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Table of Contents

As confidentially submitted to the Securities and Exchange Commission on September 18, 2015.

Registration No. 333-              


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

KALA PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)



Delaware
(State or other jurisdiction of
incorporation or organization)
  2834
(Primary Standard Industrial
Classification Code Number)
  27-0604595
(I.R.S. Employer
Identification Number)

100 Beaver Street, Suite 201
Waltham, MA 02453
(781) 996-0399

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



Mark Iwicki
Chief Executive Officer
Kala Pharmaceuticals, Inc.
100 Beaver Street, Suite 201
Waltham, MA 02453
(781) 996-0399

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



Copies to:

Lia Der Marderosian, Esq.
Steven D. Singer, Esq.
Wilmer Cutler Pickering Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
(617) 526-6000

 

Deanna L. Kirkpatrick, Esq.
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, New York 10017
(212) 450-4000



Approximate date of commencement of proposed sale to public:
As soon as practicable after this Registration Statement is declared effective.

          If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.    o

          If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

          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.    o

          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.    o

          Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o   Accelerated filer o   Non-accelerated filer ý
(Do not check if a
smaller reporting company)
  Smaller reporting company o



CALCULATION OF REGISTRATION FEE

       
 
Title of Each Class of Securities
to Be Registered

  Proposed Maximum
Aggregate Offering
Price(1)

  Amount of
Registration Fee(2)

 

Common Stock, $0.001 par value per share

  $             $          

 

(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)
Calculated pursuant to Rule 457(o) based on an estimate of the proposed maximum aggregate offering price.



          The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

   


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

SUBJECT TO COMPLETION, DATED                        , 2015

PROSPECTUS

                Shares

LOGO

Common Stock



        This is an initial public offering of common stock by Kala Pharmaceuticals, Inc. We are selling            shares of common stock. The estimated initial public offering price is between $            and $            per share.

        Prior to this offering, there has been no public market for our common stock. We intend to apply to list our common stock on the NASDAQ Global Market under the symbol "KALA."

        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 for this prospectus and future filings.

 
  Per share   Total  

Initial public offering price

  $                    $               

Underwriting discounts and commissions(1)

  $                    $               

Proceeds to Kala, before expenses

  $                    $               

(1)
We have agreed to reimburse the underwriters for certain FINRA-related expenses. See "Underwriting" on page 160.

        We have granted the underwriters the right to purchase up to an additional            shares of common stock. The underwriters may exercise this right at any time within 30 days after the date of this prospectus.



        Investing in our common stock involves risks. See "Risk Factors" beginning on page 10 of this prospectus.

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

        The underwriters expect to deliver the shares of common stock to purchasers on or about                                    , 2015.



J.P. Morgan

 

BofA Merrill Lynch

BMO Capital Markets

Wedbush PacGrow

                        , 2015


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PROSPECTUS SUMMARY

    1  

RISK FACTORS

    10  

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA

    52  

USE OF PROCEEDS

    54  

DIVIDEND POLICY

    55  

CAPITALIZATION

    56  

DILUTION

    58  

SELECTED FINANCIAL DATA

    61  

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

    63  

BUSINESS

    81  

MANAGEMENT

    123  

EXECUTIVE COMPENSATION

    130  

TRANSACTIONS WITH RELATED PERSONS

    141  

PRINCIPAL STOCKHOLDERS

    145  

DESCRIPTION OF CAPITAL STOCK

    149  

SHARES ELIGIBLE FOR FUTURE SALE

    154  

CERTAIN MATERIAL U.S. FEDERAL TAX CONSIDERATIONS FOR NON-U.S. HOLDERS OF COMMON STOCK

    156  

UNDERWRITING

    160  

LEGAL MATTERS

    167  

EXPERTS

    167  

WHERE YOU CAN FIND MORE INFORMATION

    167  

INDEX TO FINANCIAL STATEMENTS

    F-1  

        Neither we nor the underwriters have authorized anyone to provide you with any information other than that contained in this prospectus, any amendment or supplement to this prospectus or in any free writing prospectus we may authorize to be delivered or made available to 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 are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of shares of our common stock. Our business, financial condition, results of operations and prospects may have changed since that date.

        For investors outside the United States: We have not, and the underwriters have not, done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of common stock and the distribution of this prospectus outside the United States.

        We own or have rights to trademarks, service marks and trade names that we use in connection with the operation of our business, including our corporate name, logos and website names. Other trademarks, service marks and trade names appearing in this prospectus are the property of their respective owners. The service marks and trademarks that we own include Kala® and KalaTM. Solely for convenience, some of the trademarks, service marks and trade names referred to in this prospectus are listed without the ® and ™ symbols, but we will assert, to the fullest extent under applicable law, our rights to our trademarks, service marks and trade names.

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PROSPECTUS SUMMARY

        This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our common stock. You should read this entire prospectus carefully, especially the sections titled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our financial statements and the related notes appearing at the end of this prospectus, before making an investment decision. Unless the context otherwise requires, references in this prospectus to "Kala," "the Company," "we," "us" and "our" refer to Kala Pharmaceuticals, Inc.

Overview

        We are a biopharmaceutical company focused on the development and commercialization of therapeutics using our proprietary nanoparticle-based Mucus Penetrating Particles, or MPP, technology, with an initial focus on the treatment of eye disease. Our MPPs are selectively-sized nanoparticles and have proprietary coatings. We believe that these two key attributes enhance mobility of drug particles through mucus and enable them to avoid getting trapped and eliminated by mucus, resulting in even distribution on surfaces and significantly increased drug delivery to target tissues. KPI-121, our lead program, consists of topically applied MPP nanosuspensions of loteprednol etabonate, a corticosteroid designed for ocular applications. Under our KPI-121 program, we have product candidates in advanced clinical development for the indications of the temporary relief of the signs and symptoms of dry eye disease and the treatment of inflammation and pain following ocular surgery. We also have a KPI-121 product candidate in clinical development for the treatment of meibomian gland disease. We are also developing KPI-285, our topically applied MPP small molecule new chemical entity that inhibