublicensable through multiple tiers) without the prior consent of Surface, subject to the requirements of this Section 9.1.4.

9.1.4.2. Each sublicense granted by Novartis pursuant to this Section 9.1.4 will be subject and subordinate to this Agreement and will contain provisions consistent with the terms and conditions of this Agreement. Novartis will as soon as reasonably practicable thereafter, provide Surface with a copy of any executed sublicense agreement covering a material sublicense granted hereunder (which copy may be redacted to remove provisions which are not necessary to monitor compliance with this Section 9.1.4), and each such sublicense agreement will contain the following provisions: (i) a requirement that the Sublicensee comply with the confidentiality and non-use provisions of Section 11.1 with respect to Surface’s Confidential Information, (ii) if such sublicense agreement contains a sublicense of Section 9.1.2, such sublicense agreement will also contain the following provisions: (x) a requirement that the Sublicensee submit applicable sales or other reports to Novartis to the extent necessary or relevant to the reports required to be made or records required to be maintained under this Agreement; and (y) the audit requirement set forth in Section 10.12.3; and (iii) a requirement that the Sublicensee comply with the applicable provisions under any Surface In-License.

9.1.4.3. Notwithstanding any sublicense, Novartis will remain primarily liable to Surface for the performance of all of Novartis’s obligations under, and Novartis’s compliance with all provisions of, this Agreement.

9.2. Regional Targets.

9.2.1. License Grants to Novartis.

9.2.1.1. Research and Development License. Subject to the terms and conditions of this Agreement, on a Regional Target-by-Regional Target basis, effective upon the Option Exercise Date for each Regional Target, Surface hereby grants Novartis a non-transferable (except as provided in Section 16.1), sublicensable (subject to Section 9.2.1.4) exclusive (even as to Surface) license under Surface Technology to Research and Develop such Regional Antibody Candidates and Regional Licensed Products in the Field anywhere in the world; provided, that, such license grant for Research and Development will be limited in each case solely as and to the extent provided in any approved RLP

 

Confidential

 

- 96 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

Development Plan or as otherwise permitted under Section 4.2.6.5 or elsewhere under this Agreement, and in each case, solely for Regulatory Approval and Commercialization in the Novartis Territory. Notwithstanding the foregoing, Surface retains the right under the Surface Technology, with the right to grant licenses through multiple tiers in accordance with Section 9.2.2.4, which shall apply mutatis mutandis, to (a) conduct the Phase 1 Safety Study for each Regional Antibody Candidate or Regional Licensed Product, and (b) to Research and Develop each Regional Antibody Candidate or Regional Licensed Product in the Field anywhere in the world, in each case solely as and to the extent provided in any approved RLP Development Plan or as otherwise permitted under Section 4.2.6.5 or elsewhere under this Agreement, and in each case, solely for Regulatory Approval and Commercialization in the Surface Territory.

9.2.1.2. Commercialization License in the Novartis Territory. Subject to the terms and conditions of this Agreement, on a Regional Target-by-Regional Target basis, effective upon the Option Exercise Date for each Regional Target, Surface hereby grants Novartis a non-transferable (except as provided in Section 16.1), sublicensable (subject to Section 9.2.1.4), royalty-bearing, exclusive (even as to Surface) license under Surface Technology to Commercialize such Regional Licensed Products in the Field in the Novartis Territory.

9.2.1.3. Manufacturing Licenses. Subject to the terms and conditions of this Agreement and the applicable RLP Supply Agreement (if any), on a Regional Target-by-Regional Target basis, effective upon the Option Exercise Date for each Regional Target, Surface hereby grants Novartis a non-transferable (except as provided in Section 16.1), sublicensable (subject to Section 9.2.1.4), exclusive (even as to Surface) license under Surface Technology to Manufacture such Regional Antibody Candidates and Regional Licensed Products anywhere in the world solely for (a) Research, Development and Commercialization in the Field in the Novartis Territory and, to the extent permitted under this Agreement or any RLP Supply Agreement, for Research and Development in the Field in the Surface Territory; and (b) to the extent provided for under Section 8.2.3 or 8.3 or elsewhere under this Agreement or any RLP Supply Agreement, to supply (or have supplied) to Surface or use in the Field. Notwithstanding the foregoing, Surface

 

Confidential

 

- 97 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

retains the right under the Surface Technology, with the right to grant licenses through multiple tiers in accordance with Section 9.2.2.4, which shall apply mutatis mutandis, to Manufacture Regional Antibody Candidates and Regional Licensed Products anywhere in the world (a) for Research and Development in the Field as and to the extent provided in any approved RLP Development Plan, or permitted under Section 8.3 or elsewhere under this Agreement or under any RLP Supply Agreement and (b) to the extent provided for under Section 8.2.3 or any RLP Supply Agreement for Commercialization in the Field in the Surface Territory.

9.2.1.4. Sublicensing Terms.

(a) Novartis will have the right to sublicense any of its rights under Sections 9.2.1.1, 9.2.1.2 and 9.2.1.3 to any of its Affiliates or to any Third Party (which sublicensed rights may be further sublicensable through multiple tiers) without the prior consent of Surface, subject to the requirements of this Section 9.2.1.4.

(b) Each sublicense granted by Novartis pursuant to this Section 9.2.1.4 will be subject and subordinate to this Agreement and will contain provisions consistent with the terms and conditions of this Agreement. Novartis will as soon as reasonably practicable thereafter, provide Surface with a copy of any executed sublicense agreement covering a material sublicense granted hereunder (which copy may be redacted to remove provisions which are not necessary to monitor compliance with this Section 9.2.1.4), and each such sublicense agreement will contain the following provisions: (i) a requirement that the Sublicensee comply with the confidentiality and non-use provisions of Section 11.1 with respect to Surface’s Confidential Information, (ii) if such sublicense agreement contains a sublicense of Section 9.2.1.2, such sublicense agreement will also contain the following provisions: (x) a requirement that the Sublicensee submit applicable sales or other reports to Novartis to the extent necessary or relevant to the reports required to be made or records required to be maintained under this Agreement; and (y) the audit requirement set forth in Section 10.12.3; and (iii) a requirement that the Sublicensee comply with the applicable provisions under any Surface In-License.

(c) Notwithstanding any sublicense, Novartis will remain primarily liable to Surface for the performance of all of Novartis’s obligations under, and Novartis’s compliance with all provisions of, this Agreement.

 

Confidential

 

- 98 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

9.2.2. License Grants to Surface.

9.2.2.1. Research and Development License. Subject to the terms and conditions of this Agreement, on a Regional Target-by-Regional Target basis, effective upon the Option Exercise Date for each Regional Target, Novartis hereby grants Surface a non-transferable (except as provided in Section 16.1), sublicensable (subject to Section 9.2.2.4) exclusive (even as to Novartis) license under Novartis Technology to Research and Develop such Regional Antibody Candidates and Regional Licensed Products in the Field anywhere in the world; provided, that such license grant for Research and Development will be limited in each case solely as and to the extent provided in any approved RLP Development Plan or as otherwise permitted under this Agreement, and in each case, solely for Regulatory Approval and Commercialization in the Surface Territory. Notwithstanding the foregoing, Novartis retains the right under the Novartis Technology, with the right to grant licenses through multiple tiers in accordance with Section 9.2.2.4, which shall apply mutatis mutandis, to Research and Develop each Regional Antibody Candidate or Regional Licensed Product in the Field anywhere in the world, in each case solely as and to the extent provided in any approved RLP Development Plan or as otherwise permitted under Section 4.2.6.5 or elsewhere under this Agreement, and in each case, solely for Regulatory Approval and Commercialization by Novartis in the Novartis Territory.

9.2.2.2. Commercialization License in the Surface Territory. Subject to the terms and conditions of this Agreement, on a Regional Target-by-Regional Target basis, effective upon the Option Exercise Date for each Regional Target, Novartis hereby grants Surface a non-transferable (except as provided in Section 16.1), sublicensable (subject to Section 9.2.2.4), royalty-bearing, exclusive (even as to Novartis) license under Novartis Technology to Commercialize such Regional Licensed Products in the Field in the Surface Territory.

9.2.2.3. Manufacturing Licenses. Subject to the terms and conditions of this Agreement and the applicable RLP Supply Agreement (if any), on a Regional Target-by-Regional Target basis, effective upon the Option Exercise Date for each Regional Target, Novartis hereby grants Surface a non-transferable (except as provided in Section 16.1), sublicensable

 

Confidential

 

- 99 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

(subject to Section 9.2.2.4), exclusive (even as to Novartis) license under Novartis Technology to Manufacture such Regional Antibody Candidates and Regional Licensed Products anywhere in the world solely for (a) Research and Development as and to the extent provided in any approved RLP Development Plan, or permitted elsewhere under this Agreement or any RLP Supply Agreement and (b) to the extent provided for under Section 8.2.3 or 8.3 or elsewhere under this Agreement or any RLP Supply Agreement, for Commercialization in the Surface Territory. Notwithstanding the foregoing, Novartis retains the right under the Novartis Technology, with the right to grant licenses through multiple tiers in accordance with Section 9.2.2.4, which shall apply mutatis mutandis, to Manufacture Regional Antibody Candidates and Regional Licensed Products anywhere in the world (a) for Research, Development and Commercialization in the Novartis Territory and, to the extent permitted pursuant to Section 5.2.2 or elsewhere under this Agreement or any RLP Supply Agreement for Research and Development in the Surface Territory, and (b) to the extent permitted pursuant to Section 8.2.3 or Section 8.3.3 or elsewhere under this Agreement or any RLP Supply Agreement, to supply (or have supplied to) Surface.

9.2.2.4. Sublicensing Terms.

(a) Surface will have the right to sublicense any of its rights under Sections 9.2.1.1, 9.2.1.2,9.2.1.3, 9.2.2.1, 9.2.2.2, and 9.2.1.3 to any of its Affiliates or to any Third Party (which sublicensed rights may be further sublicensable through multiple tiers) without the prior consent of Novartis, subject to the requirements of this Section 9.2.2.4.

(b) Each sublicense granted by Surface pursuant to this Section 9.2.2.4 will be subject and subordinate to this Agreement and will contain provisions consistent with the terms and conditions of this Agreement. Surface will as soon as reasonably practicable thereafter, provide Novartis with a copy of any executed sublicense agreement covering a material sublicense granted hereunder (which copy may be redacted to remove provisions which are not necessary to monitor compliance with this Section 9.2.2.4), and each such sublicense agreement will contain the following provisions: (i) a requirement that the Sublicensee comply with the confidentiality and non-use provisions of Section 11.1 with respect to Novartis’s Confidential Information, (ii) if such sublicense agreement contains a sublicense of Section 9.2.2.2, such sublicense agreement will also contain the following provisions: (x) a requirement that the Sublicensee submit applicable sales or other reports to Surface to the extent necessary or relevant to the reports required to be made or records required to be maintained under this Agreement; and (y) the audit requirement set forth in Section 10.12.3; and (iii) a requirement that the Sublicensee comply with the applicable provisions under any Novartis In-License.

 

Confidential

 

- 100 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

(c) Notwithstanding any sublicense, Surface will remain primarily liable to Novartis for the performance of all of Surface’s obligations under, and Surface’s compliance with all provisions of, this Agreement.

(d) Notwithstanding the other provisions of this Section 9.2.2.4, if Surface proposes to enter into an agreement with a Third Party with respect to the Research, Development, Manufacture or Commercialization of any Regional Antibody Candidate or Regional Licensed Product, which agreement includes the grant of a sublicense under Section 9.2.2.2 or other rights to Commercialize any Regional Licensed Product in the Surface Territory (any such agreement, a “Proposed Surface Sublicense”), Surface will so notify Novartis in writing. Novartis will have [***] exercisable by written notice to Surface at any time within [***] following receipt of Surface’s notice, to obtain (via termination and reversion to Novartis of the applicable licenses granted by Novartis to Surface hereunder, grant of a sublicense back to Novartis or to otherwise) the licenses or other rights proposed to be granted to the Third Party pursuant to such Proposed Surface Sublicense on terms to be negotiated in good faith by the Parties for up to [***] following exercise of such right of first negotiation. If Novartis does not exercise [***] within such initial [***] period, or if the Parties cannot agree on mutually acceptable terms during such subsequent [***] period, then, subject to the other terms of this Section 9.2.2.4, for a period of [***] following expiration of such subsequent [***] period, Surface may enter into the Proposed Surface Sublicense with a Third Party, provided, however, that Surface may not enter into any such Proposed Surface Sublicense during such [***] In all events, this Section 9.2.2.4(d) will not apply to (a) any permitted assignment of this Agreement under Section 16.1, or (b) any bona fide agreement with a Third Party contract sales organization, contract research organization or contract manufacturer, under which such Third Party performs contract services on behalf of Surface or any of its Affiliates for the Research, Development, or Manufacture of any Regional Antibody Candidate or Regional Licensed Product as permitted under this Agreement on a fee-for-services basis, it being understood that under an agreement for such fee-for-services, fees paid to the Third Party for such services may include milestones or royalties.

 

Confidential

 

- 101 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

9.3. Global Targets.

9.3.1. Research and Development License. Subject to the terms and conditions of this Agreement, on a Global Target-by-Global Target basis, effective upon the Option Exercise Date for each Global Target, Surface hereby grants Novartis a non-transferable (except as provided in Section 16.1), sublicensable (subject to Section 9.3.4) exclusive (even as to Surface), license under Surface Technology to Develop such Global Antibody Candidates and Global Licensed Products in the Field anywhere in the world. Notwithstanding the foregoing, Surface retains the right under the Surface Technology, with the right to grant licenses through multiple tiers in accordance with Section 9.2.2.4, which shall apply mutatis mutandis solely to (a) Research Global Antibody Candidates and Global Licensed Products in the Field anywhere in the world as permitted under Section 4.2.6.5 or elsewhere under this Agreement, and (b) conduct the Phase 1 Safety Study for each Global Antibody Candidate and Global Licensed Product in accordance with the Global Development Plan.

9.3.2. Commercialization License. Subject to the terms and conditions of this Agreement, on a Global Target-by-Global Target basis, effective upon the Option Exercise Date for each Global Target, Surface hereby grants Novartis a non-transferable (except as provided in Section 16.1), sublicensable (subject to Section 9.3.4), royalty-bearing, exclusive (even as to Surface), license under Surface Technology to Commercialize such Global Licensed Products in the Field anywhere in the world.

9.3.3. Manufacturing Licenses. Subject to the terms and conditions of this Agreement, on a Global Target-by-Global Target basis, effective upon the Option Exercise Date for each Global Target, Surface hereby grants Novartis a non-transferable (except as provided in Section 16.1), sublicensable (subject to Section 9.3.4), exclusive (even as to Surface) license under Surface Technology to Manufacture such Global Antibody Candidates or Global Licensed Products anywhere in the world for Research, Development and Commercialization in the Novartis Territory. Notwithstanding the foregoing, Surface retains the right under the Surface Technology, with the right to grant licenses through multiple tiers in accordance with Section 9.2.2.4, which shall apply mutatis mutandis solely to Manufacture Global Antibody Candidates and Global Licensed Products in the Field anywhere in the world for Research as and to the extent permitted under the approved Global Development Plan or permitted under Section 8.4.1 of this Agreement or as permitted elsewhere under this Agreement.

9.3.4. Sublicensing Terms.

9.3.4.1. Novartis will have the right to sublicense any of its rights under Sections 9.3.1, 9.3.2 and 9.3.3 to any of its Affiliates or to any Third Party (which sublicensed rights may be further sublicensable through multiple tiers) without the prior consent of Surface, subject to the requirements of this Section 9.3.4.

 

Confidential

 

- 102 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

9.3.4.2. Each sublicense granted by Novartis pursuant to this Section 9.3.4 will be subject and subordinate to this Agreement and will contain provisions consistent with the terms and conditions of this Agreement. Novartis will as soon as reasonably practicable thereafter, provide Surface with a copy of any executed sublicense agreement covering a material sublicense granted hereunder (which copy may be redacted to remove provisions which are not necessary to monitor compliance with this Section 9.3.4), and each such sublicense agreement will contain the following provisions: (i) a requirement that the Sublicensee comply with the confidentiality and non-use provisions of Section 11.1 with respect to Surface’s Confidential Information, (ii) if such sublicense agreement contains a sublicense of Section 9.3.2, such sublicense agreement will also contain the following provisions: (x) a requirement that the Sublicensee submit applicable sales or other reports to Novartis to the extent necessary or relevant to the reports required to be made or records required to be maintained under this Agreement; and (y) the audit requirement set forth in Section 10.12.3; and (iii) a requirement that the Sublicensee comply with the applicable provisions under any Surface In-License.

9.3.4.3. Notwithstanding any sublicense, Novartis will remain primarily liable to Surface for the performance of all of Novartis’s obligations under, and Novartis’s compliance with all provisions of, this Agreement.

9.4. Joint Collaboration IP. Subject to the rights and licenses granted to, and the obligations (including royalty obligations) of, each Party under this Agreement, including any exclusivity obligations, either Party is entitled to practice Joint Collaboration IP for all purposes on a worldwide basis without consent of and without a duty of accounting to the other Party. Each Party will grant and hereby does grant all permissions, consents and waivers with respect to, and all licenses under, the Joint Collaboration IP, throughout the world, necessary to provide the other Party with such rights of use and exploitation of the Joint Collaboration IP, and will execute documents as necessary to accomplish the foregoing.

9.5. In-Licenses.

9.5.1. In-Licenses. The Parties agree that all [***] payments to any Third Party in respect of any Collaboration In-License, Surface Existing In-Licenses or Novartis Existing In-License will be deemed a “Third Party Payment” and subject to this Section 9.5. Responsibility for Collaboration In-Licenses, Surface Existing In-Licenses, Novartis Existing In-License and Third Party Payments will be as follows:

9.5.1.1. Subject to Section 10.10.6 Surface will be responsible for all Third Party Payments under the Surface Existing In-Licenses.

 

Confidential

 

- 103 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

9.5.1.2. Novartis will be responsible for all Third Party Payments under the Novartis Existing In-Licenses.

9.5.1.3. The Parties acknowledge that during the Term, the JSC may determine that Research, Development, Manufacture or Commercialization of any Antibody Candidates or Licensed Products may require or benefit from a license acquired or entered into after the Effective Date with respect to additional Patents or Know-How of Third Parties (a “Potential In-License”). If a Party acquires or otherwise enters into any Potential In-License after the Effective Date with respect to the Research, Development, Manufacture, or Commercialization of any Antibody Candidates or Licensed Products, such Party will endeavor to bring such Potential In-License to the attention of the JSC. If a Potential In-License is brought to the attention of the JSC pursuant to this Section 9.5.1.3, the Parties will, through the JSC, discuss in good faith whether such Potential In-License should be made available for use by the Parties pursuant to this Agreement with respect to such Party’s rights under this Agreement to conduct Research, Development, Manufacture, or Commercialization of any Antibody Candidates or Licensed Products. The Party to the Potential In-License will propose, through the JSC, an equitable allocation of any non-product specific upfront payments, milestone payments or similar payments payable under the Potential In-License [***] Any upfront payments, milestone payments or similar payments that are specific to the Antibody Candidates or Licensed Products will be allocated [***] to the corresponding Antibody Candidates or Licensed Products. The JSC will discuss the rationale of including the Potential In-License and the proposed economics associated with doing so (including related royalty obligations). For any Potential In-License that the JSC approves for use by the Parties pursuant to this Agreement, (i) such Potential In-License will be deemed to be a “Collaboration In-License” hereunder, (ii) the Patents and Know-How in-licensed under such Collaboration In-License will be deemed “Controlled” under this Agreement as Surface Patents or Surface Know-How (as applicable) or Novartis Patents or Novartis Know-How (as applicable) for purposes of Research, Development, Manufacture, or Commercialization of any Antibody Candidates or Licensed Products, (iii) any allocated payments for Regional Antibody Candidates or

 

Confidential

 

- 104 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

Regional Licensed products that are non-territory specific or for the Surface Territory will be allocated as Development Costs under Section 5.2.3.2, and (iv) any allocated payments for a Party’s Territory will be borne by the applicable Party. If the JSC does not approve such Potential In-License, then the applicable Party may proceed to enter into the Potential In-License, provided that (A) such Potential In-License will not be deemed to be a Collaboration In-License hereunder, (B) the Patents and Know-How in-licensed under such Potential In-License will not be deemed Surface Patents or Surface Know-How (as applicable) or Novartis Patents or Novartis Know-How (as applicable) and will not be deemed “Controlled” for purposes of this Agreement, (C) each Party will have the right to enter into such Potential In-License solely with respect to in its own Territory and, subject to Section 10.10.3, bear [***] of any Third Party Payment thereunder, and the other Party will not be entitled to use any Patents or Know-How in-licensed under such Potential In-License in connection with the performance of this Agreement in its Territory; [***]

9.5.2. Compliance with In-Licenses. All licenses and other rights granted to Novartis under this Section 9 are subject to the rights and obligations of Surface under the Surface In-Licenses. All licenses and other rights granted to Surface under this Section 9 are subject to the rights and obligations of Novartis under the Novartis In-Licenses. Each Party will comply with all applicable provisions of the In-Licenses, and will perform and take such actions as may be required to allow the Party that is party to such In-License to comply with its obligations thereunder, including obligations relating to sublicensing, patent matters, confidentiality, reporting, audit rights, indemnification and diligence. Without limiting the foregoing, each Party will prepare and deliver to the other Party any additional reports required under the applicable In-Licenses and reasonably requested by such other Party, in each case sufficiently in advance to enable the Party that is party to such In-License to comply with its obligations under the applicable In-Licenses. Each Party agrees, upon the other Party’s reasonable request, to provide the other Party with copies of any In-Licenses to which it is a party. Confidential Information of the providing Party or its counterparty may be redacted from such copies, except to the extent that such information is required in order to enable the other Party to comply with its obligations to the providing Party under this Agreement with respect to such In-License or in order to enable the providing Party to ascertain compliance with the terms and conditions of this Agreement.

 

Confidential

 

- 105 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

9.6. Combinations. Notwithstanding any other provision of this Agreement, for purposes of the license grants under Sections 9.1 through Section 9.3 with respect to any Licensed Product that is a Combination, such license will only include a license with respect to any Party Component of such Combination if such Licensed Product (a) is a Combination Product or (b) a Combination Therapy [***] For clarity, except in the case of the foregoing clause (b), in no event is a license granted hereunder to either Party or its Related Parties with respect to a the other Party’s Component of a Combination Therapy.

9.7. Bankruptcy. All rights and licenses granted under or pursuant to this Agreement by a Party to the other are and will otherwise be deemed to be, for purposes of Section 365(n) of the Bankruptcy Code, licenses of right to “intellectual property” as defined under Section 101 of the Bankruptcy Code. The Parties agree that the Parties and their respective Sublicensees, as Sublicensees of such rights under this Agreement, will retain and may fully exercise all of their rights and elections under the Bankruptcy Code and any foreign counterpart thereto. The Parties further agree that upon commencement of a bankruptcy proceeding by or against a Party (the “Bankrupt Party”) under the Bankruptcy Code, the other Party (the “Non-Bankrupt Party”) will be entitled to a complete duplicate of, or complete access to (as the Non-Bankrupt Party deems appropriate), all such intellectual property and all embodiments of such intellectual property. Such intellectual property and all embodiments of such intellectual property will be promptly delivered to the Non-Bankrupt Party (a) upon any such commencement of a bankruptcy proceeding and upon written request by the Non-Bankrupt Party, unless the Bankrupt Party elects to continue to perform all of its obligations under this Agreement, or (b) if not delivered under (a) above, upon the rejection of this Agreement by or on behalf of the Bankrupt Party and upon written request by the Non-Bankrupt Party. The Bankrupt Party (in any capacity, including debtor-in-possession) and its successors and assigns (including any trustee) agree not to interfere with the exercise by the Non-Bankrupt Party or its Related Parties of its rights and licenses to such intellectual property and such embodiments of intellectual property in accordance with this Agreement, and agrees to assist the Non-Bankrupt Party and its Related Parties in obtaining such intellectual property and such embodiments of intellectual property in the possession or control of Third Parties as are reasonably necessary or desirable for the Non-Bankrupt Party to exercise such rights and licenses in accordance with this Agreement. The foregoing provisions are without prejudice to any rights the Non-Bankrupt Party may have arising under the Bankruptcy Code or other Laws.

9.8. No Other Rights. Except as otherwise expressly provided in this Agreement, under no circumstances will a Party or any of its Affiliates, as a result of this Agreement, obtain any ownership interest, license or other right in or to any Know-How, Patents or other intellectual property rights of the other Party, including tangible or intangible items owned, controlled or developed by the other Party, or provided by the other Party to the receiving Party

 

Confidential

 

- 106 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

at any time, pursuant to this Agreement. Neither Party nor any of its Affiliates will use or practice any Know-How or Patents licensed or provided to such Party or any of its Affiliates outside the scope of or otherwise not in compliance with the rights and licenses granted to such Party and its Affiliates under this Agreement.

10. PAYMENTS

10.1. Initial License Fee. Novartis will pay to Surface within [***] after receipt of an invoice from Surface, which invoice shall be substantially in the form of Exhibit L and issued promptly following the Effective Date, a one-time payment of Seventy Million Dollars ($70,000,000). Such payment will be non-refundable, non-creditable and not subject to set-off.

10.2. Equity Investment. Novartis and Surface will enter into the Equity Agreements as of the Effective Date.

10.3. Option Purchase Fee. On a Regional Option Target-by-Regional Option Target basis, no later than [***] after receipt of an invoice from Surface, which invoice shall be substantially in the form of Exhibit L and issued by Surface promptly following the date of the Option Purchase Notice for each Option Target, Novartis will pay to Surface an option exercise right purchase fee of (a) Five Million Dollars ($5,000,000) for each of the following Option Targets: CD47, [***] and (b) [***] (for [***] (each, an “Option Purchase Fee”). Such payments will be non-refundable and non-creditable and not subject to set-off.

10.4. Regional Option Exercise Fee. On a Regional Option-by-Regional Option basis, no later than [***] after receipt of an invoice from Surface, which invoice shall be substantially in the form of Exhibit L and issued by Surface promptly following the date of the Option Exercise Notice for each Regional Option, as applicable, Novartis will pay to Surface an exercise fee of (a) [***] where the Regional Option Target is [***] CD47, [***] and (b) [***] where the Regional Option Target is [***] Such payments will be non-refundable and non-creditable and not subject to set-off.

10.5. Global Option Exercise Fee. On a Global Option Target-by-Global Option Target basis, no later than [***] after receipt of an invoice from Surface, which invoice shall be substantially in the form of Exhibit L and issued by Surface promptly following date of the Option Exercise Notice for each Global Option, as applicable, Novartis will pay to Surface to an exercise fee of (a) [***] where the Global Option Target is [***] CD47, [***] and (b) [***] where the Global Option Target is [***] Such payments will be non-refundable and non-creditable and not subject to set-off.

10.6. Development Costs for Regional Targets.

 

Confidential

 

- 107 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

10.6.1. For each Regional Target, commencing upon the first Calendar Quarter immediately following the approval of the first RLP Development Plan and continuing thereafter so long as a Party incurs Development Costs under this Agreement for which reconciliation will be provided, Surface and Novartis will, within [***] of such Calendar Quarter submit to a finance officer designated by Surface and a finance officer designated by Novartis (the “Finance Officers”) a report setting forth the Development Costs it incurred in such Calendar Quarter with respect to Regional Antibody Candidates and Regional Licensed Products for each Regional Target as approved by the JDC. Each such report will specify in reasonable detail all such costs, and, if requested by Surface or Novartis, any such invoices or other supporting documentation for any payments to a Third Party or with respect to which documentation is otherwise reasonably requested will be promptly provided. Within [***] after receipt of such reports, the Finance Officers will confer and agree in writing on whether a reconciliation payment is due from Surface to Novartis or Novartis to Surface, and if so, the amount of such reconciliation payment, so that Surface and Novartis share Development Costs in accordance with Section 5.2.4. Surface or Novartis, as applicable, if required to pay such reconciliation payment, will submit such payment to Novartis or Surface, respectively, as applicable, within [***] of receipt of the other Party’s invoice for such amount; [***] In addition, each Party will consider in good faith other reasonable procedures proposed by the other Party for sharing financial information in order to permit each Party to close its books periodically in a timely manner.

10.6.2. Any expenses incurred by a Party for Development activities related to a Regional Antibody Candidate or Regional Licensed Product that do not fall within the definitions of Development Costs (as the case may be) will be borne solely by such Party unless the JDC determines otherwise. In addition, any expenditure or cost that exceeds the amount set forth in the RLP Development Plan (as applicable) by more than [***] for a Calendar Year or any unbudgeted cost that is incurred by either Party will be borne by such Party; provided that the JDC will have the discretion to review such expenditures or costs and propose that they be designated as Development Costs in accordance with Section 5.2.3.2 (as the case may be).

10.7. Development and Regulatory Milestone Payments. Subject to Section 10.7.4, on a Licensed Target-by-Licensed Target basis, Novartis will make one-time milestone payments to Surface (each, a “Developmental Milestone Payment”) upon the first achievement of the development and regulatory milestone events set forth in this Section 10.7 (each, a “Developmental Milestone Event”) with respect to a Licensed Target as set forth in the applicable table below for T1 Licensed Products, Global Licensed Products or Regional Licensed Products, as applicable. For clarity, and without limitation, references to Licensed Product include a Combination. Notwithstanding any other provision of this Agreement, each series of Development Milestone Payments will be payable only once with respect to the specified Licensed Target, notwithstanding the number of Licensed Products (or the number of times a Licensed Product) may achieve the applicable Development Milestone Event.

 

Confidential

 

- 108 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

10.7.1. T1 Licensed Products. Novartis will make the following Developmental Milestone Payments to Surface upon the first achievement of the corresponding Developmental Milestone Event for the T1 Target:

 

Developmental Milestone Event

  

Developmental Milestone Payment

Initiation of the first GLP Toxicology Study for a T1 Licensed Product   

$30,000,000

(Thirty Million Dollars)

[***]

  

[***]

 

Confidential

 

- 109 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

10.7.2. Global Licensed Products. Novartis will, on a Global Target-by-Global Target basis, make the following Developmental Milestone Payments to Surface upon the first achievement of the corresponding Developmental Milestone Event for a Global Target:

 

Developmental Milestone Event

  

Developmental Milestone Payment

[***]

  

[***]

 

Confidential

 

- 110 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

10.7.3. Regional Licensed Products. Novartis will, on a Regional Target-by-Regional Target basis, make the following Developmental Milestone Payments to Surface upon the first achievement of the corresponding Developmental Milestone Event for a Regional Target:

 

Developmental Milestone Event

  

Developmental Milestone Payment

[***]

  

[***]

 

Confidential

 

- 111 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

10.7.3.1. Additional Development Milestone Terms. Notwithstanding the foregoing, for the purpose of construing the Development Milestone Payments specified in the above tables:

10.7.3.1. For clarity, each Development Milestone Payment shall be payable only on the first occurrence of the applicable Development Milestone Event for the Licensed Target, and none of the Development Milestone Payments shall be payable more than once with respect to a Licensed Target; [***]

10.7.3.2. If Development of a Licensed Product is terminated after it achieves a Development Milestone Event, then the corresponding Development Milestone Payment will not be due on any subsequent achievement of the same Development Milestone Event by a subsequent Licensed Product for such Licensed Target.

10.7.3.3. [***]

10.7.3.4. Milestone Payments for Regulatory Approval in the EU [***]

10.7.4. Payment Terms for Development Milestone Payments. Novartis shall provide Surface with written notice of its achievement of each Development Milestone Event within [***] after such Development Milestone Event is achieved by Novartis. After receipt of such notice, Surface shall submit an invoice to Novartis substantially in the form of Exhibit L for the corresponding Development Milestone Payment. Novartis shall make the corresponding Development Milestone Payment within [***] after receipt of such invoice.

 

Confidential

 

- 112 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

10.8. Sales Milestone Payments. Subject to Section 10.8.4, on a Licensed Target-by-Licensed Target basis, Novartis will make one-time payments of each of the sales milestone payments indicated below (each, a “Sales Milestone Payment” and together with the Developmental Milestone Payments, the “Milestone Payments”) to Surface when aggregate Annual Net Sales of all Licensed Products for such Licensed Target in the Territory in a given Calendar Year first reach the dollar values indicated on each table below for the applicable T1 Licensed Products, Global Licensed Products or Regional Licensed Products (each, a “Sales Milestone Event”). Notwithstanding any other provision of this Agreement, each series of Sales Milestone Payments will be payable only once with respect to the specified Licensed Target, notwithstanding the number of Licensed Products (or the number of times a Licensed Product) may achieve the applicable Sales Milestone Event.

10.8.1. T1 Licensed Products. Novartis will make the following Sales Milestone Payments to Surface upon achievement of the corresponding Sales Milestone Event for the T1 Licensed Products:

 

Annual Net Sales in a Given Calendar

Year for all T1 Licensed Products

  

Sales Milestone Payment

[***]

  

[***]

10.8.2. Global Licensed Products. On a Global Target-by-Global Target basis, Novartis will make the following Sales Milestone Payments to Surface upon achievement of the corresponding Sales Milestone Event for all Global Licensed Products for such Global Target:

 

Annual Net Sales in a Given Calendar

Year for all Global Licensed Products

  

Sales Milestone Payment

[***]

  

[***]

 

Confidential

 

- 113 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

10.8.3. Regional Licensed Products. On a Regional Target-by-Regional Target basis, Novartis will make the following Sales Milestone Payments to Surface upon achievement of the corresponding Sales Milestone Event for all Regional Licensed Products for such Regional Target:

 

Annual Net Sales in the Novartis

Territory in a Given Calendar Year for

all Regional Licensed Products

  

Sales Milestone Payment

[***]

  

[***]

10.8.4. Additional Sales Milestone Payment Terms.

10.8.4.1. Each Sales Milestone shall be payable only once per Licensed Target, the first time worldwide Annual Net Sales for all Licensed Products in a Calendar Year for such Licensed Target exceeds the relevant threshold set forth above.

10.8.4.2. The Sales Milestone Payments in this Section 10.8 are [***]

10.8.5. Each Sales Milestone Payment shall be deemed earned upon achievement of the corresponding Sales Milestone, and shall be notified by Novartis to Surface within [***] after [***] After receipt of such notice, Surface shall submit an invoice to Novartis substantially in the form of Exhibit L for the corresponding Sales Milestone Payment. Novartis shall make the corresponding Sales Milestone Payment within [***] after receipt of such invoice.

 

Confidential

 

- 114 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

10.9. Royalties. During the applicable Royalty Term and subject to Section 10.10, Novartis will make royalty payments to Surface, on a Licensed Product-by-Licensed Product basis, based on Annual Net Sales of the applicable Licensed Product within the Field in the Novartis Territory by Novartis and its Related Parties at the applicable rates set forth below.

10.9.1. T1 Licensed Products. Novartis will pay to Surface royalties on a T1 Licensed Product-by-T1 Licensed Product basis on Annual Net Sales for each T1 Licensed Product at the royalty rates (“T1 Royalty Rates”) set forth below (the “T1 Net Sales Royalty”).

 

Annual Net Sales

   Royalty Rate
Paid on the
Portion of
Annual Net
Sales in the
United States
   Royalty Rate
Paid on the
Portion of
Annual Net
Sales outside the
United States

[***]

   [***]    [***]

The applicable T1 Net Sales Royalty will be calculated by reference to the worldwide Annual Net Sales of each T1 Licensed Product. See Exhibit M for an example of such calculation.

10.9.2. Global Licensed Products. Novartis will pay to Surface royalties on a Global Licensed Product-by-Global Licensed Product basis on Annual Net Sales for each Global Licensed Product at the royalty rates (“Global Royalty Rates”) set forth below (the “Global Net Sales Royalty”).

 

Confidential

 

- 115 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

Annual Net Sales

   Royalty Rate
Paid on the
Portion of
Annual Net
Sales in the
United States
   Royalty Rate
Paid on the
Portion of
Annual Net
Sales outside the
United States

[***]

   [***]    [***]

The applicable Global Net Sales Royalty will be calculated by reference to the worldwide Annual Net Sales of each Global Licensed Product. See Exhibit M for an example of such calculation.

10.9.3. Regional Licensed Products.

10.9.3.1. Novartis will pay to Surface royalties on a Regional Licensed Product-by-Regional Licensed Product basis on Annual Net Sales for each Regional Licensed Product in the Novartis Territory at the royalty rates (the “Novartis Regional Royalty Rates”) set forth below (the “Novartis Regional Net Sales Royalty”).

 

Annual Net Sales

   Royalty Rate

[***]

   [***]

The applicable Novartis Regional Net Sales Royalty will be calculated by reference to the Annual Net Sales of each Regional Licensed Product in the Novartis Territory. See Exhibit M for an example of such calculation.

 

Confidential

 

- 116 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

10.9.3.2. Surface will pay to Novartis royalties on a Regional Licensed Product-by-Regional Licensed Product basis on Annual Net Sales for each Regional Licensed Product in the Surface Territory at the royalty rates (the “Surface Regional Royalty Rates,” and together with the Novartis Regional Royalty Rates, the “Regional Royalty Rates”) set forth below (the “Surface Regional Net Sales Royalty,” and together with the Novartis Regional Net Sales Royalty, the “Regional Net Sales Royalty”).

 

Annual Net Sales

   Royalty Rate

[***]

   [***]

The applicable Surface Regional Net Sales Royalty will be calculated by reference to the Annual Net Sales of each Regional Licensed Product in the Surface Territory. See Exhibit M for an example of such calculation.

10.9.4. Combinations. Notwithstanding the foregoing, royalties on any Combinations will be calculated in accordance with Exhibit A-1.

10.10. Additional Royalty Terms.

10.10.1. Royalty Term. Subject to this Section 10.10, on a Licensed Product-by-Licensed Product and country-by-country basis, the royalties due under Section 10.9 will be payable on Annual Net Sales from the First Commercial Sale of a particular Licensed Product in a country until the later of (a) expiration of the last Valid Claim of Royalty Patents Covering such Licensed Product in such country, or (b) fifteen (15) years after First Commercial Sale of such Licensed Product in such country (the “Royalty Term”).

10.10.2. Royalty Reduction upon Patent Expiration. If royalties are payable in a particular country under Section 10.9 on Annual Net Sales of a particular Licensed Product during the Royalty Term but after the expiration of the last Valid Claim of Royalty Patents Covering such Licensed Product in such country, then the royalties payable on Annual Net Sales of such Licensed Product in such country will be calculated as set forth in Section 10.9, provided that the royalties payable on Annual Net Sales of

 

Confidential

 

- 117 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

such Licensed Product in such country will be reduced by [***] as of the date that such Licensed Product is no longer Covered by a Valid Claim of Royalty Patents in such country. The royalty rate tier applicable to the Annual Net Sales of such Licensed Product in such country will be applied pro rata on a Calendar Quarter-by-Calendar Quarter basis, with reference to the aggregate worldwide Annual Net Sales of all Licensed Products with respect to the applicable Licensed Target. See Exhibit M for an example of such calculation.

10.10.3. Reduction for Third Party Obligations.

10.10.3.1. In the event that Novartis determines that intellectual property owned or controlled by a Third Party would be infringed or misappropriated by the [***] of any Licensed Product in the Field in the Novartis Territory under this Agreement, Novartis shall have the right to negotiate and acquire rights to such intellectual property through a license or otherwise (including pursuant to any settlement agreement) and to deduct from [***] on such Licensed Product due to Surface with respect to a given Calendar Quarter [***] by Novartis to such Third Party with respect to such Licensed Product, subject to the limitation set forth in Section 10.10.6. [***]

10.10.3.2. In the event that Surface determines that intellectual property owned or controlled by a Third Party would be infringed or misappropriated by the [***] any Regional Licensed Product in the Field in the Surface Territory under this Agreement, Surface shall have the right to negotiate and acquire rights to such intellectual property through a license or otherwise (including pursuant to any settlement agreement) and to deduct from [***] on such Regional Licensed Product due to Novartis with respect to a given Calendar Quarter [***] by Surface to such Third Party with respect to such Regional Licensed Product, subject to the limitation set forth in Section 10.10.6. [***]

 

Confidential

 

- 118 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

10.10.4. Only One Royalty. Only one royalty will be due with respect to the sale of the same unit of Licensed Product. Only one royalty will be due hereunder on the sale of a Licensed Product even if the manufacture, use, sale, offer for sale or importation of such Licensed Product infringes more than one claim of the Royalty Patents.

10.10.5. Reduction for Biosimilar Competition. Notwithstanding the foregoing, on a country-by-country basis, in the event of Loss of Market Exclusivity with respect to a Licensed Product in a country, the applicable Royalty Rates for Annual Net Sales of such Licensed Product set forth in Section 10.9 will be reduced by [***]

10.10.6. Royalty Minimum. Notwithstanding the foregoing in this Section 10.10, in no event will the [***] otherwise due to a Party in a Calendar Quarter be reduced by more than [***] of the amount that would otherwise be due hereunder; and provided further that any such reduction not fully taken as a result of the application of this Section 10.10.6, may be carried forward and applied against future [***] otherwise owed.

10.11. Other Amounts Payable. With respect to any amounts owed under this Agreement by one Party to the other for which no other invoicing and payment procedure is specified in this Section 10 (which amounts may include, for example, Manufacturing Costs pursuant to Section 8 and Third Party Payments that are the responsibility of one Party or the other pursuant to Section 9.5), within [***] after the end of each Calendar Quarter, each Party will provide an invoice, together with reasonable supporting documentation, to the other Party for such amounts owed in respect of such Calendar Quarter. The owing Party will pay any undisputed amounts within [***] of receipt of the invoice, and any disputed amounts owed by a Party will be paid within [***] of resolution of the dispute.

10.12. Payment Terms.

10.12.1. Manner of Payment. All payments to be made by a Party hereunder will be made in Dollars by wire transfer to such bank account as the other Party may designate.

10.12.2. Reports and Royalty Payments. For as long as royalties are due under Section 10.9, to the extent a Party owes royalties to the other Party hereunder, such paying Party will furnish to the other Party a written report, within [***] after the end of each Calendar Quarter, showing in Dollars, the amount of Annual Net

 

Confidential

 

- 119 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

Sales of Licensed Products and royalty due for such Calendar Quarter. Upon receipt of such written report, the receiving Party shall issue an invoice to the paying Party. Royalty payments for each Calendar Quarter will be due within [***] of receipt of such written invoice for the Calendar Quarter. The report will include, at a minimum, the following information for the applicable Calendar Quarter, each listed by product and by country of sale: [***] such reports will be treated as Confidential Information of Novartis or Surface, as applicable.

10.12.3. Records and Audits. Each Party shall keep complete, true and accurate books and records in accordance with its Accounting Standards in relation to this Agreement, including in relation to Development Costs and Net Sales and royalties. Each Party will keep such books and records for at least [***] following the Calendar Year to which they pertain. Each Party (the “Auditing Party”) may, upon written request, cause an internationally-recognized independent accounting firm (the “Auditor”), which is reasonably acceptable to the other Party (the “Audited Party”), to inspect the relevant records of such Audited Party and its Affiliates to verify the payments made by the Audited Party and the related reports, statements and books of accounts, as applicable. Before beginning its audit, the Auditor shall execute an undertaking acceptable to the Audited Party by which the Auditor agrees to keep confidential all information reviewed during the audit. The Auditor shall have the right to disclose to Auditing Party only its conclusions regarding any payments owed under this Agreement. Each Party and its Affiliates shall make their records available for inspection by the Auditor during regular business hours at such place or places where such records are customarily kept, upon receipt of reasonable advance notice from the Auditing Partner. The records shall be reviewed solely to verify the accuracy of the Audited Party’ royalties and other payment obligations and compliance with the financial terms of this Agreement. Such inspection right shall not be exercised more than [***] in any [***] and not more frequently than [***] with respect to records covering any specific period of time. In addition, Auditing Party shall only be entitled to audit the books and records of Audited Party from the [***] prior to the Calendar Year in which the audit request is made. The Auditing Party agrees to hold in strict confidence all information received and all information learned in the course of any audit or inspection, except to the extent necessary to enforce its rights under this Agreement or to the extent required to comply with any law, regulation or judicial order. The Auditor shall provide its audit report and basis for any determination to Audited Party at the time such report is provided to the Auditing Party before it is considered final. In the event that the final result of the inspection reveals an undisputed underpayment or overpayment by either Party, the underpaid or overpaid amount shall be settled promptly. The Auditing Party shall pay for such inspections, as well as its expenses associated with enforcing its rights with respect to any payments hereunder. In addition, if an underpayment of more than [***] of the total payments due hereunder for the applicable year is discovered, the fees and expenses charged by the Auditor shall be paid by Audited Party.

 

Confidential

 

- 120 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

10.12.4. Currency Exchange. With respect to Annual Net Sales invoiced in Dollars, the Annual Net Sales and the amounts due to Surface hereunder will be expressed in Dollars. When conversion of payments from any foreign currency is required to be undertaken by Novartis, the Dollar equivalent shall be calculated using Novartis’ then-current standard exchange rate methodology as applied in its external reporting for the conversion of foreign currency sales into Dollars.

10.12.5. Taxes.

10.12.5.1. Novartis may withhold from payments due to Surface amounts for payment of any withholding tax that is required by Law to be paid to any taxing authority with respect to such payments. Novartis will provide Surface all relevant documents and correspondence, and will also provide to Surface any other cooperation or assistance on a reasonable basis as may be necessary to enable Surface to claim exemption from such withholding taxes and to receive a refund of such withholding tax or claim a foreign tax credit. Novartis will give proper evidence from time to time as to the payment of any such tax. The Parties will cooperate with each other in seeking deductions under any double taxation or other similar treaty or agreement from time to time in force. Such cooperation may include Novartis making payments from a single source in the U.S., where possible. Notwithstanding the foregoing, if Novartis assigns its rights and obligations hereunder to, or otherwise causes payments to be made to Surface by, an Affiliate or Third Party outside the United States pursuant to Section 16.1 or uses intellectual property described herein outside of the United States, and if Novartis or such Affiliate or Third Party is required by applicable Law to withhold any additional taxes from or in respect of any amount payable under this Agreement as a result of such assignment, then any such amount payable under this Agreement shall be increased to take into account the additional taxes withheld as may be necessary so that, after making all required withholdings (including withholdings on the withheld amounts), Surface receives an amount equal to the sum it would have received had no such withholding been made, provided, however, that that Novartis will have no obligation to pay any additional amount to the extent that the withholding tax would not have been imposed but for (a) the failure by Surface to take advantage of an otherwise available exemption from or reduction in the rate of withholding tax under any applicable income tax convention between the United States and the jurisdiction in which such Affiliate or Third Party is domiciled, or (b) the assignment by Surface of its rights under this Agreement or any redomiciliation of Surface outside of the United States. Notwithstanding the foregoing, if Novartis has an obligation to pay additional amounts to account for withholding taxes, it will be entitled to a full amount of any foreign tax credit attributable to Surface if and when realized in cash by Surface as a result of such payment.

 

Confidential

 

- 121 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

10.12.5.2. Surface may withhold from payments due to Novartis amounts for payment of any withholding tax that is required by Law to be paid to any taxing authority with respect to such payments. Surface will provide Novartis all relevant documents and correspondence, and will also provide to Novartis any other cooperation or assistance on a reasonable basis as may be necessary to enable Novartis to claim exemption from such withholding taxes and to receive a refund of such withholding tax or claim a foreign tax credit. Surface will give proper evidence from time to time as to the payment of any such tax. The Parties will cooperate with each other in seeking deductions under any double taxation or other similar treaty or agreement from time to time in force. Such cooperation may include Surface making payments from a single source in the U.S., where possible. Notwithstanding the foregoing, if Surface assigns its rights and obligations hereunder to, or otherwise causes payments to be made to Novartis by, an Affiliate or Third Party outside the United States pursuant to Section 16.1 or uses intellectual property described herein outside of the United States, and if Surface or such Affiliate or Third Party is required by applicable Law to withhold any additional taxes from or in respect of any amount payable under this Agreement as a result of such assignment, then any such amount payable under this Agreement shall be increased to take into account the additional taxes withheld as may be necessary so that, after making all required withholdings (including withholdings on the withheld amounts), Novartis receives an amount equal to the sum it would have received had no such withholding been made, provided, however, that that Surface will have no obligation to pay any additional amount to the extent that the withholding tax would not have been imposed but for (a) the failure by Novartis to take advantage of an otherwise available exemption from or reduction in the rate of withholding tax under any applicable income tax convention between the United States and the jurisdiction in which such Affiliate or Third Party is domiciled, or (b) the assignment by Novartis of its rights under this Agreement or any redomiciliation of Novartis outside of the United States. Notwithstanding the foregoing, if Surface has an obligation to pay additional amounts to account for withholding taxes, it will be entitled to a full amount of any foreign tax credit attributable to Novartis if and when realized in cash by Novartis as a result of such payment.

10.12.5.3. Apart from any such permitted withholding and those deductions expressly included in the definition of Net Sales, the amounts payable hereunder will not be reduced on account of any taxes, charges, duties or other levies.

10.12.6. Blocked Payments. In the event that, by reason of applicable Law in any country, it becomes impossible or illegal for a Party to transfer, or have transferred on its behalf, payments owed the other Party hereunder, such Party will promptly notify the other Party of the conditions preventing such transfer and such payments will be deposited in local currency in the relevant country to the credit of the other Party in a recognized banking institution designated by the other Party or, if none is designated by the other Party within a period of [***], in a recognized banking institution selected by the transferring Party, as the case may be, and identified in a written notice given to the other Party.

 

Confidential

 

- 122 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

10.12.7. Interest Due. Each paying Party will pay the other Party interest on any undisputed payments that are not paid on or before the date such payments are due under this Agreement at a rate of [***] or the maximum applicable legal rate, if less, calculated on the total number of days payment is delinquent.

10.13. Mutual Convenience. The royalty and other payment obligations set forth hereunder have been agreed to by the Parties for the purpose of reflecting and advancing their mutual convenience, including the ease of calculating and paying royalties and other amounts to each Party.

11. CONFIDENTIALITY AND PUBLICATION

11.1. Nondisclosure Obligation.

11.1.1. All Confidential Information disclosed by one Party to the other Party under this Agreement will be maintained in confidence by the receiving Party and will not be disclosed to a Third Party or used for any purpose except to exercise its licenses and other rights, to perform its obligations, or as otherwise set forth herein, without the prior written consent of the disclosing Party, except to the extent that such Confidential Information:

(a) is known by the receiving Party at the time of its receipt, and not through a prior disclosure by the disclosing Party, as documented by the receiving Party’s business records;

(b) is known to the public before its receipt from the disclosing Party, or thereafter becomes generally known to the public through no breach of this Agreement by the receiving Party;

(c) is subsequently disclosed to the receiving Party by a Third Party who is not known by the receiving Party to be under an obligation of confidentiality to the disclosing Party; or

(d) is developed by the receiving Party independently of Confidential Information received from the disclosing Party, as documented by the receiving Party’s business records.

Specific aspects or details of Confidential Information will not be deemed to be within the public domain or in the possession of the recipient Party merely because the Confidential Information is embraced by more general information in the public domain or in the possession of the recipient Party. Further, any combination of Confidential Information will not be considered in the public

 

Confidential

 

- 123 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

domain or in the possession of the recipient Party merely because individual elements of such Confidential Information are in the public domain or in the possession of the recipient Party unless the combination and its principles are in the public domain or in the possession of the recipient Party.

11.1.2. Notwithstanding the obligations of confidentiality and non-use set forth above and in Section 11.1.3. below, a receiving Party may provide Confidential Information disclosed to it, and disclose the existence and terms of this Agreement or the as may be reasonably required in order to perform its obligations and to exploit its licenses and other rights under this Agreement, and specifically to (a) Related Parties, and their employees, directors, agents, consultants, or advisors to the extent necessary for the potential or actual performance of its obligations or exercise of its licenses and other rights under this Agreement in each case who are under an obligation of confidentiality with respect to such information that is no less stringent than the terms of this Section 11.1; (b) governmental or other Regulatory Authorities in order to obtain patents or perform its obligations or exploit its rights under this Agreement, provided that such Confidential Information will be disclosed only to the extent reasonably necessary to do so, and where permitted, subject to confidential treatment; (d) the extent required by Law, including by the rules or regulations of the United States Securities and Exchange Commission or similar regulatory agency in a country other than the United States or of any stock exchange or listing entity (including as a result of an initial public offering by Surface); [***] and (e) to Third Parties to the extent a Party is required to do so pursuant to the terms of an In-License. If a Party is required by Law to disclose Confidential Information of the other Party that is subject to the non-disclosure provisions of this Section 11.1, such Party will promptly inform the other Party of the disclosure that is being sought in order to provide the other Party an opportunity to challenge or limit the disclosure. Notwithstanding Section 11.1.1, Confidential Information that is permitted or required to be disclosed will remain otherwise subject to the confidentiality and non-use provisions of this Section 11.1.[***]

 

Confidential

 

- 124 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

11.2. Publication and Publicity.

11.2.1. Publication. Except for disclosures permitted pursuant to Section 11.1 and 11.2.2, either Party wishing to make a publication or public presentation that contains the Confidential Information of the other Party or any results of Research and Development activities under the Collaboration will deliver to the other Party a copy of the proposed written publication or presentation at least [***] prior to submission for publication or presentation. The reviewing Party will have the right (a) to propose modifications to the publication or presentation for patent reasons or trade secret reasons or to remove Confidential Information of the reviewing Party or its Related Parties, and the publishing Party will remove all Confidential Information of the other Party if requested by the reviewing Party and otherwise reflect such Party’s reasonable comments into consideration, or (b) to request a reasonable delay in publication or presentation in order to protect patentable information. If the reviewing Party requests a delay, the publishing Party will delay submission or presentation for a period of [***] (or such shorter period as may be mutually agreed by the Parties) to enable the non-publishing Party to file patent applications protecting such Party’s rights in such information. [***] Notwithstanding the foregoing, in no event will Surface, its Affiliates or Sublicensees make a publication or public presentation with respect to any T1 Target, T1 Antibody Candidate, T1 Licensed Product, Global Target, Global Antibody Candidate or Global Licensed Product without the prior written consent of Novartis. Further, neither Party will submit or publish any article or other publication to or with any scientific journal or other publisher that requires, as a condition of publication, that the submitting Party agree to make available to the publisher or Third Parties any Antibodies or other Materials which are the subject of the publication.

11.2.2. Publicity. Except as set forth in Section 11.1, 11.2.1 and 11.3, the terms of this Agreement may not be disclosed by either Party, and neither Party will use the name, Trademark, trade name or logo of the other Party or its employees in any publicity, news release or disclosure relating to this Agreement, its subject matter, or the activities of the Parties hereunder without the prior express written permission of the other Party except (a) as may be required by applicable Law, including by the rules or regulations of the United States Securities and Exchange Commission or similar regulatory agency in any country other than the United States or of any stock exchange or listing entity, provided that the Party issuing such press release gives reasonable notice prior to use of such name, Trademark, trade name or logo of the other Party, and otherwise complies with Section 11.1.2, or (b) as expressly permitted by the terms hereof.

 

Confidential

 

- 125 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

11.3. Press Release.

11.3.1. Except as provided in Section 11.3.2, neither Party will issue a press release or public announcement relating to this Agreement without the prior written approval of the other Party (such approval not to be unreasonably withheld, conditioned or delayed), except that a Party may (a) once a press release or other public statement is approved in writing by both Parties, make subsequent public disclosure of the information contained in such press release or other written statement without the further approval of the other Party, and (b) issue a press release or public announcement as required by applicable Law (including a press release corresponding to any securities disclosure, such as pursuant to a Form 8-K), including by the rules or regulations of the United States Securities and Exchange Commission or similar regulatory agency in a country other than the United States or of any stock exchange or listing entity, provided that the Party issuing such press release gives reasonable prior notice to the other Party of and the opportunity to comment on the press release or public announcement, and otherwise complies with this Section 11. In addition, Surface may with Novartis’ prior written approval, such approval not to be unreasonably withheld, conditioned or delayed, issue a press release regarding (x) the exercise of any Option, or (y) the payment or receipt of any milestone payments under this Agreement with respect to any Licensed Products, provided, that (i) such press release does not identify the Antibody Candidate or Licensed Target; and (ii) otherwise complies with this Section 11.

11.3.2. Notwithstanding anything in this Section 11.3 to the contrary, (a) either Party may issue a press release or make a public disclosure relating to such Party’s Development, Manufacturing or Commercialization activities under this Agreement with respect to Regional Licensed Products in such Party’s Territory; and (b) Novartis may issue a press release or make a public disclosure relating to the Research, Development, Manufacturing or Commercialization activities under this Agreement with respect to the T1 Target, T1 Antibody Candidates, T1 Licensed Products, Global Targets, Global Antibody Candidates and Global Licensed Products, provided that such press release or public disclosure does not disclose Confidential Information of the other Party. Prior to making any such disclosure under clause (a) of this Section 11.3.2, however, the Party making the disclosure will provide the other Party with a draft of such proposed disclosure within a reasonable time (but at least [***] prior to disclosure for the other Party’s review and comment, and the disclosing Party will consider in good faith any timely comments provided by the other Party.

12. REPRESENTATIONS, WARRANTIES AND COVENANTS

12.1. Mutual Representations and Warranties as of the Effective Date. Each Party represents and warrants to the other Party that, as of the Effective Date:

12.1.1. such Party is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or formation;

 

Confidential

 

- 126 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

12.1.2. such Party has all requisite corporate power and corporate authority to enter into this Agreement and to carry out its obligations under this Agreement;

12.1.3. all requisite corporate action on the part of such Party, its directors and stockholders required by applicable Law for the authorization, execution and delivery by such Party of this Agreement, and the performance of all obligations of such Party under this Agreement, has been taken;

12.1.4. the execution, delivery and performance of this Agreement, and compliance with the provisions of this Agreement, by such Party do not and will not: (a) violate any provision of applicable Law or any ruling, writ, injunction, order, permit, judgment or decree of any Governmental Authority, (b) constitute a breach of, or default under (or an event which, with notice or lapse of time or both, would become a default under) or conflict with, or give rise to any right of termination, cancellation or acceleration of, any agreement, arrangement or instrument, whether written or oral, by which such Party or any of its assets are bound, or (c) violate or conflict with any of the provisions of such Party’s organizational documents (including any articles or memoranda of organization or association, charter, bylaws or similar documents; and

12.1.5. no consent, approval, authorization or other order of, or filing with, or notice to, any Governmental Authority or other Third Party is required to be obtained or made by such Party in connection with the authorization, execution and delivery by the Company of this Agreement, except as required pursuant to the HSR Act.

12.2. Representations and Warranties by Surface. Surface represents and warrants to Novartis as of the Effective Date that:

12.2.1. Schedule 12.2.1 sets forth a complete and accurate list of (a) all Surface Patents in existence as of the Effective Date, indicating the owner; and (b) all license, assignment, distribution or other agreements in existence as of the Effective Date relating to the Surface Technology, including all Existing Surface In-Licenses;

12.2.2. Except as set forth on Schedule 12.2.2, to Surface’s knowledge, the Surface Technology in existence as of the Effective Date comprises all of the intellectual property rights used by or on behalf of Surface and its Affiliates in the Research, Development and Manufacturing of the Antibody Candidates and Licensed Products as of the Effective Date;

12.2.3. Except as set forth on Schedule 12.2.3, Surface (a) owns or has a valid license to, or has a valid option to license, all Surface Technology in existence as of the Effective Date, including those Antibody Candidates and Licensed Products in existence as of the Effective Date; and (b) has the right, or an option to obtain the right, and authority to (i) grant to Novartis and its Related Parties, the licenses under the Surface Technology in existence as of the Effective Date hereunder; and (ii) use, disclose, and commercially exploit, and to enable Novartis and its Related Parties to use, disclose, and commercially exploit (in each case under appropriate conditions of confidentiality) the Surface Technology in existence as of the Effective Date in the Field;

 

Confidential

 

- 127 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

12.2.4. Surface has not granted its Affiliates or any Third Party, including any academic organization or agency, rights that would otherwise interfere or be inconsistent with Novartis’ rights hereunder, and there are no agreements or arrangements other than as set forth on Schedule 12.2.4 to which Surface or any of its Affiliates is a party relating to Surface Technology, Antibody Candidates, or Licensed Product(s), that would (a) limit the rights granted to Novartis under this Agreement or (b) that restrict or result in a restriction on Novartis’ ability to Research, Develop, Manufacture, use or Commercialize the Antibody Candidates and Licensed Product(s) in the Novartis Territory, in accordance with this Agreement;

12.2.5. with respect to any Surface Technology owned by Surface, (a) Surface and its Affiliates have obtained from all individuals who participated in any respect in the invention or authorship thereof, effective assignments of all ownership rights of such individuals in such Surface Technology, either pursuant to written agreement or by operation of law; and (b) all of its employees, officers, and consultants have executed agreements or have existing obligations under applicable Law requiring assignment to Surface or its Affiliate, as applicable, of all inventions made during the course of and as the result of the Collaboration; and, no officer or employee of Surface or its Affiliate is subject to any agreement with any other Third Party that requires such officer or employee to assign any interest in any Surface Technology to any Third Party;

12.2.6. all employees, officers, and consultants of Surface and its Affiliates have executed agreements or have existing obligations under applicable Law and obligating the individual to maintain as confidential Surface’s Confidential Information as well as confidential information of other parties (including of Novartis and its Affiliates) that such individual may receive in the conduct of the Collaboration, to the extent required to support Surface’s obligations under this Agreement; and Surface and its Affiliates have taken all reasonable precautions to preserve the confidentiality of the Surface Know-How;

12.2.7. Except as set forth on Schedule 12.2.7, to Surface’s knowledge, no sequence or any portion thereof of any Antibody Candidate including has been publicly disclosed or provided or otherwise made available to any Third Parties, including to any academic institutions or journals;

12.2.8. to Surface’s knowledge, Research, Development, Manufacture, use or Commercialization of the Antibody Candidates and Licensed Products in the Field as proposed with this Agreement do not infringe or misappropriate the intellectual property rights of any Third Party, nor has Surface or any Affiliate received, any written notice alleging such infringement or misappropriation;

 

Confidential

 

- 128 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

12.2.9. Neither Surface nor any Affiliate has initiated or been involved in any proceedings or other claims in which such Person alleges that any Third Party is or was infringing or misappropriating any Surface Technology, nor have any such proceedings been threatened by Surface or its Affiliates, nor does Surface or its Affiliates know of any valid basis for any such proceedings;

12.2.10. Neither Surface nor its Affiliates have entered into a government funding relationship that would result in rights to any Antibody Candidate or Licensed Product residing in the US Government, National Institutes of Health, National Institute for Drug Abuse or other agency, and the licenses granted hereunder are not subject to overriding obligations to the US Government as set forth in Public Law 96 517 (35 U.S.C. 200 204), as amended, or any similar obligations under the laws of any other country;

12.2.11. to the knowledge of Surface, (a) the issued patents in the Surface Patents as of the Effective Date are valid and enforceable without any claims, challenges, oppositions, nullity actions, interferences, inter-partes reexaminations, inter-partes reviews, post-grant reviews, derivation proceedings, or other proceedings pending or threatened and Surface has filed and prosecuted patent applications within the Surface Patents owned by Surface in good faith and complied with all duties of disclosure with respect thereto; (b) Surface has not committed any act, or omitted to commit any act, that may cause the Surface Patents to expire prematurely or be declared invalid or unenforceable; and (c) all application, registration, maintenance and renewal fees in respect of the Surface Patents as of the Effective Date have been paid and all necessary documents and certificates have been filed with the relevant agencies for the purpose of maintaining the Surface Patents; and

12.2.12. Surface is its own “ultimate parent entity,” as that term is defined in 16 C.F.R.§ 801.1(a)(3) and as determined in compliance with 16 C.F.R. §§ 801.1 and 801.12, and is not engaged in “manufacturing” as that term is defined in 16 C.F.R. § 801.1(j). Surface does not have “total assets” equal to or greater than Fifteen Million, Three Hundred Thousand Dollars ($15,300,000), and Surface does not have “annual net sales” equal to or greater than One Hundred and Fifty-Two Million, Five Hundred Thousand Dollars ($152,500,000), in both cases, as determined in compliance with 16 C.F.R.§ 801.11 and used in Section 7A(a)(2)(B) of the Clayton Act, 15 U.S.C.§ 18A.

12.3. Warranty Disclaimer. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT, NEITHER PARTY MAKES ANY REPRESENTATION OR EXTENDS ANY WARRANTY OF ANY KIND, EITHER EXPRESS OR IMPLIED, TO THE OTHER PARTY WITH RESPECT TO ANY PATENTS, KNOW-HOW, MATERIALS, ANTIBODY CANDIDATE, LICENSED PRODUCT, GOODS, SERVICES, RIGHTS OR OTHER SUBJECT MATTER OF THIS AGREEMENT AND HEREBY DISCLAIMS ALL IMPLIED WARRANTIES OF MERCHANTABILITY, AND FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO ANY AND ALL OF THE FOREGOING. EACH PARTY HEREBY DISCLAIMS ANY REPRESENTATION OR WARRANTY THAT THE RESEARCH, DEVELOPMENT, MANUFACTURE OR COMMERCIALIZATION OF ANY ANTIBODY CANDIDATE OR LICENSED PRODUCT PURSUANT TO THIS AGREEMENT WILL BE SUCCESSFUL.

 

Confidential

 

- 129 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

12.4. Certain Covenants.

12.4.1. Compliance. Each Party and its Related Parties will conduct the Collaboration and the Development, Manufacture and Commercialization of the Licensed Products in accordance with all applicable Laws, including governmental regulations concerning cGLP, cGCP and cGMP. In addition, if either Party is or becomes subject to a legal obligation to a Regulatory Authority or other Governmental Authority (such as a corporate integrity agreement or settlement agreement with a Governmental Authority), then the other Party will perform such activities as may be reasonably requested by the obligated Party to enable the obligated Party to comply with its legal obligation to such Regulatory Authority with respect to the Licensed Products.

12.4.2. Conflicting Transactions. During the Term, Surface will not, and will cause its Affiliates not to, enter into any agreement granting a license or other right under the Surface Technology that is inconsistent with this Agreement. During the Term, Novartis will not, and will cause its Affiliates not to, enter into any agreement granting a license or other right under the Novartis Technology that is inconsistent with this Agreement.

12.4.3. In-Licenses. Each Party will use Commercially Reasonable Efforts to maintain Control of all Patents, and Know-How licensed to such Party under the In-Licenses to which such Party is the contracting party. Each Party will use Commercially Reasonable Efforts not to materially breach or be in material default under any of its obligations under any In-License to which such Party is the contracting party that would be necessary or useful for the other Party to Research, Develop, Manufacture and Commercialize any Antibody Candidates or Licensed Products in the Field in such Party’s Territory pursuant to this Agreement. Each Party will not terminate any In-License to which such Party is the contracting party in a manner that would terminate rights that are sublicensed to the other Party. In the event that a Party receives notice of an alleged breach by such Party under an In-License to which it is a party and for which termination of such In-License is being sought by the counterparty, then such Party will promptly, but in no event less than [***] thereafter, provide written notice thereof to the other Party and grant the other Party the right (but not the obligation) to cure such alleged breach. In the event that a Party intends to materially amend an In-License to which it is a party, then such Party will promptly, but in no event less than [***] before, provide written notice thereof to the other Party and grant the other Party the right (but not the obligation), acting reasonably, to reject any amendment that would either increase the receiving Party’s obligations under this Agreement, including any financial obligations or decrease the receiving Party’s rights under this Agreement.

 

Confidential

 

- 130 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

12.4.4. Surface In-Licenses. Surface will [***]

12.4.5. No Debarment. Each Party will use Commercially Reasonable Efforts to not use, in any capacity in connection with the Collaboration or the performance of its obligations under the Collaboration Agreement, any Person that has been debarred pursuant to Section 306 of the FD&C Act, as amended, or that is the subject of a conviction described in such section. Each Party agrees to inform the other Party in writing immediately if it or any Person that is performing activities in the Collaboration or under the Collaboration Agreement, is debarred or is subject to debarment or is the subject of a conviction described in Section 306 of the FD&C Act, or if any action, suit, claim, investigation or legal or administrative proceeding is pending or, to the best of the notifying Party’s knowledge, is threatened, relating to the debarment or conviction of the notifying Party or any Person or entity used in any capacity by such Party or any of its Affiliates in connection with the Collaboration or the performance of its other obligations under the Collaboration Agreement.

12.4.6. Novartis represents and warrants as of the Effective Date that it has determined in accordance with 16 C.F.R. Parts §801.10 and §801.13 that the value of the assets and voting securities of Surface as identified in accordance with the HSR Act rules including 16 C.F.R. §801.13, §801.14 and §801.15, that Novartis will acquire and hold as of the Effective Date is less than [***]

12.5. Exclusivity.

12.5.1. Exclusivity.

12.5.1.1. During the Exclusivity Period for an Option Target, Surface will not, alone or with any Affiliates or Third Parties, [***]

 

Confidential

 

- 131 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

12.5.1.2. During the Exclusivity Period for an Option Target, Novartis will not, alone or with any Affiliates or Third Parties, [***]

12.5.1.3. During the Exclusivity Period for a Licensed Target, Surface will not, alone or with any Affiliates or Third Parties, [***]

12.5.1.4. During the Exclusivity Period for a Licensed Target, Novartis will not, alone or with any Affiliates or Third Parties, [***]

12.5.1.5. The Parties hereby acknowledge and agree that (I) each Party’s obligations under this Section 12.5.1 will not apply to (A) any Research, Development, Manufacture or Commercialization of any molecule (including any Antibodies) that [***] and (B) any activities intended by either Party to ensure their compliance with this Section 12.5.1 (e.g., counter-screening), (II) this Section 12.5.1 will apply to any Antibody that is intended to [***]; and (III) each Party retains (A) the right to Research (but not Develop or Commercialize), and, subject to the terms and conditions of this Agreement, have others Research on its behalf, T1 Antibody Candidates, Option Target Antibody Candidates, Regional Antibody Candidates, Global Antibody Candidates or Licensed Products outside of the applicable

 

Confidential

 

- 132 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

Research Plan, (B) the right, solely to the extent reasonably necessary for any such Research, to Manufacture, or subject to the terms and conditions of this Agreement, have others Manufacture on its behalf, T1 Antibody Candidates, Option Target Antibody Candidates, Regional Antibody Candidates, Global Antibody Candidates or Licensed Products outside of the applicable Research Plan; and (C) the rights under the license grants in Section 9; provided further [***]

12.5.1.6. [***]

12.5.2. Other Programs.

12.5.2.1. Surface.

(a) Notwithstanding Section 12.5.1, in the event that Surface or its Affiliates acquire a Third Party or a portion of the business of a Third Party (whether by merger, stock purchase, purchase of assets, in-license or other means) (a “Third Party Acquisition”) that is, prior to such acquisition, conducting a research, development or commercialization program that, if conducted by Surface at such time, would be a breach of Surface’s exclusivity obligation in Section 12.5.1 (a “Surface Competing Program”), Surface will use commercially reasonable efforts to divest such Surface Competing Program promptly following the closing of such acquisition, and in any event will complete such divestment within [***] after the closing of such acquisition, provided that (i) such [***] period will be extended if, at the expiration of such time period, Surface provides competent evidence of reasonable on-going efforts to divest such Surface Competing Program, (ii) Surface may conduct the Surface Competing Program independently of Surface’s activities under this Agreement during such time period and without any use of any Restricted Technology, and (iii) Surface will cease all research, development and commercialization activities with respect to such Surface Competing Program if Surface has not completed such divestment within [***] after the closing of such acquisition (it being understood that Surface may thereafter continue its efforts to divest such asset). Surface will not be deemed in breach of Section 12.5.1 with respect to such Surface Competing Program so long as Surface complies with the terms of this Section 12.5.2.1.

(b) In the event of a Change of Control of Surface, the exclusivity obligations of Surface set forth in Section 12.5.1 will apply to and bind the Third Party referred to in the definition of Change of Control and its Affiliates subject to the following provisions:

 

Confidential

 

- 133 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

(i) [***]

(ii)[***]

 

Confidential

 

- 134 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

(c) With respect to Sections 12.5.2.1(a), 12.5.2.1(b) and 12.5.2.1(c), Surface and its Affiliates (including such Third Party and its Affiliates under Sections 12.5.2.1(b) and 12.5.2.1(c)) will adopt reasonable procedures (which include appropriate administrative, physical and technical safeguards, including underlying operating system and network security controls and other firewalls) to prevent the use of any Restricted Technology in a manner that is in violation of this Agreement.

12.5.2.2. Novartis.

(a) Notwithstanding Section 12.5.1, in the event that Novartis or its Affiliates make a Third Party Acquisition where the applicable Third Party or portion of such Third Party’s business, prior to such acquisition, conducting a research, development or commercialization program that, if conducted by Novartis at such time, would be a breach of Novartis’s exclusivity obligation in Section 12.5.1 (a “Novartis Competing Program”), Novartis will use Commercially Reasonable Efforts to divest such Novartis Competing Program promptly following the closing of such acquisition, unless Novartis has exercised its right to terminate this Agreement pursuant to Section 15.2 with respect to the

 

Confidential

 

- 135 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

target of the Novartis Competing Program, and in any event will complete such divestment within [***] after the closing of such acquisition, provided that (i) such [***] time period will be extended if, at the expiration of such time period (and any extensions thereto), Novartis provides competent evidence of reasonable on-going efforts to divest such Novartis Competing Program, (ii) Novartis may conduct the Novartis Competing Program independently of Novartis’s activities under this Agreement during such time period and without any use of any Restricted Technology, and (iii) Novartis will cease all research, development and commercialization activities with respect to such Novartis Competing Program if Novartis has not completed such divestment within one (1) year after the closing of such acquisition (it being understood that Novartis may thereafter continue its efforts to divest such asset). Novartis will not be deemed in breach of Section 12.5.1 with respect to such Novartis Competing Program so long as Novartis complies with the terms of this Section 12.5.2.2.

(b) In the event of a Change of Control of Novartis, the exclusivity obligations of Novartis set forth in Section 12.5.1 will apply to and bind the Third Party referred to in the definition of Change of Control and its Affiliates subject to the following provisions:

(i) [***]

 

Confidential

 

- 136 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

(ii) [***]

(c) With respect to Sections 12.5.2.2(a), 12.5.2.2(b) and 12.5.2.1(c), Novartis and its Affiliates (including such Third Party and its Affiliates under Sections 12.5.2.2(b) and 12.5.2.1(c)) will adopt reasonable procedures (which include appropriate administrative, physical and technical safeguards, including underlying operating system and network security controls and other firewalls) to prevent the use of any Restricted Technology in a manner that is in violation of this Agreement.

13. INDEMNIFICATION; LIMITATION OF LIABILITY; INSURANCE

13.1. General Indemnification by Novartis. Novartis will indemnify, hold harmless and defend Surface, its Related Parties, and their respective directors, officers, employees and agents (“Surface Indemnitees”) from and against any and all Third Party claims, suits, losses, liabilities, damages, costs, fees and expenses (including reasonable attorneys’ fees and litigation

 

Confidential

 

- 137 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

expenses) (collectively, “Losses”) arising out of or resulting from, directly or indirectly, (a) any breach of, or inaccuracy in, any representation or warranty made by Novartis in this Agreement, or any breach or violation of any covenant or agreement of Novartis in or in the performance of this Agreement, (b) the negligence or willful misconduct by or of Novartis and its Related Parties, and their respective directors, officers, employees and agents in the performance of Novartis’s obligations under this Agreement, or (c) to the extent such Losses arise out of the Research, Development, Manufacturing or Commercialization of Antibody Candidates or Licensed Products by or on behalf of Novartis or its Related Parties pursuant to this Agreement. Novartis will have no obligation to indemnify the Surface Indemnitees to the extent that the Losses arise out of or result from, directly or indirectly, any breach of, or inaccuracy in, any representation or warranty made by Surface in this Agreement, or any breach or violation of any covenant or agreement of Surface in, or in the performance of, this Agreement, or the negligence or willful misconduct by or of any of the Surface Indemnitees, or matters for which Surface is obligated to indemnify Novartis under Sections 13.2 or 13.3.

13.2. General Indemnification by Surface. Surface will indemnify, hold harmless, and defend Novartis, its Related Parties and their respective directors, officers, employees and agents (“Novartis Indemnitees”) from and against any and all Losses arising out of or resulting from, directly or indirectly, (a) any breach of, or inaccuracy in, any representation or warranty made by Surface in this Agreement, or any breach or violation of any covenant or agreement of Surface in, or in the performance of, this Agreement, (b) the negligence or willful misconduct by or of Surface and its Related Parties, and their respective directors, officers, employees and agents in the performance of Surface’s obligations under this Agreement, or (c) to the extent such Losses arise out of the Research, Development, Manufacturing or Commercialization of Antibody Candidates or Licensed Products by or on behalf of Surface and its Related Parties pursuant to this Agreement. Surface will have no obligation to indemnify the Novartis Indemnitees to the extent that the Losses arise out of or result from, directly or indirectly, any breach of, or inaccuracy in, any representation or warranty made by Novartis in this Agreement, or any breach or violation of any covenant or agreement of Novartis in or in the performance of this Agreement, or the negligence or willful misconduct by or of any of the Novartis Indemnitees, or matters for which Novartis is obligated to indemnify Surface under Sections 13.1 or 13.3.

13.3. Product Liability. Subject to any Supply Agreement, any Losses arising out of Third Party product liability claims arising from the Development, Manufacture or Commercialization of Licensed Products will be (a) borne by Novartis, to the extent such Losses arise out of (i) the Research, Manufacture or Commercialization in or for the Novartis Territory by or on behalf of Novartis or its Related Parties of a Regional Licensed Product, or (ii) a T1 Licensed Product or Global Licensed Product anywhere in or for the world by or on behalf of Novartis and its Related Parties, and (b) borne by Surface, to the extent such Losses arise out of the Research, Manufacture or Commercialization in or for the Surface Territory by or on behalf of Surface and its Related Parties of a Regional Licensed Product. Subject to any Supply Agreement, any Losses arising out of Third Party product liability claims arising from the Development of Regional Licensed Products will be treated as Development Costs in accordance with Section 5.2.4; provided that (x) with respect to any Additional Development Activities, the

 

Confidential

 

- 138 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

Proposing Party will be solely responsible for any such liability claims unless and until the Non-Proposing Party delivers an Additional Development Opt-In Notice with respect to such Additional Development Activity; (y) after Surface exercises its Opt-Out Right, Surface will remain responsible for its portion of any such liability claims with respect to Development activities occurring up to and through the [***] period following Novartis’ receipt of Surface’s Opt-Out Notice; and (z) after termination of this Agreement with respect to any Licensed Target by Novartis pursuant to Section 15.2 or by Surface pursuant to Section 15.3.1.1 or 15.4, (i) Novartis will remain responsible for its portion of any such liability claims with respect to any ongoing Clinical Studies that Surface elects to wind down under Section 15.5.1(b) until such wind-down process is complete, and (ii) Surface will be responsible for any liability claims with respect to any ongoing Clinical Studies that Surface elects to continue. The Party bearing such Losses in accordance with the immediately preceding two sentences will indemnify, hold harmless and defend the other Party and its Related Parties and their respective directors, officers, employees and agents from and against such Losses.

13.4. Indemnification Procedure. The Party entitled to indemnification under Section 13 (an “Indemnified Party”) shall notify the Party potentially responsible for such indemnification (the “Indemnifying Party”) in writing promptly upon being notified of or actual knowledge of any claim or claims asserted or threatened against the Indemnified Party which could give rise to a right of indemnification under this Agreement; provided, that the failure to give such notice shall not relieve the Indemnifying Party of its indemnity obligation hereunder except to the extent that such failure materially prejudices the Indemnifying Party. If the Indemnifying Party has acknowledged in writing to the Indemnified Party the Indemnifying Party’s responsibility for defending a claim, the Indemnifying Party shall have the right to defend, at its sole cost and expense, such claim by all appropriate proceedings; provided, that the Indemnifying Party may not enter into any compromise or settlement unless (i) such compromise or settlement imposes only a monetary obligation on the Indemnifying Party and which includes as an unconditional term thereof, the giving by each claimant or plaintiff to the Indemnified Party of a release from all liability in respect of such claim; or (ii) the Indemnified Party consents to such compromise or settlement, which consent shall not be unreasonably withheld, conditioned or delayed unless such compromise or settlement involves (A) any admission of legal wrongdoing by the Indemnified Party, (B) any payment by the Indemnified Party that is not indemnified hereunder or (C) the imposition of any equitable relief against the Indemnified Party. If the Indemnifying Party does not elect to assume control of the defense of a claim or if a good faith and diligent defense, in the Indemnified Party’s reasonable opinion, is not being or ceases to be materially conducted by the Indemnifying Party, the Indemnified Party shall have the right, at the expense of the Indemnifying Party, upon at least [***] prior written notice to the Indemnifying Party of its intent to do so, to undertake the defense of such claim for the account of the Indemnifying Party (with counsel reasonably selected by the Indemnified Party and approved by the Indemnifying Party, such approval not to be unreasonably withheld, conditioned or delayed); provided that the Indemnified Party shall keep the Indemnifying Party apprised of all material developments with respect to such claim. The Indemnified Party may not enter into any compromise or settlement without the prior written consent of the Indemnifying Party, such consent not to be unreasonably withheld, conditioned or delayed. The Indemnified Party will cooperate with the Indemnifying Party and may participate

 

Confidential

 

- 139 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

in, but not control, any defense or settlement of any claim controlled by the Indemnifying Party pursuant to this Section 13.4 and shall bear its own costs and expenses with respect to such participation; provided that the Indemnifying Party shall bear such costs and expenses if counsel for the Indemnifying Party shall have reasonably determined that such counsel may not properly represent both the Indemnifying Party and the Indemnified Party.

13.5. Limitation of Liability. NEITHER PARTY HERETO WILL BE LIABLE FOR SPECIAL, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES ARISING OUT OF THIS AGREEMENT, OR THE EXERCISE OF ITS RIGHTS OR THE PERFORMANCE OF ITS OBLIGATIONS HEREUNDER, INCLUDING LOST PROFITS ARISING FROM OR RELATING TO ANY BREACH OF THIS AGREEMENT, REGARDLESS OF ANY NOTICE OF SUCH DAMAGES, EXCEPT AS A RESULT OF [***] NOTHING IN THIS SECTION 13.5 IS INTENDED TO LIMIT OR RESTRICT THE INDEMNIFICATION RIGHTS OR OBLIGATIONS OF EITHER PARTY.

13.6. Insurance. Commencing not later than the Initiation of the first Phase 1 Study under this Agreement, each Party will obtain and maintain insurance during the Term and for a period of at least [***] after the last commercial sale of any Licensed Product generated under the Collaboration for which it is responsible, with a reputable, solvent insurer in an amount appropriate for its business and products of the type that are the subject of this Agreement, and for its obligations under this Agreement. Specifically, each Party will maintain product liability insurance and clinical trial liability insurance with limits of at least [***] per occurrence and in annual aggregate. Upon request, each Party will provide the other Party with evidence of the existence and maintenance of such insurance coverage. Notwithstanding the foregoing, in the case of Novartis, and, in the case of Surface (whether or not after a Change of Control of Surface), after such time that Surface and its Affiliates have sales within one of the top [***] pharmaceutical companies by global sales, such obligation may be satisfied by a program of self-insurance.

13.7. Disclaimer. The Parties each acknowledge and agree, that (a) Research, Development, and Commercialization is inherently uncertain, (b) no outcome or success of any Antibody Candidates or Licensed Products is or can be assured and (c) failure to achieve Development and Commercialization of Licensed Products will not in and of itself constitute a breach or default of any obligation in this Agreement.

14. INTELLECTUAL PROPERTY

14.1. Inventorship.

14.1.1. Inventorship for inventions and discoveries (including Know-How) first made during the course of the performance of activities pursuant to the Collaboration will be determined in accordance with United States patent Laws for determining inventorship.

 

Confidential

 

- 140 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

14.1.2. Notwithstanding anything to the contrary in this Agreement, each Party will have the right to invoke the Cooperative Research and Technology Enhancement Act of 2004, 35 U.S.C. § 103(c)(2)-(c)(3) (the “CREATE Act”) when exercising its rights under this Agreement, but with respect to any Other Patents, only with the prior written consent of Surface in its sole discretion, and with respect to any Patents within Novartis Technology, only with the prior written consent of Novartis in its sole discretion. In the event that a Party intends to invoke the CREATE Act, once agreed to by the other Party if required by the preceding sentence, it will notify the other Party and the other Party will cooperate and coordinate its activities with such Party with respect to any filings or other activities in support thereof. The Parties acknowledge and agree that this Agreement is a “joint research agreement” as defined in the CREATE Act.

14.2. Ownership. Surface will own the entire right, title and interest in and to all Know-How (and Patents claiming inventions therein) first developed or conceived solely by employee(s), agent(s) or consultant(s) of Surface or its Affiliates in the conduct of the Collaboration. Novartis will own the entire right, title and interest in and to all Know-How (and Patents claiming inventions therein) first developed or conceived solely by employee(s), agent(s) or consultant(s) of Novartis or its Affiliates in the conduct of the Collaboration. The Parties will jointly own the entire right, title and interest in and to all Know-How (and Patents claiming inventions therein) first developed or conceived jointly by employee(s), agent(s) or consultant(s) acting on behalf of Surface or its Affiliates, on the one hand, and employee(s), agent(s) or consultant(s) acting on behalf of Novartis or its Affiliates, on the other hand, in the conduct of the Collaboration.

14.3. Prosecution and Maintenance of Patents.

14.3.1. IP Committee.

14.3.1.1. Composition. The IP Committee will be comprised of at least [***] representative who is an employee of each Party. Each Party will appoint its respective representatives to the IP Committee within [***] of the Effective Date, and from time to time, may substitute one or more of its representatives, in its sole discretion, effective upon notice to the other Party of such change. All IP Committee representatives will have appropriate expertise, seniority, decision-making authority and ongoing familiarity with the Collaboration and each Party’s representatives collectively will have relevant expertise in intellectual property portfolio management and licensing matters. Additional representatives or consultants may from time to time, by mutual consent of the Parties, be invited to attend IP Committee meetings, subject to such representatives and consultants (or the representative’s or consultant’s employer) undertaking confidentiality obligations, whether in a written agreement or by operation of law, no less stringent than the requirements of Section 11.1.

 

Confidential

 

- 141 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

14.3.1.2. Meetings. The IP Committee will meet as necessary to carry out its duties under Section 14.3.1.3, but no more often than once per Calendar Quarter, unless otherwise agreed by its members. The IP Committee will meet in-person at Surface or Novartis or, alternatively, by means of teleconference, videoconference or other similar communications equipment.

14.3.1.3. IP Committee Responsibilities. The IP Committee will provide input regarding the following with respect to Licensed Products:

(a) strategies for Prosecuting and Maintaining Patents within the Novartis Technology and the Surface Technology; and

(b) such other matters as the Parties agree in writing will be the responsibility of the IP Committee.

14.3.1.4. Decision-Making. [***]

14.3.1.5. Term. Either Party will have the right to terminate the IP Committee upon [***] advance written notice to the other Party. Notwithstanding the foregoing, on a Regional Licensed Product-by-Regional Licensed Product basis during the Term for such Regional Licensed Product, Surface will have the right (but not the obligation) to continue to participate in the IP Committee in relation to any such Licensed Product until the fifteenth (15th) anniversary of the First Commercial Sale of such Regional Licensed Product in the Novartis Territory.

 

Confidential

 

- 142 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

14.3.2. Novartis Technology.

14.3.2.1. General. Subject to remainder of this Section 14.3.2, as between the Parties, Novartis will have the sole responsibility to, at Novartis’s sole discretion, and sole responsibility for all applicable Patents Costs, to Prosecute and Maintain all Patents within Novartis Technology (other than within Joint Collaboration IP), in Novartis’s name. Novartis will consult with Surface, including through the IP Committee, on its strategy for the Prosecution and Maintenance of all such Patents. Novartis will furnish Surface, via electronic mail or such other method as mutually agreed by the Parties, copies of substantive proposed filings and documents received from outside counsel in the course of Prosecuting and Maintaining such Patents, or copies of substantive documents filed with the relevant patent offices with respect to such Patents, and such other documents related to the Prosecution and Maintenance of such Patents, and as applicable in sufficient time prior to filing such document or making any payment due thereunder to allow for review and comment by Surface and will consider in good faith timely comments from Surface thereon. Novartis will furnish Surface, via electronic mail or such other method as mutually agreed by the Parties, copies of documents filed with the relevant national patent offices or other Governmental Authorities with respect to such Patents.

14.3.2.2. Regional Licensed Products in the Surface Territory and Novartis Technology. In the event that Novartis elects not to Prosecute and Maintain (or continue to Prosecute and Maintain, including filing a Patent claiming priority to a Patent prior to its issuance), any Patent within the Novartis Technology (other than within Joint Collaboration IP) in the Surface Territory that Covers the sale, offer for sale, manufacture, use or import of any Regional Licensed Product, Novartis will notify Surface at least [***] before any such Patent would become abandoned, no longer available or otherwise forfeited, and subject to the provisions of any applicable Novartis In-License, Surface will have the right (but not the obligation), at Surface’s sole discretion, and sole responsibility for all applicable Patent Costs, to Prosecute and

 

Confidential

 

- 143 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

Maintain in the Surface Territory such Patent in the name of Novartis (which right will include the right to file additional Patents claiming priority to such Patent). Surface will consult with Novartis, including through the IP Committee, on its strategy for the Prosecution and Maintenance of all such Patents. Surface will furnish Novartis, via electronic mail or such other method as mutually agreed by the Parties, copies of substantive proposed filings and documents received from outside counsel in the course of Prosecuting and Maintaining such Patents, or copies of documents filed with the relevant patent offices with respect to such Patents, and such other substantive documents related to the Prosecution and Maintenance of such Patents, and as applicable in sufficient time prior to filing such document or making any payment due thereunder to allow for review and comment by Novartis and will consider in good faith timely comments from Novartis thereon. Surface will furnish Novartis, via electronic mail or such other method as mutually agreed by the Parties, copies of documents filed with the relevant national patent offices or other Governmental Authorities with respect to such Patents. Novartis will use Commercially Reasonable Efforts to make available to Surface its authorized attorneys, agents or representatives, or such of its employees as are reasonably necessary to assist Surface in exercising its rights described under this Section 14.3.2.2. Novartis will sign, or will use Commercially Reasonable Efforts to have signed, all legal documents as are reasonably necessary to Prosecute and Maintain such Patents.

14.3.2.3. T1 Licensed Products and Global Licensed Products Worldwide, and Regional Licensed Products in the Novartis Territory, and Novartis Technology. In the event that Novartis elects not to Prosecute and Maintain (or continue to Prosecute and Maintain, including filing a Patent claiming priority to a Patent prior to its issuance), any Patent within the Novartis Technology (other than within Joint Collaboration IP) in the Novartis Territory that Covers the sale, offer for sale, manufacture, use or import of any T1 Licensed Product, Global Licensed Product or Regional Licensed Product (where, for clarity, the applicable territory is worldwide for any T1 Licensed Product or Global Licensed Product, and worldwide minus the Surface Territory for any Regional Licensed Product), Novartis will notify Surface at least [***] before any such Patent would become abandoned, no longer available or otherwise forfeited, whereupon at the written request of Surface

 

Confidential

 

- 144 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

the Parties will meet to discuss any such decision by Novartis. Subject to Novartis’s consent, and subject to the provisions of any applicable Novartis In-License, Surface will have the right (but not the obligation), at Surface’s sole discretion, and sole responsibility for all applicable Patent Costs, to Prosecute and Maintain such Patent in the applicable territory described above in the name of Novartis (which right will include the right to file additional Patents claiming priority to such Patent). Surface will consult with Novartis, including through the IP Committee, on its strategy for the Prosecution and Maintenance of all such Patents. Surface will furnish Novartis, via electronic mail or such other method as mutually agreed by the Parties, copies of substantive proposed filings and documents received from outside counsel in the course of Prosecuting and Maintaining such Patents, or copies of documents filed with the relevant patent offices or other Governmental Authorities with respect to such Patents, and such other substantive documents related to the Prosecution and Maintenance of such Patents, and as applicable in sufficient time prior to filing such document or making any payment due thereunder to allow for review and comment by Novartis and will consider in good faith timely comments from Novartis thereon. Surface will furnish Novartis, via electronic mail or such other method as mutually agreed by the Parties, copies of documents filed with the relevant national patent offices or other Governmental Authorities with respect to such Patents. Novartis will use Commercially Reasonable Efforts to make available to Surface its authorized attorneys, agents or representatives, or such of its employees as are reasonably necessary to assist Surface in exercising its rights described under this Section 14.3.2.3. Novartis will sign, or will use Commercially Reasonable Efforts to have signed, all legal documents as are reasonably necessary to Prosecute and Maintain such Patents.

14.3.3. Surface Technology.

14.3.3.1. General. Subject to remainder of this Section 14.3.3, as between the Parties, Surface will have the sole responsibility to, at Surface’s sole discretion, and sole responsibility for all applicable Patents Costs, to Prosecute and Maintain all Patents within Surface Technology (other than within Joint Collaboration IP or Prosecution Patents) (“Other Patents”), in Surface’s name. Surface will consult with Novartis, including through the IP Committee, on its strategy for the Prosecution and Maintenance of all such Other Patents.

 

Confidential

 

- 145 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

Surface will furnish Novartis, via electronic mail or such other method as mutually agreed by the Parties, copies of substantive proposed filings and documents received from outside counsel in the course of Prosecuting and Maintaining such Other Patents, or copies of documents filed with the relevant patent offices or other Governmental Authorities with respect to such Other Patents, and such other substantive documents related to the Prosecution and Maintenance of such Other Patents, and as applicable in sufficient time prior to filing such document or making any payment due thereunder to allow for review and comment by Novartis and will consider in good faith timely comments from Novartis thereon. Surface will furnish Novartis, via electronic mail or such other method as mutually agreed by the Parties, copies of documents filed with the relevant national patent offices or other Governmental Authorities with respect to such Other Patents.

14.3.3.2. Licensed Products in the Surface Territory and Novartis Territory and Surface Technology. In the event that Surface elects not to Prosecute and Maintain (or continue to Prosecute and Maintain, including filing a Patent claiming priority to a Patent prior to its issuance), any Other Patent that Covers the sale, offer for sale, manufacture, use or import of any Licensed Product, Surface will notify Novartis at least [***] before any such Other Patent would become abandoned, no longer available or otherwise forfeited, whereupon at the written request of Novartis the Parties will meet to discuss any such decision by Surface. Subject to Surface’s consent, and subject to the provisions of any applicable Surface In-License, Novartis will have the right (but not the obligation), at Novartis’s sole discretion, and sole responsibility for all applicable Patents Costs, to Prosecute and Maintain in the Surface Territory such Other Patent in the name of Surface (which right will include the right to file additional Patents claiming priority to such Other Patent). Novartis will consult with Surface, including through the IP Committee, on its strategy for the Prosecution and Maintenance of all such Other Patents. Novartis will furnish Surface, via electronic mail or such other method as mutually agreed by the Parties, copies of substantive proposed filings and documents received from outside counsel in the course of Prosecuting and Maintaining such Other Patents, or copies of documents filed with the relevant patent offices or Governmental Authorities with respect to such Other Patents, and such other substantive documents related to the Prosecution and Maintenance of such Other

 

Confidential

 

- 146 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

Patents, and as applicable in sufficient time prior to filing such document or making any payment due thereunder to allow for review and comment by Surface and will consider in good faith timely comments from Surface thereon. Novartis will furnish Surface, via electronic mail or such other method as mutually agreed by the Parties, copies of documents filed with the relevant national patent offices or other Governmental Authorities with respect to such Other Patents. Surface will use Commercially Reasonable Efforts to make available to Novartis its authorized attorneys, agents or representatives, or such of its employees as are reasonably necessary to assist Novartis in exercising its rights described under this Section 14.3.3.2. Surface will sign, or will use Commercially Reasonable Efforts to have signed, all legal documents as are reasonably necessary to Prosecute and Maintain such Other Patents.

14.3.4. Joint Collaboration IP and Prosecution Patents.

14.3.4.1. Subject to remainder of this Section 14.3.4, as between the Parties, Novartis will have the right (but not the obligation), at Novartis’s sole discretion, and sole responsibility for all applicable Patents Costs, to Prosecute and Maintain all Patents (a) within Joint Collaboration IP, in the names of both Novartis and Surface; and (b) all Prosecution Patents in the name of Surface. Novartis will consult with Surface, including through the IP Committee, on its strategy for the Prosecution and Maintenance of all such Patents within Joint Collaboration IP and Prosecution Patents. Novartis will furnish Surface, via electronic mail or such other method as mutually agreed by the Parties, copies of substantive proposed filings and documents received from outside counsel in the course of Prosecuting and Maintaining such Patents within Joint Collaboration IP and Prosecution Patents, or copies of documents filed with the relevant patent offices or other Governmental Authorities with respect to such Patents within Joint Collaboration IP and Prosecution Patents, and such other substantive documents related to the Prosecution and Maintenance of such Patents within Joint Collaboration IP and Prosecution Patents, and as applicable in sufficient time prior to filing such document or making any payment due thereunder to allow for review and comment by Surface and will consider in good faith timely comments from Surface thereon. Novartis will furnish Surface, via electronic mail or such other method as mutually agreed by the Parties, copies of documents filed with the relevant national patent offices or other Governmental Authorities with respect to such Patents within Joint Collaboration IP and Prosecution Patents.

 

Confidential

 

- 147 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

14.3.4.2. In the event that Novartis elects not to Prosecute and Maintain (or continue to Prosecute and Maintain, including filing a Patent claiming priority to a Patent prior to its issuance), any Patent within Joint Collaboration IP or any Prosecution Patent anywhere in the world, Novartis will notify Surface at least [***] before any such Patent within Joint Collaboration IP and Prosecution Patent would become abandoned, no longer available or otherwise forfeited, Surface will have the right (but not the obligation), at Surface’s sole discretion, and sole responsibility for all applicable Patents Costs, to Prosecute and Maintain such Patent worldwide (a) within Joint Collaboration IP in the names of both Novartis and Surface and (b) within Prosecution Patent in the name of Surface only. Surface will consult with Novartis, including through the IP Committee, on its strategy for the Prosecution and Maintenance of all such Patents within Joint Collaboration IP and Prosecution Patents. Surface will furnish Novartis, via electronic mail or such other method as mutually agreed by the Parties, copies of substantive proposed filings and documents received from outside counsel in the course of Prosecuting and Maintaining such Patents within Joint Collaboration IP and Prosecution Patents, or copies of documents filed with the relevant patent offices or other Governmental Authorities with respect to such Patents within Joint Collaboration IP and Prosecution Patents, and such other substantive documents related to the Prosecution and Maintenance of such Patents, and as applicable in sufficient time prior to filing such document or making any payment due thereunder to allow for review and comment by Novartis and will consider in good faith timely comments from Novartis thereon. Surface will furnish Novartis, via electronic mail or such other method as mutually agreed by the Parties, copies of documents filed with the relevant national patent offices or other Governmental Authorities with respect to such Patents within Joint Collaboration IP and Prosecution Patents.

14.3.4.3. Each Party will use Commercially Reasonable Efforts to make available to the other its authorized attorneys, agents or representatives, or such of its employees as are reasonably necessary to assist the other Party in exercising its rights described under this Section 14.3.4. Each Party will sign, or will use Commercially Reasonable Efforts to have signed, all legal documents as are reasonably necessary to Prosecute and Maintain Patents within Joint Collaboration IP and Prosecution Patents.

 

Confidential

 

- 148 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

14.3.5. Patent Miscellaneous. Each Party hereby agrees: (a) to use Commercially Reasonable Efforts to make its employees, agents and consultants reasonably available to the other Party (or to the other Party’s authorized attorneys, agents or representatives), to the extent reasonably necessary to enable such Party to undertake any Prosecution and Maintenance described herein; and (b) to reasonably cooperate in any such Prosecution and Maintenance by the other Party.

14.4. Third Party Infringement and Defense.

14.4.1. Notices. Each Party will promptly report in writing to the other Party of any Competitive Infringement of which such Party (or any of its Affiliates or Sublicensees) becomes aware, and will provide the other Party with all available evidence of such Competitive Infringement in such Party’s Control. Subject to the terms of this Section 14.4, the JSC will discuss in good faith strategies for abating such Competitive Infringement of any Regional Licensed Product within each of the Party’s respective Territory.

14.4.2. Rights to Enforce.

14.4.2.1. Competitive (Novartis) Infringement. As between the Parties, Novartis will have the exclusive right (but not the obligation), at Novartis’s sole discretion, through counsel of its choosing which is reasonably acceptable to Surface, to seek to abate any Competitive (Novartis) Infringement by enforcing any Patents within Surface Technology exclusively (even as to Surface) licensed to Novartis hereunder or any Novartis Technology. If Novartis does not take steps to abate such Competitive (Novartis) Infringement, within [***] after receipt of written notice of such Competitive (Novartis) Infringement (or such shorter period of time as is required to comply with the provisions of Section 14.4.2.3 or any other applicable Law in the United States or any other country in the Territory to not waive any statutory rights). Novartis will provide Surface with notice of such decision. Novartis will pay all Patent Costs incurred by Novartis for such enforcement.

 

Confidential

 

- 149 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

14.4.2.2. Competitive (Surface) Infringement. As between the Parties, Surface will have the exclusive right (but not the obligation), at Surface’s sole discretion, through counsel of its choosing which is reasonably acceptable to Novartis, to seek to abate any Competitive (Surface) Infringement by enforcing any Patents within Novartis Technology exclusively (even as to Novartis) licensed to Surface hereunder or any Surface Technology. If Surface does not take steps to abate such Competitive (Surface) Infringement, within [***] after receipt of written notice of such Competitive (Surface) Infringement (or such shorter period of time as is required to comply with the provisions of Section 14.4.2.3 or any other applicable Law in the United States or any other country in the Territory to not waive any statutory rights), Surface will provide Novartis will notice of such decision. Surface will pay all Patent Costs incurred by such Surface for such enforcement.

14.4.2.3. Biosimilar Application. Notwithstanding Sections 14.4.2.1 or 14.4.2.2, if either Party (or any of their Related Parties) receives a copy of a Biosimilar Application naming a Licensed Product as a reference product or otherwise becomes aware that such a Biosimilar Application has been filed (such as in an instance described in Section 351(1)(9)(C) of the PHSA), such Party will promptly notify the other Party. If either Party receives any equivalent or similar certification or notice in the United States or any other jurisdiction, either Party will, promptly, notify and provide the other Party copies of such communication. Regardless of the Party that is the “reference product sponsor” for purposes of such Biosimilar Application:

(a) The Party with the enforcement rights under Sections 14.4.2.1 or 14.4.2.2 (the “Lead Party” for the remainder of this Section 14.4.2.3) will designate pursuant to Section 351(l)(1)(B)(ii) of the PHSA the outside counsel and in-house counsel who will receive confidential access to the Biosimilar Application. The Lead Party will pay all Patent Costs incurred by such Party for such enforcement under this Section 14.4.2.3.

(b) The Lead Party will have the right, after consulting with the other Party, to list any Patents for which the enforcement rights in Sections 14.4.2.1 and 14.4.2.2 are applicable, insofar as they meet the statutory requirements pursuant to Section 351(l)(1)(3)(A), Section 351(l)(5)(b)(i)(II), or Section 351(l)(7) of the PHSA, to respond to any communications with respect to such lists from the filer of the Biosimilar Application, and to negotiate with the filer of the Biosimilar Application as to whether to utilize a different mechanism for information exchange other than that specified in Section 351(l) of the PHSA.

 

Confidential

 

- 150 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

(c) The Lead Party will have the right, after consulting with the other Party, to identify Patents for which the enforcement rights in Sections 14.4.2.1 and 14.4.2.2 are applicable, or respond to relevant communications under any equivalent or similar listing to those described in the preceding Section 14.4.2.3(b) in any other jurisdiction outside of the United States. If required pursuant to applicable Law, upon the Lead Party’s request, the other Party will assist in the preparation of such list and make such response after consulting with the Lead Party.

(d) The other Party will (1) within [***] after the Lead Party’s written request, provide to the Lead Party all information, including a list of Patents Controlled by such other Party and for which the enforcement rights in Sections 14.4.2.1 and 14.4.2.2 are applicable, that is necessary or reasonably useful to enable the Lead Party to make any lists or communications with respect to such Patents that are described in the foregoing Sections 14.4.2.3(b) or 14.4.2.3(c), and (2) cooperate with the Lead Party’s reasonable requests in connection therewith to the extent required or not prohibited by applicable Law. The Lead Party will consult with the other Party prior to identifying any Patents controlled by such other Party as contemplated by this Section 14.4.2.3. The Lead Party will consider in good faith advice and suggestions with respect thereto received from the other Party, and will notify the other Party of any such lists or communications promptly after they are made.

(e) The Parties recognize that procedures other than those set forth above in this Section 14.4.2.3 may be applicable to Biosimilar Applications that are not governed by the PHSA. As a result, in the event that the Parties acting in good faith mutually determine that certain provisions of Law in the United States or in any other country in the Territory are applicable to actions taken by the Parties with respect to Biosimilar Applications under this Section 14.4.2.3 in such country, the Parties will comply with any such applicable Law in such country (and any relevant and reasonable procedures established by the) in exercising their rights and obligations with respect to Biosimilar Applications under this Section 14.4.2.3.

14.4.3. Defense. As between the Parties, the Party controlling the Prosecution and Maintenance of any Patent under Section 14.3 (i.e., initially, Novartis for Patents contained in Novartis Technology and Joint Collaboration IP and Prosecution Patents and Surface for Other Patents ), will have the right (but not the obligation), at its sole discretion, to defend against a declaratory judgment action or other action challenging any such Patent, other than with respect to (a) any counter-claims in any enforcement action brought by the other Party pursuant to Section 14.4.2 or (b) any action by a Third Party in response to an enforcement action brought by the other Party, which in both cases ((a) and (b)) will be controlled by such other Party. If the Party controlling such Prosecution and Maintenance of Patents under Section 14.3 does not defend such Patent under this Section 14.4.3 within [***] (or such shorter period of time as is required to comply with the provisions of Section 14.4.2.3 or any other applicable Law in the United States or any other country in the Territory to not waive any statutory rights), or elects not to continue any such defense (in which case it will promptly provide notice thereof to the other Party), then the other Party will have the right (but not the obligation), at its sole discretion, to defend any such Patent.

 

Confidential

 

- 151 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

14.4.4. Withdrawal, Cooperation and Participation. With respect to any infringement or defensive action identified above in this Section 14.4 and subject to the terms of this Section:

14.4.4.1. If the controlling Party ceases to pursue or withdraws from such action, it will promptly notify the other Party (in sufficient time to enable the other Party to meet any deadlines by which any action must be taken to preserve any rights in such infringement or defensive action (including any such period of time as is required to comply with the provisions of Section 14.4.2.3)) and, if permitted under Sections 14.4.3, such other Party may substitute itself for the withdrawing Party and proceed under the terms and conditions of this Section 14.4.

14.4.4.2. The non-controlling Party will cooperate with the Party controlling any such action (as may be reasonably requested by the controlling Party), including, at the controlling Party’s sole cost and expense, (1) providing access to relevant documents and other evidence, (2) using reasonable efforts to make its and its Affiliates and licensees and Sublicensees and all of their respective employees, subcontractors, consultants and agents available at reasonable business hours and for reasonable periods of time, but only to the extent relevant to such action, and (3) if reasonably necessary, by being joined as a party, subject for this clause (3) to the controlling Party agreeing to indemnify such non-controlling Party for its involvement as a named party in such action and paying those Patent Costs incurred by such non-controlling Party in connection with such joinder. The Party controlling any such action will keep the other Party reasonably updated with respect to any such action, including providing copies of all materials documents received or filed in connection with any such action.

14.4.4.3. Each Party will have the right to consult with the other Party regarding any such action controlled by such other Party, in each case at such first Party’s sole cost and expense. If a Party elects to so be involved, the controlling Party will provide the other Party and its counsel with an opportunity to consult with the controlling Party and its counsel regarding the prosecution of such action (including reviewing the contents of any correspondence, legal papers or other

 

Confidential

 

- 152 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

documents related thereto), and the controlling Party will take into account reasonable and timely requests of the other Party regarding such enforcement or defense. Nothing in this Section 14.4.4.3 will limit the controlling Party’s ability to prosecute any such action.

14.4.5. Settlement. With respect to any infringement or defensive action identified above in this Section 14.4, the Party controlling such action will have the right to settle or otherwise dispose of such action on such terms as such Party will determine in its sole discretion, including by granting a license or sublicense to a Third Party under the rights granted to such Party in Section 9; provided that, notwithstanding the foregoing, no such settlement or other disposition will (a) impose any monetary restriction or obligation on or admit fault of the other Party and (b) adversely affect the other Party’s rights under this Agreement to any such Patent then being enforced or defended, in each case ((a) and (b) without the prior written consent of the other Party, not to be unreasonably withheld, delayed, or conditioned.)

14.4.6. Damages. [***]

 

Confidential

 

- 153 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

14.5. Patent Extensions. For clarity, the Party controlling the Prosecution and Maintenance of any Patent under Section 14.3 (i.e., initially, Novartis for Patents contained in Novartis Technology and Joint Collaboration IP and Prosecution Patents and Surface for Other Patents), will have the right to elect and file for patent term restoration or extension, supplemental protection certificate or any of their equivalents with respect to such Patents with respect to any Licensed Product in their respective Territories; provided that with respect to any Other Patents (whether so controlled by Novartis or Surface) in the Novartis Territory for any Licensed Product, Novartis will have the right to make any such election or filing in any country or region, other than the United States or any other country or region where such election or filing would impair the ability to obtain any other restoration, extension, certificate or equivalent for the same Other Patent in such country or region. The Parties will cooperate and shall take the other Party’s reasonable input into account in determining whether to obtain such patent term restoration, extension, supplemental protection certificate or equivalent thereof. Upon the request by a Party, such other Party will reasonably cooperate in the implementation of such requesting Party’s decisions made in a manner with this Section 14.5.

14.6. Patent Listings. With respect to any filings made to Regulatory Authorities with respect to any Patents within the Novartis Technology or the Surface Technology for any Licensed Product within such Party’s Territory, including as required or allowed in connection with in the United States, the FDA’s Orange or Purple Book, if applicable, or outside the United States, other international equivalents, but subject to Section 14.4.2.3, (a) the Parties will list any such Patents as may be required by applicable Laws, and (b) otherwise (i) Novartis will have the sole right to make any such decision whether to list for Patents within the Collaboration IP or

 

Confidential

 

- 154 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

Joint Collaboration IP for the Novartis Territory and for any Licensed Product (other than any Regional Licensed Product in the Surface Territory); (ii) Surface will have the sole right to make any such decision whether to list for Patents within the Collaboration IP or Joint Collaboration IP for the Surface Territory for any Regional Licensed Product; and (iii) each Party will have the sole right to make any such decision whether to list for Patents otherwise within the Novartis Technology for Novartis or the Surface Technology for Surface with respect to any Licensed Product. Upon the request by a Party, such other Party will reasonably cooperate in the implementation of such requesting Party’s decisions made in a manner with this Section 14.6.

14.7. Third Party Rights. Notwithstanding the foregoing provisions of this Section 14, each Party’s rights and obligations with respect to any Patent under this Section 14 will be subject to the Third Party rights and obligations (including under any applicable In- License).

14.8. Common Interest. All information exchanged between the Parties regarding the Prosecution and Maintenance, and enforcement and defense, of the Patents under this Section 14 will be deemed Confidential Information of the disclosing Party. In addition, the Parties acknowledge and agree that, with regard to such Prosecution and Maintenance, and enforcement and defense, the interests of the Parties as collaborators and licensor and licensee are to obtain the strongest patent protection possible, and as such, are aligned and are legal in nature. The Parties agree and acknowledge that they have not waived, and nothing in this Agreement constitutes a waiver of, any legal privilege concerning the Patents under this Section 14, including privilege under the common interest doctrine and similar or related doctrines. Notwithstanding anything to the contrary contained herein, to the extent a Party has a good faith believe that any information required to be disclosed by such Party to the other Party under this Section 14 is protected by attorney-client privilege or any other applicable legal privilege or immunity, such Party shall not be required to disclose such information and the Parties shall in good faith cooperate to agree upon a procedure (including entering into a specific common interest agreement, disclosing such information on a “for counsel eyes only” basis or similar procedure) under which such information may be disclosed without waiving or breaching such privilege or immunity.

14.9. Trademarks.

14.9.1. T1 Licensed Products and Global Licensed Products.

14.9.1.1. As between the Parties, Novartis has the sole and exclusive right to select and develop one or more Product Global Trademark(s) for use throughout the Novartis Territory for all T1 Licensed Products and Global Licensed Products. Such Product Global Trademark(s) may not include Trademarks owned or controlled by Surface. Novartis will own all rights to Product Global Trademarks and all goodwill associated therewith, throughout the Novartis Territory. Novartis will also own rights to any Internet domain names incorporating the applicable Product Global Trademarks or any variation or part of such Product Global Trademarks used as its URL address or any part of such address.

 

Confidential

 

- 155 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

14.9.1.2. In the event that Surface becomes aware of any infringement of any Product Global Trademark by a Third Party, Surface will promptly notify Novartis and the Parties will reasonably consult with each other and jointly determine the best way to prevent such infringement, including by the institution of legal proceedings against such Third Party; provided further that Novartis retains the sole right (but not obligation) to seek to abate any such infringement.

14.9.2. Regional Licensed Products.

14.9.2.1. Each Party has the right to use any Trademark it owns or controls for Regional Licensed Products in its Territory at its sole discretion, and each Party and its Affiliates will retain all right, title and interest in and to its and their respective corporate names and logos.

14.9.2.2. Pursuant to Section 6.2.5, each Party will develop and propose, and the JSC will review and comment on, one or more RLP Trademark(s) for use throughout the Novartis Territory and Surface Territory, as applicable. Such RLP Trademark(s) considered by the JSC may include, in each Party’s sole discretion, the RLP Trademark(s) developed by the other Party with respect to the Commercialization of Regional Licensed Products in such Party’s Territory, but may not include other Trademarks owned or controlled by the other Party. Any RLP Trademark(s) that are developed and used by Novartis to promote and sell Regional Licensed Products in the Novartis Territory are hereinafter referred to as the “Novartis RLP Trademarks”. Any RLP Trademark(s) that are developed and used by Surface to promote and sell Regional Licensed Products in the Surface Territory are hereinafter referred to as the “Surface RLP Trademarks”. As between the Parties, Surface will own all rights to Surface RLP Trademarks and all goodwill associated therewith, throughout the Surface Territory and, if Novartis chooses to use such Surface RLP Trademarks for the Regional Licensed Products in the Novartis Territory, the Novartis Territory. As between the Parties, Novartis will own all rights to Novartis RLP Trademarks and all goodwill associated therewith, throughout the Novartis Territory and, if Surface chooses to use such Novartis RLP Trademarks for the

 

Confidential

 

- 156 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

Regional Licensed Products in the Surface Territory, the Surface Territory. Surface will also own rights to any Internet domain names incorporating the applicable Surface RLP Trademarks or any variation or part of such Surface RLP Trademarks used as its URL address or any part of such address; and Novartis will also own rights to any Internet domain names incorporating the applicable Novartis RLP Trademarks or any variation or part of such Novartis RLP Trademarks used as its URL address or any part of such address.

14.9.2.3. If a Party determines to use the other Party’s RLP Trademarks to promote and sell any Regional Licensed Product in its Territory, then Surface and Novartis will enter into a separate trademark license agreement containing commercially reasonable and customary terms pursuant to which the Party owning such RLP Trademark will grant the other Party an exclusive, royalty-free license to use the applicable RLP Trademark(s) to Commercialize Regional Licensed Products in the other Party’s Territory.

14.9.2.4. In the event either Party becomes aware of any infringement of any RLP Trademark by a Third Party, such Party will promptly notify the other Party and the Parties will consult with each other and jointly determine the best way to prevent such infringement, including by the institution of legal proceedings against such Third Party; provided further that the Party owning such RLP Trademark retains the sole right (but not obligation) to seek to abate any such infringement.

14.9.3. No Other Trademark Rights. For the avoidance of doubt, neither Party will have any right to use the other Party’s or the other Party’s Affiliates’ corporate names or logos in connection with Research, Development, Manufacturing and Commercialization of Regional Licensed Products.

15. TERM AND TERMINATION

15.1. Term. This Agreement will be effective as of the Effective Date and, unless terminated earlier, this Agreement will continue until the date on which neither Party is Researching, Developing, Manufacturing or Commercializing any Antibody Candidates or Licensed Products under this Agreement (“Term”).

 

Confidential

 

- 157 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

15.2. Termination for Novartis at Will. Novartis may terminate this Agreement for any reason or no reason on an Option Target-by Option Target or Licensed Target-by-Licensed Target basis at any time upon [***] prior written notice. Notwithstanding the foregoing, Novartis may not terminate this Agreement with respect to the T1 Licensed Target with effect prior to the earlier of (a) [***] following the Effective Date or (b) [***] following the first IND Filing with respect to a T1 Licensed Product; provided that this sentence shall not apply in the event of a Change of Control of Novartis or a Third Party Acquisition by Novartis or its Affiliates where the applicable Third Party or its Affiliates have a Competing Program (and in the case of a Third Party Acquisition, in Novartis’ reasonable judgment, the Competing Program constitutes [***] or less of the value of the Third Party or business acquired in such Third Party Acquisition).

15.3. Termination for Material Breach.

15.3.1. Material Breach.

15.3.1.1. Subject to Section 15.3.2, Surface will have the right to terminate this Agreement, on an Option Target-by-Option Target basis or Licensed Target-by-Licensed Target basis, upon delivery of written notice to Novartis in the event of any material breach by Novartis of any terms and conditions of this Agreement in a manner that fundamentally frustrates the transactions contemplated by this Agreement with respect to such Target, provided that such termination will not be effective if such breach has been cured within [***] after written notice thereof is given by Surface to Novartis specifying the nature of the alleged breach (or, if such default cannot be cured within such [***] period, within [***] after such notice if Novartis commences actions to cure such default within such [***] period and thereafter diligently continues such actions, but fails to cure the default by the end of such [***]; provided, however, that to the extent such material breach involves the failure to make a payment when due, such breach must be cured within [***] after written notice thereof is given by Surface to Novartis.

15.3.1.2. Subject to Section 15.3.2, Novartis will have the right to terminate this Agreement, on an Option Target-by-Option Target basis or Licensed Target-by-Licensed Target basis, upon delivery of written notice to Surface in the event of any material breach by Surface of any terms and conditions of this Agreement in a manner that fundamentally frustrates the transactions contemplated by this Agreement with respect to such Target, provided that such termination will not be effective if such breach has been cured within [***] after

 

Confidential

 

- 158 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

written notice thereof is given by Novartis to Surface specifying the nature of the alleged breach (or, if such default cannot be cured within such [***] period, within [***] after such notice if Surface commences actions to cure such default within such [***] period and thereafter diligently continues such actions, but fails to cure the default by the end of such [***]; provided, however, that to the extent such material breach involves the failure to make a payment when due, such breach must be cured within [***] after written notice thereof is given by Novartis to Surface.

15.3.2. Disputed Breach. If the alleged breaching Party disputes in good faith the existence or materiality of a breach specified in a notice provided by the other Party in accordance with Section 15.3.1 and such alleged breaching Party provides the other Party notice of such dispute within such [***] or [***] period, as applicable, then the non-breaching Party will not have the right to terminate this Agreement under Section 15.3.1 unless and until the dispute resolution process set forth in Section 16.3 has be completed (including the tolling and cure periods set forth therein).

15.4. Termination for Insolvency. If, at any time during the Term (a) a case is commenced by or against either Party under Title 11, United States Code, as amended, or analogous provisions of applicable Law outside the United States (the “Bankruptcy Code”) and, in the event of an involuntary case under the Bankruptcy Code, such case is not dismissed within [***] after the commencement thereof, (b) either Party files for or is subject to the institution of bankruptcy, liquidation or receivership proceedings (other than a case under the Bankruptcy Code), (c) either Party assigns all or a substantial portion of its assets for the benefit of creditors, (d) a receiver or custodian is appointed for either Party’s business, or (e) a substantial portion of either Party’s business is subject to attachment or similar process; then, in any such case ((a), (b), (c), (d) or (e)), the other Party may terminate this Agreement upon written notice to the extent permitted under applicable Law.

15.5. Effect of Termination by Surface for Cause or by Novartis for Convenience. Upon termination of this Agreement with respect to any Licensed Target or any Option Target by Novartis pursuant to Section 15.2 or by Surface pursuant to Section 15.3.1.1 or 15.4:

15.5.1. With respect to such terminated Licensed Target, Novartis will pay for (a) for a period of [***] after the effective date of termination for the applicable Licensed Target, its portion of Development Costs for those Antibody Candidates or Licensed Products against such Licensed Target in the budget for the applicable Development Plan, and (b) its portion of reasonable costs and expenses (calculated in the same manner as Development Costs) to wind down those then on-going associated Clinical Studies that Surface identifies, by written notice to Novartis provided no later than [***] after the effective date of termination, will not be continued.

 

Confidential

 

- 159 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

15.5.2. All licenses granted under Section 9 and other rights and obligations under this Agreement with respect to such Licensed Target will terminate.

15.5.3. [***]

15.5.4. Novartis will as promptly as practicable (a) assign to Surface or Surface’s designee possession and ownership of all material governmental or regulatory filings and approvals (including all material Regulatory Approvals, Regulatory Materials, Pricing Approvals) and copies of material correspondence and conversation logs [***] (to the extent assignable under applicable Laws), and (b) provide to Surface or Surface’s designee copies of all material data, reports, records and materials, and other

 

Confidential

 

- 160 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

material sales and marketing related information in Novartis’s possession and Control [***] In addition, Novartis will appoint Surface as Novartis’s or Novartis’s Affiliates’ (and to the extent permitted by the applicable sublicense, its Sublicensees’) agent for [***] involving Regulatory Authorities in the Novartis Territory until all Regulatory Approvals, Regulatory Materials, Pricing Approvals and other governmental or regulatory filings required to be assigned to Surface hereunder have, in fact, been assigned to Surface or its designee but in no event longer than the [***] anniversary of the effective date of termination. In the event of failure to obtain assignment of any of the items required to be assigned under this Section 15.5.4, Novartis hereby consents and grants to Surface the right to access and reference (without any further action required on the part of Novartis, whose authorization to file this consent with any Regulatory Authority is hereby granted) [***]

15.5.5. If the effective date of termination is after [***] then, to the extent permitted by applicable Laws, Novartis or its Affiliates’ (or to the extent permitted by the applicable sublicense, its Sublicensees’) will appoint Surface as its exclusive distributor [***] and grant Surface the right to appoint sub-distributors, until such time as all Regulatory Approvals in the Novartis Territory have been transferred to Surface or its designee but in no event longer than the [***] anniversary of the effective date of termination.

15.5.6. With respect to [***] if Novartis or its Affiliates (or to the extent permitted by the applicable sublicense, its Sublicensees) are Manufacturing [***]

 

Confidential

 

- 161 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

15.5.7. Manufacturing of Combinations.

15.5.7.1. With respect to the Novartis Component of [***] that is a Combination:

(a) if Novartis or its Affiliates (or to the extent permitted by the applicable sublicense, its Sublicensees’) are selling such Novartis Component [***] following the effective date of termination).

(b) if Novartis or its Affiliates (or to the extent permitted by the applicable sublicense, its Sublicensees’) are not selling such Novartis Component [***] following the effective date of termination).

(c) if Novartis or its Affiliates (or to the extent permitted by the applicable sublicense, its Sublicensees’) are Manufacturing and supplying such Novartis Component [***] to Surface [***] following the effective date of termination.

 

Confidential

 

- 162 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

15.5.7.2. With respect to the Surface Component of [***] that is a Combination, if Novartis or its Affiliates’ (or to the extent permitted by the applicable sublicense, its Sublicensees’) are Manufacturing and supplying the Surface Component [***] following the effective date of termination.

15.5.7.3. For clarity, in no event will Novartis or its Related Parties be obligated to (or obligated to use Commercially Reasonable Efforts to) Develop or Commercialize any Novartis Component [***] that is a Combination Product after the effective date of termination anywhere in the world other than the U.S.

15.5.8. If Surface so requests, and to the extent permitted under Novartis’s obligations to Third Parties on the effective date of termination, Novartis will [***] any Third Party [***]

15.5.9. Novartis will promptly transfer and assign to Surface all of Novartis’s and its Affiliates’ rights, title and interests in and to the Novartis Trademark(s) solely used to identify the Reversion Products (but not any house marks, or logos or any trademark of Novartis or its Affiliates, containing the word “Novartis” or any such Affiliate) owned by Novartis and used for the Reversion Products in the Field.

15.5.10. Novartis will transfer to Surface any finished goods inventory of the Reversion Products Controlled by Novartis or its Affiliates as of the termination date at [***]

 

Confidential

 

- 163 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

15.5.11. Novartis will execute all documents and take all such further actions as may be reasonably requested by Surface in order to give effect to the foregoing clauses.

15.6. Effect of Termination by Novartis for Cause. Upon termination of this Agreement with respect to a Licensed Target or Option Target by Novartis pursuant to Sections 15.3.1.2 or 15.4:

15.6.1. All licenses granted under Section 9 by Novartis to Surface with respect to such Licensed Target will terminate;

15.6.2. The licenses and other rights granted by Surface to Novartis under the Surface Technology with respect to such Licensed Target will remain in effect in accordance with their respective terms; provided, however, that [***] and

15.6.3. Surface will be deemed to have exercised its right pursuant to Section 2.8 to discontinue its participation in all Committees with respect to such Target, and Novartis’ obligations to provide updates to Surface on the Research, Development, Manufacture or Commercialization of any affected Licensed Antibody Candidates or Licensed Product with respect to such Target shall be limited to that information set forth on Exhibit N.

15.6.4. Except as set forth in this Section 15.6. the rights and obligations of the Parties hereunder shall terminate with respect to such Licensed Target as of the effective date of such termination.

15.6.5. Surface will execute all documents and take all such further actions as may be reasonably requested by Novartis in order to give effect to the foregoing clauses.

 

Confidential

 

- 164 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

15.6.5.1. Effect of Expiration or Termination; Survival. In addition to the termination consequences set forth in Sections 15.5 and 15.6, the following provisions will survive expiration or termination of this Agreement for any reason: all of Sections 1, 10 (but only with respect to any payments accrued thereunder prior to any such termination or expiration), 11, 13, 15 and 16, and Sections 4.2.7, 9.4, 9.6, 9.7, 9.8, 10.12.3, 10.12.5, 10.13, 12.3, 14.1, 14.2 and 14.8. Expiration or termination of this Agreement for any reason will not relieve the Parties of any liability or obligation which accrued hereunder prior to the effective date of such termination or expiration, nor preclude either Party from pursuing all rights and remedies it may have hereunder or at law or in equity, with respect to any breach of this Agreement. For the avoidance of doubt, termination of this Agreement will not affect any SDEA, which will continue to survive so long as any Licensed Products thereunder are being Commercialized.

16. MISCELLANEOUS

16.1. Assignment. Except as provided in this Section 16.1, this Agreement may not be assigned or otherwise transferred, nor may any right or obligation hereunder be assigned or transferred, by either Party without the written consent of the other Party. Notwithstanding the foregoing, either Party may, without the other Party’s written consent, assign this Agreement and its rights and obligations hereunder in whole or in part to an Affiliate or to a party that acquires, by or otherwise in connection with, merger, sale of assets or otherwise, all or substantially all of the business of the assigning Party to which the subject matter of this Agreement relates. The assigning Party will remain responsible for the performance by its assignee of any obligation hereunder so assigned. An assignment to an Affiliate will terminate, and all rights so assigned will revert to the assigning Party, if and when such Affiliate ceases to be an Affiliate of the assigning Party. Any purported assignment in violation of this Section 16.1 will be void.

16.2. Governing Law. The Agreement will be construed and the respective rights of the Parties determined in accordance with the substantive Laws of the State of New York, notwithstanding any provisions of New York Law or any other Law governing conflicts of laws to the contrary.

16.3. Arbitration.

16.3.1. Disputes. Except as otherwise expressly set forth in this Agreement, including Section 2.6.3, disputes of any nature arising under, relating to, or in connection with this Agreement (“Disputes”) will be resolved pursuant to this Section 16.3.

16.3.2. Dispute Escalation. In the event of a Dispute between the Parties, the Parties will first attempt to resolve such Dispute by negotiation and consultation between themselves or at the JSC. In the event that such Dispute is not resolved on an informal basis within [***] from receipt of the written notice of a Dispute, any Party may, by written notice to the other, have such Dispute referred to the Executive Officers (or their designees, which designee is required to have decision-making authority on behalf of such Party), who will attempt to resolve such Dispute by negotiation and consultation for a [***] period following receipt of such written notice.

 

Confidential

 

- 165 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

16.3.3. Full Arbitration. Except as otherwise expressly set forth in this Agreement, in the event the Parties have not resolved such Dispute within [***] of receipt of the written notice referring such Dispute to the Executive Officers, either Party may at any time after such [***] period submit such Dispute to be finally settled by arbitration administered in accordance with the procedural rules of the American Arbitration Association (the “AAA”) in effect at the time of submission, as modified by this Section 16.3. The arbitration will be governed by the Laws of the State of New York. The arbitration will be heard and determined by [***] arbitrators who are retired judges or attorneys with at least [***] of relevant experience in the pharmaceutical and biotechnology industry, each of whom will be impartial and independent. Each Party will appoint [***] and the [***] arbitrator will be selected by the [***] Party-appointed arbitrators, or, failing agreement within [***] following appointment of the second arbitrator, by the AAA. Such arbitration will take place in New York, New York. The arbitration award so given will, absent manifest error, be a final and binding determination of the Dispute, will be fully enforceable in any court of competent jurisdiction, and will not include any damages expressly prohibited by Section 13.5. Fees, costs and expenses of arbitration are to be divided by the Parties in the following manner: Novartis [***] it chooses, Surface [***] it chooses, and the Parties [***] arbitrator. Except in a proceeding to enforce the results of the arbitration or as otherwise required by Law, neither Party nor any arbitrator may disclose the existence, content or results of any arbitration hereunder without the prior written consent of both Parties.

16.3.4. Expedited Arbitration.

16.3.4.1. If a Party exercises its rights under this Agreement to refer a dispute to expedited arbitration (an “Expedited Dispute”), then the Parties will follow the expedited dispute resolution process in this Section 16.3.4 (and not the dispute resolution process in Section 16.3.3 of this Agreement) (“Expedited Arbitration”). The Parties agree and acknowledge that any good faith dispute under Expedited Arbitration will not be deemed to be a material breach of this Agreement.

16.3.4.2. The Expedited Dispute will be submitted to fast-track, binding arbitration in accordance with the following:

 

Confidential

 

- 166 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

(a) Arbitration will be conducted in New York, New York under the rules of the AAA for the resolution of commercial disputes in the most expedited manner permitted by such rules. The Parties will appoint a single arbitrator to be - 166 - selected by mutual agreement. If the Parties are unable to agree on an arbitrator, the Parties will request that the AAA select the arbitrator. The arbitrator will be a professional in business or licensing experienced [***] The cost of the arbitration will be borne equally by the Parties. Except in a proceeding to enforce the results of the arbitration or as otherwise required by applicable Laws, neither Novartis nor Surface nor any arbitrator may disclose the existence, content or results of any arbitration hereunder without the prior written agreement of Novartis and Surface.

(b) Within [***] after such matter is referred to arbitration, each Party will provide the arbitrator with a proposal and written memorandum in support of its position regarding the Expedited Dispute, as well as any documentary evidence it wishes to provide in support thereof (each a “Brief”) and the arbitrator will provide each Party’s Brief to the other Party after it receives it from both Parties.

(c) Within [***] after a Party submits its Brief, the other Party will have the right to respond thereto. The response and any material in support thereof will be provided to the arbitrator and the other Party.

(d) The arbitrator will have the right to meet with the Parties as necessary to inform the arbitrator’s determination and to perform independent research and analysis. Within [***] of the receipt by the arbitrator of both Parties’ responses (or expiration of the [***] period if any Party fails to submit a response), the arbitrator will deliver his/her decision regarding the Expedited Dispute in writing; provided that the arbitrator will select one of the resolutions proposed by the Parties.

16.3.5. Injunctive Relief. Notwithstanding the dispute resolution procedures set forth in this Section 16.3, in the event of an actual or threatened breach of this Agreement, the aggrieved Party may seek provisional equitable relief (including restraining orders, specific performance or other injunctive relief), without first submitting to any dispute resolution procedures hereunder.

16.3.6. [***]

 

Confidential

 

- 167 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

16.4. Entire Agreement; Amendments. This Agreement, together with the Equity Agreements, Supply Agreements and SDEA, contains the entire understanding of the Parties with respect to the subject matter hereof, and supersedes all previous arrangements with respect to the subject matter hereof, whether written or oral, including, effective as of the Effective Date, that Confidentiality Agreement between Surface and Novartis Institutes for BioMedical Research, Inc., dated as of [***] (provided that all information disclosed or exchanged under such agreement will be treated as Confidential Information hereunder). This Agreement may be amended, or any term hereof modified, only by a written instrument duly-executed by authorized representatives of both Parties hereto. The Exhibits and Schedules attached hereto may be amended, or any term hereof modified, only by a written instrument duly-executed by authorized representatives of both Parties hereto.

16.5. Severability. If any provision hereof should be held invalid, illegal or unenforceable in any respect in any jurisdiction, the Parties hereto will substitute, by mutual consent, valid provisions for such invalid, illegal or unenforceable provisions, which valid provisions in their economic effect are sufficiently similar to the invalid, illegal or unenforceable provisions that it can be reasonably assumed that the Parties would have entered into this Agreement with such valid provisions. In case such valid provisions cannot be agreed upon, the invalid, illegal or unenforceable of one or several provisions of this Agreement will not affect the validity of this Agreement as a whole, unless the invalid, illegal or unenforceable provisions are of such essential importance to this Agreement that it is to be reasonably assumed that the Parties would not have entered into this Agreement without the invalid, illegal or unenforceable provisions.

16.6. Headings. The captions to the Sections hereof are not a part of this Agreement, but are merely for convenience to assist in locating and reading the several Sections hereof.

 

Confidential

 

- 168 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

16.7. Waiver of Rule of Construction. Each Party has had the opportunity to consult with counsel in connection with the review, drafting and negotiation of this Agreement. Accordingly, the rule of construction that any ambiguity in this Agreement will be construed against the drafting Party will not apply.

16.8. Interpretation. Except where the context expressly requires otherwise, (a) the use of any gender herein will be deemed to encompass references to either or both genders, and the use of the singular will be deemed to include the plural (and vice versa); (b) the words “include”, “includes” and “including” will be deemed to be followed by the phrase “without limitation” and will not be interpreted to limit the provision to which it relates; (c) the word “shall” will be construed to have the same meaning and effect as the word “will”; (d) any definition of or reference to any agreement, instrument or other document herein will be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein); (e) any reference herein to any Person will be construed to include the Person’s successors and assigns; (f) the words “herein”, “hereof” and “hereunder”, and words of similar import, will be construed to refer to this Agreement in each of their entirety, as the context requires, and not to any particular provision hereof; (g) all references herein to Sections, Exhibits or Schedules will be construed to refer to Sections, Exhibits or Schedules of this Agreement, and references to this Agreement include all Exhibits and Schedules hereto; (h) the word “notice” means notice in writing (whether or not specifically stated) and will include notices, consents, approvals and other written communications contemplated under this Agreement; (i) provisions that require that a Party, the Parties or any committee hereunder “agree,” “consent” or “approve” or the like will require that such agreement, consent or approval be specific and in writing, whether by written agreement, letter, approved minutes or otherwise (but excluding e-mail and instant messaging); (j) references to any specific law, rule or regulation, or article, section or other division thereof, will be deemed to include the then-current amendments thereto or any replacement or successor law, rule or regulation thereof; and (k) the term “or” will be interpreted in the inclusive sense commonly associated with the term “and/or”.

16.9. No Implied Waivers; Rights Cumulative. No failure on the part of Surface or Novartis to exercise, and no delay in exercising, any right, power, remedy or privilege under this Agreement, or provided by statute or at Law or in equity or otherwise, will impair, prejudice or constitute a waiver of any such right, power, remedy or privilege or be construed as a waiver of any breach of this Agreement or as an acquiescence therein, nor will any single or partial exercise of any such right, power, remedy or privilege preclude any other or further exercise thereof or the exercise of any other right, power, remedy or privilege.

16.10. Notices. All notices which are required or permitted hereunder will be in writing and sufficient if delivered personally, sent by facsimile (and promptly confirmed by personal delivery, registered or certified mail or overnight courier), sent by nationally-recognized overnight courier or sent by registered or certified mail, postage prepaid, return receipt requested, addressed as follows:

 

Confidential

 

- 169 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

If to Surface, to:

  

Surface Oncology, Inc.

  

215 First Street, Suite 400-S

  

Cambridge, Massachusetts 02142

  

Attention: Chief Executive Officer

  

Facsimile No.: (617) 945-9574

With a copy to:

  

Goodwin Procter LLP

  

Exchange Place

53 State Street

  

Boston, Massachusetts 02109

  

Attention: Kingsley L. Taft, Esq.

  

Facsimile No.: (617) 523-1231

If to Novartis, to:

  

Novartis Institutes for BioMedical Research, Inc.

  

250 Massachusetts Avenue

  

Cambridge, MA 02139

  

Attention: General Counsel

  

Facsimile No.: (617) 871-5786

With a copy to:

  

Hogan Lovells US LLP

  

875 Third Avenue

  

New York, NY 10022

  

Attention: Adam H. Golden, Esq.

  

Facsimile No.: (212) 918-3100

or to such other address as the Party to whom notice is to be given may have furnished to the other Party in writing in accordance herewith. Any such notice will be deemed to have been given: (a) when delivered if personally delivered on a Business Day (or if delivered or sent on a non-Business Day, then on the next Business Day); (b) on the Business Day of receipt if sent by overnight courier or facsimile; or (c) on the Business Day of receipt if sent by mail.

16.11. Compliance with Export Regulations. Neither Party will export any technology licensed to it by the other Party under this Agreement except in compliance with U.S. export Laws and regulations.

16.12. Force Majeure. Neither Party will be held liable to the other Party nor be deemed to have defaulted under or breached this Agreement for failure or delay in performing any obligation under this Agreement to the extent that such failure or delay is caused by or results from causes beyond the reasonable control of the affected Party, potentially including embargoes, war, acts of war (whether war be declared or not), insurrections, riots, civil commotions, strikes, lockouts or other labor disturbances, fire, earthquakes, floods, or other acts of God. The affected Party will notify the other Party of such force majeure circumstances as soon as reasonably practical, and will promptly undertake all reasonable efforts necessary to cure such force majeure circumstances and resume performance of its obligations hereunder.

 

Confidential

 

- 170 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

16.13. Independent Parties. It is expressly agreed that Surface and Novartis will be independent contractors and that the relationship between Surface and Novartis will not constitute a partnership, joint venture or agency. Surface will not have the authority to make any statements, representations or commitments of any kind, or to take any action, which will be binding on Novartis, without the prior written consent of Novartis, and Novartis will not have the authority to make any statements, representations or commitments of any kind, or to take any action, which will be binding on Surface, without the prior written consent of Surface.

16.14. Counterparts. The Agreement may be executed in two or more counterparts, including by facsimile or PDF signature pages, each of which will be deemed an original, but all of which together will constitute one and the same instrument.

16.15. Performance by Affiliates. Each Party acknowledges and accepts that the other Party may exercise its rights and perform its obligations (including granting or continuing licenses and other rights) under this Agreement either directly or through one or more of its Affiliates. A Party’s Affiliates will have the benefit of all rights (including all licenses and other rights) of such Party under this Agreement, but not be subject to such Party’s obligation, unless expressly provided herein, or in the case of a permitted assignment, in accordance with Section 16.1. Accordingly, in this Agreement “Novartis” will be interpreted to mean “Novartis or its Affiliates” and “Surface” will be interpreted to mean “Surface or its Affiliates” where necessary to give each Party’s Affiliates the benefit of the rights provided to such Party in this Agreement and the ability to perform its obligations (including granting or continuing licenses and other rights) under this Agreement; provided, however, that in any event each Party will remain responsible for the acts and omissions, including financial liabilities, of its Affiliates.

16.16. Binding Effect; No Third Party Beneficiaries. As of the Effective Date, this Agreement will be binding upon and inure to the benefit of the Parties and their respective permitted successors and permitted assigns. Except as expressly set forth in this Agreement, no Person other than the Parties and their respective Affiliates and permitted assignees hereunder will be deemed an intended beneficiary hereunder or have any right to enforce any obligation of this Agreement.

[THE REMAINDER OF THIS PAGE HAS BEEN LEFT INTENTIONALLY BLANK]

 

Confidential

 

- 171 -


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

IN WITNESS WHEREOF, the Parties have executed this Agreement as of the Effective Date.

 

NOVARTIS INSTITUTES FOR

BIOMEDICAL RESEARCH, INC.

    SURFACE ONCOLOGY, INC.
BY:  

/s/ H. MARTIN SEIDEL

    BY:  

/s/ Detlev Biniszkiewicz

NAME:   H. MARTIN SEIDEL     NAME:   Detlev Biniszkiewicz
TITLE:   GLOBAL HEAD, STRATEGIC ALLIANCES     TITLE:   President and CEO

 

Confidential

 


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

Exhibit A-1

Determination of Component Value

[***]

 

Confidential

 


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

EXHIBIT A-2

Manufacturing Costs for Combinations for Regional Licensed Products in the Surface Territory

[***]

 

Confidential

 


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

EXHIBIT B

Manufacturing Costs

Manufacturing Costs” means a [***]

 

Confidential

 


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

EXHIBIT C

Form of Option Exercise Notice

[Novartis Institutes for Biomedical Research, Inc.]

[250 Massachusetts Ave.]

[Cambridge, MA 02139]

[                    , 20     ]

Surface Oncology, Inc.

215 First Street, Suite 400-S

Cambridge, MA 02142

Attn: Chief Executive Officer

Dear Sir or Madam:

In accordance with Section 4.2.6 of that certain Collaboration Agreement by and between Surface Oncology, Inc. (“Surface”) and Novartis Institutes for Biomedical Research, Inc. (“Novartis”) executed as of January 9, 2016 (the “Collaboration Agreement”), Novartis hereby provides written notice exercising the Option set forth in Exhibit A attached hereto, for which Novartis previously provided an Option Purchase Notice, pursuant to the terms of the Collaboration Agreement. Capitalized terms used but not defined herein will have the meanings assigned to them in the Collaboration Agreement.

 

Very truly yours,
[NOVARTIS INSTITUTES FOR
BIOMEDICAL RESEARCH, INC.]
By:  

 

  Name:
  Title:

 

cc: Goodwin Proctor LLP

Exchange Place

55 State Street

Boston, MA 02109

Attn: Kingsley L. Taft, Esq.

 

Confidential

 


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

Exhibit A

 

1. Option:                                 .

 

2. Novartis has determined that:

 

  a filing or notification under applicable Antitrust Laws is not necessary.

 

  a filing or notification must be made under applicable Antitrust Laws.

Summary of any such filing(s) or notification(s):

 

Confidential

 


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

EXHIBIT D

Form of Option Purchase Notice

[Novartis Institutes for Biomedical Research, Inc.]

[250 Massachusetts Ave.]

[Cambridge, MA 02139]

[                    , 20     ]

Surface Oncology, Inc.

215 First Street, Suite 400-S

Cambridge, MA 02142

Attn: Chief Executive Officer

Dear Sir or Madam:

In accordance with Section 4.1.1 of that certain Collaboration Agreement by and between Surface Oncology, Inc. (“Surface”) and Novartis Institutes for Biomedical Research, Inc. (“Novartis”) executed as of January 9, 2016 (the “Collaboration Agreement”), Novartis hereby provides written notice to purchase the Option set forth in Exhibit A attached hereto, pursuant to the terms of the Collaboration Agreement. Capitalized terms used but not defined herein will have the meanings assigned to them in the Collaboration Agreement.

 

Very truly yours,
[NOVARTIS INSTITUTES FOR
BIOMEDICAL RESEARCH, INC.]
By:  

 

  Name:
  Title:

 

cc: Goodwin Proctor LLP

Exchange Place

55 State Street

Boston, MA 02109

Attn: Kingsley L. Taft, Esq.

 

Confidential

 


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

Exhibit A

 

1. Option:                                 .

 

2. In accordance with Section 10.3, Novartis will pay to Surface an option exercise right purchase fee of:

 

  Five Million Dollars ($5,000,000)

 

  [***]

 

Confidential

 


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

EXHIBIT E

Initial JSC Representatives

For Novartis:

[***]

For Surface:

[***]

 

Confidential

 


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

EXHIBIT F

T1 Research Plan

[***]

 

Confidential

 


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

[***]

 

Confidential

 


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

EXHIBIT G

Surface T1 Target Third Party Agreements (§3.1.7, 5.1.7)

[***]

 

Confidential

 


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

EXHIBIT H-1

CD47 Research Plan

[***]

 

Confidential

 


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

EXHIBIT H-2

IL-27 Research Plan

[***]

 

Confidential

 


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

[***]

 

Confidential

 


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

[***]

 

Confidential

 


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

[***]

 

Confidential

 


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

EXHIBIT H-3

[***]

 

Confidential

 


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

[***]

 

Confidential

 


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

EXHIBIT H-4

[***]

 

Confidential

 


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

EXHIBIT I

Surface Option Target Third Party Agreements (§3.2.6, 5.2.8, 5.3.7)

[***]

 

Confidential

 


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

EXHIBIT J

Form of Option Selection Notice

[Novartis Institutes of Biomedical Research, Inc.]/[Surface Oncology, Inc.]

[250 Massachusetts Ave.]/[215 First Street, Suite 400-S]

Cambridge, MA [02139]/[02142]

[                    , 20     ]

[Surface Oncology, Inc.

215 First Street, Suite 400-S

Cambridge, MA 02142

Attn: Chief Executive Officer]

[Novartis Institutes for Biomedical Research, Inc.]

[250 Massachusetts Ave.]

[Cambridge, MA 02139]

Attn: [        ]

Dear Sir or Madam:

In accordance with Section 4.2.3 of that certain Collaboration Agreement by and between Surface Oncology, Inc. (“Surface”) and Novartis Institutes of Biomedical Research, Inc. (“Novartis”) executed as of January 9, 2016 (the “Collaboration Agreement”), [Novartis]/[Surface] hereby provides written notice indicating the selection of the Option set forth in Exhibit A attached hereto, pursuant to the terms of the Collaboration Agreement. Capitalized terms used but not defined herein will have the meanings assigned to them in the Collaboration Agreement.

 

Very truly yours,

[NOVARTIS INSTITUTES FOR

BIOMEDICAL RESEARCH,

INC.]/[SURFACE ONCOLOGY, INC.]

By:

 

 

 

Name:

 

Title:

 

cc: [Goodwin Proctor LLP

Exchange Place

55 State Street

Boston, MA 02109

Attn: Kingsley L. Taft, Esq.]

 

Confidential

 


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

cc: [Hogan Lovells US LLP

875 Third Avenue

New York, NY 10022

Attention: Adam H. Golden, Esq.

Facsimile No.: (212) 918-3100]

 

Confidential

 


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

Exhibit A

 

1. Option:                            .

 

2. [Novartis]/[Surface] is designating the Option listed above as a:

 

  [***]

 


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

EXHIBIT K

Surface Manufacturing Third Party Agreements (§8.5)

[***]


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

EXHIBIT L

Form of Invoice

 

Company Name

  

INVOICE

Street Address

  

DATE: Month Day, Year

City, State ZIP Code

  

INVOICE #: XX

Phone 1xxxxxx

  

NOVARTIS PO#: XXXXXXXX

Fax 1xxxxxx

  

Bill To:

Novartis Institutes for Biomedical Research, Inc.

Attn: Novartis Contact Name

P.O. Box 5990

Portland OR, 97228-5990

Re: Collaborative Agreement between Surface Oncology, Inc. and Novartis Institutes for BioMedical Research, Inc. effective as of January 9, 2016.

 

PO Line
Number

  

DESCRIPTION

   AMOUNT
X    [Upfront/Development Milestone/Sales Milestone] payment with reference made to the relevant section of the contract    $XX.XX
     

 

  

TOTAL

   $XX.XX
     

 

 

Remit to:

  

Bank Wire Information:

  

Bank Name:

  

XX

Account No.:

  

XX

ABA#:

  

XX (only applicable in the US)

IBAN:

  

XX (only applicable in Europe)

SWIFT CODE:

  

XX (applicable US and Europe)

Note for e-mail submission of invoices:

 

    The address is: [***]

 

    Attached invoice files must contain a Novartis issued purchase order number (PO) on them and cannot be zipped. Invoices without a PO number on them or zipped attachments will not be accepted for processing.


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

EXHIBIT M

Royalty Calculation Examples

Section 10.9.1

[***]

Section 10.9.2

[***]

Section 10.9.3.1

[***]

Section 10.9.3.2

[***]


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

Royalty Reduction Sample Calculation

[***]

Ex-U.S.:

[***]

U.S.:

[***]


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

EXHIBIT N

Disclosure Obligations

[***]


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

Schedule 1.1.158

Option IND Package Information

[***]


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

Schedule 1.1.167

Option Tox Package Information

[***]


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

Schedule 12.2

Exceptions to Representations and Warranties

12.2.1:

[***]


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

[***]


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

[***]


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

FIRST AMENDMENT TO COLLABORATION AGREEMENT

This first amendment (the “First Amendment”) to the Agreement (as defined below), is entered into as of May 6, 2016 (the “Amendment Effective Date”), by and between Surface Oncology, Inc., a corporation organized and existing under the Laws of the State of Delaware (“Surface”), and Novartis Institutes for BioMedical Research, Inc., a corporation organized and existing under the Laws of the State of Delaware (“Novartis”).

WHEREAS, Surface and Novartis are parties to that certain Collaboration Agreement dated January 9, 2016 (the “Agreement”);

WHEREAS, Surface and Novartis desire to have Novartis assume Manufacturing responsibilities with respect to Tl Antibody Candidates and Tl Licensed Products; and

WHEREAS, Surface and Novartis desire to amend the Agreement as provided herein.

NOW, THEREFORE, in consideration of the mutual provisions and covenants herein, the receipt and sufficiency of which are hereby acknowledged, Surface and Novartis hereby agree as follows:

 

  1. Section 8.1.1.1 is hereby amended by deleting Section 8.1.1.1 in its entirety and replacing it with the following:

“8.1.1.1. Subject to the oversight of the JRC, the responsibility to Manufacture (or have Manufactured) Tl Antibody Candidates for use in the Tl Research Program shall be allocated between Surface and Novartis (or such Party’s designated Third Party contract manufacturers) in accordance with the Tl Research Plan.”

 

  2. Section 8.1.1.2 is hereby amended by deleting Section 8.1.1.2 in its entirety and replacing it with the following:

“8.1.1.2. Subject to the oversight of the JDC, Novartis has the sole responsibility to Manufacture (or have Manufactured) Tl Antibody Candidates and Tl Licensed Products for use in the first Phase 1 Safety Study for the Tl Antibody Candidates and Tl Licensed Products in accordance with the Tl Development Plan.”

 

  3. Section 8.1.1.3 is hereby amended by deleting Section 8.1.1.3 in its entirety and replacing it with the following:

“8.1.1.3. Novartis has the sole responsibility to Manufacture (or have Manufactured) Tl Antibody Candidates and Tl Licensed Products for use in Development and Commercialization of such Tl Antibody Candidates and Tl Licensed Products in the Novartis Territory.”


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

  4. Section 8.1.2.1 is hereby amended by deleting Section 8.1.2.1 in its entirety and replacing it with the following:

“8.1.2.1. Surface will be responsible for [***] of all Manufacturing Costs relating to Tl Antibody Candidates incurred to support the Tl Research Program, including reimbursement to Novartis of all Manufacturing Costs reasonably incurred by or on behalf of Novartis for the Manufacture of Tl Antibody Candidates for use in the Tl Research Program.”

 

  5. Section 8.1.2.2 is hereby amended by deleting Section 8.1.2.2 in its entirety and replacing it with the following:

“8.1.2.2. Novartis will be responsible for [***] of all Manufacturing Costs relating to the first Phase 1 Safety Study for Tl Antibody Candidates and Tl Licensed Products set forth in the Novartis approved budget for such Phase 1 Safety Study.”

 

  6. Section 8.1.2.3 is hereby amended by deleting Section 8.1.2.3 in its entirety and replacing it with the following:

“8.1.2.3. Except as provided in Section 8.1.2.1, Novartis will be responsible for [***] of all Manufacturing Costs relating to Tl Antibody Candidates and Tl Licensed Products for use in the Research, Development and Commercialization of such Tl Antibody Candidates and Tl Licensed Products in the Novartis Territory incurred by or on behalf of Novartis.”

 

  7. Section 15.5.3 is hereby amended by deleting Section 15.5.3 in its entirety and replacing it with the following:

“15.5.3. [***]


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

  8. Section 15.5.8 is hereby amended by deleting Section 15.5.8 in its entirety and replacing it with the following:

“15.5.8. If Surface so requests, and to the extent permitted under Novartis’s obligations to Third Parties on the effective date of termination, Novartis will [***] any Third Party [***]”

 

  9. Exhibit F (Tl Research Plan) is hereby deleted in its entirety and replaced by the Exhibit F as appended to this First Amendment.

 

  10. Except as expressly set forth in this First Amendment, all provisions of the Agreement shall remain in full force and effect.

[Signature Page Follows]


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

IN WITNESS WHEREOF, Surface and Novartis have caused this First Amendment to be executed by their respective authorized representatives as of the Amendment Effective Date.

 

SURFACE ONCOLOGY, INC.     NOVARTIS INSTITUTES FOR BIOMEDICAL RESEARCH, INC.
 

/s/ Nick Buffinger

     

/s/ H. Martin Seidel

Name:   Nick Buffinger     Name:   H. Martin Seidel
Title:   VP, Corporate Development & IP Strategy     Title:   Global Head of Strategic Alliances
Date:   9 May 2016     Date:   May 11, 2016


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

EXHIBIT F

T1 Research Plan

[***]


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

[***]


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

[***]


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

[***]


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

SECOND AMENDMENT TO COLLABORATION AGREEMENT

This second amendment (the “Second Amendment”) to the Agreement (as defined below), is entered into as of July 14, 2017 (the “Amendment Effective Date”), by and between Surface Oncology, Inc., a corporation organized and existing under the Laws of the State of Delaware (“Surface”), and Novartis Institutes for BioMedical Research, Inc., a corporation organized and existing under the Laws of the State of Delaware (“Novartis”).

WHEREAS, Surface and Novartis are parties to that certain Collaboration Agreement dated January 9, 2016 (the “Agreement”), as amended by the May 6, 2016 First Amendment to Collaboration Agreement;

WHEREAS, Surface and Novartis desire to [***] and

WHEREAS, Surface and Novartis desire to amend the Agreement as provided herein.

NOW, THEREFORE, in consideration of the mutual provisions and covenants herein, the receipt and sufficiency of which are hereby acknowledged, Surface and Novartis hereby agree as follows:

 

  1. Exhibit F (Tl Research Plan) is hereby deleted in its entirety and replaced by the Exhibit F as appended to this Second Amendment.

 

  2. Except as expressly set forth in this First Amendment, all provisions of the Agreement shall remain in full force and effect.

IN WITNESS WHEREOF, Surface and Novartis have caused this Second Amendment to be executed by their respective authorized representatives as of the Amendment Effective Date.

 

SURFACE ONCOLOGY, INC.    

NOVARTIS INSTITUTES FOR BIOMEDICAL

RESEARCH, INC.

 

/s/ Detlev Biniszkiewicz

     

/s/ Scott A Brown

Name:   Detlev Biniszkiewicz     Name:   Scott A Brown
Title:   President & CEO     Title:   VP, General Counsel
Date:   July 14, 2017     Date:   7/17/17


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

EXHIBIT F

T1 Research Plan

[***]


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

[***]


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

[***]


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

[***]


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

THIRD AMENDMENT TO COLLABORATION AGREEMENT

This Third Amendment (the “Third Amendment”) to the Agreement (as defined below), is entered into as of September 18th, 2017 (the “Amendment Effective Date”), by and between Surface Oncology, Inc., a corporation organized and existing under the Laws of the State of Delaware (“Surface”), and Novartis Institutes for BioMedical Research, Inc., a corporation organized and existing under the Laws of the State of Delaware (“Novartis”).

WHEREAS, Surface and Novartis are parties to that certain Collaboration Agreement dated January 9, 2016, as amended by that certain First Amendment to Collaboration Agreement dated May 6, 2016, and that certain Second Amendment to Collaboration Agreement dated July 14, 2017 (the “Agreement”);

WHEREAS, Surface and Novartis desire to clarify the Parties’ respective responsibilities relating to certain Research, Development and regulatory activities with respect to T1 Antibody Candidates and T1 Licensed Products;

WHEREAS, Surface and Novartis desire to [***] and

WHEREAS, Surface and Novartis desire to amend the Agreement as provided herein.

NOW, THEREFORE, in consideration of the mutual provisions and covenants herein, the receipt and sufficiency of which are hereby acknowledged, Surface and Novartis hereby agree as follows:

 

  1. Clause (a) of Section 1.1.204 is hereby amended by deleting Section 1.1.204 in its entirety and replacing it with the following:

“1.1.204. “Research Term” means, [***]

 

  2. A new Section 1.1.265 is hereby added as follows:

“1.1.265 “Final Audited GLP Toxicology Study Report” means [***]

 

  3. A new Section 1.1.266 is hereby added as follows:

“l.1.266 “Receipt” means [***]


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

  4. Section 3.1.2 is hereby amended by deleting Section 3.1.2 in its entirety and replacing it with the following:

“3.1.2 Diligence; Standards of Conduct. During the Research Term, Surface (itself or through its Affiliates or by permitted subcontracting pursuant to Section 3.1.7) will use Commercially Reasonable Efforts to [***] Surface will conduct its activities under the T1 Research Plan in a good scientific manner and in compliance with applicable Law.”

 

  5. Section 5.1.2 is hereby amended by deleting Section 5.1.2 in its entirety and replacing it with the following:

“5.1.2. Transition. By no later than [***] for a T1 Licensed Product, Surface will prepare and provide to Novartis a draft plan for the transition of the Development of such T1 Licensed Products from Surface to Novartis or its designee (a “T1 Transition Plan”). The T1 Transition Plan for each T1 Licensed Product will require Surface to, as soon as reasonably practicable following the Research Term: (a) transfer to Novartis of a copy of all Know-How Controlled by Surface that is reasonably necessary or useful for Development of such T1 Antibody Candidates or T1 Licensed Products, or obtaining or maintaining Regulatory Approval for such T1 Licensed Products in the Novartis Territory, including information and materials reasonably requested by Novartis, in a format reasonably acceptable to Novartis (which will be specified in such T1 Transition Plan, along with the process of transferring such Know-How); (b) assign to Novartis any Regulatory Materials submitted to, or filed with, any Regulatory Authority with respect to such T1 Antibody Candidates or T1 Licensed Products; (c) transfer to Novartis a copy of all written correspondence with any Regulatory Authority with respect to such T1 Antibody Candidates or T1 Licensed Products and all written minutes of meetings and memoranda of oral communications with any Regulatory Authority with respect to such T1 Antibody Candidates or T1 Licensed Products; and (d) transfer to Novartis a copy of any other information or materials reasonably requested by Novartis that are reasonably necessary or useful for Development of such T1 Antibody Candidates or T1 Licensed Products in the Novartis Territory, including if so reasonably requested by Novartis, and Third Party agreements relating solely thereto (the items described in clauses (a) through (d) collectively, “T1 Development Information”). The T1 Transition Plan for each T1 Licensed Product will also describe any Development activities with respect to such T1 Licensed Product that Surface is required to perform as requested by Novartis and mutually agreed upon by the Parties (collectively, “T1 Transition Activities”). Each Party will use Commercially Reasonable Efforts to perform the obligations assigned to it under the T1 Transition Plan in accordance with any timelines set forth therein, [***]”

 

  6. Section 7.1.1.1 is hereby amended by deleting Section 7.1.1.1 in its entirety and replacing it with the following:

“7.1.1.1. Ownership of Regulatory Filings. Novartis will be responsible for filing, and Novartis will own, all INDs, NDAs, Regulatory Materials and related regulatory documentation with respect to any T1 Licensed Product. At Novartis’s request following [***] for the T1 Research Program, Surface will promptly assign and transfer to Novartis all Regulatory Materials and other regulatory documentation in the Novartis Territory

 

2


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

with respect to such T1 Licensed Product that is in the possession or control of Surface, and each Party will submit all filings, letters and other documentation necessary to effect such assignment and transfer to the applicable Regulatory Authority as soon as reasonably practicable, but no later than [***] days after such request for such T1 Licensed Product. Surface hereby appoints Novartis as Surface’s agent for all matters related to each T1 Licensed Product involving Regulatory Authorities in the Novartis Territory during the period beginning on the Effective Date for the T1 Licensed Product and ending on the date that the transfer of all Regulatory Materials and related regulatory documents in the Novartis Territory that relate to such T1 Licensed Product, and Novartis hereby accepts such appointment.”

 

  7. Section 10.7.1 is hereby amended by deleting the second row in the table set forth in Section 10.7.1 and replacing it with the following:

 

Developmental Milestone Event

  

Developmental Milestone Payment

[***]    [***]

 

  8. Section 10.7.4 is hereby amended by deleting Section 10.7.4 in its entirety and replacing it with the following:

“10.7.4 Payment Terms for Development Milestone Payments. The Party who achieves a Development Milestone Event shall provide the other Party with written notice of its achievement of such Development Milestone Event within [***] days after such Development Milestone Event is achieved. After Surface’s delivery or receipt of such notice (as applicable), Surface shall submit an invoice to Novartis substantially in the form of Exhibit L for the corresponding Development Milestone Payment. Novartis shall make the corresponding Development Milestone Payment within [***] days after receipt of such invoice. Notwithstanding the foregoing, in the event that Surface achieves a given Development Milestone Event, Novartis shall make the corresponding Development Milestone Payment within [***] days after receipt of the relevant invoice from Surface.”

 

  9. Exhibit F (T1 Research Plan) is hereby deleted in its entirety and replaced by Exhibit F as appended to this Third Amendment.

 

  10. Except as expressly set forth in this Third Amendment, all provisions of the Agreement shall remain in full force and effect.

[SIGNATURE PAGE FOLLOWS]

 

3


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

IN WITNESS WHEREOF, Surface and Novartis have caused this Third Amendment to be executed by their respective authorized representatives as of the Amendment Effective Date.

 

NOVARTIS INSTITUTES FOR

BIOMEDICAL RESEARCH, INC.

    SURFACE ONCOLOGY, INC.
BY:  

/s/ Scott Brown

    BY:  

/s/ Scott Chappel

NAME:   Scott Brown     NAME:   Scott Chappel
TITLE:   VP General Counsel     TITLE:   CTO

 

4


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

EXHIBIT F

T1 Research Plan

[***]

 

5


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

[***]

 

6


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

[***]

 

7


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

[***]

 

8


EX-10.19

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

Exhibit 10.19

EXCLUSIVE LICENSE AGREEMENT

This Agreement is effective as of September 23, 2015 (the “Effective Date”), by and between Harbour Antibodies B.V., a Netherlands corporation located at Erasmus MC Building EE, Room 07-22, Wytemaweg 80, 3015 CN Rotterdam, The Netherlands (“Harbour”), and Surface Oncology, Inc., a Delaware corporation located at 215 First Street, Suite 400-S, Cambridge, MA 02142, USA (“Surface”). Harbour and Surface are each sometimes referred to herein as a “Party” or collectively as the “Parties.”

RECITALS

WHEREAS, Harbour is the exclusive licensee of materials and related patent rights to certain CD47 antibody molecules and has the exclusive right to grant licenses under said Patent Rights;

WHEREAS, Harbour desires to sublicense such materials and patent rights to Surface and Surface desires to obtain a license upon the terms and conditions hereinafter set forth.

NOW, THEREFORE, Harbour and Surface hereby agree as follows:

ARTICLE 1

DEFINITIONS

1.1 “Affiliate” shall mean any entity which directly or indirectly controls, or is controlled by, or is under common control with, Surface. The term “control” as used herein means (a) in the case of corporate entities, direct or indirect ownership of at least fifty percent (50%) of the stock or shares entitled to vote for the election of directors; or (b) with the power to direct the management and policies of such entities.

1.2 “Combination Product” shall mean any Licensed Product sold or used in combination with one or more other therapeutically active ingredients which are not Licensed Products.

1.4 “Field” shall mean all fields.

1.5 “First Commercial Sale” means, with respect to a Licensed Product and a country, the first sale to a Third Party of such Licensed Product in such country.

1.6 “GLP” shall mean the then-current good laboratory practice standards promulgated or endorsed by the FDA as defined in 21 C.F.R. Part 58, and comparable regulatory standards promulgated by other regulatory authorities, as they may be updated from time to time, including applicable quality guidelines promulgated under the ICH.

1.7 “GLP-Toxicology Study” means a pre-clinical study conducted in accordance with GLP standards to support an IND filing.

1.8 “Harbour Materials” shall mean the biological materials set forth on Exhibit A, and any [***] Exhibit A may be amended upon the mutual written agreement among the Parties.

1.9 “IND” means an Investigational New Drug application (as more fully defined in 21 C.F.R. Part 312, et. seq.) filed with the FDA, or the equivalent application filed with any equivalent agency or governmental authority.

 


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

EXCLUSIVE LICENSE AGREEMENT

 

1.10 “Licensed Product” shall mean any product that:

(a) the manufacture, use, sale, offer for sale or import of which, but for the licenses granted herein, would infringe a Valid Claim of the Patent Rights; or

(b) uses or incorporates any Harbour Materials.

1.11 “Major Market Country” means the [***]

1.12 “Net Sales” shall mean the [***]

1.13 “Patent Rights” shall mean:

(a) the United States and international patent applications and provisional applications listed on Exhibit B;

 

2


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

EXCLUSIVE LICENSE AGREEMENT

 

(b) any patent applications claiming priority from the provisional applications listed on Exhibit B, and any direct or indirect divisionals, continuations, continuation-in-part applications, and continued prosecution applications (and their relevant international equivalents) of the patent applications listed on Exhibit B and of such patent applications claiming priority from the provisional applications listed on Exhibit B, to the extent the claims are directed to subject matter specifically described in the patent applications listed on Exhibit B, and the resulting patents;

(c) any patents resulting from reissues, reexaminations, or extensions (and their relevant international equivalents, including, without limitation supplementary protection certificates) of the patents described in clauses (a) and (b) above; and

(d) international (non-United States) patent applications and provisional applications filed after the Effective Date and the relevant international equivalents to divisionals, continuations, continuation-in-part applications and continued prosecution applications of the patent applications to the extent the claims are directed to subject matter specifically described in the patents or patent applications referred to in clauses (a), (b) and (c) above, and the resulting patents.

1.14 “Reporting Period” shall begin on the first day of each calendar quarter and end on the last day of such calendar quarter.

1.15 “Sublicensee” shall mean any non-Affiliate sublicensee of the rights granted by Surface pursuant to Section 2.2.

1.16 “Term” shall mean the term of this Agreement, which shall commence on the Effective Date and shall remain in effect until the expiration of the last to expire Royalty Term, unless earlier terminated in accordance with the provisions of this Agreement.

1.17 “Territory” shall mean worldwide.

1.18 “Valid Claim” shall mean [***]

ARTICLE 2

GRANT OF RIGHTS

2.1 License Grants.

(a) Subject to the terms and conditions of this Agreement, Harbour hereby grants to Surface and its Affiliates for the Term a royalty-bearing, exclusive license, with the right to sublicense through multiple tiers, under the Harbour Materials and Patent Rights, to develop, have developed, make, have made, use, have used, sell, have sold, offer to sell, have offered for sale, import and have imported Licensed Products in the Field in the Territory.

(b) Harbour acknowledges and agrees that, during the Term, it shall not directly or indirectly grant any licenses or other rights inconsistent with this Section 2.1.

2.2 Sublicenses. Surface shall have the right to grant sublicenses of the rights and licenses granted to Surface hereunder through multiple tiers. Surface shall incorporate terms and conditions into its sublicense agreements sufficient to enable Surface to comply with this Agreement. Surface shall promptly furnish Harbour with a fully signed photocopy of any sublicense agreement.

2.3 No Additional Rights. Nothing in this Agreement shall be construed to confer any rights upon Surface by implication, estoppel, or otherwise as to any biological materials or patent rights of Harbour other than the Patent Rights and Harbour Materials.

 

3


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

EXCLUSIVE LICENSE AGREEMENT

 

ARTICLE 3

COMPANY DILIGENCE OBLIGATIONS

3.1 Diligence Requirements. Surface shall use commercially reasonable efforts, or shall cause one or more of its Affiliates and Sublicensees to use commercially reasonable efforts, to [***]

3.2 Reporting. Within [***] days after the end of each calendar year and until First Commercial Sale, Surface shall furnish Harbour with a written report summarizing the efforts during the immediately preceding calendar year to develop and commercialize Licensed Products.

ARTICLE 4

ROYALTIES AND PAYMENT TERMS

4.1 Consideration for Grant of Rights.

(a) License Issue. Surface shall pay to Harbour on the Effective Date a license issue fee of One Hundred Twenty-Five Thousand U.S. dollars (U.S. $125,000).

(b) Annual Fee. Commencing on the first anniversary of the Effective Date and ending upon First Commercial Sale, Surface shall pay to Harbour an annual fee of [***] U.S. dollars [***] payable by each anniversary date of the Effective Date.

(c) Running Royalties. Surface shall pay to Harbour a royalty of [***] percent [***] on Net Sales of Licensed Products sold by Surface, Affiliates and Sublicensees. Running royalties shall be payable for each Reporting Period and shall be due to Harbour within [***] days of the end of each Reporting Period.

(d) Duration of Royalty Obligations. The royalty obligations of Surface shall continue on a country-by-country basis (a) as to each Licensed Product, until the later of (i) expiration or termination of the last to expire of a Valid Claim within Patent Rights that covers such Licensed Product in that country, and (ii) ten (10) years from the date of First Commercial Sale in such country (the “Royalty Term”). Upon expiration of the Royalty Term with respect to a Licensed Product in a country, the license grants contained in Sections 2.1 shall become fully paid-up, royalty-free, perpetual and irrevocable for such Licensed Product in such country.

(e) Milestones. Surface shall pay to Harbour the applicable milestone payment listed in the table below for each Licensed Product after achievement of each milestone event. Surface shall provide Harbour with written notice and such milestone payment within [***] days after achieving each milestone. Each such milestone payment shall be payable only once for each Licensed Product.

 

Milestone Event

  

Milestone Payment

[***]    [***]

 

4


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

EXCLUSIVE LICENSE AGREEMENT

 

(f) Method of Payment. All payments under this Agreement should be made as set forth pursuant to the Harbour invoice instructions or if no invoice, pursuant to Section 14.1.

(g) Payments in U.S. Dollars. All payments due under this Agreement shall be payable in United States dollars. Conversion of foreign currency to U.S. dollars shall be made at the conversion rate existing in the United States (as reported in the Wall Street Journal) on the last working day of the calendar quarter of the applicable Reporting Period. Such payments shall be without deduction of exchange, collection, or other charges, and, specifically, without deduction of withholding or similar taxes or other government imposed fees or taxes, except as permitted in the definition of Net Sales. Any payments made by Licensee under this Agreement are exclusive of any value added or similar tax imposed upon such payments, which shall be added thereon as applicable. Where VAT is properly added to a payment made under this Agreement, Licensee will pay the amount of VAT only on receipt of a valid tax invoice issued in accordance with the laws and regulations of the country in which the VAT is chargeable.

(h)

(i) Late Payments. Any payments by Surface that are not paid on or before the date such payments are due under this Agreement shall bear interest, to the extent permitted by law, at [***] percentage [***] above the Prime Rate of interest as reported in the Wall Street Journal on the date payment is due.

ARTICLE 5

REPORTS AND RECORDS

5.1 Frequency of Reports.

(a) Upon First Commercial Sale of a Licensed Product. Surface shall report to Harbour the date of First Commercial Sale of a Licensed Product within [***] days of occurrence in each country.

(b) After First Commercial Sale. After the First Commercial Sale of a Licensed Product, Surface shall deliver reports to Harbour within [***] days of the end of each Reporting Period, containing information concerning the immediately preceding Reporting Period, as further described in Section 5.2.

5.2 Content of Reports and Payments. Each report delivered by Surface to Harbour shall contain at least the following information for the immediately preceding Reporting Period:

(a) the number of Licensed Products sold by Surface, its Affiliates and Sublicensees to independent third parties in each country;

(b) the gross price charged by Surface, its Affiliates and Sublicensees for each Licensed Product in each country;

(c) calculation of Net Sales for the applicable Reporting Period in each country, including, without limitation, a listing of applicable deductions; and

(d) total royalty payable on Net Sales in U.S. dollars, together with the exchange rates used for conversion.

If no amounts are due to Harbour for any Reporting Period, the report shall so state.

5.3 Records. Surface shall maintain, and shall cause its Affiliates and Sublicensees to maintain, complete and accurate records relating to amounts payable to Harbour in relation to this Agreement. The relevant entity shall retain such records for at least [***] years following the end of the calendar year to which they pertain, during which time a certified, , independent public accountant

 

5


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

EXCLUSIVE LICENSE AGREEMENT

 

selected by Harbour and reasonably acceptable to Surface shall have the right, at Harbour’s expense, to inspect such records during normal business hours to verify any reports and payments made or compliance in other respects under this Agreement. In the event that any audit performed under this Section 5.3 reveals an underpayment in excess of [***] percent [***], Surface shall bear the full out-of-pocket cost of such audit and shall remit any amounts due to Harbour within [***] days of receiving notice thereof from Harbour.

5.4 Confidentiality. The information, reports and records provided by Surface hereunder shall be regarded as Surface’s confidential information and Harbour hereby covenants that it shall not use or disclose any information included in such reports for any purpose other than determining whether Surface, its Affiliates and Sublicensees have complied with their obligations under this Agreement. Harbour further agrees that, until such time as such information is no longer confidential through no fault of Harbour, it shall maintain such reports and any information included therein in strict confidence and treat such information in a manner at least as restrictive as its manner of treating its own confidential information of similar nature and in any event not less than with a reasonable degree of care. The foregoing notwithstanding, without the consent of Surface, Harbour may comply with disclosure requirements of all applicable laws relating to its business, including, without limitation, international United States and state securities exchange laws, provided that Harbour reasonable prior notice to Surface of such disclosure and cooperates with Surface to obtain confidential treatment of such disclosure when and where available.

ARTICLE 6

PATENT PROSECUTION

6.1 Responsibility for and Ownership of Patent Rights. Harbour hereby appoints Surface as its agent to prepare, file, prosecute, maintain and defend in all agency proceedings (e.g., reissues, reexaminations, oppositions and interferences) all of the Patent Rights during the Term. Surface shall copy Harbour on all patent prosecution documents and give Harbour reasonable opportunities to advise Surface on such filing, prosecution and maintenance. In the event Surface desires to abandon any patent or patent application within the Patent Rights, Surface shall provide Harbour with reasonable prior written notice of such intended abandonment or decline of responsibility. If Harbour elects to continue such patent or patent application, the Parties shall consult and Surface may elect to retain responsibility therefor. Otherwise, the right to prepare, file, prosecute, maintain and defend the relevant Patent Rights, at Harbour’s expense, shall revert to Harbour. In such event, such Harbour paid-for rights shall be removed from the definition of Patent Rights under this Agreement and the licenses granted to Surface and its Affiliates as to such rights shall terminate.    

6.2 Payment of Expenses. Payment of all fees and costs, including, without limitation, attorneys fees, for the filing, prosecution and maintenance of the Patent Rights incurred by Harbour before the Effective Date shall be the responsibility of Surface. Surface shall be responsible for the payment of all fees and costs, including, without limitation, attorneys fees, for the filing, prosecution and maintenance of Patent Rights for which it is responsible pursuant to Section 6.1.    

6.3 Patent Extensions and Orange Book Listings. If elections with respect to obtaining patent term extensions (including, without limitation, any available pediatric extensions) or supplemental protection certificates or their equivalents in any country with respect to Patent Rights are available, Surface shall have the sole and exclusive right to make any such elections based on Licensed Products. With respect to data exclusivity periods (such as those periods listed in the FDA’s Orange Book (including, without limitation, any available pediatric extensions) or periods under national implementations of Article 10.1(a)(iii) of Directive 2001/EC/83 or orphan exclusivity periods, and all equivalents in any country), Surface shall have the sole and exclusive right to seek and maintain all such

 

6


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

EXCLUSIVE LICENSE AGREEMENT

 

data exclusivity periods available for the Licensed Products. With respect to all of the rights and activities identified in this Section 6.3, Harbour hereby appoints Surface as its agent for such purposes with the authority to act on Harbour’s behalf with respect to the Patent Rights in a manner consistent with this Agreement.

ARTICLE 7

INFRINGEMENT

7.1 Notification of Infringement. Each Party agrees to provide written notice to the other Party promptly after becoming aware of any activity which it reasonably believes constitutes infringement of the Patent Rights by a third party and of any available evidence thereof.

7.2 Right to Prosecute Infringements.

(a) Surface Right to Prosecute. Surface shall have the first and exclusive right, but not the obligation, under its own control and at its own expense, to prosecute any third party infringement of the Patent Rights, subject to Sections 7.2(b) and 7.4. The total cost of any such infringement action commenced or defended solely by Surface shall be borne by Surface.

(b) Harbour Right to Prosecute. If within [***] after having been notified of any alleged infringement that is material and competitive in the marketplace Surface is unsuccessful in persuading the alleged infringer to desist and shall not have brought and shall not be diligently prosecuting an infringement action, then Harbour shall have the right, but shall not be obligated, under its own control and at its own expense, to prosecute any infringement of the Patent Rights.

7.3 Declaratory Judgment Actions. If a declaratory judgment action is brought naming Harbour or Surface or any of its Affiliates or Sublicensees as a defendant and alleging invalidity, unenforceability or non-infringement of any Patent Rights, Surface or Harbour, as the case may be, shall promptly notify the other Party in writing and Surface may elect, upon written notice to Harbour within [***] days after receiving or giving notice of the commencement of such action, to take over the sole control of such action at its own expense. If Surface does not defend any such action, then Harbour shall have the right, but shall not be obligated, to defend such action at Harbour’s expense.

7.4 Recovery. In the event that either Party exercises the rights conferred in this Article 7 and recovers any damages or other sums in such action, such damages or other sums recovered shall first be applied to all out-of-pocket costs and expenses incurred by the Parties in connection therewith (including, without limitation, attorneys fees). If such recovery is insufficient to cover all such costs and expenses of both Parties, the controlling Party’s costs shall be paid in full first before any of the other Party’s costs. If after such reimbursement any funds shall remain from such damages or other sums recovered, such funds shall be [***]

7.5 Cooperation. Each Party agrees to cooperate in any action under this Article 7 which is controlled by the other Party, including, without limitation, joining such action as a party plaintiff if necessary or desirable for initiation or continuation of such action; provided that the controlling Party reimburses the cooperating Party promptly for any reasonable costs and expenses incurred by the cooperating Party in connection with providing such assistance.

 

7


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

EXCLUSIVE LICENSE AGREEMENT

 

7.6 Patent Certifications. Harbour shall notify and provide Surface with copies of any allegations of alleged patent invalidity, unenforceability or non-infringement of a Patent Right pursuant to a Paragraph IV Patent Certification by a third party filing an Abbreviated New Drug Application, an application under §505(b)(2) or any other similar patent certification by a third party, and any foreign equivalent thereof. Such notification and copies shall be provided to Surface within [***] business days after Harbour receives such certification.

ARTICLE 8

INDEMNIFICATION AND INSURANCE

8.1 Indemnification.

(a) Surface hereby agrees to indemnify, defend (by counsel reasonably acceptable to Harbour) and hold harmless Harbour and any parent, subsidiary or other affiliated entity and their trustees, directors, officers, employees, scientists, agents, successors, assigns and other representatives (collectively, the “Harbour Indemnitees”) from and against all damages, liabilities, losses and other expenses, including, without limitation, reasonable attorney’s fees, expert witness fees and costs, regarding any claims, suits or proceedings brought by a third party, whether or not a lawsuit or other proceeding is filed (collectively “Claim”), that arise out of or relate to (a) any Licensed Product that is made, used, sold, imported, or performed by Surface, its Affiliates and sublicenses pursuant to any right or license granted under this Agreement, (b) Surface’s breach of any obligation, representation or warranty pursuant to Article 11, and (c) the negligent or willful acts or omissions of Surface, except that Surface’s liability for damages under its indemnity shall be reduced or apportioned to the extent any claim [***]

(b) Harbour will indemnify Surface, its Affiliates and sublicensees, and their respective directors, officers, employees and agents (collectively, the “Surface Indemnitees”), and defend and hold each of them harmless, from and against any and all Claims that arise out of or relate to (a) a Harbour Indemnitee’s negligence or willful misconduct or (b) Harbour’s breach of any obligation, representation, warranty, or covenant pursuant to Section 2.1(b), 5.4 or 9.1, except that Harbour’s liability for damages under its indemnity shall be reduced or apportioned to the extent any claim [***]

(c) To be eligible to be indemnified as described in this Article 8, each of the indemnitees seeking to be indemnified shall provide the indemnifying Party with prompt notice of any claim (with a description of the claim and the nature and amount of any such loss) giving rise to the indemnification obligation pursuant to Section 8.1(a) or 8.1(b), as the case may be, and the exclusive ability to defend such claim (with the reasonable cooperation of the indemnitee(s)). Each indemnitee shall have the right to retain its own counsel, at its own expense, if representation by the counsel of the indemnifying Party would be inappropriate due to actual or potential differing interests between such indemnitee(s) and the indemnifying Party. Neither the indemnitee(s) nor the indemnifying Party shall settle or consent to the entry of any judgment with respect to any claim for losses for which indemnification is sought without the prior written consent of the other (not to be unreasonably withheld or delayed); provided however, that the indemnifying Party shall have the right to settle or compromise any claim for losses without such prior written consent if the settlement or compromise provides for a full and unconditional release of the indemnitee(s) and is not materially prejudicial to any indemnitee’s rights.

8.2 Insurance. Surface shall obtain and carry in full force and effect commercial general liability insurance, including, without limitation, product liability and errors and omissions insurance which shall protect such Party and indemnitees with respect to events covered by Section 8.1. The limits of such insurance shall not be less than [***] per occurrence with an aggregate of [***] for bodily injury including death; [***] per occurrence with an aggregate of [***] for property damage;

 

8


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

EXCLUSIVE LICENSE AGREEMENT

 

and [***] per occurrence with an aggregate of [***] for errors and omissions. Upon request, Surface shall provide the other Party with Certificates of Insurance evidencing compliance with this Section 8.2. Surface shall continue to maintain such insurance or self-insurance after the expiration or termination of this Agreement and thereafter for a period of [***] years.

ARTICLE 9

REPRESENTATIONS OR WARRANTIES

9.1 Representations and Warranties. Harbour represents and warrants that: (a) it has the power and authority to grant the licenses provided for herein to Surface, and that it has not earlier granted, or assumed any obligation to grant, any rights in the Patent Rights to any third party that would conflict with the rights granted to Surface herein; and (b) this Agreement constitutes the legal, valid and binding obligation of Harbour, enforceable against such Harbour in accordance with its terms.

9.2 Disclaimer of Warranties. EXCEPT AS OTHERWISE BE EXPRESSLY SET FORTH IN THIS AGREEMENT, HARBOUR MAKES NO OTHER WARRANTIES CONCERNING PATENT RIGHTS, HARBOUR MATERIALS OR ANY OTHER MATTER WHATSOEVER, INCLUDING, WITHOUT LIMITATION, ANY EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD PARTY RIGHTS OR ARISING OUT OF COURSE OF CONDUCT OR TRADE CUSTOM OR USAGE, AND HARBOUR DISCLAIMS ALL SUCH EXPRESS OR IMPLIED WARRANTIES. HARBOUR MAKES NO WARRANTY OR REPRESENTATION AS TO THE VALIDITY OR SCOPE OF PATENT RIGHTS, OR THAT ANY LICENSED PRODUCT OR HARBOUR MATERIAL SHALL BE FREE FROM AN INFRINGEMENT ON PATENTS OR OTHER INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES. FURTHER, HARBOUR HAS MADE NO INVESTIGATION AND MAKES NO REPRESENTATION THAT THE PATENT RIGHTS OR HARBOUR MATERIALS ARE SUITABLE FOR COMPANY’S PURPOSES.

9.3 Limitation of Liability. EXCEPT FOR EITHER PARTY’S INDEMNITY OBLIGATIONS UNDER SECTION 8.1, IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, EXEMPLARY OR CONSEQUENTIAL DAMAGES (INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF PROFITS OR EXPECTED SAVINGS OR OTHER ECONOMIC LOSSES) ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ITS SUBJECT MATTER. HARBOUR’S AGGREGATE LIABILITY, IF ANY, FOR ALL DAMAGES OF ANY KIND RELATING TO THIS AGREEMENT OR ITS SUBJECT MATTER SHALL NOT EXCEED THE AMOUNT PAID BY HARBOUR TO SURFACE UNDER THIS AGREEMENT. THE FOREGOING EXCLUSIONS AND LIMITATIONS SHALL APPLY TO ALL CLAIMS AND ACTIONS OF ANY KIND AND ON ANY THEORY OF LIABILITY, WHETHER BASED ON CONTRACT, TORT (INCLUDING, WITHOUT LIMITATION, NEGLIGENCE OR STRICT LIABILITY), OR ANY OTHER GROUNDS, AND REGARDLESS OF WHETHER THE PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, AND NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY. THE PARTIES FURTHER AGREE THAT EACH WARRANTY DISCLAIMER, EXCLUSION OF DAMAGES OR OTHER LIMITATION OF LIABILITY HEREIN IS INTENDED TO BE SEVERABLE AND INDEPENDENT OF THE OTHER PROVISIONS SINCE THEY EACH REPRESENT SEPARATE ELEMENTS OF RISK ALLOCATION BETWEEN THE PARTIES.

 

9


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

EXCLUSIVE LICENSE AGREEMENT

 

ARTICLE 10

ASSIGNMENT

This Agreement is personal to Surface and no rights or obligations may be assigned by Surface without the prior written consent of Harbour. Harbour and Surface (notwithstanding the foregoing) may assign its rights and obligations under this Agreement (a) to a successor in connection with the merger, consolidation, reorganization or sale of all or substantially all of its assets or that portion of its business to which this Agreement relates or (b) to an Affiliate without prior written consent of the other Party.

ARTICLE 11

GENERAL COMPLIANCE WITH LAW

11.1 Compliance with Laws. Surface shall use reasonable commercial efforts to comply with all commercially material local, state, federal, and international laws and regulations relating to the development, manufacture, use, and sale of Licensed Products.

11.2 Export Control. Surface and its Affiliates and Sublicensees shall comply with all United States laws and regulations controlling the export of certain commodities and technical data, including, without limitation, all Export Administration Regulations of the United States Department of Commerce. Among other things, these laws and regulations prohibit or require a license for the export of certain types of commodities and technical data to specified countries. Surface hereby gives written assurance that it shall comply with, and shall cause its Affiliates and Sublicensees to comply with, all United States export control laws and regulations, that it bears sole responsibility for any violation of such laws and regulations by itself or its Affiliates or Sublicensees, and that it shall indemnify, defend, and hold Harbour harmless (in accordance with Section 8.1) for the consequences of any such violation.

11.3 Non-Use of Surface. Surface and its Affiliates and Sublicensees shall not use the name of “Harbour” or any variation, adaptation, or abbreviation thereof, or of any of its officers, employees, or agents, or any trademark owned by Harbour, or any terms of this Agreement in any promotional material or other public announcement or disclosure without the prior written consent of Harbour. The foregoing notwithstanding, without the consent of Harbour, Surface may indicate that it is licensed by Harbour under the Patent Rights and identify the inventors, their affiliation with Harbour, and their relationship to Surface, and further, Surface may comply with disclosure requirements of all applicable laws relating to its business, including, without limitation, United States and state securities laws.

11.4 Marking of Licensed Products. To the extent commercially feasible and consistent with prevailing business practices, Surface shall mark, and shall cause its Affiliates and Sublicensees to mark, all Licensed Products that are manufactured or sold under this Agreement with the number of each issued patent under the Patent Rights that applies to such Licensed Product.

ARTICLE 12

TERMINATION

12.1 Voluntary Termination by Surface. Surface shall have the right to terminate this Agreement, for any reason, upon at least [***] prior written notice to Harbour, such notice to state the date at least [***] in the future upon which termination is to be effective.

12.2 Termination for Default.

(a) Nonpayment. In the event Surface fails to pay any undisputed amounts due and payable to Harbour hereunder, and fails to make such payments within [***] days after receiving written notice of such failure, Harbour may terminate this Agreement immediately upon written notice to Surface, subject to completion of the dispute resolution process set forth in Article 13 and subsequent cure.

 

10


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

EXCLUSIVE LICENSE AGREEMENT

 

(b) Material Breach. In the event Surface commits a material breach of its obligations under this Agreement, except for breach as described in Section 12.2(a), and fails to cure that breach within [***] days after receiving written notice thereof, Harbour may terminate this Agreement immediately upon written notice to Surface, subject to completion of the dispute resolution process set forth in Article 13 and subsequent cure.

12.3 Effect of Expiration or Termination.

(a) Survival. The following provisions shall survive the expiration or termination of this Agreement: Article 1, Article 8, Article 9, Article 13 and Article 14, and Sections 4.1(d), 5.2 (but only with respect to obligation to provide final report and payment), 5.3, 11.1, 11.2 and 12.3.

(b) Inventory. Upon the early termination of this Agreement, Surface and its Affiliates and Sublicensees may complete and sell any work-in-progress and inventory of Licensed Products that exist as of the effective date of termination, provided that (i) Surface pays Harbour the applicable running royalty or other amounts due on such sales of Licensed Products in accordance with the terms and conditions of this Agreement, and (ii) Surface and its Affiliates and Sublicensees shall complete and sell all work-in-progress and inventory of Licensed Products within [***] after the effective date of termination.

(c) Sublicenses. Upon termination of this Agreement for any reason, at the election of the applicable sublicensee, the sublicense granted hereunder to such sublicensee that was in effect immediately prior to termination of this Agreement will survive such termination, with Harbour as the sublicensee’s direct licensor, provided that such sublicensee is not then in default of any of its obligations under its sublicense agreement with Surface at the effective date of termination and provided the sublicensee agrees to directly pay Harbour any unpaid milestones and royalties that would have been due Harbour from Surface in accordance with Articles 4 and 5 of this Agreement .

(d) Expiration or termination of this Agreement for any reason shall not relieve either Party of any liability or obligation which accrued hereunder prior to the effective date of such termination or expiration.

ARTICLE 13

DISPUTE RESOLUTION

13.1 Mandatory Procedures. If after negotiations in person between their respective senior management the Parties are unable to resolve any dispute arising out of or relating to this Agreement, then the dispute shall be resolved solely by means of the procedures set forth in this Article 13, and that such procedures constitute legally binding obligations that are an essential provision of this Agreement. If either Party fails to observe the procedures of this Article 13, as may be modified by their written agreement, the other Party may bring an action for specific performance of these procedures in any court of competent jurisdiction.

13.2 Equitable Remedies. Although the procedures specified in this Article 13 are the sole and exclusive procedures for the resolution of disputes arising out of or relating to this Agreement, either Party may seek a preliminary injunction or other provisional equitable relief if, in its reasonable judgment, such action is necessary to avoid irreparable harm to itself or to preserve its rights under this Agreement.

13.3 Dispute Resolution Procedures. Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by binding confidential arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association (“AAA”), and the procedures set forth below. In the event of any inconsistency between the Rules of AAA and the procedures set forth below, the procedures set forth below shall control. Judgment upon the award rendered by the arbitrators may be enforced in any court having jurisdiction thereof.

 

11


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

EXCLUSIVE LICENSE AGREEMENT

 

(a) The location of the arbitration shall be in the Suffolk County, Massachusetts. Harbour and Surface hereby irrevocably submit to the exclusive jurisdiction and venue of the AAA arbitration panel selected by the Parties and located in Boston, Massachusetts for any dispute regarding this Agreement, and to the exclusive jurisdiction and venue of the federal and state courts located in Boston, Massachusetts for any action or proceeding to enforce an arbitration award or as otherwise provided in Section 13.3(e), and waive any right to contest or otherwise object to such jurisdiction or venue.

(b) The arbitration shall be conducted by a panel of three neutral arbitrators who are independent and disinterested with respect to the Parties, this Agreement, and the outcome of the arbitration. Each Party shall appoint one neutral arbitrator, and these two arbitrators so selected by the Parties shall then select the third arbitrator, and all arbitrators must have reasonably sufficient and relevant experience in mediating or arbitrating cases regarding the same or substantially similar subject matter as the dispute between Harbour and Surface. If one Party has given written notice to the other Party as to the identity of the arbitrator appointed by the Party, and the Party thereafter makes a written demand on the other Party to appoint its designated arbitrator within the next ten days, and the other Party fails to appoint its designated arbitrator within ten days after receiving said written demand, then the arbitrator who has already been designated shall appoint the other two arbitrators.

(c) The arbitrators shall decide any disputes and shall control the process concerning these pre-hearing discovery matters. Pursuant to the Rules of AAA, the Parties may subpoena witnesses and documents for presentation at the hearing.

(d) Prompt resolution of any dispute is important to both Parties; and the Parties agree that the arbitration of any dispute shall be conducted expeditiously. The arbitrators are instructed and directed to assume case management initiative and control over the arbitration process (including, without limitation, scheduling of events, pre-hearing discovery and activities, and the conduct of the hearing), in order to complete the arbitration as expeditiously as is reasonably practical for obtaining a just resolution of the dispute.

(e) The arbitrators may grant any legal or equitable remedy or relief that the arbitrators deem just and equitable, to the same extent that remedies or relief could be granted by a state or federal court, provided however, that no punitive damages may be awarded. No court action shall be maintained seeking punitive damages. The decision of any two of the three arbitrators appointed shall be binding upon the Parties. Notwithstanding anything to the contrary in this Agreement, prior to or while an arbitration proceeding is pending, either Party has the right to seek and obtain injunctive and other equitable relief from a court of competent jurisdiction to enforce that Party’s rights hereunder.

(f) The expenses of the arbitration, including, without limitation, the arbitrators’ fees, expert witness fees, and attorney’s fees, may be awarded to the prevailing Party, in the discretion of the arbitrators, or may be apportioned between the Parties in any manner deemed appropriate by the arbitrators. Unless and until the arbitrators decide that one Party is to pay for all (or a share) of such expenses, both Parties shall share equally in the payment of the arbitrators’ fees as and when billed by the arbitrators.

(g) Notwithstanding the foregoing, any disputes arising hereunder with respect to the inventorship, validity, enforceability or other aspect of intellectual property rights shall be resolved by a court of competent jurisdiction and not by arbitration.

 

12


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

EXCLUSIVE LICENSE AGREEMENT

 

(h) Except as set forth below and as necessary to obtain or enforce a judgment upon any arbitration award, the Parties shall keep confidential the fact of the arbitration, the dispute being arbitrated, and the decision of the arbitrators. Notwithstanding the foregoing, the Parties may disclose information about the arbitration to persons who have a need to know, such as directors, trustees, management employees, witnesses, experts, investors, attorneys, lenders, insurers, actual or potential collaborators or corporate partners of Surface, actual or potential acquirors of Surface, and others who may be directly affected provided that such persons are bound to keep such information confidential. Additionally, if a Party has stock which is publicly traded, the Party may make such disclosures as are required by applicable securities laws, but shall use commercially reasonably efforts to seek confidential treatment for such disclosure.

13.4 Performance to Continue. Each Party shall continue to perform its undisputed obligations under this Agreement pending final resolution of any dispute arising out of or relating to this Agreement; provided, however, that a Party may suspend performance of its undisputed obligations during any period in which the other Party fails or refuses to perform its undisputed obligations.

13.5 Statute of Limitations. The Parties agree that all applicable statutes of limitation and time-based defenses (such as estoppel and laches) shall be tolled while the procedures set forth in Section 13.5 are pending. The Parties shall cooperate in taking any actions necessary to achieve this result.

ARTICLE 14

MISCELLANEOUS

14.1 Notice. Any notices required or permitted under this Agreement shall be in writing, shall specifically refer to this Agreement, and shall be sent by hand, recognized national overnight courier, confirmed facsimile transmission, confirmed electronic mail, or registered or certified mail, postage prepaid, return receipt requested, to the following addresses or facsimile numbers of the Parties:

 

  If to Harbour:    Dr. F. G. Grosveld
     Harbour Antibodies BV
     PO Box 2040
     3015 CN, Rotterdam
     The Netherlands
  With a copy to:   
     Heather Schwoebel
     Heather@Harbourantibodies.com
                                                                                           
          If to Surface:   
     Surface Oncology, Inc.
     215 First Street, Suite 400-S
     Cambridge, MA 02142
     Attention: CEO
     Fax: [***]

All notices under this Agreement shall be deemed effective upon receipt. A Party may change its contact information immediately upon written notice to the other Party in the manner provided in this Section 14.1.

 

13


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

EXCLUSIVE LICENSE AGREEMENT

 

14.2 Governing Law. This Agreement and all disputes arising out of or related to this Agreement, or the performance, enforcement, breach or termination hereof, and any remedies relating thereto, shall be construed, governed, interpreted and applied in accordance with the laws of the Commonwealth of Massachusetts , without regard to conflict of laws principles, except that questions affecting the construction and effect of any patent shall be determined by the law of the country in which the patent shall have been granted.

14.3 Force Majeure. Neither Party shall be responsible for delays resulting from causes beyond the reasonable control of such Party, including, without limitation fire, explosion, flood, war, strike, or riot, provided that the nonperforming Party uses commercially reasonable efforts to avoid or remove such causes of nonperformance and continues performance under this Agreement with reasonable dispatch whenever such causes are removed.

14.4 Amendment and Waiver. This Agreement may be amended, supplemented, or otherwise modified only by means of a written instrument signed by both Parties. Any waiver of any rights or failure to act in a specific instance shall relate only to such instance and shall not be construed as an agreement to waive any rights or fail to act in any other instance, whether or not similar.

14.5 Severability. In the event that any provision of this Agreement shall be held invalid or unenforceable for any reason, such invalidity or unenforceability shall not affect any other provision of this Agreement, and the Parties shall negotiate in good faith to modify the Agreement to preserve (to the extent possible) their original intent. If the Parties fail to reach a modified agreement within [***] days after the relevant provision is held invalid or unenforceable, then the dispute shall be resolved in accordance with the procedures set forth in Article 13. While the dispute is pending resolution, this Agreement shall be construed as if such provision were deleted by agreement of the Parties.

14.6 Binding Effect. This Agreement shall be binding upon and inure to the benefit of the Parties and their respective legal representatives, successors and assigns.

14.7 Headings. All headings are for convenience only and shall not affect the meaning of any provision of this Agreement.

14.8 Prior Agreements; Entirety. This Agreement constitutes the entire agreement between the Parties with respect to its subject matter and supersedes all prior agreements or understandings between the parties relating to its subject matter including the Material Transfer and Evaluation Agreement and its Amendment No.1 effective May 15, 2014.

14.9 Interpretation. The Parties hereby waive any presumptions of any statutory or common law rule relating to the interpretation of contracts against the drafter.

[remainder of this page intentionally left blank]

 

14


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

EXCLUSIVE LICENSE AGREEMENT

 

IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their duly authorized representatives.

 

Harbour Antibodies B.V.     Surface Oncology, Inc.
By: /s/ F.G. Grosveld                                                      By: /s/ Detlev Biniszkiewicz                                             
Name: F.G. Grosveld     Name: Detlev Biniszkiewicz
Title: Prof.dr.     Title: CEO
By: /s/ Robert Kamen                                                 
Name: Robert Kamen    
Title: Director    
   
   
   
   

 

15


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

EXCLUSIVE LICENSE AGREEMENT

 

EXHIBIT A

HARBOUR MATERIALS

[***]

 


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

EXCLUSIVE LICENSE AGREEMENT

 

EXHIBIT B

PATENT RIGHTS

[***]

 


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

FIRST AMENDMENT TO EXCLUSIVE LICENSE AGREEMENT

This first amendment (the “First Amendment”) to the Agreement (as defined below), effective as of the 4th day of January, 2016 (the “Amendment Effective Date”), is by and between Surface Oncology Inc., a Delaware corporation with its principal place of business at 215 First Street, Suite 400-S, Cambridge MA 02142, USA (“Surface”), and Harbour Antibodies B.V., a Netherlands corporation located at Erasmus MC Building EE, Room 07-22, Wytemaweg 80, 3015 CN Rotterdam, The Netherlands (“Harbour”).

WHEREAS, Surface and Harbour are parties to that certain Exclusive License Agreement dated September 23, 2015 (the “Agreement”); and

WHEREAS, Surface and Harbour desire to amend the Agreement as provided herein.

NOW, THEREFORE, in consideration of the mutual provisions and covenants contained herein, the receipt and sufficiency of which are hereby acknowledged, Surface and Harbour hereby agree as follows:

1. Section 8.2 of the Agreement is hereby amended by replacing it in its entirety with the following:

“Surface shall obtain and carry in full force and effect commercial general liability insurance, including, without limitation, product liability which shall protect such Party and indemnitees with respect to events covered by Section 8.1. The limits of such insurance shall not be less than [***] per occurrence with an aggregate of [***] for bodily injury including death; and [***] per occurrence with an aggregate of [***] for property damage. Upon request, Surface shall provide the other Party with Certificates of Insurance evidencing compliance with this Section 8.2. Surface shall continue to maintain such insurance or self-insurance after the expiration or termination of this Agreement and thereafter for a period of [***]”

2. Section 5.2 is hereby amended by replacing subpart (d) in its entirety with the following:

“(d) total royalty payable on Net Sales in U.S. dollars, together with the exchange rates used for conversion, to the extent such exchange rates are reasonably available to Surface.

IN WITNESS WHEREOF, Surface and Harbour have caused this First Amendment to be executed by their respective authorized representatives as of the Amendment Effective Date.

 

HARBOUR ANTIBODIES B.V.   SURFACE ONCOLOGY, INC.
By:   /s/ F.G. Grosveld   By:   /s/ Nicholas Buffinger
Name:   F.G. Grosveld   Name:   Nicholas Buffinger
Title:   CSO   Title:   V.P., Corporate Development
Date:   6 January 2016   Date:   January 7, 2016
By:   /s/ Robert Kamen    
Name:   Robert Kamen, PhD    
Title:   Director    
Date:   January 7, 2016    

 


EX-10.20

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

Exhibit 10.20

DEVELOPMENT AND OPTION AGREEMENT

THIS DEVELOPMENT AND OPTION AGREEMENT (the “Agreement”) is made effective as of July 3, 2014 (the “Effective Date”), by and between Adimab, LLC, a Delaware limited liability company having an address at 7 Lucent Drive, Lebanon, NH 03766 (“Adimab”), and Surface Oncology, Inc., a Delaware corporation having an address at 25 First Street, Suite 303, Cambridge, MA 02141 (“Surface”).

BACKGROUND

WHEREAS, Adimab is a leader in yeast-based, fully human antibody discovery and optimization using its proprietary core technology platform;

WHEREAS, Surface wishes to discover and optimize certain proprietary antibodies as potential therapeutic product candidates directed against disease-related biological targets to be identified by Surface;

WHEREAS, the Parties wish to collaborate to have Adimab discover and optimize such antibodies;

WHEREAS, Surface wishes to have a research license to determine the activity of such antibodies and to evaluate such antibodies, as well as an option to a license for commercial rights to certain of the antibodies to each such target for development and commercialization as a pharmaceutical product, all as more particularly set forth in this Agreement;

NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants set forth below, and for other good and valuable consideration, the receipt of which is hereby acknowledged, Adimab and Surface hereby agree as follows:

ARTICLE 1

DEFINITIONS.

The following initially capitalized terms have the following meanings (and derivative forms of them shall be interpreted accordingly):

1.1 “AAA” has the meaning set forth in Section 10.2(c)(i).

1.2 “Adimab” has the meaning set forth in the recitals.

1.3 “Adimab Indemnitees” has the meaning set forth in Section 8.2.

1.4 “Adimab Materials” means any tangible biological or chemical materials (including all [***] and other [***] in the form of tangible biological or chemical materials) provided by Adimab to Surface under the Research Program, [***]

 


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

DEVELOPMENT AND OPTION AGREEMENT

 

1.5 “Adimab Platform Patents” means all Patents [***] the [***] that [***]

1.6 “Adimab Platform Technology” means (a) the discovery and optimization of antibodies via methods that include the use of synthetic DNA antibody libraries and engineered strains of yeast, (b) all methods, materials and other Know-How used in the foregoing and (c) platforms embodying, components, component steps and other portions of any of the foregoing in (a) or (b ). For clarity, Adimab Platform Technology includes technology used in the discovery, and optimization of any Program Antibody, in each case not based on the specific composition of such Program Antibody (or product containing a Program Antibody), but based instead on the manner in which such Program Antibody was discovered or optimized under a Research Program.

1.7 “Adimab Platform Technology Improvement” means all Program Inventions that [***] Adimab Platform Technology, including any and all improvements, enhancements, modifications, substitutions, alternatives or alterations to Adimab Platform Technology.

1.8 “Adimab Program Inventions” means all Program Inventions made solely by employees of, or others obligated to assign Program Inventions to, Adimab (or any of its Affiliates).

1.9 “Affiliate” means an entity that, directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with a Party. For this purpose, “control” means the ownership of fifty percent (50%) or more of the voting securities entitled to elect the directors or management of the entity, or the actual power to elect or direct the management of the entity. Moreover, notwithstanding anything in this Agreement to the contrary, any venture capital fund, private equity fund or other investor who is not primarily an operating biopharmaceutical, pharmaceutical, diagnostics, or medical device research and development and/or marketing company (a “Non-affiliate Investor”) shall not be considered an Affiliate of a Party, and any person or entity that directly or indirectly controls or is controlled by a Non-affiliate Investor (except for any entity directly or indirectly controlled by a Party, controlling a Party, or under common control with a Party, in each case other than through Non-affiliate Investor(s)) shall not be considered an Affiliate of a Party solely by reason of being controlled by the same Non-affiliate Investors.

1.10 “Agreement” has the meaning set forth in the recitals.

1.11 “Bankruptcy Code” has the meaning set forth in Section 9.7.

1.12 “Binding Sequence Information” has the meaning set forth in Section 1.55.

 

2


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

DEVELOPMENT AND OPTION AGREEMENT

 

1.13 “Change of Control” means any transaction or series of transactions in which Surface (a) sells, conveys or otherwise disposes of all or substantially all of its property or business to a single entity or set of Affiliated entities; or (b) (i) merges with, consolidates with, acquires or is acquired by any other entity; or (ii) effects any other transaction or series of related transactions; in the case of each of clause (i) and clause (ii), such that the members, stockholders or shareholders of Surface immediately prior thereto, in the aggregate, no longer own, directly or indirectly, at least fifty percent (50%) of the outstanding voting securities or capital stock (including membership interests) of the surviving entity following the closing of such merger, consolidation, other transaction or series of related transactions, other than a capital-raising transaction with a Non-Affiliate Investor.

1.14 “Combination Product” means a product containing a Licensed Antibody as well as one or more other active therapeutic ingredient. Notwithstanding the foregoing, [***]

1.15 “Commercial Option” has the meaning set forth in Section 3.3(a).

1.16 “Commercial Option Fee” has the meaning set forth in Section 4.3.

1.17 “Commercially Reasonable Efforts” means the level of efforts required to carry out a task in a diligent and sustained manner without undue interruption, pause or delay; which level is at least commensurate with the level of efforts that a similarly situated biopharmaceutical company would devote to a product of similar potential and having similar commercial and scientific advantages and disadvantages resulting from the company’s own research efforts (i.e., explicitly ignoring the royalty, milestone and other payments due Adimab under this Agreement), taking into account safety and efficacy; the competitiveness of alternative products; the proprietary position of the product; pricing and reimbursement; and all other relevant commercial factors.

1.18 “Confidential Information” has the meaning set forth in Section 6.l(a).

1.19 “Control” means, with respect to any Know-How or Patent [***] (other than pursuant to this Agreement), of the [***] as provided for in this Agreement without violating the terms of any written agreement with any Third Party.

1.20 “Controlled Contractor” has the meaning set forth in Section 2.1 (b).

1.21 “Cover” means, with respect to a particular item and a particular Patent, that such Patent [***]

1.22 “Discovery Term” means the term beginning on the Effective Date and ending [***] after the Effective Date.

 

3


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

DEVELOPMENT AND OPTION AGREEMENT

 

1.23 “Dispute” has the meaning set forth in Section 10.2(a).

1.24 “Effective Date” has the meaning set forth in the recitals.

1.25 “Evaluation Term” means, with respect to each Target, the time period beginning at the end of the Research Term for such Target and ending [***] thereafter, unless otherwise extended by mutual agreement of the Parties.

1.26 “Field” means diagnostic, therapeutic or prophylactic uses in human or other animal disease.

1.27 “First Commercial Sale” means, with respect to a Licensed Product in any country, the first sale, transfer or disposition for value or for end use or consumption of such Licensed Product in such country after Marketing Approval for such Licensed Product has been received in such country, but excluding any distribution or other sale solely for so-called treatment investigational new drug sales, named patient sales, compassionate or emergency use sales and pre-license sales.

1.28 “Force Majeure” means conditions beyond a Party’s reasonable control or ability to plan for, including acts of God, war, terrorism, civil commotion, labor strike or lock-out; epidemic; failure or default of public utilities or common carriers; and destruction of facilities or materials by fire, earthquake, storm or like catastrophe; provided, however, the payment of invoices due and owing under this Agreement shall not be excused by reason of a Force Majeure affecting the payor.

1.29 “FTE” means the equivalent of a full-time employee’s working days over a twelve (12) month period (taking account of normal vacations, sick days and holidays not being considered working days), which equates to a total of [***] hours per twelve (12) month period of work performed by a fully qualified Adimab employee or consultant in a Research Program. To provide an FTE over a given time period that is less than a year means to provide the proportionate share (corresponding to the proportion that such time period bears to a full year) during such time period of a full year’s FTE. In no event shall the work over the course of a year of one individual person account for more than one (1) FTE year.

1.30 “FTE Rate” means [***] per FTE.

1.31 “Indemnify” has the meaning set forth in Section 8 .1.

1.32 “Interest Payment” has the meaning set forth in Section 4.5.

1.33 “Joint Inventions” means any and all Program Inventions made jointly by employees of, or others obligated to assign Program Inventions to, each of Adimab (or any of its Affiliates) and Surface (or any of its Affiliates).

1.34 “Joint Serendipitous Inventions” means all Joint Inventions other than those Covered by Program Antibody Patents or constituting Adimab Platform Technology Improvements.

 

4


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

DEVELOPMENT AND OPTION AGREEMENT

 

1.35 “Know-How” means all technical information and know-how, including (i) inventions, discoveries, trade secrets, data, specifications, instructions, processes, formulae, materials (including cell lines, DNA, vectors, plasmids, nucleic acids and the like), methods, protocols, expertise and any other technology, including the applicability of any of the foregoing to formulations, compositions or products or to their manufacture, development, registration, use or marketing or to methods of assaying or testing them or processes for their manufacture, formulations containing them or compositions incorporating or comprising them, and (ii) all data, instructions, processes, formula, strategies, and expertise, whether biological, chemical, pharmacological, biochemical, toxicological, pharmaceutical, physical, analytical, or otherwise and whether related to safety, quality control, manufacturing or other disciplines.

1.36 “Licensed Antibodies” means those Program Antibodies that are selected by Surface pursuant to Section 3.3(a), and any Program-Benefited Antibody generated from such Program Antibodies.

1.37 “Licensed Research Antibodies” means those Program Antibodies that are selected by Surface pursuant to Section 3 .2(a), and any Program-Benefited Antibody generated from such Program Antibodies.

1.38 “Licensed Product” means a Product that [***] Licensed Antibodies, and includes Combination Products containing any one or more Licensed Antibodies. [***]

1.39 “Licensed Program Antibody Patents” means those Program Antibody Patents that Cover any Licensed Antibodies or Licensed Research Antibodies.

1.40 “Losses” has the meaning set forth in Section 8.1.

1.41 “Major Markets” means each of the [***]

1.42 “Marketing Approval” each means approval to market a Licensed Product legally as a drug or biologic, including approval of a Biologic License Application (as defined in the U.S. Federal Food, Drug and Cosmetics Act and the regulations promulgated thereunder (21 C.F.R. §§ 600-680) in the United States, or approval of a comparable filing in the United States or any other jurisdiction. [***]

1.43 “Milestone Event” has the meaning set forth in Section 4.4.

1.44 “Milestone Payment” has the meaning set forth in Section 4.4.

1.45 “Naive Antibody Library” has the meaning set forth in Section 2.6(a).

 

5


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

DEVELOPMENT AND OPTION AGREEMENT

 

1.46 “Net Sales” means [***]

If any Licensed Antibody is sold as part of a Combination Product, the Net Sales for such Licensed Antibody shall be determined by [***]

1.47 “Non-Affiliate Investor” has the meaning set forth in Section 1.9.

1.48 “Optimization Antibody Library” has the meaning set forth in Section 2.6(a).

 

6


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

DEVELOPMENT AND OPTION AGREEMENT

 

1.49 “Party” means Adimab or Surface.

1.50 “Patent” means any patent application or patent anywhere in the world, including all of the following categories of patents and patent applications, and their foreign equivalents: provisional, utility, divisional, continuation, continuation-in-part, and substitution applications; and utility, re-issue, re-examination, renewal and extended patents, and patents of addition, and any Supplementary Protection Certificates, patent extensions, restoration of patent terms and other similar rights.

1.51 “Permitted Comparison” has the meaning set forth in Section 1.55.

1.52 “Product” means any actual or potential product [***] that [***] Program-Benefited Antibodies [***] For clarity, it is possible that there will be multiple Products against a single Target.

1.53 “Program Antibody” means, with respect to each Target, each antibody [***] under a Research Program for such Target. It is understood and agreed that [***]

1.54 “Program Antibody Patents” means, for each Target, Patents that, [***]

1.55 “Program-Benefited Antibody” means any Program Antibody or any modified or derivative form of any such Program Antibody that comprises or contains either [***] (“Binding Sequence Information”). Notwithstanding the foregoing, an antibody product will not be deemed a Program-Benefited Antibody [***] (“Permitted Comparisons”).

 

7


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

DEVELOPMENT AND OPTION AGREEMENT

 

1.56 “Program Deliverables” means, for each Target, the deliverables for a given part of the Research Plan as defined in the Research Plan for such Target.

1.57 “Program Inventions” means, for each Target, any invention or Know-How that is [***] in the course of performing or as a result of the activities conducted under a Research Program.

1.58 “Program Patent” means, for each Target, any Patent Covering a Program Invention.

1.59 “Prosecute” has the meaning set forth in Section 5 .4(d)(i).

1.60 “Research Committee” has the meaning set forth in Section 2.2(a).

1.61 “Research License Term” has the meaning set forth in Section 3 .2(b )(i).

1.62 “Research Option” has the meaning set forth in Section 3.2(a).

1.63 “Research Plan” means the research plan to be agreed upon by the Parties with respect to a Target in accordance with Section 2.1 (a) hereof.

1.64 “Research Program” means the program of research conducted under this Agreement in accordance with a Research Plan, and, as applicable, all programs of research conducted under this Agreement in accordance with all Research Plans.

1.65 “Research Term” means the period beginning on the Effective Date and ending, on a Research Program-by-Research Program basis, when Adimab delivers final antibodies under a Research Plan.

1.66 “Royalty Term” means, on a Licensed Product-by-Licensed Product and country-by-country basis, the term ending at the later to occur of (a) the expiration of the last Valid Claim Covering the Licensed Product in the country in which such Licensed Product is manufactured or sold, or (b) ten (10) years after the First Commercial Sale of such Licensed Product in such country.

1.67 “Senior Executive Discussions” has the meaning set forth in Section 10.2(a).

1.68 “Surface” has the meaning set forth in the recitals.

1.69 “Surface Indemnitees” has the meaning set forth in Section 8.1.

1.70 “Surface Materials” means (a) any tangible biological or chemical materials (including antigen samples and other Know-How in the form of tangible biological or chemical materials) provided by Surface to Adimab under a Research Program (other than commercial material purchased by Surface and delivered to Adimab ), and (b) from and after the time of the Commercial Option exercise for a Target, the quantities of Licensed Antibody to such Target (and DNA encoding that Licensed Antibody) provided to Surface by Adimab under this Agreement.

 

8


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

DEVELOPMENT AND OPTION AGREEMENT

 

1. 71 “Surface Program Inventions” means all Program Inventions made solely by employees of, or others obligated to assign Program Inventions to, Surface (or any of its Affiliates).

1. 72 “Target” means a target selected by Surface pursuant to Section 2.1 (a).

1. 73 “Target Questionnaire” means the form of target questionnaire attached hereto as Exhibit A.

1.74 “Third Party” means an entity other than a Party or the Affiliate of a Party.

1. 75 “Third Party Claims” has the meaning set forth in Section 8.1.

1. 76 “Third Party Patent Licenses” means Patent licenses obtained by Surface after Surface determines in good faith that one or more such Patent licenses from Third Parties are [***] in order to avoid Third Party claims of patent infringement [***] of a Licensed Antibody, [***] For clarity, Third Party Patent Licenses explicitly excludes licenses to any of the foregoing:

(1) [***]

(2) [***]

(3) [***]

(4) [***]

(5) [***]

(6) [***]

(7) [***]

 

9


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

DEVELOPMENT AND OPTION AGREEMENT

 

1. 77 “Valid Claim” means a claim of a Licensed Program Antibody Patent, which claim [***]

1.78 References in the body of this Agreement to “Sections” and “Articles” refer to the sections and articles of this Agreement. The terms “include,” “includes,” “including” and derivative forms of them shall be deemed followed by the phrase “without limitation” regardless of whether such phrase appears there (and with no implication being drawn from its inconsistent inclusion or non-inclusion), and the use of the word “or” shall not be exclusive.

1.79 To avoid doubt, the term “antibody” as used everywhere else in this Agreement includes both full-length antibodies, functional fragments thereof, and chemically modified versions thereof (including pegylated versions and regardless of whether containing amino acid substitutions), all of the foregoing whether naturally occurring, artificially produced, raised in an artificial system, or created through modification of an antibody produced in any of the foregoing ways or otherwise.

ARTICLE 2

PROGRAM.

2.1 Research Programs.

(a) Target Selection. Surface shall nominate the first Target by providing notice of such Target to Adimab before the Effective Date. At any time prior to the expiration of the Discovery Term, Surface may initiate Research Programs with respect to additional Targets by notifying Adimab. In each case, such notice shall be in writing on a Target-by-Target basis, and shall be in the form of a completed Target Questionnaire with respect to each such Target and delivery of Surface’s antigen for such Target. Adimab’s obligation to perform such additional Research Programs shall be subject to the availability of Adimab researchers. Upon receipt of such notice by Adimab and Adimab’s confirmation of availability, the Parties shall work together to prepare the content of a Research Plan with respect to such Target, including the relevant Deliverables and success criteria. Such Research Plan shall be based upon the form of Research Plan attached hereto as Exhibit B, and shall include Adimab’s responsibilities with respect to the discovery and optimization of antibodies with respect to each Target. Each Research Plan shall be agreed upon in writing by the Parties, and each Research Program shall be conducted in accordance therewith. Neither Party is required to perform a Research Program under this Agreement if the Parties do not mutually agree in writing on Research Plan.

(b) Conduct of Research. Each Party shall use its commercially reasonable efforts to perform the Research Program activities assigned to such Party in each Research Plan and to achieve the timeline(s) set forth in such Research Plan. Adimab’s performance

 

10


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

DEVELOPMENT AND OPTION AGREEMENT

 

obligations under each Research Program shall be contingent upon Surface providing the Surface Materials, if any, set forth in the applicable Research Plan. Such Surface Materials are expected to include Target antigen. Adimab’s obligations with regard to the performance of a particular Research Program shall expire at the end of the applicable Research Term. Adimab shall have the right to use Third Parties in the performance of its obligations hereunder, subject to Surface’s prior written consent if such Third Party is not identified and the applicable work not described in the Research Plan (any such permitted Third Party, a “Controlled Contractor”).

2.2 Project Management.

(a) Scientific Research Committee. Promptly after the completion of the first Research Plan, the Parties shall form a steering committee consisting of [***] representatives from each Party with respect to the relevant Research Program (the “Research Committee”) to oversee the Research Programs. The Research Committee’s role is to facilitate communication regarding progress in relation to the Research Programs and the collaboration generally. Either Party may change its Research Committee members upon written notice to the other Party. The Research Committee may meet in person or by teleconference or videoconference. Each Party shall designate one of its Research Committee members as co-chair. The Research Committee shall meet from time to time promptly after the date of a written request by either Party. Additional members representing either Party may attend any Research Committee meeting. The co-chairs shall be responsible to circulate, finalize and agree on minutes of each meeting within [***] days after the meeting date. Upon expiration of the final Research Term, the Research Committee shall be disbanded.

(b) Decision Making. The Research Committee shall operate by consensus but solely within the limits specified in this Section 2.2, it being understood that if the co-chairs cannot agree with regards to a specific matter within their decision-making authority, no decision of the Research Committee shall be deemed taken by the Research Committee. The Research Committee shall have the limited authority to amend the Research Plans in a manner not substantially affecting resources required to perform, timing for performance, or success criteria. Except for the limited authority set forth in this Section 2.2, the Research Committee shall not have any decision-making authority and in no event shall the Research Committee shall have the power to amend or waive compliance with this Agreement.

(c) Alliance Managers. Each Party shall designate in writing within [***] days after signing an “Alliance Manager” to be the primary contact for such Party. The Alliance Manager shall be responsible for managing communications between the Parties with respect to a Research Program, including responsibility for scheduling teleconferences and coordinating Research Committee meetings.

(d) Exclusive Use of Campaign Manager. During the applicable Research Term and for a period of [***] year after, the person whom Adimab has designated as the “Campaign Manager” for a given Research Program shall not perform, or supervise the performance of, research relating to the same Target using Adimab Platform Technology for Adimab or its Affiliates (whether for their own account or on behalf of any Third Party). It is understood and agreed that if such a person is no longer in Adimab’s or its Affiliate’s employ, then such person’s activities for another employer are beyond the scope of (and are not Adimab’s responsibility to prevent under) the foregoing sentence.

 

11


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

DEVELOPMENT AND OPTION AGREEMENT

 

2.3 Reports; Records.

(a) By Adimab. During the applicable Research Term, at the junctures specified in the applicable Research Plan, Adimab shall provide written reports to Surface regarding the Research Plan. Notwithstanding the foregoing or anything express or implied anywhere in this Agreement, Adimab shall not be required to disclose any Adimab Platform Technology or Adimab Platform Technology Improvements to Surface. Adimab shall maintain records, in sufficient details and in good scientific manner appropriate for patent purposes, which shall be complete and accurate and shall fully and properly reflect all work done and results achieved in the performance of a Research Program, by or on behalf of Adimab or any of its Affiliates or Controlled Contractors. All such records shall be kept in sufficient detail to identify and report those research activities conducted by Adimab, and shall be made available for inspection or copies provided to Surface upon Surface’s request. In the event that such records and data include disclosure of Adimab Platform Technology or Adimab Platform Technology Improvements, Adimab may redact those portions as is necessary to protect Adimab Platform Technology or Adimab Platform Technology Improvements prior to any review or inspection by or delivery to Surface.

(b) By Surface. During the applicable Research Term, at the junctures set forth in the applicable Research Plan, for so long as Surface or any of its Affiliates, licensees or sublicensees continue to generate or test any Program-Benefited Antibodies, Surface shall provide written reports to Adimab which provide any data Surface is required to provide under the applicable Research Plan and shall disclose information regarding the existence and progress of all Program-Benefited Antibodies since the date of the last report. For clarity, the information reported by Surface after the Research Term shall be solely for the purpose of allowing Adimab to monitor Surface’s obligations under this Agreement.

2.4 Use of Adimab Materials. With respect to each Target, Surface and its Affiliates shall only use Adimab Materials (a) as is necessary to conduct a Research Program during the Research Term and the Evaluation Term, (b) pursuant to the license granted under Section 3.l(a) and Section 3 .2(b) of this Agreement while such licenses are in effect, including for Permitted Comparisons, or (c) to generate and test Program-Benefited Antibodies in accordance with Section 9 .4. Surface and its Affiliates shall not use Adimab Materials for any other purposes. Without limiting the foregoing, Adimab acknowledges and agrees that upon receipt of Program Antibodies, Surface may conduct testing on such Program Antibodies to optimize such Program Antibodies (and, to avoid doubt, the optimized versions thus created shall be Program-Benefited Antibodies).

Adimab retains title to the Adimab Materials, including all quantities of Program Antibodies that it provides under a Research Program, including during the Evaluation Term. During the Evaluation Term, such quantities of Program Antibodies are (i) for use solely in assessing whether to exercise the Commercial Option or Research Option for the applicable Target and for Permitted Comparisons, and (ii) shall not be used in humans or for any commercial purpose. Should Surface exercise neither its Research Option pursuant to Section

 

12


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

DEVELOPMENT AND OPTION AGREEMENT

 

3.2(a) nor its Commercial Option pursuant to Section 3.3(a), Surface shall return to Adimab or destroy any Program-Benefitted Antibodies in its possession on expiration of the Evaluation Term for such Target. Surface shall destroy any Licensed Research Antibodies in its possession on expiration of the relevant Research License Term. Without limiting the generality of the foregoing, during the Evaluation Term and after expiration of the Options, if unexercised, Surface shall not provide Program-Benefitted Antibodies to Third Parties, except as permitted by this Agreement.

2.5 Use of Surface Materials. Adimab shall use the Surface Materials solely to perform the Research Program for the applicable Target. Adimab shall not transfer the Surface Materials outside of Adimab nor, for clarity, provide the Surface Materials to any Third Party. Within [***] days after the Research Term for such Target ends, Adimab will return to Surface or destroy any remaining Surface Materials (at Surface’s direction).

2.6 Certain Restrictions on the Use of Antibodies.

(a) Adimab Restrictions. For each Target, until the earlier of expiration of the Evaluation Term for such Target or Surface’s exercise of its Commercial Option for such Target, Adimab shall not provide any of the Program Antibodies (or any of their Binding Sequence Information) to any Third Party in connection with performing a funded or sponsored research program for such Third Party. In addition, even if Surface does not exercise its Commercial Option for a particular Target, Adimab shall not file Program Antibody Patents for such Target or any patent application Covering any Program Antibody, unless independently rediscovered as contemplated below. For purposes of this Section 2.6, the performance of a program by Adimab means use of any of the Adimab Platform Technology to discover or optimize antibodies to the applicable Target based on activity against or with respect to such Target. Further, at all times, unless independently rediscovered without the use of (i) Surface Materials, (ii) Confidential Information of Surface (subject to Section 6.2(e)), (iii) any antibody library that is (A) [***] and (B) [***] (any such antibody library satisfying clauses (A) and (B)(l), a “Naive Antibody Library”) or (2) created specifically for use in the Research Program and [***] from a Naive Antibody Library in a Research Program (any such antibody library satisfying clauses (A) and (B)(2) an “Optimization Antibody Library”) and or any antibodies identified therefrom (including Program Antibodies), or any of their partial or whole sequences, or (iv) any Program Inventions to the extent solely owned by Surface based on the terms of this Agreement (subject to Section 6.2(e)), Adimab and its Affiliates shall not (I) provide the Program Antibodies or their Binding Sequence Information to any Third Party at any time, or any other antibody or their Binding Sequence Information identified from any Naive Antibody Library or Optimization Antibody Library under a Research Program or (II) use the Program Antibodies, any other antibody identified from any Naive Antibody Library or Optimization Antibody Library under a Research Program, or any of their Binding Sequence Information, to research, develop, manufacture or commercialize any biologic or drug products in for Adimab, its Affiliates or any Third Parties. Further, Adimab shall not perform any research, discovery or development with respect to a Target using any Naive Antibody Library or Optimization Antibody Library for which research, discovery or development was pursued with respect to such Target under a Research Program, and Adimab shall not provide (by any means, such as sale, license or transfer), any Naive Antibody Library or Optimization Antibody Library (or any substantial portion thereof) to any others.

 

13


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

DEVELOPMENT AND OPTION AGREEMENT

 

To avoid doubt and notwithstanding anything to the contrary in this Agreement:

(i) nothing herein shall prevent Adimab from licensing or transferring some or all of the Adimab Platform Technology and/or Adimab Platform Technology Improvements to a Third Party (including technical support in connection therewith) nor shall anything herein require Adimab to in any way limit the use of the Adimab Platform Technology and/or Adimab Platform Technology Improvements by a Third Party, subject to the restrictions above regarding any Naive Antibody Library or Optimization Antibody Library and antibodies identified therefrom (including Program Antibodies), or any of their Binding Sequence Information; and

(ii) nothing herein shall require Adimab to physically remove from its libraries, or to prevent from being included in future libraries, any Program-Benefited Antibodies, but Adimab is limited with respect to the use of any Naive Antibody Library and Optimization Antibody Library as provided above. This Agreement expressly provides for a reserved right for Adimab, its Affiliates, and those deriving rights from them (a) to include Program-Benefited Antibodies in antibody library(ies) (other than Naive Libraries) transferred or licensed by Adimab to Third Parties (including the transfer of physical possession of samples of Program-Benefited Antibodies to a Third Party as part of such transactions) and (b) to conduct any activity with respect to Program-Benefited Antibodies that are not Licensed Antibodies under this Agreement if Adimab (or such other party) arrives at such Program-Benefited Antibodies in a manner fully compliant with Adimab’s other covenants and obligations in this Agreement.

(iii) Adimab may independently regenerate Binding Sequence Information for any Program Antibodies without use or reference to any Program Inventions or any Naive Antibody Library or Optimization Antibody Library, other than Adimab Platform Technology Improvements (which nothing in this Agreement shall be read to restrict Adimab from using). In the case of independent rediscovery as provided above, Adimab shall be unrestricted in its use of and ability to provide the applicable independently rediscovered or independently regenerated antibodies to others.

(b) Surface Restrictions. Surface hereby covenants that it and its Affiliates shall not seek to or actually clinically develop or commercialize any Program-Benefited Antibody, or product containing either of the foregoing (other than the activities permitted hereunder during the Research Term and the Evaluation Term for the purpose of determining whether or not to exercise an Option for such Target), without first executing the Commercial Option with Adimab with respect to the applicable Target.

 

14


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

DEVELOPMENT AND OPTION AGREEMENT

 

ARTICLE 3

LICENSES; OPTION; DEVELOPMENT & COMMERCIALIZATION

3.1 Mutual Research Program Licenses.

(a) To Surface. During the Research Term and Evaluation Term for each Target, Adimab hereby grants to Surface a non-exclusive, non-sublicensable license with respect to such Target, under the Adimab Platform Patents, Program Antibody Patents and Know-How Controlled by Adimab (or its Affiliates) during the term of this Agreement, to perform research, and to design, research, preclinically develop, make, import and use Program-Benefited Antibodies and Adimab Materials pertaining thereto in the Field, including for Surface to evaluate Program-Benefited Antibodies and to perform Permitted Comparisons and Surface’s responsibilities under the Research Plan and this Agreement for each Target. For clarity, the license to Surface excludes the right to [***] but includes the right to (1) perform Permitted Comparisons and (2) have others have others perform the licensed activities on behalf of Surface.

(b) To Adimab. During the Research Term and Evaluation Term for each Target, Surface hereby grants to Adimab a non-exclusive, nontransferable (except in connection with a permitted assignment of this Agreement) license (without the right to grant sublicenses except to Controlled Contractors) with respect to such Target under all Patents and Know-How Controlled by Surface (or its Affiliates) which Cover or relate to the Targets (including any that so relate by claiming antibodies directed to the Targets or a mechanism of action via the Targets) or any Surface Materials, solely to perform Adimab’ s responsibilities as provided for in the applicable Research Plan.

3.2 Research Rights.

(a) Research Option. On a Target-by-Target basis, Adimab hereby grants to Surface the exclusive option (for each Target, a “Research Option”) to obtain the licenses set forth in Section 3 .2(b) for Licensed Research Antibodies to the Target, exercisable by written notice to Adimab and (i) payment by Surface to Adimab of [***] on or before the date that is [***] months after the date on which Technical Milestone 1 is achieved for the Target, or (ii) payment of Technical Milestone 2 with respect to the Target and on or before the expiry of the Evaluation Term. Surface shall, in its written notice to exercise the Research Option for a Target, specify up to ten (10) Program Antibodies against the Target as the “Licensed Research Antibodies”. Upon such Research Option exercise, Adimab will provide to Surface sufficient materials to allow Surface to express any such Licensed Research Antibodies.

(b) Research License. Adimab hereby, effective on Surface’s exercise of the Research Option for a Target and the applicable Licensed Research Antibodies:

 

15


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

DEVELOPMENT AND OPTION AGREEMENT

 

(i) grants to Surface a worldwide, fully paid-up, sublicenseable through multiple tiers (solely as provided in Section 3.2(b)(ii)) license, under (A) the Adimab Platform Patents and, (B) any Licensed Program Antibody Patents, and (C) Know-How and other Patents Covering the Adimab Platform Technology, Adimab Platform Technology Improvements or Program Inventions, in each case, Controlled by Adimab (or its Affiliates) as of the start of and during the applicable Research License Term, to make, have made, import, have imported, export and have exported, in each case, for research purposes only, the Licensed Research Antibodies for such Target for a period beginning on the date of Surface’s exercise of the Research Option for such Target and expiring on the date [***] years after such exercise (subject to Section 9.1) (the “Research License Term”). Such license shall be non-exclusive and shall exclude the use of any Licensed Research Antibodies in humans. This license grant is granted by Adimab as of the Effective Date as a current license grant, subject only to the Research Option exercise by Surface but not any other action by Adimab.

(ii) The license granted under Section 3.2(b)(i) shall be sublicensable solely to (x) Controlled Contractors or (y) in connection with the sublicensing of commercial rights to a therapeutic product against the same Target, in either case, pursuant to sublicenses that are consistent with all relevant terms and conditions of this Agreement, including Sections 2.4 and 9.4 hereof. Surface shall remain responsible for all payments and other performance obligations due under this Agreement, notwithstanding any license or sublicense that it may grant.

3.3 Commercial Rights.

(a) Commercial Option. On a Target-by-Target basis, Adimab hereby grants to Surface the exclusive option (for each Target, a “Commercial Option”) to obtain the licenses of Section 3.3(b) for Licensed Antibodies to the Target, exercisable by payment of the Commercial Option Fee with respect to such Target to Adimab on or before the expiry of the Evaluation Term. Surface shall, in its written notice to exercise the Commercial Option for a Target, specify up to ten (10) Program-Benefited Antibodies against the Target as the “Licensed Antibodies.” Upon such Commercial Option exercise, Adimab will provide to Surface sufficient materials to allow Surface to express any such Licensed Antibodies that were generated in the Research Program.

(b) Development and Commercialization License and Assignment. Adimab hereby, effective on Surface’s exercise of the Commercial Option for a Target and the applicable Licensed Antibodies:

(i) assigns to Surface, subject to the terms and conditions of this Agreement and without any further action required of either Party, all right, title and interest in and to those Licensed Program Antibody Patents that solely Cover those Licensed Antibodies, and at Surface’s request, Adimab will execute title transfer and recordation assignments for any such Licensed Program Antibody Patents; and

(ii) grants to Surface a worldwide, royalty-bearing, sublicenseable through multiple tiers (solely as provided in Section 3.3(b)(iii)) license, under (A) the Adimab Platform Patents, (B) those Licensed Program Antibody Patents which are not assigned to

 

16


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

DEVELOPMENT AND OPTION AGREEMENT

 

Surface pursuant to Section 3.3(b)(i) (for any reason, including bankruptcy and other like proceedings described in Section 9.7), and (C) Know-How Covering the Adimab Platform Technology, Adimab Platform Technology Improvements or Program Inventions, in each case, Controlled by Adimab (or its Affiliates) as of the start of and during the term of this Agreement, in the Field, to research, have researched, develop, have developed, commercialize, have commercialized, make, have made, use, have used, sell, have sold, offer to sell, have offered to sell, import, have imported, export and have exported the Licensed Antibodies and Licensed Products for such Target during the term of this Agreement (subject to Section 9.1). Such license shall be non-exclusive under the Adimab Platform Patents and Know-How, and exclusive (even as to Adimab and its Affiliates) under the Licensed Program Antibody Patents. This license grant is granted by Adimab as of the Effective Date as a current license grant, subject only to the Commercial Option exercise by Surface but not any other action by Adimab.

(iii) The license granted under Section 3.3(b)(ii) shall be sublicensable solely pursuant to sublicenses that are consistent with all relevant terms and conditions of this Agreement, including Section 9.4 hereof. Surface shall remain responsible for all payments and other performance obligations due under this Agreement, notwithstanding any license or sublicense that it may grant.

3.4 Diligent Development and Commercialization. Surface shall, if it exercises the Commercial Option with respect to a Target, devote Commercially Reasonable Efforts to preclinically and clinically develop, seek Marketing Approval for in the Major Markets, and launch and actively commercialize in the Major Markets at least one (1) Licensed Antibody against such Target. Annually, Surface will provide Adimab with a written report of Licensed Product progress in development and commercialization, by Surface’s and its Affiliates’ activities in that regard. If requested by Adimab, Surface shall meet with Adimab to discuss such report once annually.

3.5 No Implied Licenses. Other than the licenses, options and assignments explicitly set forth in this Agreement, neither Party grants any intellectual property licenses, options or assignments to the other Party under this Agreement. This Agreement does not create any implied licenses.

ARTICLE 4

FINANCIAL TERMS.

4.1 Research Stage Fees.

(a) Research Funding. For each Research Program, Surface shall pay Adimab (i) an amount equal to [***] percent [***] of the estimated FTEs (at the FTE Rate) for the Research Program, such amount to be paid within [***] business days of agreement on a Research Plan, and (ii) within [***] business days of completion of a Research Program, an amount equal to [***] percent [***] of the actual FTEs expended by Adimab on the Research Program (at the FTE Rate) less the amount previous paid with respect to such Research Program pursuant to clause (i); provided, however, that (1) such actual FTEs do not exceed the FTEs set forth in the applicable Research Plan (as amended from time to time) for such Research

 

17


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

DEVELOPMENT AND OPTION AGREEMENT

 

Program by more than [***] percent [***] and (2) Adimab has provided Surface with an invoice for each of such payments. Upon Surface’s reasonable request, Adimab shall provide customary and reasonable documentation to evidence that all such amounts so paid by Surface were used on FTE’ s for the applicable Research Program.

(b) Technical Milestones. Surface shall pay Adimab two technical milestone fees with respect to each Research Program on each Target, as follows:

(i) The first technical milestone fee shall be equal to [***] for each Research Program, and such fee will be paid to Adimab by Surface within [***] business days of the later of (1) [***] and (2) provision by Adimab of an invoice for such payment to Surface; and

(ii) The second technical milestone fee shall be equal to [***] for each Research Program, and such fee will be paid to Adimab by Surface within [***] business days of the later of (1) [***] and (2) provision by Adimab of an invoice for such payment to Surface. In the event that the second technical milestone is met in the initial delivery, or in the event that the second technical milestone is met without payment of the first technical milestone, then, in either case, Surface shall pay both technical milestones.

4.2 Research License Maintenance Fee. For each Research Option that is exercised by Surface, Surface shall pay an annual maintenance fee of [***] on each of the [***] anniversaries of the date of exercise of the relevant Research Option, subject to early termination as provided in this Agreement.

4.3 Commercial Option Fee. In order to exercise the Commercial Option under Section 3.3(a) for a Target, Surface shall pay to Adimab a non-creditable, nonrefundable option exercise fee of [***] for each such Target (each, a “Commercial Option Fee”).

4.4 Milestone Payments. For each Target, Surface shall report in writing to Adimab the achievement of each event (each, a “Milestone Event”) and pay the corresponding development milestone payment (each, a “Milestone Payment”) to Adimab, each within [***] days after the achievement of the corresponding milestone event in the following table (whether achieved by or on behalf of Surface or its Affiliates or any other entity acting on behalf of any of them or having received a license, sublicense or other rights from any of the foregoing with respect to a Licensed Product):

 

18


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

DEVELOPMENT AND OPTION AGREEMENT

 

Milestone Event for each Licensed Product for a Target

  

Milestone Payment

[***]

   [***]

Milestones Payments are payable one time only per Licensed Product, the first time each is achieved for such Licensed Product. If a subsequent Milestones Event is achieved for any Licensed Product without a prior Milestone Event having been achieved for that Licensed Product, then Surface shall pay the Milestone Payment for such previous Milestone Event along with the payment for the most recently achieved Milestone Event. Notwithstanding the foregoing, if a Milestone Payment has been paid by Surface with respect to a Product that is then abandoned prior to the receipt of Marketing Approval by Surface, and Surface subsequently elects to research, develop and commercialize a back-up Product against the same Target, then no Milestone Payment shall be due for such previously paid Milestone Payment with respect to such back-up Product.

4.5 Deferred Payment Option. The Commercial Option Fee and the Milestone Payments with respect to the first two Milestone Events set forth in Section 4.4 (i.e., those related to (a) [***] and (b) [***]) shall be deemed met and accrue when the Commercial Option is exercised or the applicable Milestone Event is achieved for a given Licensed Product, respectively and as the case may be. Surface may pay the Commercial Option Fee or the corresponding Milestone Payment, or Surface may provide written notice prior to the due date for such Commercial Option Fee or Milestone Payment of its election to delay payment of such amount until the earlier of (i) [***] (ii) [***] (iii) [***] If Surface opts to delay any such payment, Surface shall pay Adimab, on the first business day of every calendar year, interest (each, an “Interest Payment”) accrued on all such deferred amounts at a rate of [***] per [***] (calculated on a daily basis), from the date any such Commercial Option Fee and/or Milestone Payments are due hereunder until such Commercial Option Fee and/or

 

19


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

DEVELOPMENT AND OPTION AGREEMENT

 

Milestone Payments, and any interest thereon, are paid in full; provided, however, that if Surface ceases all research and development activities with respect to Program-Benefited Antibodies against the same Target for which a payment is delayed, then Surface shall not be obligated to make such Interest Payment and the applicable Commercial Option Fee and Milestone Payments, all of which are hereby forgiven in such circumstances; and provided, further, however, that in the event that Surface (or its Affiliate or licensee) subsequently resumes research or development on Program-Benefited Antibodies against such Target, Surface shall immediately pay to Adimab any unpaid Interest Payments (including any interest which has accrued on such Interest Payments during the period since Surface last made an Interest Payment to Adimab with respect to such Program-Benefited Antibody), and Surface shall resume the payment of Interest Payments on the first business day of the next calendar year.

4.6 Royalties.

(a) Royalty Payments. As to each Licensed Product sold during the applicable Royalty Term in a country, on a Licensed Product-by-Licensed Product basis, Surface shall pay Adimab the following royalties, based on the royalty rate applicable to the relevant portion of annual worldwide Net Sales for such Licensed Product during the applicable Royalty Term for such Licensed Product in such country (“Royalty Payments”):

 

Portion of Worldwide Calendar Year Net Sales

  

Royalty Rate

[***]

   [***]
  

(b) Other Royalty Provisions. Only one royalty will be due with respect to the same unit of Licensed Product, even if such Licensed Product unit is comprised of more than one Licensed Antibody or any modified or derivative forms thereof.

(c) Adjustment for Third Party IP. If Surface or any of its Affiliates enters into any Third Party Patent Licenses, then [***] of the net sales royalties actually paid to the Third Party under the Third Party Patent License with respect to Net Sales of any given Licensed Product in any given calendar quarter in any given country may be offset against the royalty that would otherwise have been payable to Adimab with respect to such same Net Sales; provided, however, that in no event shall the royalty owed to Adimab be reduced by more than [***] than the payment which would otherwise be due hereunder with any excess carried over to future royalty period(s) until such excess may be used in compliance with this proviso.

It is understood, agreed and acknowledged that Adimab’ s allowing Surface to claim the credit of this Section 4.6 as to any particular Third Party Patent License: [***]

 

20


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

DEVELOPMENT AND OPTION AGREEMENT

 

4.7 Quarterly Payment Timings. All royalties due under Section 4.6 shall be paid quarterly within [***] days after the end of the relevant calendar quarter for which royalties are due.

4.8 Royalty Payment Reports. With respect to each calendar quarter, within [***] days after the end of the calendar quarter, Surface shall provide to Adimab a written report stating the number and description of all Licensed Products sold during the relevant calendar quarter; the gross sales associated with such sales; and the calculation of Net Sales on such sales. The report shall provide all such information on a country-by-country and Licensed Product-by-Licensed Product basis if reasonably available.

4.9 Payment Method. All payments due under this Agreement to Adimab shall be made by bank wire transfer in immediately available funds to an account designated by Adimab. All payments hereunder shall be made in the legal currency of the United States of America, and all references to “$” or “dollars” shall refer to United States dollars (i.e., the legal currency of the United States).

4.10 Taxes. The Parties agree to cooperate with one another and use reasonable efforts to minimize obligations for any and all income or other taxes required by applicable law to be withheld or deducted from any royalties, milestone payments or other payments made by Surface to Adimab under this Agreement, including by completing all procedural steps, and taking all reasonable measures, to ensure that any withholding tax is reduced or eliminated to the extent permitted under applicable law, including income tax treaty provisions and related procedures for claiming treaty relief. To the extent that Surface is required to deduct and withhold taxes on any payment to Adimab, Surface shall deduct and withhold such taxes and pay the amounts of such taxes to the proper government authority in a timely manner and promptly submit to Adimab an official tax certificate or other evidence of such withholding sufficient to enable Adimab to claim such payment of taxes. Surface shall provide Adimab with reasonable assistance in order to allow Adimab to recover, as permitted by applicable law, withholding taxes, value added taxes or similar obligations resulting from payments made hereunder or to obtain the benefit of any present or future treaty against double taxation which may apply to such payments. Adimab shall provide Surface with any tax forms that may be reasonably necessary in order for Surface to not withhold tax or to withhold tax at a reduced rate under an applicable bilateral tax income treaty.

 

21


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

DEVELOPMENT AND OPTION AGREEMENT

 

4.11 Records; Inspection.

(a) Surface shall keep and ensure that its Affiliates keep complete and accurate records of its sales and other dispositions (including use in clinical trials, or provision on a compassionate use basis or as marketing samples) of Licensed Antibody and Licensed Product including all records that may be necessary for the purposes of calculating all payments due under this Agreement for a period of at least [***] years. Surface shall make such records available for inspection by an accounting firm selected by Adimab (and which is reasonably acceptable to Surface) at Surface’s premises in the United States on reasonable notice during regular business hours as provided in Section 4.11 (b ).

(b) At Adimab’s expense no more than [***] per calendar year, Adimab has the right to retain an independent certified public accountant from a nationally recognized (in the U.S.) accounting firm to perform on behalf of Adimab an audit, conducted in accordance with U.S. generally accepted accounting principles (GAAP), of such books and records of Surface and its Affiliates as are deemed necessary by the independent public accountant to report on Net Sales, for the period or periods requested by Adimab within the [***] most recent calendar years as of the date of the audit performance, and the correctness of any report or payments made under this Agreement. No period may be audited more than once. Prior to any review, such accounting firm shall have entered into a written agreement with Surface (or its Affiliates, licensees or sublicensees) limiting the use of such records to verification of the accuracy of payments due under this Agreement and prohibiting the disclosure of any information contained in such records to a Third Party and to Adimab for a purpose other than as set forth in this Section 4.11(b). The report of such accounting firm shall be limited to a certificate stating whether any report made or invoice or payment submitted by Surface during such period is accurate or inaccurate and the actual amounts owed by or due under this Agreement to Adimab for such period.

(c) If the audit reveals an underpayment, Surface shall promptly pay to Adimab the amount of such underpayment plus interest in accordance with Section 4.15. Any overpayment made by Surface shall be fully creditable against amounts payable in subsequent payment periods or promptly refunded, at Adimab’ s election. Any audit by an independent certified public accounting firm under this Section 4.11 is to be made at the expense of Adimab, but if the audit reveals that the monies owed by Surface to Adimab has been understated by more than [***] percent [***] for the period audited, Surface shall, in addition, pay the reasonable out-of-pocket costs incurred by Adimab of such audit.

(d) The Parties agree that all information provided in a royalty payment report, all records kept by Surface or its Affiliates, licensees and sublicensees under this Section 4.11 or Section 4.12, and any information provided by the independent certified public accounting firm to Adimab are Confidential Information of Surface.

4.12 Licensee/Sublicensee Reports, Records and Audits. If Surface grants any Product licenses or sublicenses, the agreements for such licenses and sublicenses shall include an obligation for the licensee or sublicensee to (i) maintain records adequate to document and verify the proper payments (including milestones and royalties) to be paid to Adimab; (ii) provide reports with sufficient information to allow such verification; and (iii) allow Adimab (or Surface if requested by Adimab) to verify the payments due (such audit right is not required to be any stronger than that of Section 4.11).

 

22


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

DEVELOPMENT AND OPTION AGREEMENT

 

4.13 Foreign Exchange. If any currency conversion shall be required in connection with the calculation of amounts payable hereunder, such conversion shall be made using the exchange rates (a) used by Surface (or the selling entity) for its own financial reporting purposes in its worldwide accounting system (which shall be consistent with applicable accounting standards), if Surface (or the selling entity) is a public company, or (b) if Surface is not a public company, then shall be determined the same way except that the rates shall be the average of the purchase and sale rates for U.S. Dollars for such day as reported on the fifth (5th) business day prior the payment due date for the purchase and sale of U.S. dollars, as reported by the Wall Street Journal, Eastern Edition (or if it no longer exists, a similarly authoritative source). With any payment in relation to which a currency conversion is performed to calculate the amount of payment due, Surface shall provide to Adimab a true, accurate and complete copy of the exchange rates used in such calculation.

4.14 Non-refundable, non-creditable payments. Each payment that is required under this Agreement is non-refundable and non-creditable.

4.15 Late Payments. Any amount owed by Surface to Adimab under this Agreement that is not paid within the applicable time period set forth herein will accrue interest at the rate of [***] percent [***] above the then-applicable short-term three-month London Interbank Offered Rate (LIBOR) as quoted in the Wall Street Journal, Eastern Edition (or if it no longer exists, a similarly authoritative source) calculated on a daily basis, or, if lower, the highest rate permitted under applicable law.

ARTICLE 5

Patent Ownership.

5.1 Ownership and Inventorship.

(a) Program Patents. Adimab shall solely own, regardless of inventorship, all Patents Covering Adimab Platform Technology Improvements and, prior to Commercial Option exercise, all Program Antibody Patents. Surface shall own, regardless of inventorship, from and after the date of Commercial Option exercise, all Licensed Program Antibody Patents, subject to the terms and conditions of this Agreement. Ownership of all Program Patents other than those referred to in the foregoing two (2) sentences shall be owned based on inventorship. Program Inventions (to the extent not Patented and addressed above) that constitute Adimab Platform Technology Improvements shall be owned by Adimab and all other Program Inventions shall be owned by the Party that created it.

(b) Other Patents. To avoid doubt, nothing in this Agreement shall alter the ownership of the Parties’ pre-existing Patents. Section 5.l(a) speaks only to ownership of Program Patents.

 

23


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

DEVELOPMENT AND OPTION AGREEMENT

 

(c) Inventorship. Inventorship for purposes of this Agreement, and all intellectual property-related definitions in this Agreement, shall be determined in accordance with United States patent law for all Patents worldwide.

5.2 Implementation.

(a) Assignments. Each Party hereby assigns to the other Party Program Inventions and associated Patents as necessary to achieve ownership as provided in Section 5 .1. Each assigning Party shall execute and deliver all documents and instruments reasonably requested by the other Party to evidence or record such assignment or to file for, perfect or enforce the assigned rights. Each assigning Party hereby appoints the other Party as attorney-in-fact solely to execute and deliver the foregoing documents and instruments if such other Party after making reasonable inquiry does not obtain them from the assigning Party. Each Party (and its Affiliates) shall perform its activities under this Agreement through personnel who have made a similar assignment and appointment to and of such Party or any of its Affiliate. Each assigning Party shall make its relevant personnel (and their assignments and signatures on such documents and instruments) reasonably available to the other Party for assistance in accordance with this Article at no charge.

(b) Joint Ownership Implementation. As regards Joint Serendipitous Inventions and the Program Patents to the extent claiming them, either Party is entitled to practice and license them without consent of and without a duty of accounting to the other Party in accordance with the co-ownership rights of co-inventors under U.S. law, subject to the terms of this Agreement. Each Party hereby grants all permissions, consents and waivers with respect to, and all licenses under, the Joint Serendipitous Inventions and the Program Patents claiming them as necessary to achieve throughout the world the nature of joint ownership rights of the foregoing as described in Section 5.1 and the foregoing sentence and otherwise subject to the terms of this Agreement. To avoid doubt, this Section 5.2(b) does not imply any permission, consent or waiver with respect to, or license under, any Patent or item of Know-How other than the Joint Serendipitous Inventions and the Program Patents to the extent claiming them.

5.3 Disclosure. During the term of the Agreement, each Party shall promptly disclose to the other Party [***] any Program Inventions that would be Covered by Program Antibody Patents or in Surface’s case that are Adimab Platform Technology Improvements (which, to avoid doubt, are assigned to Adimab under this Agreement). Such disclosure shall occur as soon as possible, but in any case within [***] days after the Party determines such Program Inventions have been invented. To avoid doubt, this Section 5.3 shall not be read to require Adimab to disclose Program Inventions constituting Adimab Platform Technology Improvements to Surface.

5.4 Program Patent Prosecution.

(a) Adimab Platform Technology. Adimab shall have the sole right (but not the obligation) to Prosecute all Adimab Platform Patents, all at its own expense.

 

24


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

DEVELOPMENT AND OPTION AGREEMENT

 

(b) Program Antibody Patents. Surface shall have the sole right (but not obligation except as provided below) to Prosecute all Program Antibody Patents, at Surface’s expense, and prior to Commercial Option exercise, in Adimab’s name, and after Commercial Option exercise, in Adimab’ s name to the extent that any Licensed Program Antibody Patent is not assigned to Surface pursuant to Section 3.3(b)(i). Such right shall continue for the duration of the longer of the Evaluation Term and, if Surface exercises the Commercial Option, the term of the license under Section 3.3(b)(ii), subject to all of the following:

(i) Prior to Commercial Option exercise, [***]

(ii) Prior to Commercial Option exercise, [***]

(iii) Both prior to and after Commercial Option exercise, Adimab shall have the right to review and comment on prosecution of the Program Antibody Patents, and Surface shall reasonably consider but is not required to accept any such comments. Adimab shall grant Surface the necessary authority to Prosecute the Program Antibody Patents (including that Adimab shall join any suit or action regarding the foregoing at Surface’s request). Surface shall provide Adimab with copies of all correspondence with patent offices relating thereto (including office actions and the like) promptly after receipt and drafts of all filings and correspondence with such offices no less than [***] in advance of filing.

(iv) If Surface does not exercise the Commercial Option for a Target, then [***]

(v) If Surface does exercise the Commercial Option for a Target, then [***]

 

25


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

DEVELOPMENT AND OPTION AGREEMENT

 

(vi) [***]

(vii) Surface shall use Commercially Reasonable Efforts to Prosecute at least one Licensed Program Antibody Patent in at least each country of the Major Markets.

(viii) Surface shall be solely responsible for all costs of the activities under this Section 5.4(b), except (A) as expressly provided under this Section 5.4(b) or (B) that to the extent Adimab hires counsel to review and comment on Surface’s prosecution then Adimab shall be solely responsible for the fees to such counsel.

(ix) Except as provided in this Agreement, Adimab shall not disclose or claim (or have or license any others to disclose or claim) any Program Antibody (or the Binding Sequence Information thereof) or any other antibody or their Binding Sequence Information identified from any Naive Antibody Library or Optimization Antibody Library, unless independently invented in a manner in compliance with the terms of this Agreement (including the restrictions on Naive Antibody Libraries and Optimization Antibody Libraries contained herein). For clarity, (1) Adimab shall not nor allow any others to refile or Prosecute any Patent applications [***] and (2) the foregoing prohibitions shall not prevent Adimab from filing broad Patents (such as, for example, Patents which Cover an antibody library) which Cover a Program Antibody or its Binding Sequence Information so long as Adimab does recite in any claim the such Program Antibody or its Binding Sequence Information in such Patent, and so long as Adimab does not disclose such Program Antibody or its Binding Sequence Information in such Patent.

(c) Responsibility. It is understood and agreed that searching for, identification and evaluation of Third-Party Patents that may apply to any Program Antibodies based on sequence, Target or the like is the responsibility of Surface and Adimab shall have no responsibility for the foregoing nor liability if any such Third-Party Patents exist.

(d) Serendipitous Program Inventions.

(i) Adimab Program Inventions. As between the Parties, Adimab. shall have the sole right, at its sole expense, to prepare, file, prosecute, enforce and maintain (including conducting or participating in interferences and oppositions and the like) (collectively “Prosecute”) all Patents directed to Adimab Program Inventions but not falling within the Program Antibody Patents or the Adimab Platform Technology Improvements (which, to avoid doubt, are both addressed above).

(ii) Surface Program Inventions. Surface shall be responsible, at its sole expense, to Prosecute all Program Patents directed to Surface Program Inventions but not falling within Program Antibody Patents or the Adimab Platform Technology Improvements (which, to avoid doubt, are both addressed above).

(iii) Serendipitous Joint Program Inventions. The Parties shall mutually agree which of them shall be responsible for either using its in-house patent attorneys or through mutually agreed upon outside counsel to Prosecute Program Patents directed to Joint Serendipitous Inventions, and how the costs of such activities will be shared.

 

26


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

DEVELOPMENT AND OPTION AGREEMENT

 

5.5 Patent Term Restoration. The Parties shall cooperate with each other, including by providing necessary information and assistance as the other Party may reasonably request, to obtain patent term restoration or supplemental protection certificates or their equivalents in any country where applicable to Licensed Program Antibody Patents. After Commercial Option exercise, if elections with respect to obtaining such patent term restoration are to be made with respect to Licensed Program Antibody Patents, and the Parties do not agree, Surface shall have the right to make the election and Adimab agrees to abide by such election.

5.6 Cooperation of the Parties. At the reasonable request of the responsible (as provided for in this Article 5) Party, the other Party agrees to cooperate fully in the Prosecution of any Program Patents under this Agreement. Such cooperation includes executing all papers and instruments (or causing its personnel to do so) reasonably useful to enable the other Party to apply for and to prosecute patent applications in any country; and promptly informing the other Party of any matters coming to such Party’s attention that may affect the Prosecution of any such Patents. Adimab shall not be required pursuant to this Section to disclose Adimab Platform Technology to Surface.

5.7 Patent Challenges. If Surface or its Affiliates challenges in a court the validity, enforceability or scope of any Adimab Platform Patents or any Program Antibody Patent, then: [***]

ARTICLE 6

CONFIDENTIALITY; PUBLICITY.

6.1 General.

(a) Any and all information disclosed or submitted in writing or in other tangible form — or if disclosed orally, that is indicated to be confidential at the time of disclosure and confirmed in writing as such within [***] days after initial disclosure — to one Party by the other Party under this Agreement or that certain Mutual Confidentiality Agreement between the Parties dated March 27, 2014 is the “Confidential Information” of the disclosing Party. In addition, information embodied in Adimab Materials is Adimab’ s Confidential Information, and information embodied in the Surface Materials is Surface’s Confidential Information, and Program Antibodies will be treated as Surface’s Confidential Information after Commercial Option exercise.

 

27


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

DEVELOPMENT AND OPTION AGREEMENT

 

(b) To avoid doubt, sequence information (whether as to amino acid sequence or nucleic acid sequence) with respect to Program Antibodies shall be deemed the Confidential Information of Adimab, except that from and after the date of Commercial Option exercise, the sequence information as to the Licensed Antibodies shall be Confidential Information of Surface.

(c) Each Party shall receive and maintain the other Party’s Confidential Information in strict confidence. Neither Party shall disclose any Confidential Information of the other Party to any Third Party. Neither Party shall use the Confidential Information of the other Party for any purpose other than as required to perform its obligations or exercise its rights hereunder. Each Party may disclose the other Party’s Confidential Information to the receiving Party’s directors, employees, contractors and advisors requiring access thereto for the purposes of this Agreement, provided, however, that prior to making any such disclosures, each such person shall be bound by written agreement to maintain Confidential Information in confidence, and not to use such information for any purpose other than, in accordance with the terms and conditions of this Agreement. Surface may disclose sequence data and other data generated under the Research Program to legal, financial and investment banking advisors, and potential and actual investors, lenders, financing sources, Change of Control counterparties, acquirers, collaborators, sublicensees and licensees and counsel for the foregoing, that are under legally binding obligations of confidence and limited use and to national patent offices in accordance with Section 5.4. Each Party agrees to take all steps necessary to ensure that the other Party’s Confidential Information shall be maintained in confidence including such steps as it takes to prevent the disclosure of its own proprietary and confidential information of like character. Each Party agrees that this Agreement shall be binding upon its Affiliates, and upon the employees and contractors involved in the Research Program of such Party and its Affiliates. Each Party shall take all steps necessary to ensure that its Affiliates and employees and contractors shall comply with the terms and conditions of this Agreement. The foregoing obligations of confidentiality and non-use shall survive, and remain in effect for a period of [***] years from, the termination or expiration of this Agreement in accordance with Article 9.

6.2 Exclusions from Nondisclosure Obligation. The nondisclosure and nonuse obligations in Section 6.1 shall not apply to any Confidential Information to the extent that the receiving Party can establish by competent written proof that it:

(a) at the time of disclosure is publicly known;

(b) after disclosure, becomes publicly known by publication or otherwise, except by breach of this Agreement by such Party;

(c) was in such Party’s possession in documentary form at the time of the earlier of disclosure hereunder and disclosure under the agreement referred to in Section 6.1;

(d) is received by such Party from a Third Party who has the lawful right to disclose the Confidential Information and who shall not have obtained the Confidential Information either directly or indirectly from the disclosing Party; or

(e) is independently developed by such Party (i.e., without reference to Confidential Information of the disclosing Party).

 

28


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

DEVELOPMENT AND OPTION AGREEMENT

 

6.3 Required Disclosures. If either Party is required to disclose any Confidential Information of the other Party, pursuant to a governmental law, regulation or order, or an order of a court of competent jurisdiction or to defend or prosecute litigation or as part of an arbitration; provided, however, that the receiving Party (i) shall give advance written notice to the disclosing Party, (ii) shall make a reasonable effort to assist the disclosing Party to obtain a protective order requiring that the Confidential Information so disclosed be used only for the purposes for which the law or regulation required and (iii) shall use and disclose the Confidential Information solely to the extent so required.

6.4 Terms of Agreement. The terms of this Agreement are the Confidential Information of both Parties. However, each Party shall be entitled to disclose the terms of this Agreement under legally binding obligations of confidence and limited use to: legal, financial and investment banking advisors; and potential and actual investors, lenders, financing sources, Change of Control counterparties, acquirers, collaborators, sublicensees and licensees and counsel for the foregoing. In addition, if legally required, a copy of this Agreement may be filed by either Party with the SEC (or relevant ex-U.S. counterpart). In that case, the filing Party will if requested by the other Party diligently seek confidential treatment for terms of this Agreement for which confidential treatment is reasonably available, and shall provide the non-filing Party reasonable advance notice of the terms proposed for redactions and a reasonable opportunity to request that the filing Party make additional redactions to the extent confidential treatment is reasonably available under the law. The filing Party shall seek and diligently pursue such confidential treatment requested by the non-filing Party.

6.5 Return of Confidential Information. Promptly after the termination or expiration of this Agreement for any reason, each Party shall return to the other Party all tangible manifestations of such other Party’s Confidential Information at that time in the possession of the receiving Party; provided, however, that the receiving Party shall be entitled to retain one (1) copy of such information solely for the purpose of monitoring such Party’s surviving obligations under this Agreement. Electronic copies of Confidential Information contained in backups or electronic archives made in the normal course of the receiving Party’s business shall not be required to be destroyed or returned in accordance with this Section 6.5.

6.6 Publicity. Each of Adimab and Surface may publish a press release describing the collaboration, but without identifying the targets to be worked on or the economic terms of the collaboration. The Parties will agree on specific press release language promptly following the Effective Date. Other than repeating information in such press release (or any subsequent mutually agreed press release), neither Party will generate or allow any further publicity regarding this Agreement or the transaction or research contemplated hereunder in which the other Party is identified, without giving the other Party the opportunity to review and comment on the press release. The Parties recognize the importance of announcing Commercial Option exercise and the achievement of Milestones, and that Adimab is entitled to disclose these occurrences; provided, however, that Adimab may disclose the identity of Surface but will not disclose the identity of any of Surfaces’ licensees, sublicensees or collaborators (if applicable) or the identity of the Target or the possible indication(s) (although the class of protein of the Target (but not the family) may be disclosed). Accordingly, the Parties hereby agree that each such event shall be publicly announced by the Parties if requested by Adimab, and the Parties shall mutually agree upon the text of a press release to announce each such event. Surface shall not

 

29


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

DEVELOPMENT AND OPTION AGREEMENT

 

unreasonably withhold its consent to the manner in which Adimab proposes to make such disclosure. It is understood and agreed that Adimab sometimes issues press releases that group multiple achievements of the company, and that if Adimab chooses to group the initially approved text or the announcement of Commercial Option exercise and/or a milestone achievement under this Agreement with other accomplishments or events not relating to this Agreement, then the only portion of the press release into which the Surface shall have a consent right (such consent not to be unreasonably withheld), shall be those portions that relate to this Agreement.

6.7 Certain Data. Notwithstanding this Article 6, without disclosing Surface’s (or any of its Affiliates’ or licensees’, sublicensees’ or collaborators’) identity or the identity of the Target or the possible indication(s), or information making such identities or indications reasonably discernable (although the class of protein of the Target (but not the family) may be disclosed), or the sequence of any Program Antibody, in order to describe the general capabilities and performance of the Adimab platform, Adimab shall be entitled to disclose generally Program Antibody attributes , including the following: (a) Program Antibody binding affinities (KD), (b) expression range regarding Program Antibodies, and (c) germline distribution of Program Antibodies.

ARTICLE 7

REPRESENTATIONS AND WARRANTIES.

7.1 Mutual. Each of Adimab and Surface hereby represents and warrants to the other of them that the representing and warranting Party is duly organized in its jurisdiction of incorporation; that the representing and warranting Party has the full power and authority to enter into this Agreement; that this Agreement is binding upon the representing and warranting Party; that this Agreement has been duly authorized by all requisite corporate action within the representing and warranting Party; and that the execution, delivery and performance by the representing and warranting Party of this Agreement and its compliance with the terms and conditions hereof does not and shall not conflict with or result in a breach of any of the terms and conditions of or constitute a default under (a) any agreement or other instrument binding or affecting it or its Affiliate or the property of either of them, (b) the provisions of its bylaws or other governing documents or (c) any order, writ, injunction or decree of any governmental authority entered against it or by which any of its property is bound.

7.2 Adimab. Adimab hereby represents, warrants and covenants to Surface that:

(a) [***]

 

30


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

DEVELOPMENT AND OPTION AGREEMENT

 

(b) [***]

7.3 DISCLAIMER OF WARRANTIES. OTHER THAN THE EXPRESS WARRANTIES OF SECTIONS 7.1 AND 7.2, EACH PARTY DISCLAIMS ALL WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR THAT ANY PRODUCTS DEVELOPED UNDER THIS AGREEMENT ARE FREE FROM THE RIGHTFUL CLAIM OF ANY THIRD PARTY, BY WAY OF INFRINGEMENT OR THE LIKE OR THAT ANY PROGRAM PATENTS WILL ISSUE OR BE VALID OR ENFORCEABLE.

ARTICLE 8

INDEMNIFICATION

8.1 By Adimab. Adimab hereby agrees to indemnify, defend and hold harmless (collectively, “Indemnify”) Surface, its Affiliates and its and their directors, officers, agents and employees (collectively, “Surface Indemnitees”) from and against any and all liability, loss, damage or expense (including without limitation reasonable attorney’s fees) (collectively, “Losses”) they may suffer as the result of Third-Party claims, demands and actions (collectively, “Third-Party Claims”) arising out of or relating to (a) any breach of a representation or warranty or covenant made by Adimab under Article 7 or otherwise of this Agreement, or (b) arising out of or in connection with or attributable to Adimab’s negligence, gross negligence or willful misconduct in performance of any Research Plan, except to the extent of any Losses [***]

8.2 By Surface. Surface hereby agrees that it and its licensees and sublicensees shall Indemnify Adimab, its Affiliates and its and their directors, officers, agents and employees (collectively, “Adimab Indemnitees”) from and against any and all Losses they may suffer as the result of Third-Party Claims arising out of or relating to (a) any breach of a representation or warranty or covenant made by Surface under Article 7 or otherwise of this Agreement, (b) Surface’s research, testing, development, manufacture, use, sale, distribution, licensing and/or commercialization of Program Antibodies and/or Licensed Products (or Program-Benefited Antibodies or products incorporating them), (c) Target-related intellectual property (including Patents directed to antibodies based on their interaction with a Target), (d) Target-related or Surface Materials-related contractual obligations of Surface and its Affiliates, or (e) intellectual property applying to any Program Antibody based on its sequence or other characteristics (it being understood and agreed in accordance with Section 5 .4(c) that Adimab does not perform intellectual property searches on Program Antibodies (including sequence-

 

31


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

DEVELOPMENT AND OPTION AGREEMENT

 

based searches) and this is the responsibility of Surface), except in each case to the extent of any Losses [***]

8.3 Procedures. Each of the foregoing agreements to Indemnify is conditioned on the relevant Adimab Indemnitees or Surface Indemnitees (i) providing prompt written notice of any Third-Party Claim giving rise to an indemnification obligation hereunder, (ii) permitting the indemnifying Party to assume full responsibility to investigate, prepare for and defend against any such Third-Party Claim, (iii) providing reasonable assistance in the defense of such claim at the indemnifying Party’s reasonable expense, and (iv) not compromising or settling such Third-Party Claim without the indemnifying Party’s advance written consent. If the Parties cannot agree as to the application of the foregoing Sections 8 .1 and 8 .2, each may conduct separate defenses of the Third-Party Claim, and each Party reserves the right to claim indemnity from the other in accordance with this Article 8 upon the resolution of the underlying Third-Party Claim.

8.4 Limitation of Liability. EXCEPT TO THE EXTENT SUCH PARTY MAY BE REQUIRED TO INDEMNIFY THE OTHER PARTY UNDER THIS ARTICLE 8 (INDEMNIFICATION) OR AS REGARDS A BREACH OF A PARTY’S RESPONSIBILITIES PURSUANT TO ARTICLE 6 (CONFIDENTIALITY; PUBLICITY), NEITHER PARTY NOR ITS RESPECTIVE AFFILIATES SHALL BE LIABLE FOR ANY SPECIAL, INDIRECT,, EXEMPLARY, CONSEQUENTIAL OR PUNITIVE DAMAGES HEREUNDER, WHETHER IN CONTRACT, WARRANTY, TORT, STRICT LIABILITY OR OTHERWISE.

ARTICLE 9

TERM.

9.1 Term. The term of this Agreement shall commence on the Effective Date and shall expire upon the later of (a) the earlier of (i) the expiration of the Commercial Option(s) and Research Option(s) (if they expire without being exercised), and (ii) expiration of 12 months from the Effective Date without Surface providing Surface Materials that successfully pass Adimab’s QC; or (b) if at least one Research Option has been exercised but no Commercial Option has been exercised, upon the expiration of the last to expire Research License Term; or (c) on a country-by-country and Licensed Product-by-Licensed Product basis on the expiration of the last Royalty Term for a Licensed Product in the particular country, in each case, unless earlier terminated by a Party as set forth below in this Article 9. On expiration under (c) in a particular country, the license of Section 3.3(b)(ii) for the corresponding Licensed Product and its Licensed Antibody shall automatically convert to be perpetual, irrevocable, non-exclusive and fully-paid up in such country.

9.2 Material Breach.

(a) Either Party may terminate this Agreement for the material breach of this Agreement by the other Party, if such breach remains uncured [***] days following notice from the non-breaching Party to the breaching Party specifying such breach.

 

32


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

DEVELOPMENT AND OPTION AGREEMENT

 

(b) For Targets for which the Commercial Option or Research Option has been exercised, the foregoing Section 9.2(a) applies on a Target-by-Target basis to the extent that a breach relates to specific Targets, and such termination shall be applicable to only those Targets (and its associated Patents, Licensed Antibodies, Licensed Research Antibodies, and Licensed Products) to which the uncured the material breach relates.

(c) If there is a good faith dispute as to the existence or cure of a breach or default pursuant to Section 9.2(a), all applicable cure periods will be tolled during the existence of such good faith dispute and no termination for a breach which is disputed in good faith will become effective until such dispute is resolved pursuant to the process set forth in Section 10.2 and a [***] day cure period offered thereafter.

9.3 Termination for Convenience. Surface may terminate this Agreement in its entirety on [***] prior written notice to Adimab. On a Target-by-Target basis, after Commercial Option or Research Option exercise, Surface may also terminate this Agreement as to all Licensed Antibodies, Licensed Research Antibodies and Licensed Products to a particular Target by [***] prior written notice to Adimab.

9.4 Commitments Regarding Program-Benefited Antibodies. The Parties intend that if Surface, its licensees, or its sublicensees, or the Affiliate of any of the foregoing, will pursue any Program-Benefited Antibodies, they shall do so under this Agreement paying fees to Adimab as provided in Article 4. This Agreement gives Surface, its licensee, its sublicensee or the Affiliate of any of the foregoing the right to modify the Program Antibodies, by including modified versions of them and derivatives of them in the definition of “Licensed Antibodies” provided above. Surface, its licensee, its sublicensee or the Affiliate of any of the foregoing shall even be entitled to choose to pursue or use information obtained under this Agreement from Adimab to pursue an antibody not covered by the Program Antibody Patents, but only if Surface, its licensee, its sublicensee or the Affiliate of any of the foregoing treats the pursued antibody as milestone- and royalty-bearing under this Agreement to the extent such pursued antibody is a Program-Benefited Antibody. The Parties intend that Surface, its licensee, its sublicensee or the Affiliate of any of the foregoing shall not develop or commercialize a Program-Benefited Antibody, except in accordance with this Agreement (including exercising the Commercial Option and paying Adimab the Commercial Option Fee, Milestone Payments and royalties on the Program-Benefited Antibody product as (or as if) a Licensed Product under this Agreement). Accordingly, even if this Agreement expires or terminates (other than an expiration under Section 9.1 following a Commercial Option exercise after all Royalty Terms have expired for the applicable Program-Benefited Antibody or Licensed Product), Surface hereby covenants that Surface, its licensees and sublicensees and the Affiliates of any of the foregoing (a) shall not research, develop or commercialize any Program-Benefited Antibody or Licensed Product containing such an antibody except as a Licensed Product under this Agreement, and (b) shall not license or otherwise grant rights to any entity to do the foregoing.

9.5 Survival in All Cases. Termination of this Agreement shall be without prejudice to or limitation on any other remedies available to nor any accrued obligations of either Party. In addition, Sections 2.3, 2.4, 2.5, 2.6, 3.5, 4.7 through 4.15 (with respect to payment obligations outstanding or having accrued as the effective date of termination or expiration), 5.1, 5.2, 5.4, 5.6, and 7.3, and Articles 1, 6, 8, 9 and 10 shall survive any expiration or termination of this

 

33


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

DEVELOPMENT AND OPTION AGREEMENT

 

Agreement. Further, upon termination of this Agreement by either Party under Section 9.2 or 9.3, Surface, its licensees and sublicensees, and their Affiliates will no longer develop or commercialize any Licensed Antibody or Licensed Product (subject to Section 9.2(b) for partial terminations).

9.6 Survival of Sublicenses. In the event that the licenses granted to Surface under this Agreement are terminated, any granted sublicenses to Third Parties will remain, at any such Third Party’s election, in full force and effect; provided, that the sublicense agreement is consistent with the terms of this Agreement, the sublicensee is not then in breach of its sublicense agreement, and such Third Party agrees to be bound to Adimab as a licensor under the terms and conditions of this Agreement (including payment obligations as reflected in this Agreement with respect to Adimab ). In such event, Adimab will negotiate and enter into an appropriate license agreement with such Third Party incorporating the terms and conditions of this Agreement.

9.7 Bankruptcy. All licenses and rights to licenses granted under or pursuant to this Agreement by Adimab to Surface are, and will otherwise be deemed to be, for purposes of Section 365(n) of the United States Bankruptcy Code (the “Bankruptcy Code”), licenses of rights to “intellectual property” as defined under Section 101(35A) of the Bankruptcy Code. The Parties agree that Surface, as a licensee of such rights under this Agreement, will retain and may fully exercise all of its rights and elections under the Bankruptcy Code. The Parties further agree that that upon commencement of a bankruptcy proceeding by or against Adimab under the Bankruptcy Code, Surface will be entitled to a complete duplicate of, or complete access to (as Surface deems appropriate), all such intellectual property and all embodiments of such intellectual property. Such intellectual property and all embodiments of such intellectual property will be promptly delivered to Surface (a) upon any such commencement of a bankruptcy proceeding and upon written request by Surface, unless Adimab elects to continue to perform all of its obligations under this Agreement, or (b) if not delivered under (a) above, upon the rejection of this Agreement by or on behalf of Adimab and upon written request by the Surface. Adimab (in any capacity, including debtor-in-possession) and its successors and assigns (including any trustee) agrees not to interfere with the exercise by Surface or its Affiliates of its rights and licenses to such intellectual property and such embodiments of intellectual property in accordance with this Agreement, and agrees to assist Surface and its Affiliates in obtaining such intellectual property and such embodiments of intellectual property in the possession or control of Third Parties as reasonably necessary or desirable for Surface to exercise such rights and licenses in accordance with this Agreement. The foregoing provisions are without prejudice to any rights Surface may have arising under the Bankruptcy Code or other applicable law. Notwithstanding the foregoing in this Section 9. 7, nothing in this Section 9. 7 shall be read to entitle Surface to obtain disclosure of or access to Adimab Platform Technology (including Adimab Platform Technology Improvements), whether or not as an “embodiment,” “update,” or otherwise, at any time, and Surface shall not under any circumstances notwithstanding anything express or implied in this Agreement be entitled to disclosure of Adimab Platform Technology or Adimab Platform Technology Improvements.

 

34


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

DEVELOPMENT AND OPTION AGREEMENT

 

9.8 Return of Adimab Materials. Except as otherwise provided in Section 2.4, on a Target-by-Target basis, Surface shall either return to Adimab or destroy all Adimab Materials (other than Adimab Materials relating to Licensed Antibodies) upon expiration or termination of the Evaluation Term without any Commercial Option or Research Option being exercised, and all Adimab Materials on expiration (other than for any Licensed Product and the corresponding Licensed Antibody an expiration under Section 9 .1 following a Commercial Option exercise and after all Royalty Terms for such Licensed Product have expired) or termination of this Agreement.

ARTICLE 10

MISCELLANEOUS.

10.1 Independent Contractors. The Parties shall perform their obligations under this Agreement as independent contractors. Nothing contained in this Agreement shall be construed to be inconsistent with such relationship or status. This Agreement and the Parties’ relationship in connection with it shall not constitute, create or in any way be interpreted as a joint venture, fiduciary relationship, partnership or agency of any kind.

10.2 Dispute Resolution.

(a) Initial Dispute Resolution. Either Party may refer any dispute in connection with this Agreement (“Dispute”) not resolved by discussion of the BD/Contract Liaisons to senior executives of the Parties (for Adimab, its CEO or his designee and for Surface, its CEO or his designee) for good-faith discussions over a period of not less than sixty (60) days (the “Senior Executives Discussions”). Each Party will make its executives reasonably available for such discussions.

(b) Disputes Not Resolved Between the Parties. If the Parties are unable to resolve the dispute through the Senior Executives Discussions within such sixty (60) days, then either Party may, as the sole and exclusive means for resolving disputes under this Agreement, proceed to demand confidential arbitration by written notice to the other Party and making a filing with the AAA in accordance with Section 10.2(c). For clarity, each Party hereby acknowledges that both the fact of and nature of a dispute is the Confidential Information of both Parties, and any disclosure of the fact of or the nature of such a dispute would be highly damaging to the non-disclosing Party.

(c) Arbitration.

(i) Any Dispute referred for arbitration shall be finally resolved by binding arbitration in accordance with the most applicable rules of the American Arbitration Association (“AAA”) and judgment on the arbitration award may be entered in any court having jurisdiction.

(ii) The arbitration shall be conducted by a panel of three (3) people experienced in the business of biopharmaceuticals. If the issues in dispute involve scientific, technical or commercial matters, then any arbitrator chosen under this Agreement shall have educational training and/or industry experience sufficient to demonstrate a reasonable level of relevant scientific, technical and commercial knowledge as applied to the pharmaceutical industry. If the issues in dispute involve patent matters, then at least one (1) of the arbitrators

 

35


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

DEVELOPMENT AND OPTION AGREEMENT

 

shall be a licensed patent attorney or otherwise knowledgeable about patent law matters. Within [***] days after a Party demands arbitration, each Party shall select one person to act as arbitrator, and the two Party-selected arbitrators shall select a third arbitrator within [***] days after their own appointment. If the arbitrators selected by the Parties are unable or fail to agree upon the third arbitrator, then the third arbitrator shall be appointed by the AAA. The place of arbitration shall be Boston, Massachusetts. All proceedings and communications as part of the arbitration shall be in English. Following selection of the third arbitrator, the arbitrators shall complete the arbitration proceedings and render an award within [***] months after the last arbitrator is appointed.

(iii) Each Party shall bear its own costs and expenses and attorneys’ fees and an equal share of the arbitrators’ fees and any administrative fees or arbitration, unless in each case the arbitrators agree otherwise, which they are hereby empowered, authorized and instructed to do if they determine that to be fair and appropriate.

(iv) Except to the extent necessary to confirm an award or as may be required by law, regulation, or the requirement of any exchange on which a Party’s shares are traded, neither Party shall disclose the existence, content or results of an arbitration under this Agreement without the prior written consent of the other Party.

(v) In no event shall an arbitration be initiated after the date when commencement of a legal or equitable proceeding based on the subject matter of the Dispute would be barred by the applicable statute of limitations under New York law.

10.3 Governing Law. This Agreement shall be governed by and interpreted in accordance with the laws of the Commonwealth of Massachusetts, excluding its conflicts of laws principles; provided, however, that matters of Patent law will be determined in accordance with the United States federal law. Any and all judicial resolutions of disputes in connection with this Agreement shall be in federal or state court located in Massachusetts, and each Party hereby consents to the jurisdiction and venue of such courts, and waives all defenses it may have to such jurisdiction and venue, including that the court cannot assert personal jurisdiction over the defendant and forum non conveniens.

10.4 Entire Agreement. This Agreement (including its Exhibits) set forth all the covenants, promises, agreements, warranties, representations, conditions and understandings between the Parties with respect to the subject matter hereof and supersedes and terminates all prior agreements and understandings between the Parties with respect to such subject matter (including that certain Mutual Confidentiality Agreement between the Parties dated March 27, 2014). No subsequent alteration, amendment, change or addition to this Agreement shall be binding upon the Parties unless reduced to writing and signed by the respective authorized officers of the Parties.

10.5 Assignment. Neither Party may assign in whole or in part this Agreement without the advance written consent of the other Party, except as set forth in the following sentence. Either Party may assign this Agreement in its entirety to the successor to all or substantially all of its stock or assets to which this Agreement relates in connection with its merger with, or the sale of all or substantially all of its stock or assets to which this Agreement

 

36


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

DEVELOPMENT AND OPTION AGREEMENT

 

relates to, another entity, regardless of the form of the transaction (including any Change of Control). In addition, Adimab may assign this Agreement or any of its rights under this Agreement, in connection with the sale of, monetization of, transfer of, or obtaining financing on the basis of the payments due to Adimab under this Agreement or debt or project financing in connection with this Agreement. Also, Surface may assign its rights and obligations under this Agreement on a Target-by-Target basis, at any time after Commercial Option exercise for the particular Target, to any entity to which Surface assigns all or substantially all of its assets with respect to such Target (and its related Patents, Licensed Antibodies and Licensed Products); provided, however, [***] Subject to the foregoing, this Agreement shall be binding upon and shall inure to the benefit of the Parties and their respective successors and permitted assigns. Notwithstanding the foregoing, Adimab may not assign or otherwise transfer (by operation of law or otherwise) this Agreement if the assignee does not assume all of Adimab’s obligations under this Agreement or Adimab does not remain bound to perform all obligations that are not assigned to the assignee. Any assignment of this Agreement not made in accordance with this Agreement is prohibited hereunder and shall be null and void.

10.6 Severability. If one or more of the provisions in this Agreement are deemed unenforceable by law, then such provision shall be deemed stricken from this Agreement and the remaining provisions shall continue in full force and effect.

10.7 Force Majeure. Both Parties shall be excused from the performance of their obligations under this Agreement to the extent that such performance is prevented by a Force Majeure and the nonperforming Party promptly provides notice of the prevention to the other Party. Such excuse shall be continued so long as the condition constituting Force Majeure continues and the nonperforming Party takes reasonable efforts to remove the condition, but no longer than [***] whereupon the other Party may assert breach by the nonperforming Party.

 

37


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

DEVELOPMENT AND OPTION AGREEMENT

 

10.8 Notices. Any notice required or permitted to be given under this Agreement shall be in writing, shall specifically refer to this Agreement and shall be deemed to have been sufficiently given for all purposes if mailed by first class certified or registered mail, postage prepaid, delivered by express delivery service or personally delivered. Unless otherwise specified in writing, the mailing addresses of the Parties shall be as described below.

If to Adimab:

Adimab, LLC

7 Lucent Drive

Lebanon, NH 03766

Attention: General Counsel

with a required copy to:

Attention: Head, Business Development at the same address.

In the case of Surface:

Surface Oncology, Inc.

25 First Street

Suite 303

Cambridge, MA 02141

Attn: Chief Executive Officer

10.9 Construction. This Agreement has been prepared jointly and shall not be strictly construed against either Party. Ambiguities, if any, in this Agreement shall not be construed against any Party, irrespective of which Party may be deemed to have authored the ambiguous provision.

10.10 Headings. The headings for each article and section in this Agreement have been inserted for convenience of reference only and are not intended to limit or expand on, nor to be used to interpret, the meaning of the language contained in the particular article or section.

10.11 No Waiver. Any delay in enforcing a Party’s rights under this Agreement or any waiver as to a particular default or other matter shall not constitute a waiver of such Party’s rights to the subsequent enforcement of its rights under this Agreement, excepting only as to an express written and signed waiver as to a particular matter for a particular period of time executed by an authorized officer of the waiving Party.

10.12 Performance by Affiliates. A Party may perform some or all of its obligations under this Agreement through Affiliate(s) or may exercise some or all of its rights under this Agreement through Affiliates, or in the case of Adimab, Controlled Contractors, which will be treated as “Affiliates” for purposes of this Section 10.12. However, each Party shall remain responsible and be guarantor of the performance by its Affiliates and shall cause its Affiliates to comply with the provisions of this Agreement in connection with such performance. In particular and without limitation, all Affiliates of a Party that receive Confidential Information of

 

38


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

DEVELOPMENT AND OPTION AGREEMENT

 

the other Party pursuant to this Agreement shall be governed and bound by all obligations set forth in Article 6, and shall (to avoid doubt) be subject to the intellectual property assignment and other intellectual property provisions of Article 5 as if they were the original Party to this Agreement (and be deemed included in the actual Party to this Agreement for purposes of all intellectual property-related definitions). A Party and its Affiliates shall be jointly and severally liable for their performance under this Agreement.

10.13 Counterparts. This Agreement may be executed in one or more identical counterparts, each of which shall be deemed to be an original, and which collectively shall be deemed to be one and the same instrument. In addition, signatures may be exchanged by facsimile or PDF.

[Remainder of Page Left Intentionally Blank; Signature Page Follows]

 

39


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

DEVELOPMENT AND OPTION AGREEMENT

 

IN WITNESS WHEREOF, the Parties have by duly authorized persons executed this Agreement as of the Effective Date.

 

SURFACE ONCOLOGY, INC.:    ADIMAB, LLC:
By:   

/s/ Joshua Resnick

   By:   

/s/ Errik Anderson

Title:    President    Title:    COO
Date:    7/6/14    Date:    7/2/14

 

40


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

DEVELOPMENT AND OPTION AGREEMENT

 

EXHIBITS LIST

A – TARGET QUESTIONNAIRE

B – FORM OF RESEARCH PLAN

 


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

LOGO

 

Partner Target Questionnaire

Selection of Human Antibodies Binding To Target

 

 

Adimab Confidential - Sample Work Plan

Page 1


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

LOGO

 

Partner Completed Target Questionnaire

Information you are able to provide about your target will help Adimab design a customized selection strategy and detailed work plan. This will ultimately allow Adimab to deliver antibodies that fit your desired properties.

Overview

The primary factors that determine the successful outcome of an IgG library screen are

 

  (i) the quality of the antibody library

 

  (ii) the quality and consistency of the antigens used in the selection process

While Adimab has taken extensive steps to ensure the quality of its libraries, the antigen used to interrogate our library is provided by the Partner and must be properly characterized to meet screening requirements. Adimab has compiled the following set of criteria to help ensure the quality of the antigen(s) used in the selection process which will ultimately lead to a successful campaign. Any additional information the Partner can provide relating to your antigen is valuable. When multiple forms of the antigen are available, and are used in the selection, it increases the potential success of the campaign. As an example, an RTK-ECD can be supplied as both an Fc-fusion protein and as a tagged monomeric protein, or produced and purified using preferred host expression systems and purification tags.

Target (sample answers provided below in blue)

 

    What is the nature of your target (e.g., extracellular domain of a membrane protein)?

 

    Serum enzyme

 

    Does your target protein have an affinity tag?

 

    If yes, what tag?

 

    C-terminus His-tag

 

    Are you aware of any post-translational modification to your target protein (e.g., N-glycosylation, O-glycosylation or phosphorylation)?

 

    None

 

    Is your target a chimeric protein (e.g., Fc-fusion protein)?

 

    No

 

    Does your target protein interact with other proteins or form complexes?

 

    Yes

 

    Does your target exist naturally as a monomer, dimer, trimer, etc.?

 

    Target is naturally monomeric

 

    Is your target available in multiple formats (e.g., monomeric, dimeric, multiple tags, etc.)?

 

    No

 

    How stable is your target protein (e.g., stability @ 4°C, freeze thaw cycle data)?

 

    Stable at +4°C for months

 

    Do you have access to 10 nmol quantities (e.g., ~1 mg of 75 kDa protein) of your target protein?

 

    Yes

 

Adimab Confidential - Sample Work Plan

Page 2


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

LOGO

 

    Do you have cell-based or other assays to determine the bioactivity of your target?

 

    Yes, there are cell-based assays in place

 

    Is cross-reactivity of your final antibody essential (e.g., cross-reactivity to murine, cynomolgus or macaque target)?

 

    Cross-reactivity to murine and macaca ortholog mandatory

 

    If yes, what is the homology between antigens?

 

    Specificity versus family members is mandatory. Family members are also available

Mode of action

 

    Could you describe the profile of your “ideal antibody” (e.g., affinity, specificity, mechanism of action, expressability, etc.)?

 

    Affinity to human and murine targets: KD £ 10 nM and koff £ 5x10-4s-1

 

    Specificity: selective versus family members and cross reactive with murine and macaca targets. Competes with control mAb provided

 

    Do you wish to disrupt a protein-protein interaction (e.g., a receptor-ligand interaction or dimerization)?

 

    We do not know at this stage

 

    Do you have an existing antibody (murine or other) that binds to your target?

 

    Yes

 

    If yes, does the antibody have the “biology” you are looking for?

 

    We have already mAbs close to what we are looking for, that we’ll use internally for comparison

 

    Are you looking to discover an antibody against a known epitope?

 

    No

 

    Can you describe the desired biological mode of action for the antibodies to be discovered?

 

    No

 

    What in vitro and in vivo screening assays are you planning to do in-house with purified IgGs discovered by Adimab?

 

    Is ADCC expected to be important?

 

    ADCC not important

 

Adimab Confidential - Sample Work Plan

Page 3


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

LOGO

 

Work Plan

Human Antibodies Binding To

Goal:

 

Adimab Confidential - Work Plan

Page 1


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

LOGO

 

TABLE OF CONTENTS

 

Profile of Desired Antibody

  

SECTION A - RESEARCH PLAN

  

Research Materials Provided by Partner

  

Overview of Project

  

Phase 1: Reagent Generation

  

Phase 2: Naïve Selection and Characterization of Human Antibodies Binding To Target

  

Phase 3: Assessment of IgGs

  

Phase 4: Optimization of nominated IgGs

  

Phase 5: Analysis of IgGs

  

Phase 6: Scaling of IgGs or Fabs

  

 

Adimab Confidential - Work Plan

Page 2


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

LOGO

 

Profile of Desired Antibody

 

 

Adimab Confidential - Work Plan

Page 3


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

LOGO

 

Section A: RESEARCH PLAN

Research Materials

 

Adimab Confidential - Work Plan

Page 4


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

LOGO

 

Overview of Project Flow

 

Adimab Confidential - Work Plan

Page 5


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

LOGO

 

Phase 1: Reagent Generation

 

Adimab Confidential - Work Plan

Page 6


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

LOGO

 

Phase 2: Naïve Selection and Characterization of Human Antibodies Binding To Target

 

Adimab Confidential - Work Plan

Page 7


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

LOGO

 

Phase 3: Assessment of IgGs

 

Adimab Confidential - Work Plan

Page 8


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

LOGO

 

Phase 4: Optimization of nominated IgGs

 

 

Adimab Confidential - Work Plan

Page 9


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

LOGO

 

Phase 5: Analysis of IgGs

 

Adimab Confidential - Work Plan

Page 10


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

LOGO

 

Phase 6: Scaling of IgGs or Fabs

 

Adimab Confidential - Work Plan

Page 11


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

AMENDMENT NUMBER ONE

TO THE

DEVELOPMENT AND OPTION AGREEMENT

THIS AMENDMENT NUMBER ONE (“this “Amendment”) dated December 18, 2015, amends the DEVELOPMENT AND OPTION AGREEMENT (the “Agreement”) dated July 3, 2014 by and between Adimab, LLC, a Delaware limited liability company having an address at 7 Lucent Drive, Lebanon, NH 03766 (“Adimab”), and Surface Oncology, Inc., a Delaware corporation having an address at 25 First Street, Suite 303, Cambridge, MA 02141 (“Surface”). All capitalized terms used herein and not defined shall have the meanings ascribed to such terms in the Agreement.

BACKGROUND

WHEREAS, in the absence of this Amendment, the Discovery Term in the Agreement would expire on [***]

WHEREAS, Adimab and Surface each desire to extend the Discovery Term until [***]

Now, THEREFORE, in consideration of the foregoing premises and the mutual covenants set forth below, and for other good and valuable consideration, the receipt of which is hereby acknowledged, Adimab and Surface hereby agree as follows:

1. The definition of “Discovery Term” set forth in Section 1.22 of the Agreement is hereby deleted and replaced with the following:

“Discovery Term” means the term beginning on the Effective Date and ending on [***]

2. All other terms and conditions of the Agreement remain in full force and effect.

[Remainder of Page Left Intentionally Blank; Signature Page Follows]

 


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

IN WITNESS WHEREOF, the Parties have by duly authorized persons executed this Agreement as of the Effective Date.

 

SURFACE ONCOLOGY, INC.:       ADIMAB, LLC:
By:   

/s/ Scott Chappel

      By:   

/s/ Tillman Gerngross

Title:    CTO       Title:    CEO and Co-Founder
Date:    12/18/15       Date:    12/18/2015

 


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

AMENDMENT NUMBER TWO

TO THE

DEVELOPMENT AND OPTION AGREEMENT

THIS AMENDMENT NUMBER Two (“this “Amendment”) dated August 31, 2016, amends the DEVELOPMENT AND OPTION AGREEMENT (the “Agreement”) dated July 3, 2014 by and between Adimab, LLC, a Delaware limited liability company having an address at 7 Lucent Drive, Lebanon, NH 03766 (“Adimab”), and Surface Oncology, Inc., a Delaware corporation having an address at 25 First Street, Suite 303, Cambridge, MA 02141 (“Surface”), as previously amended by Amendment Number One dated December 18, 2015. All capitalized terms used herein and not defined shall have the meanings ascribed to such terms in the Agreement.

BACKGROUND

WHEREAS, Section 3.3(a) allows Surface, during the Evaluation term and on a Target-by-Target basis, to exercise a Commercial Option to designate up to ten (10) Program Antibodies as Licensed Antibodies through the payment of the Commercial Option Fee;

WHEREAS, Adimab and Surface desire to increase the number of Program Antibodies which may be designated as Licensed Antibodies;

WHEREAS, Adimab and Surface each desire to allow Surface to exercise the Commercial Option with respect to a subset of the Program Antibodies prior to the end of the Evaluation Term for partial payment of the Commercial Option Fee, with the understanding that prior to the end of the Evaluation Term, Surface shall either (i) pay the remainder to the Commercial Option Fee and designate the remainder of the Licensed Antibodies or (ii) fail to make such payment, in which case there shall be no refund of the portion of the Commercial License Fee already paid and Surface shall be deemed to have never exercised the Commercial Option with respect to such Target.;

Now, THEREFORE, in consideration of the foregoing premises and the mutual covenants set forth below, and for other good and valuable consideration, the receipt of which is hereby acknowledged, Adimab and Surface hereby agree as follows:

1. Section 3.3(a) (Commercial Option) of the Agreement is hereby deleted in its entirety and replaced with the following:

Section 3.3(a) Commercial Option. On a Target-by-Target basis, Adimab hereby grants to Surface the exclusive option (for each Target, a “Commercial Option”) to obtain the licenses of Section 3.3(b) for Licensed Antibodies to the Target, exercisable by payment of the Commercial Option Fee with respect to such Target to Adimab on or before the expiry of the Evaluation Term. Surface shall, in its written notice to exercise the Commercial Option for a Target, specify up to twenty (20) Program-Benefited Antibodies against the Target as the “Licensed Antibodies.” Upon such Commercial Option exercise, Adimab will provide to Surface sufficient materials to allow Surface to express any such Licensed Antibodies that were generated in the Research Program. Notwithstanding the foregoing, Surface may elect to partially exercise the Commercial Option by paying sixty five percent (65%) of the Commercial Option Fee and designating up to ten (10) Program-Benefited Antibodies as Licensed Antibodies; provided, however, that prior to the expiration of the Evaluation Term, Surface shall either (i) pay the remaining thirty five percent (35%) of the Commercial Option Fee and, at any time prior to the expiration of the Evaluation Term (even if after payment of the remaining thirty five

 


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

percent (35%) of the Commercial Option Fee) designate additional Program-Benefited Antibodies as Licensed Antibodies such that the total number of Licensed Antibodies does not exceed twenty (20) or (ii) fail to pay the remaining thirty five percent (35%) of the Commercial Option Fee, in which case the Commercial Option shall be deemed not to have been exercised with respect to such Target and no Program-Benefited Antibodies against such shall be deemed Licensed Antibodies from that point forward.

2. Section 4.3(a) (Commercial Option) of the Agreement is hereby deleted in its entirety and replaced with the following:

Section 4.3 Commercial Option Fee. In order to exercise the Commercial Option under Section 3.3(a) for a Target, Surface shall pay to Adimab a non-creditable, nonrefundable option exercise fee of [***] for each such Target (each, a “Commercial Option Fee”).

3. All other terms and conditions of the Agreement remain in full force and effect.

[Remainder of Page Left Intentionally Blank; Signature Page Follows]

 


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

IN WITNESS WHEREOF, the Parties have by duly authorized persons executed this Agreement as of the Effective Date.

 

SURFACE ONCOLOGY, INC.:       ADIMAB, LLC:
By:   

/s/ Detlev M. Biniszkiewicz

      By:   

/s/ Tillman Gerngross

Title:    CEO & PRESIDENT       Title:    CEO
Date:    8/31/2016       Date:    8/31/2016

 


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

AMENDMENT NUMBER THREE

TO THE

DEVELOPMENT AND OPTION AGREEMENT

THIS AMENDMENT NUMBER THREE (“this “Amendment”) dated June 23, 2017, amends the DEVELOPMENT AND OPTION AGREEMENT (the “Agreement”) dated July 3, 2014, as amended by Amendment Number 1, dated December 18, 2015, and Amendment Number 2, dated August 31, 2016, by and between Adimab, LLC, a Delaware limited liability company having an address at 7 Lucent Drive, Lebanon, NH 03766 (“Adimab”), and Surface Oncology, Inc., a Delaware corporation having an address at 25 First Street, Suite 303, Cambridge, MA 02141 (“Surface”). All capitalized terms used herein and not defined shall have the meanings ascribed to such terms in the Agreement.

BACKGROUND

WHEREAS, in the absence of this Amendment, the Discovery Term in the Agreement would expire on [***]

WHEREAS, Adimab and Surface each desire to extend the Discovery Term until [***]

NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants set forth below, and for other good and valuable consideration, the receipt of which is hereby acknowledged, Adimab and Surface hereby agree as follows:

1. The definition of “Discovery Term” set forth in Section 1.22 of the Agreement is hereby deleted and replaced with the following:

Discovery Term” means the term beginning on the Effective Date and ending on [***]

2. All other terms and conditions of the Agreement remain in full force and effect.

[Remainder of Page Left Intentionally Blank; Signature Page Follows]

 


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

IN WITNESS WHEREOF, the Parties have by duly authorized persons executed this Agreement as of the Effective Date.

 

SURFACE ONCOLOGY, INC.:       ADIMAB, LLC:
By:   

/s/ Nicholas Buffinger

      By:   

/s/ Tillman Gerngross

Title:    V.P., Corporate Development & IP Strategy       Title:    CEO
Date:    June 23, 2017       Date:    6/23/2017

 


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

AMENDMENT NUMBER FOUR

TO THE

DEVELOPMENT AND OPTION AGREEMENT

THIS AMENDMENT NUMBER FOUR (“this “Amendment”) dated September 20, 2017, amends the DEVELOPMENT AND OPTION AGREEMENT (the “Agreement”) dated July 3, 2014, as amended by Amendment Number 1, dated December 18, 2015, Amendment Number 2, dated August 31, 2016, and Amendment Number 3, dated June 23, 2017, by and between Adimab, LLC, a Delaware limited liability company having an address at 7 Lucent Drive, Lebanon, NH 03766 (“Adimab”), and Surface Oncology, Inc., a Delaware corporation having an address at 50 Hampshire Street, 8th Floor, Cambridge, MA 02139 (“Surface”). All capitalized terms used herein and not defined shall have the meanings ascribed to such terms in the Agreement.

BACKGROUND

WHEREAS, the Parties wish to clarify that Surface does not owe [***] Milestone Payments or Royalty Payments with respect to a [***] Licensed Products which contain [***] Program Antibodies, [***]

NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants set forth below, and for other good and valuable consideration, the receipt of which is hereby acknowledged, Adimab and Surface hereby agree as follows:

1. The following new Section 4.6(d) is added immediately before Section 4.7 (Quarterly Payment Timings):

(d) Milestone Payments and Royalty Payments for Certain [***] In the event that a single Licensed Product contains [***] Program Antibodies, [***] then (i) Surface shall owe only one Milestone Payment for the achievement of a given Milestone Event with respect to such Licensed Product, and (ii) Surface shall owe only one Royalty Payment with respect to any specific portion of Net Sales of such Licensed Product.

2. All other terms and conditions of the Agreement remain in full force and effect.

[Remainder of Page Left Intentionally Blank; Signature Page Follows]

 


CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

IN WITNESS WHEREOF, the Parties have by duly authorized persons executed this Agreement as of the Effective Date.

 

SURFACE ONCOLOGY, INC.:       ADIMAB, LLC:
By:   

/s/ Nicholas Buffinger

      By:   

/s/ Guy Van Meter

Title:    V.P., Corporate Development & IP Strategy       Title:    SVP Business Development
Date:    September 20, 2017       Date:    9/21/17

 


EX-10.21

Exhibit 10.21

SURFACE ONCOLOGY, INC.

FORM OF DIRECTOR INDEMNIFICATION AGREEMENT

This Indemnification Agreement (“Agreement”) is made as of [________________] by and between Surface Oncology, Inc., a Delaware corporation (the “Company”), and [____________] (“Indemnitee”).

RECITALS

WHEREAS, the Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, to serve the Company;

WHEREAS, in order to induce Indemnitee to provide or continue to provide services to the Company, the Company wishes to provide for the indemnification of, and advancement of expenses to, Indemnitee to the maximum extent permitted by law;

WHEREAS, the Amended and Restated Certificate of Incorporation (the “Charter”) and the Bylaws (the “Bylaws”) of the Company require indemnification of the officers and directors of the Company, and Indemnitee may also be entitled to indemnification pursuant to the General Corporation Law of the State of Delaware (the “DGCL”);

WHEREAS, the Charter, the Bylaws and the DGCL expressly provide that the indemnification provisions set forth therein are not exclusive, and thereby contemplate that contracts may be entered into between the Company and members of the board of directors, officers and other persons with respect to indemnification;

WHEREAS, the Board of Directors of the Company (the “Board”) has determined that the increased difficulty in attracting and retaining highly qualified persons such as Indemnitee is detrimental to the best interests of the Company’s stockholders;

WHEREAS, it is reasonable and prudent for the Company contractually to obligate itself to indemnify, and to advance expenses on behalf of, such persons to the fullest extent permitted by applicable law, regardless of any amendment or revocation of the Charter or the Bylaws, so that they will serve or continue to serve the Company free from undue concern that they will not be so indemnified;

WHEREAS, this Agreement is a supplement to and in furtherance of the indemnification provided in the Charter, the Bylaws and any resolutions adopted pursuant thereto, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder; and

[WHEREAS, Indemnitee has certain rights to indemnification and/or insurance provided by [Name of Fund/Sponsor] which Indemnitee and [Name of Fund/Sponsor] intend to be secondary to the primary obligation of the Company to indemnify Indemnitee as provided in this Agreement, with the Company’s acknowledgment and agreement to the foregoing being a material condition to Indemnitee’s willingness to serve or continue to serve on the Board.]

 

1


NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:

Section 1. Services to the Company. Indemnitee agrees to serve as a director of the Company. Indemnitee may at any time and for any reason resign from such position (subject to any other contractual obligation or any obligation imposed by law), in which event the Company shall have no obligation under this Agreement to continue Indemnitee in such position. This Agreement shall not be deemed an employment contract between the Company (or any of its subsidiaries or any Enterprise) and Indemnitee.

Section 2. Definitions.

As used in this Agreement:

(a) “Change in Control” shall mean (i) the sale of all or substantially all of the assets of the Company on a consolidated basis to an unrelated person or entity, (ii) a merger, reorganization or consolidation pursuant to which the holders of the Company’s outstanding voting power and outstanding stock immediately prior to such transaction do not own a majority of the outstanding voting power and outstanding stock or other equity interests of the resulting or successor entity (or its ultimate parent, if applicable) immediately upon completion of such transaction, (iii) the sale of all of the Stock of the Company to an unrelated person, entity or group thereof acting in concert, or (iv) any other transaction in which the owners of the Company’s outstanding voting power immediately prior to such transaction do not own at least a majority of the outstanding voting power of the Company or any successor entity immediately upon completion of the transaction other than as a result of the acquisition of securities directly from the Company.

(b) “Corporate Status” describes the status of a person as a current or former director of the Company or current or former director, manager, partner, officer, employee, agent or trustee of any other Enterprise which such person is or was serving at the request of the Company.

(c) “Enforcement Expenses” shall include all reasonable attorneys’ fees, court costs, transcript costs, fees of experts, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other out-of-pocket disbursements or expenses of the types customarily incurred in connection with an action to enforce indemnification or advancement rights, or an appeal from such action. Expenses, however, shall not include fees, salaries, wages or benefits owed to Indemnitee.

(d) “Enterprise” shall mean any corporation (other than the Company), partnership, joint venture, trust, employee benefit plan, limited liability company, or other legal entity of which Indemnitee is or was serving at the request of the Company as a director, manager, partner, officer, employee, agent or trustee.

 

2


(e) “Expenses” shall include all reasonable attorneys’ fees, court costs, transcript costs, fees of experts, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other out-of-pocket disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, or otherwise participating in, a Proceeding or an appeal resulting from a Proceeding. Expenses, however, shall not include amounts paid in settlement by Indemnitee, the amount of judgments or fines against Indemnitee or fees, salaries, wages or benefits owed to Indemnitee.

(f) “Independent Counsel” means a law firm, or a partner (or, if applicable, member or shareholder) of such a law firm, that is experienced in matters of Delaware corporation law and neither presently is, nor in the past five (5) years has been, retained to represent: (i) the Company, any subsidiary of the Company, any Enterprise or Indemnitee in any matter material to any such party; or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement. The Company agrees to pay the reasonable fees and expenses of the Independent Counsel referred to above and to fully indemnify such counsel against any and all expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.

(g) The term “Proceeding” shall include any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought in the right of the Company or otherwise and whether of a civil, criminal, administrative, regulatory or investigative nature, and whether formal or informal, in which Indemnitee was, is or will be involved as a party or otherwise by reason of the fact that Indemnitee is or was a director of the Company or is or was serving at the request of the Company as a director, manager, partner, officer, employee, agent or trustee of any Enterprise or by reason of any action taken by Indemnitee or of any action taken on his or her part while acting as a director of the Company or while serving at the request of the Company as a director, manager, partner, officer, employee, agent or trustee of any Enterprise, in each case whether or not serving in such capacity at the time any liability or expense is incurred for which indemnification, reimbursement or advancement of expenses can be provided under this Agreement; provided, however, that the term “Proceeding” shall not include any action, suit or arbitration, or part thereof, initiated by Indemnitee to enforce Indemnitee’s rights under this Agreement as provided for in Section 12(a) of this Agreement.

Section 3. Indemnity in Third-Party Proceedings. The Company shall indemnify Indemnitee to the extent set forth in this Section 3 if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding, other than a Proceeding by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 3, Indemnitee shall be indemnified against all Expenses, judgments, fines, penalties, excise taxes, and amounts paid in settlement actually and reasonably incurred by Indemnitee or on his or her behalf in connection

 

3


with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company and, in the case of a criminal proceeding, had no reasonable cause to believe that his or her conduct was unlawful.

Section 4. Indemnity in Proceedings by or in the Right of the Company. The Company shall indemnify Indemnitee to the extent set forth in this Section 4 if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 4, Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by Indemnitee or on his or her behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company. No indemnification for Expenses shall be made under this Section 4 in respect of any claim, issue or matter as to which Indemnitee shall have been finally adjudged by a court to be liable to the Company, unless and only to the extent that the Delaware Court of Chancery (the “Delaware Court”) shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnification for such expenses as the Delaware Court shall deem proper.

Section 5. Indemnification for Expenses of a Party Who is Wholly or Partly Successful. Notwithstanding any other provisions of this Agreement and except as provided in Section 7, to the extent that Indemnitee is a party to or a participant in any Proceeding and is successful in such Proceeding or in defense of any claim, issue or matter therein, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or her in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by Indemnitee or on his or her behalf in connection with each successfully resolved claim, issue or matter. For purposes of this Section and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.

Section 6. Reimbursement for Expenses of a Witness or in Response to a Subpoena. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee, by reason of his or her Corporate Status, (i) is a witness in any Proceeding to which Indemnitee is not a party and is not threatened to be made a party or (ii) receives a subpoena with respect to any Proceeding to which Indemnitee is not a party and is not threatened to be made a party, the Company shall reimburse Indemnitee for all Expenses actually and reasonably incurred by him or her or on his or her behalf in connection therewith.

Section 7. Exclusions. Notwithstanding any provision in this Agreement to the contrary, the Company shall not be obligated under this Agreement:

(a) to indemnify for amounts otherwise indemnifiable hereunder (or for which advancement is provided hereunder) if and to the extent that Indemnitee has otherwise actually received such amounts under any insurance policy, contract, agreement or otherwise[; provided that the foregoing shall not affect the rights of Indemnitee or the Fund Indemnitors as set forth in Section 13(c)];

 

4


(b) to indemnify for an accounting of profits made from the purchase and sale (or sale and purchase) by Indemnitee of securities of the Company within the meaning of Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar provisions of state statutory law or common law, or from the purchase or sale by Indemnitee of such securities in violation of Section 306 of the Sarbanes-Oxley Act of 2002 (“SOX”);

(c) to indemnify with respect to any Proceeding, or part thereof, brought by Indemnitee against the Company, any legal entity which it controls, any director or officer thereof or any third party, unless (i) the Board has consented to the initiation of such Proceeding or part thereof and (ii) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law; provided, however, that this Section 7(d) shall not apply to (A) counterclaims or affirmative defenses asserted by Indemnitee in an action brought against Indemnitee or (B) any action brought by Indemnitee for indemnification or advancement from the Company under this Agreement or under any directors’ and officers’ liability insurance policies maintained by the Company in the suit for which indemnification or advancement is being sought as described in Section 12; or

(d) to provide any indemnification or advancement of expenses that is prohibited by applicable law (as such law exists at the time payment would otherwise be required pursuant to this Agreement).

Section 8. Advancement of Expenses. Subject to Section 9(b), the Company shall advance, to the extent not prohibited by law, the Expenses incurred by Indemnitee in connection with any Proceeding, and such advancement shall be made within thirty (30) days after the receipt by the Company of a statement or statements requesting such advances (including any invoices received by Indemnitee, which such invoices may be redacted as necessary to avoid the waiver of any privilege accorded by applicable law) from time to time, whether prior to or after final disposition of any Proceeding. Advances shall be unsecured and interest free. Advances shall be made without regard to Indemnitee’s (i) ability to repay the expenses, (ii) ultimate entitlement to indemnification under the other provisions of this Agreement, and (iii) entitlement to and availability of insurance coverage, including advancement, payment or reimbursement of defense costs, expenses or covered loss under the provisions of any applicable insurance policy (including, without limitation, whether such advancement, payment or reimbursement is withheld, conditioned or delayed by the insurer(s)). Indemnitee shall qualify for advances upon the execution and delivery to the Company of this Agreement which shall constitute an undertaking providing that Indemnitee undertakes to the fullest extent required by law to repay the advance if and to the extent that it is ultimately determined by a court of competent jurisdiction in a final judgment, not subject to appeal, that Indemnitee is not entitled to be indemnified by the Company. The right to advances under this paragraph shall in all events continue until final disposition of any Proceeding, including any appeal therein. Nothing in this Section 8 shall limit Indemnitee’s right to advancement pursuant to Section 12(e) of this Agreement.

 

5


Section 9. Procedure for Notification and Defense of Claim.

(a) To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request therefor specifying the basis for the claim, the amounts for which Indemnitee is seeking payment under this Agreement, and all documentation related thereto as reasonably requested by the Company.

(b) In the event that the Company shall be obligated hereunder to provide indemnification for or make any advancement of Expenses with respect to any Proceeding, the Company shall be entitled to assume the defense of such Proceeding, or any claim, issue or matter therein, with counsel approved by Indemnitee (which approval shall not be unreasonably withheld or delayed) upon the delivery to Indemnitee of written notice of the Company’s election to do so. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees or expenses of separate counsel subsequently employed by or on behalf of Indemnitee with respect to the same Proceeding; provided that (i) Indemnitee shall have the right to employ separate counsel in any such Proceeding at Indemnitee’s expense and (ii) if (A) the employment of separate counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of such defense, or (C) the Company shall not continue to retain such counsel to defend such Proceeding, then the fees and expenses actually and reasonably incurred by Indemnitee with respect to his or her separate counsel shall be Expenses hereunder.

(c) In the event that the Company does not assume the defense in a Proceeding pursuant to paragraph (b) above, then the Company will be entitled to participate in the Proceeding at its own expense.

(d) The Company shall not be liable to indemnify Indemnitee under this Agreement for any amounts paid in settlement of any Proceeding effected without its prior written consent (which consent shall not be unreasonably withheld or delayed). Without limiting the generality of the foregoing, the fact that an insurer under an applicable insurance policy delays or is unwilling to consent to such settlement or is or may be in breach of its obligations under such policy, or the fact that directors’ and officers’ liability insurance is otherwise unavailable or not maintained by the Company, may not be taken into account by the Company in determining whether to provide its consent. The Company shall not, without the prior written consent of Indemnitee (which consent shall not be unreasonably withheld or delayed), enter into any settlement which (i) includes an admission of fault of Indemnitee, any non-monetary remedy imposed on Indemnitee or any monetary damages for which Indemnitee is not wholly and actually indemnified hereunder or (ii) with respect to any Proceeding with respect to which Indemnitee may be or is made a party or may be otherwise entitled to seek indemnification hereunder, does not include the full release of Indemnitee from all liability in respect of such Proceeding.

 

6


Section 10. Procedure Upon Application for Indemnification.

(a) Upon written request by Indemnitee for indemnification pursuant to Section 9(a), a determination, if such determination is required by applicable law, with respect to Indemnitee’s entitlement to indemnification hereunder shall be made in the specific case by one of the following methods: (x) if a Change in Control shall have occurred, by Independent Counsel in a written opinion to the Board; or (y) if a Change in Control shall not have occurred: (i) by a majority vote of the disinterested directors, even though less than a quorum; (ii) by a committee of disinterested directors designated by a majority vote of the disinterested directors, even though less than a quorum; or (iii) if there are no disinterested directors or if the disinterested directors so direct, by Independent Counsel in a written opinion to the Board. For purposes hereof, disinterested directors are those members of the Board who are not parties to the action, suit or proceeding in respect of which indemnification is sought. In the case that such determination is made by Independent Counsel, a copy of Independent Counsel’s written opinion shall be delivered to Indemnitee and, if it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within thirty (30) days after such determination. Indemnitee shall cooperate with the Independent Counsel or the Company, as applicable, in making such determination with respect to Indemnitee’s entitlement to indemnification, including providing to such counsel or the Company, upon reasonable advance request, any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination. Any out-of-pocket costs or expenses (including reasonable attorneys’ fees and disbursements) actually and reasonably incurred by Indemnitee in so cooperating with the Independent Counsel or the Company shall be borne by the Company (irrespective of the determination as to Indemnitee’s entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.

(b) If the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 10(a), the Independent Counsel shall be selected by the Board if a Change in Control shall not have occurred or, if a Change in Control shall have occurred, by Indemnitee. Indemnitee or the Company, as the case may be, may, within ten (10) days after written notice of such selection, deliver to the Company or Indemnitee, as the case may be, a written objection to such selection; provided, however, that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of “Independent Counsel” as defined in Section 2 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the person so selected shall act as Independent Counsel. If such written objection is so made and substantiated, the Independent Counsel so selected may not serve as Independent Counsel unless and until such objection is withdrawn or the Delaware Court has determined that such objection is without merit. If, within twenty (20) days after the later of (i) submission by Indemnitee of a written request for indemnification pursuant to Section 9(a), and (ii) the final disposition of the Proceeding, including any appeal therein, no Independent Counsel shall have been selected without objection, either Indemnitee or the Company may petition the Delaware Court for resolution of any objection which shall have been made by Indemnitee or the Company to the selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by the court or by such other person as the court shall designate. The person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel under Section 10(a) hereof. Upon the due commencement of any judicial proceeding or arbitration pursuant to Section 12(a) of this Agreement, Independent Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing).

 

7


(c) Notwithstanding anything to the contrary contained in this Agreement, the determination of entitlement to indemnification under this Agreement shall be made without regard to the Indemnitee’s entitlement to and availability of insurance coverage, including advancement, payment or reimbursement of defense costs, expenses or covered loss under the provisions of any applicable insurance policy (including, without limitation, whether such advancement, payment or reimbursement is withheld, conditioned or delayed by the insurer(s)).

Section 11. Presumptions and Effect of Certain Proceedings.

(a) To the extent permitted by applicable law, in making a determination with respect to entitlement to indemnification hereunder, it shall be presumed that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 9(a) of this Agreement, and the Company shall have the burden of proof to overcome that presumption in connection with the making of any determination contrary to that presumption.

(b) The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of guilty, nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his or her conduct was unlawful.

(c) The knowledge and/or actions, or failure to act, of any director, manager, partner, officer, employee, agent or trustee of the Company, any subsidiary of the Company, or any Enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement.

Section 12. Remedies of Indemnitee.

(a) Subject to Section 12(f), in the event that (i) a determination is made pursuant to Section 10 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 8 of this Agreement, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section 10(a) of this Agreement within sixty (60) days after receipt by the Company of the request for indemnification for which a determination is to be made other than by Independent Counsel, (iv) payment of indemnification or reimbursement of expenses is not made pursuant to Section 5 or 6 or the last sentence of Section 10(a) of this Agreement within thirty (30) days after receipt by the Company of a written request therefor (including any invoices received by Indemnitee, which such invoices may be redacted as necessary to avoid the waiver of any privilege accorded by applicable law) or (v) payment of indemnification pursuant to Section 3 or 4 of this Agreement is not made within thirty (30) days after a determination has been made that Indemnitee is entitled to indemnification, Indemnitee shall be entitled to an adjudication by the Delaware Court of his or her entitlement to such indemnification or advancement. Alternatively, Indemnitee, at his or her option, may seek an award in arbitration to

 

8


be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association. Indemnitee shall commence such proceeding seeking an adjudication or an award in arbitration within 180 days following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 12(a); provided, however, that the foregoing time limitation shall not apply in respect of a proceeding brought by Indemnitee to enforce his or her rights under Section 5 of this Agreement. The Company shall not oppose Indemnitee’s right to seek any such adjudication or award in arbitration.

(b) In the event that a determination shall have been made pursuant to Section 10(a) of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 12 shall be conducted in all respects as a de novo trial, or arbitration, on the merits and Indemnitee shall not be prejudiced by reason of that adverse determination. In any judicial proceeding or arbitration commenced pursuant to this Section 12, the Company shall have the burden of proving Indemnitee is not entitled to indemnification or advancement, as the case may be.

(c) If a determination shall have been made pursuant to Section 10(a) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 12, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law.

(d) The Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 12 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement.

(e) The Company shall indemnify Indemnitee to the fullest extent permitted by law against any and all Enforcement Expenses and, if requested by Indemnitee, shall (within thirty (30) days after receipt by the Company of a written request therefor) advance, to the extent not prohibited by law, such Enforcement Expenses to Indemnitee, which are incurred by Indemnitee in connection with any action brought by Indemnitee for indemnification or advancement from the Company under this Agreement or under any directors’ and officers’ liability insurance policies maintained by the Company in the suit for which indemnification or advancement is being sought. Such written request for advancement shall include invoices received by Indemnitee in connection with such Enforcement Expenses but, in the case of invoices in connection with legal services, any references to legal work performed or to expenditures made that would cause Indemnitee to waive any privilege accorded by applicable law need not be included with the invoice.

(f) Notwithstanding anything in this Agreement to the contrary, no determination as to entitlement to indemnification under this Agreement shall be required to be made prior to the final disposition of the Proceeding, including any appeal therein.

 

9


Section 13. Non-exclusivity; Survival of Rights; Insurance; Primacy of Indemnification; Subrogation.

(a) The rights of indemnification and to receive advancement as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Charter, the Bylaws, any agreement, a vote of stockholders or a resolution of directors, or otherwise. No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his or her Corporate Status prior to such amendment, alteration or repeal. To the extent that a change in Delaware law, whether by statute or judicial decision, permits greater indemnification or advancement than would be afforded currently under the Charter, Bylaws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy.

(b) To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, managers, partners, officers, employees, agents or trustees of the Company or of any other Enterprise, Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any such director, manager, partner, officer, employee, agent or trustee under such policy or policies. If, at the time of the receipt of a notice of a claim pursuant to the terms hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies.

(c) [The Company hereby acknowledges that Indemnitee has certain rights to indemnification, advancement of expenses and/or insurance provided by [Name of Fund/Sponsor] and certain of its affiliates (collectively, the “Fund Indemnitors”). The Company hereby agrees (i) that it is the indemnitor of first resort (i.e., its obligations to Indemnitee are primary and any obligation of the Fund Indemnitors to advance expenses or to provide indemnification for the same expenses or liabilities incurred by Indemnitee are secondary), (ii) that it shall be required to advance the full amount of expenses incurred by Indemnitee and shall be liable for the full amount of all Expenses, judgments, penalties, fines and amounts paid in settlement to the extent legally permitted and as required by the terms of this Agreement and the Charter and/or Bylaws (or any other agreement between the Company and Indemnitee), without regard to any rights Indemnitee may have against the Fund Indemnitors, and (iii) that it irrevocably waives, relinquishes and releases the Fund Indemnitors from any and all claims against the Fund Indemnitors for contribution, subrogation or any other recovery of any kind in respect thereof. The Company further agrees that no advancement or payment by the Fund Indemnitors on behalf of Indemnitee with respect to any claim for which Indemnitee has sought indemnification from the Company shall affect the foregoing and the Fund Indemnitors shall have a right of contribution and/or be subrogated to the extent of such advancement or payment to all of the rights of recovery of Indemnitee against the Company. The Company and Indemnitee agree that the Fund Indemnitors are express third party beneficiaries of the terms of this Section 13(c).]

 

10


(d) [Except as provided in paragraph (c) above,] in the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee [(other than against the Fund Indemnitors)], who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.

(e) [Except as provided in paragraph (c) above,] the Company’s obligation to provide indemnification or advancement hereunder to Indemnitee who is or was serving at the request of the Company as a director, manager, partner, officer, employee, agent or trustee of any other Enterprise shall be reduced by any amount Indemnitee has actually received as indemnification or advancement from such other Enterprise.

Section 14. Duration of Agreement. This Agreement shall continue until and terminate upon the later of: (a) ten (10) years after the date that Indemnitee shall have ceased to serve as a director of the Company or (b) one (1) year after the final termination of any Proceeding, including any appeal, then pending in respect of which Indemnitee is granted rights of indemnification or advancement hereunder and of any proceeding commenced by Indemnitee pursuant to Section 12 of this Agreement relating thereto. This Agreement shall be binding upon the Company and its successors and assigns and shall inure to the benefit of Indemnitee and his or her heirs, executors and administrators. The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all or a substantial part, of the business and/or assets of the Company, by written agreement in form and substance satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.

Section 15. Severability. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including, without limitation, each portion of any section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law; (b) such provision or provisions shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (c) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby.

 

11


Section 16. Enforcement.

(a) The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby in order to induce Indemnitee to serve or continue to serve as a director of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as a director of the Company.

(b) This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof; provided, however, that this Agreement is a supplement to and in furtherance of the Charter, the Bylaws and applicable law, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder.

Section 17. Modification and Waiver. No supplement, modification or amendment, or waiver of any provision, of this Agreement shall be binding unless executed in writing by the parties thereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions of this Agreement nor shall any waiver constitute a continuing waiver. No supplement, modification or amendment of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee prior to such supplement, modification or amendment.

Section 18. Notice by Indemnitee. Indemnitee agrees promptly to notify the Company in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification, reimbursement or advancement as provided hereunder. The failure of Indemnitee to so notify the Company shall not relieve the Company of any obligation which it may have to Indemnitee under this Agreement or otherwise.

Section 19. Notices. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given if (i) delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed, (ii) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed, (iii) mailed by reputable overnight courier and receipted for by the party to whom said notice or other communication shall have been directed or (iv) sent by facsimile transmission, with receipt of oral confirmation that such transmission has been received:

(a) If to Indemnitee, at such address as Indemnitee shall provide to the Company.

(b) If to the Company to:

Surface Oncology, Inc.

50 Hampshire Street, 8th Floor

Cambridge, MA 02139

Attention: Chief Executive Officer

or to any other address as may have been furnished to Indemnitee by the Company.

 

12


Section 20. Contribution. To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or for Expenses, in connection with any Proceeding in such proportion as is deemed fair and reasonable in light of all of the circumstances in order to reflect (i) the relative benefits received by the Company and Indemnitee in connection with the event(s) and/or transaction(s) giving rise to such Proceeding; and/or (ii) the relative fault of the Company (and its directors, officers, employees and agents) and Indemnitee in connection with such event(s) and/or transactions.

Section 21. Internal Revenue Code Section 409A. The Company intends for this Agreement to comply with the Indemnification exception under Section 1.409A-1(b)(10) of the regulations promulgated under the Internal Revenue Code of 1986, as amended (the “Code”), which provides that indemnification of, or the purchase of an insurance policy providing for payments of, all or part of the expenses incurred or damages paid or payable by Indemnitee with respect to a bona fide claim against Indemnitee or the Company do not provide for a deferral of compensation, subject to Section 409A of the Code, where such claim is based on actions or failures to act by Indemnitee in his or her capacity as a service provider of the Company. The parties intend that this Agreement be interpreted and construed with such intent.

Section 22. Applicable Law and Consent to Jurisdiction. This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict of laws rules. Except with respect to any arbitration commenced by Indemnitee pursuant to Section 12(a) of this Agreement, the Company and Indemnitee hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Delaware Court, and not in any other state or federal court in the United States of America or any court in any other country, (ii) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement, (iii) consent to service of process at the address set forth in Section 19 of this Agreement with the same legal force and validity as if served upon such party personally within the State of Delaware, (iv) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court, and (v) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum.

Section 23. Headings. The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.

Section 24. Identical Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement.

[Remainder of Page Intentionally Left Blank]

 

13


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

 

SURFACE ONCOLOGY, INC.
By:    
  Name: J. Jeffrey Goater
  Title: Chief Executive Officer
   
  [                                             ]

EX-10.22

Exhibit 10.22

SURFACE ONCOLOGY, INC.

FORM OF OFFICER INDEMNIFICATION AGREEMENT

This Indemnification Agreement (“Agreement”) is made as of [________________] by and between Surface Oncology, Inc., a Delaware corporation (the “Company”), and [____________] (“Indemnitee”).

RECITALS

WHEREAS, the Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, to serve the Company;

WHEREAS, in order to induce Indemnitee to [provide or continue to provide] services to the Company, the Company wishes to provide for the indemnification of, and advancement of expenses to, Indemnitee to the maximum extent permitted by law;

WHEREAS, the Amended and Restated Certificate of Incorporation (as amended and in effect from time to time, the “Charter”) and the Amended and Restated Bylaws (as amended and in effect from time to time, the “Bylaws”) of the Company require indemnification of the officers and directors of the Company, and Indemnitee may also be entitled to indemnification pursuant to the General Corporation Law of the State of Delaware (the “DGCL”);

WHEREAS, the Charter, the Bylaws and the DGCL expressly provide that the indemnification provisions set forth therein are not exclusive, and thereby contemplate that contracts may be entered into between the Company and members of the board of directors, officers and other persons with respect to indemnification;

WHEREAS, the Board of Directors of the Company (the “Board”) has determined that the increased difficulty in attracting and retaining highly qualified persons such as Indemnitee is detrimental to the best interests of the Company’s stockholders;

WHEREAS, it is reasonable and prudent for the Company contractually to obligate itself to indemnify, and to advance expenses on behalf of, such persons to the fullest extent permitted by applicable law, regardless of any amendment or revocation of the Charter or the Bylaws, so that they will serve or continue to serve the Company free from undue concern that they will not be so indemnified; and

WHEREAS, this Agreement is a supplement to and in furtherance of the indemnification provided in the Charter, the Bylaws and any resolutions adopted pursuant thereto, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder.


NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:

Section 1. Services to the Company. Indemnitee agrees to serve as [a director and] an officer of the Company. Indemnitee may at any time and for any reason resign from [any] such position (subject to any other contractual obligation or any obligation imposed by law), in which event the Company shall have no obligation under this Agreement to continue Indemnitee in such position. This Agreement shall not be deemed an employment contract between the Company (or any of its subsidiaries or any Enterprise) and Indemnitee.

Section 2. Definitions.

As used in this Agreement:

(a) “Change in Control” shall mean (i) the sale of all or substantially all of the assets of the Company on a consolidated basis to an unrelated person or entity, (ii) a merger, reorganization or consolidation pursuant to which the holders of the Company’s outstanding voting power and outstanding stock immediately prior to such transaction do not own a majority of the outstanding voting power and outstanding stock or other equity interests of the resulting or successor entity (or its ultimate parent, if applicable) immediately upon completion of such transaction, (iii) the sale of all of the Stock of the Company to an unrelated person, entity or group thereof acting in concert, or (iv) any other transaction in which the owners of the Company’s outstanding voting power immediately prior to such transaction do not own at least a majority of the outstanding voting power of the Company or any successor entity immediately upon completion of the transaction other than as a result of the acquisition of securities directly from the Company.

(b) “Corporate Status” describes the status of a person as a current or former [director or] officer of the Company or current or former director, manager, partner, officer, employee, agent or trustee of any other Enterprise which such person is or was serving at the request of the Company.

(c) “Enforcement Expenses” shall include all reasonable attorneys’ fees, court costs, transcript costs, fees of experts, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other out-of-pocket disbursements or expenses of the types customarily incurred in connection with an action to enforce indemnification or advancement rights, or an appeal from such action. Expenses, however, shall not include fees, salaries, wages or benefits owed to Indemnitee.

(d) “Enterprise” shall mean any corporation (other than the Company), partnership, joint venture, trust, employee benefit plan, limited liability company, or other legal entity of which Indemnitee is or was serving at the request of the Company as a director, manager, partner, officer, employee, agent or trustee.

(e) “Expenses” shall include all reasonable attorneys’ fees, court costs, transcript costs, fees of experts, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other out-of-pocket disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, or otherwise participating in, a Proceeding or an appeal resulting from a Proceeding. Expenses, however, shall not include amounts paid in settlement by Indemnitee, the amount of judgments or fines against Indemnitee or fees, salaries, wages or benefits owed to Indemnitee.

 

2


(f) “Independent Counsel” means a law firm, or a partner (or, if applicable, member or shareholder) of such a law firm, that is experienced in matters of Delaware corporation law and neither presently is, nor in the past five (5) years has been, retained to represent: (i) the Company, any subsidiary of the Company, any Enterprise or Indemnitee in any matter material to any such party; or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement. The Company agrees to pay the reasonable fees and expenses of the Independent Counsel referred to above and to fully indemnify such counsel against any and all expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.

(g) The term “Proceeding” shall include any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought in the right of the Company or otherwise and whether of a civil, criminal, administrative, regulatory or investigative nature, and whether formal or informal, in which Indemnitee was, is or will be involved as a party or otherwise by reason of the fact that Indemnitee is or was [a director or] an officer of the Company or is or was serving at the request of the Company as a director, manager, partner, officer, employee, agent or trustee of any Enterprise or by reason of any action taken by Indemnitee or of any action taken on his or her part while acting as [a director or] an officer of the Company or while serving at the request of the Company as a director, manager, partner, officer, employee, agent or trustee of any Enterprise, in each case whether or not serving in such capacity at the time any liability or expense is incurred for which indemnification, reimbursement or advancement of expenses can be provided under this Agreement; provided, however, that the term “Proceeding” shall not include any action, suit or arbitration, or part thereof, initiated by Indemnitee to enforce Indemnitee’s rights under this Agreement as provided for in Section 12(a) of this Agreement.

Section 3. Indemnity in Third-Party Proceedings. The Company shall indemnify Indemnitee to the extent set forth in this Section 3 if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding, other than a Proceeding by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 3, Indemnitee shall be indemnified against all Expenses, judgments, fines, penalties, excise taxes, and amounts paid in settlement actually and reasonably incurred by Indemnitee or on his or her behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company and, in the case of a criminal proceeding, had no reasonable cause to believe that his or her conduct was unlawful.

 

3


Section 4. Indemnity in Proceedings by or in the Right of the Company. The Company shall indemnify Indemnitee to the extent set forth in this Section 4 if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 4, Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by Indemnitee or on his or her behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company. No indemnification for Expenses shall be made under this Section 4 in respect of any claim, issue or matter as to which Indemnitee shall have been finally adjudged by a court to be liable to the Company, unless and only to the extent that the Delaware Court of Chancery (the “Delaware Court”) shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnification for such expenses as the Delaware Court shall deem proper.

Section 5. Indemnification for Expenses of a Party Who is Wholly or Partly Successful. Notwithstanding any other provisions of this Agreement and except as provided in Section 7, to the extent that Indemnitee is a party to or a participant in any Proceeding and is successful in such Proceeding or in defense of any claim, issue or matter therein, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or her in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by Indemnitee or on his or her behalf in connection with each successfully resolved claim, issue or matter. For purposes of this Section and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.

Section 6. Reimbursement for Expenses of a Witness or in Response to a Subpoena. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee, by reason of his or her Corporate Status, (i) is a witness in any Proceeding to which Indemnitee is not a party and is not threatened to be made a party or (ii) receives a subpoena with respect to any Proceeding to which Indemnitee is not a party and is not threatened to be made a party, the Company shall reimburse Indemnitee for all Expenses actually and reasonably incurred by him or her or on his or her behalf in connection therewith.

Section 7. Exclusions. Notwithstanding any provision in this Agreement to the contrary, the Company shall not be obligated under this Agreement:

(a) to indemnify for amounts otherwise indemnifiable hereunder (or for which advancement is provided hereunder) if and to the extent that Indemnitee has otherwise actually received such amounts under any insurance policy, contract, agreement or otherwise;

(b) to indemnify for an accounting of profits made from the purchase and sale (or sale and purchase) by Indemnitee of securities of the Company within the meaning of Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar provisions of state statutory law or common law, or from the purchase or sale by Indemnitee of such securities in violation of Section 306 of the Sarbanes-Oxley Act of 2002 (“SOX”);

 

4


(c) to indemnify for any reimbursement of, or payment to, the Company by Indemnitee of any bonus or other incentive-based or equity-based compensation or of any profits realized by Indemnitee from the sale of securities of the Company pursuant to Section 304 of SOX or any formal policy of the Company adopted by the Board (or a committee thereof), or any other remuneration paid to Indemnitee if it shall be determined by a final judgment or other final adjudication that such remuneration was in violation of law;

(d) to indemnify with respect to any Proceeding, or part thereof, brought by Indemnitee against the Company, any legal entity which it controls, any director or officer thereof or any third party, unless (i) the Board has consented to the initiation of such Proceeding or part thereof and (ii) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law; provided, however, that this Section 7(d) shall not apply to (A) counterclaims or affirmative defenses asserted by Indemnitee in an action brought against Indemnitee or (B) any action brought by Indemnitee for indemnification or advancement from the Company under this Agreement or under any directors’ and officers’ liability insurance policies maintained by the Company in the suit for which indemnification or advancement is being sought as described in Section 12; or

(e) to provide any indemnification or advancement of expenses that is prohibited by applicable law (as such law exists at the time payment would otherwise be required pursuant to this Agreement).

Section 8. Advancement of Expenses. Subject to Section 9(b), the Company shall advance, to the extent not prohibited by law, the Expenses incurred by Indemnitee in connection with any Proceeding, and such advancement shall be made within thirty (30) days after the receipt by the Company of a statement or statements requesting such advances (including any invoices received by Indemnitee, which such invoices may be redacted as necessary to avoid the waiver of any privilege accorded by applicable law) from time to time, whether prior to or after final disposition of any Proceeding. Advances shall be unsecured and interest free. Advances shall be made without regard to Indemnitee’s (i) ability to repay the expenses, (ii) ultimate entitlement to indemnification under the other provisions of this Agreement, and (iii) entitlement to and availability of insurance coverage, including advancement, payment or reimbursement of defense costs, expenses or covered loss under the provisions of any applicable insurance policy (including, without limitation, whether such advancement, payment or reimbursement is withheld, conditioned or delayed by the insurer(s)). Indemnitee shall qualify for advances upon the execution and delivery to the Company of this Agreement which shall constitute an undertaking providing that Indemnitee undertakes to the fullest extent required by law to repay the advance if and to the extent that it is ultimately determined by a court of competent jurisdiction in a final judgment, not subject to appeal, that Indemnitee is not entitled to be indemnified by the Company. The right to advances under this paragraph shall in all events continue until final disposition of any Proceeding, including any appeal therein. Nothing in this Section 8 shall limit Indemnitee’s right to advancement pursuant to Section 12(e) of this Agreement.

 

5


Section 9. Procedure for Notification and Defense of Claim.

(a) To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request therefor specifying the basis for the claim, the amounts for which Indemnitee is seeking payment under this Agreement, and all documentation related thereto as reasonably requested by the Company.

(b) In the event that the Company shall be obligated hereunder to provide indemnification for or make any advancement of Expenses with respect to any Proceeding, the Company shall be entitled to assume the defense of such Proceeding, or any claim, issue or matter therein, with counsel approved by Indemnitee (which approval shall not be unreasonably withheld or delayed) upon the delivery to Indemnitee of written notice of the Company’s election to do so. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees or expenses of separate counsel subsequently employed by or on behalf of Indemnitee with respect to the same Proceeding; provided that (i) Indemnitee shall have the right to employ separate counsel in any such Proceeding at Indemnitee’s expense and (ii) if (A) the employment of separate counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of such defense, or (C) the Company shall not continue to retain such counsel to defend such Proceeding, then the fees and expenses actually and reasonably incurred by Indemnitee with respect to his or her separate counsel shall be Expenses hereunder.

(c) In the event that the Company does not assume the defense in a Proceeding pursuant to paragraph (b) above, then the Company will be entitled to participate in the Proceeding at its own expense.

(d) The Company shall not be liable to indemnify Indemnitee under this Agreement for any amounts paid in settlement of any Proceeding effected without its prior written consent (which consent shall not be unreasonably withheld or delayed). Without limiting the generality of the foregoing, the fact that an insurer under an applicable insurance policy delays or is unwilling to consent to such settlement or is or may be in breach of its obligations under such policy, or the fact that directors’ and officers’ liability insurance is otherwise unavailable or not maintained by the Company, may not be taken into account by the Company in determining whether to provide its consent. The Company shall not, without the prior written consent of Indemnitee (which consent shall not be unreasonably withheld or delayed), enter into any settlement which (i) includes an admission of fault of Indemnitee, any non-monetary remedy imposed on Indemnitee or any monetary damages for which Indemnitee is not wholly and actually indemnified hereunder or (ii) with respect to any Proceeding with respect to which Indemnitee may be or is made a party or may be otherwise entitled to seek indemnification hereunder, does not include the full release of Indemnitee from all liability in respect of such Proceeding.

 

6


Section 10. Procedure Upon Application for Indemnification.

(a) Upon written request by Indemnitee for indemnification pursuant to Section 9(a), a determination, if such determination is required by applicable law, with respect to Indemnitee’s entitlement to indemnification hereunder shall be made in the specific case by one of the following methods: [(x) if a Change in Control shall have occurred and indemnification is being requested by Indemnitee hereunder in his or her capacity as a director of the Company, by Independent Counsel in a written opinion to the Board; or (y) in any other case,] (i) by a majority vote of the disinterested directors, even though less than a quorum; (ii) by a committee of disinterested directors designated by a majority vote of the disinterested directors, even though less than a quorum; or (iii) if there are no disinterested directors or if the disinterested directors so direct, by Independent Counsel in a written opinion to the Board. For purposes hereof, disinterested directors are those members of the Board who are not parties to the action, suit or proceeding in respect of which indemnification is sought. In the case that such determination is made by Independent Counsel, a copy of Independent Counsel’s written opinion shall be delivered to Indemnitee and, if it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within thirty (30) days after such determination. Indemnitee shall cooperate with the Independent Counsel or the Company, as applicable, in making such determination with respect to Indemnitee’s entitlement to indemnification, including providing to such counsel or the Company, upon reasonable advance request, any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination. Any out-of-pocket costs or expenses (including reasonable attorneys’ fees and disbursements) actually and reasonably incurred by Indemnitee in so cooperating with the Independent Counsel or the Company shall be borne by the Company (irrespective of the determination as to Indemnitee’s entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.

(b) If the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 10(a), the Independent Counsel shall be selected by the Board[; provided that, if a Change in Control shall have occurred and indemnification is being requested by Indemnitee hereunder in his or her capacity as a director of the Company, the Independent Counsel shall be selected by Indemnitee]. Indemnitee [or the Company, as the case may be,] may, within ten (10) days after written notice of such selection, deliver to the Company [or Indemnitee, as the case may be,] a written objection to such selection; provided, however, that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of “Independent Counsel” as defined in Section 2 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the person so selected shall act as Independent Counsel. If such written objection is so made and substantiated, the Independent Counsel so selected may not serve as Independent Counsel unless and until such objection is withdrawn or the Delaware Court has determined that such objection is without merit. If, within twenty (20) days after the later of (i) submission by Indemnitee of a written request for indemnification pursuant to Section 9(a), and (ii) the final disposition of the Proceeding, including any appeal therein, no Independent Counsel shall have been selected without objection, either Indemnitee or the Company may petition the Delaware Court for resolution of any objection which shall have been made by Indemnitee or the Company to the selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by the court or by such other person as the court shall designate. The person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel under Section 10(a) hereof. Upon the due commencement of any judicial proceeding or arbitration pursuant to Section 12(a) of this Agreement, Independent Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing).

 

7


(c) Notwithstanding anything to the contrary contained in this Agreement, the determination of entitlement to indemnification under this Agreement shall be made without regard to the Indemnitee’s entitlement to and availability of insurance coverage, including advancement, payment or reimbursement of defense costs, expenses or covered loss under the provisions of any applicable insurance policy (including, without limitation, whether such advancement, payment or reimbursement is withheld, conditioned or delayed by the insurer(s)).

Section 11. Presumptions and Effect of Certain Proceedings.

(a) To the extent permitted by applicable law, in making a determination with respect to entitlement to indemnification hereunder, it shall be presumed that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 9(a) of this Agreement, and the Company shall have the burden of proof to overcome that presumption in connection with the making of any determination contrary to that presumption.

(b) The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of guilty, nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his or her conduct was unlawful.

(c) The knowledge and/or actions, or failure to act, of any director, manager, partner, officer, employee, agent or trustee of the Company, any subsidiary of the Company, or any Enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement.

Section 12. Remedies of Indemnitee.

(a) Subject to Section 12(f), in the event that (i) a determination is made pursuant to Section 10 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 8 of this Agreement, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section 10(a) of this Agreement within sixty (60) days after receipt by the Company of the request for indemnification for which a determination is to be made other than by Independent Counsel, (iv) payment of indemnification or reimbursement of expenses is not made pursuant to Section 5 or 6 or the last sentence of Section 10(a) of this Agreement within thirty (30) days after receipt by the Company of a written request therefor (including any invoices received by Indemnitee, which such invoices may be redacted as necessary to avoid the waiver of any privilege accorded by applicable law) or (v) payment of indemnification pursuant to

 

8


Section 3 or 4 of this Agreement is not made within thirty (30) days after a determination has been made that Indemnitee is entitled to indemnification, Indemnitee shall be entitled to an adjudication by the Delaware Court of his or her entitlement to such indemnification or advancement. Alternatively, Indemnitee, at his or her option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association. Indemnitee shall commence such proceeding seeking an adjudication or an award in arbitration within 180 days following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 12(a); provided, however, that the foregoing time limitation shall not apply in respect of a proceeding brought by Indemnitee to enforce his or her rights under Section 5 of this Agreement. The Company shall not oppose Indemnitee’s right to seek any such adjudication or award in arbitration.

(b) In the event that a determination shall have been made pursuant to Section 10(a) of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 12 shall be conducted in all respects as a de novo trial, or arbitration, on the merits and Indemnitee shall not be prejudiced by reason of that adverse determination. In any judicial proceeding or arbitration commenced pursuant to this Section 12, the Company shall have the burden of proving Indemnitee is not entitled to indemnification or advancement, as the case may be.

(c) If a determination shall have been made pursuant to Section 10(a) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 12, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law.

(d) The Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 12 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement.

(e) The Company shall indemnify Indemnitee to the fullest extent permitted by law against any and all Enforcement Expenses and, if requested by Indemnitee, shall (within thirty (30) days after receipt by the Company of a written request therefor) advance, to the extent not prohibited by law, such Enforcement Expenses to Indemnitee, which are incurred by Indemnitee in connection with any action brought by Indemnitee for indemnification or advancement from the Company under this Agreement or under any directors’ and officers’ liability insurance policies maintained by the Company in the suit for which indemnification or advancement is being sought. Such written request for advancement shall include invoices received by Indemnitee in connection with such Enforcement Expenses but, in the case of invoices in connection with legal services, any references to legal work performed or to expenditures made that would cause Indemnitee to waive any privilege accorded by applicable law need not be included with the invoice.

 

9


(f) Notwithstanding anything in this Agreement to the contrary, no determination as to entitlement to indemnification under this Agreement shall be required to be made prior to the final disposition of the Proceeding, including any appeal therein.

Section 13. Non-exclusivity; Survival of Rights; Insurance; Subrogation.

(a) The rights of indemnification and to receive advancement as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Charter, the Bylaws, any agreement, a vote of stockholders or a resolution of directors, or otherwise. No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his or her Corporate Status prior to such amendment, alteration or repeal. To the extent that a change in Delaware law, whether by statute or judicial decision, permits greater indemnification or advancement than would be afforded currently under the Charter, Bylaws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy.

(b) To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, managers, partners, officers, employees, agents or trustees of the Company or of any other Enterprise, Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any such director, manager, partner, officer, employee, agent or trustee under such policy or policies. If, at the time of the receipt of a notice of a claim pursuant to the terms hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies.

(c) In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.

(d) The Company’s obligation to provide indemnification or advancement hereunder to Indemnitee who is or was serving at the request of the Company as a director, manager, partner, officer, employee, agent or trustee of any other Enterprise shall be reduced by any amount Indemnitee has actually received as indemnification or advancement from such other Enterprise.

Section 14. Duration of Agreement. This Agreement shall continue until and terminate upon the later of: (a) ten (10) years after the date that Indemnitee shall have ceased to serve as [both a director and] an officer of the Company or (b) one (1) year after the final

 

10


termination of any Proceeding, including any appeal, then pending in respect of which Indemnitee is granted rights of indemnification or advancement hereunder and of any proceeding commenced by Indemnitee pursuant to Section 12 of this Agreement relating thereto. This Agreement shall be binding upon the Company and its successors and assigns and shall inure to the benefit of Indemnitee and his or her heirs, executors and administrators. The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all or a substantial part, of the business and/or assets of the Company, by written agreement in form and substance satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.

Section 15. Severability. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including, without limitation, each portion of any section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law; (b) such provision or provisions shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (c) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby.

Section 16. Enforcement.

(a) The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby in order to induce Indemnitee [to serve or continue to serve] as [a director and] an officer of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as [a director and] an officer of the Company.

(b) This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof; provided, however, that this Agreement is a supplement to and in furtherance of the Charter, the Bylaws and applicable law, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder.

Section 17. Modification and Waiver. No supplement, modification or amendment, or waiver of any provision, of this Agreement shall be binding unless executed in writing by the parties thereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions of this Agreement nor shall any waiver constitute a continuing waiver. No supplement, modification or amendment of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee prior to such supplement, modification or amendment.

 

11


Section 18. Notice by Indemnitee. Indemnitee agrees promptly to notify the Company in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification, reimbursement or advancement as provided hereunder. The failure of Indemnitee to so notify the Company shall not relieve the Company of any obligation which it may have to Indemnitee under this Agreement or otherwise.

Section 19. Notices. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given if (i) delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed, (ii) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed, (iii) mailed by reputable overnight courier and receipted for by the party to whom said notice or other communication shall have been directed or (iv) sent by facsimile transmission, with receipt of oral confirmation that such transmission has been received:

(a) If to Indemnitee, at such address as Indemnitee shall provide to the Company.

(b) If to the Company to:

Surface Oncology, Inc.

50 Hampshire Street, 8th Floor

Cambridge, MA 02139

Attention: Chief Executive Officer

or to any other address as may have been furnished to Indemnitee by the Company.

Section 20. Contribution. To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or for Expenses, in connection with any Proceeding in such proportion as is deemed fair and reasonable in light of all of the circumstances in order to reflect (i) the relative benefits received by the Company and Indemnitee in connection with the event(s) and/or transaction(s) giving rise to such Proceeding; and/or (ii) the relative fault of the Company (and its directors, officers, employees and agents) and Indemnitee in connection with such event(s) and/or transactions.

Section 21. Internal Revenue Code Section 409A. The Company intends for this Agreement to comply with the Indemnification exception under Section 1.409A-1(b)(10) of the regulations promulgated under the Internal Revenue Code of 1986, as amended (the “Code”), which provides that indemnification of, or the purchase of an insurance policy providing for payments of, all or part of the expenses incurred or damages paid or payable by Indemnitee with respect to a bona fide claim against Indemnitee or the Company do not provide for a deferral of compensation, subject to Section 409A of the Code, where such claim is based on actions or failures to act by Indemnitee in his or her capacity as a service provider of the Company. The parties intend that this Agreement be interpreted and construed with such intent.

 

12


Section 22. Applicable Law and Consent to Jurisdiction. This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict of laws rules. Except with respect to any arbitration commenced by Indemnitee pursuant to Section 12(a) of this Agreement, the Company and Indemnitee hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Delaware Court, and not in any other state or federal court in the United States of America or any court in any other country, (ii) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement, (iii) consent to service of process at the address set forth in Section 19 of this Agreement with the same legal force and validity as if served upon such party personally within the State of Delaware, (iv) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court, and (v) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum.

Section 23. Headings. The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.

Section 24. Identical Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement.

[Remainder of Page Intentionally Left Blank]

 

13


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

 

SURFACE ONCOLOGY, INC.
By:        
  Name:   J. Jeffrey Goater
  Title:   Chief Executive Officer

 

 

 

[                                             ]

EX-21.1

Exhibit 21.1

Subsidiaries of the Registrant

 

Entity                                                        

State of Incorporation or Organization

Surface Securities Corporation    Massachusetts

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the use in this Registration Statement on Form S-1 of Surface Oncology, Inc. of our report dated March 5, 2018 relating to the financial statements, which appears in such Registration Statement. We also consent to the reference to us under the heading “Experts” in such Registration Statement.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts

March 23, 2018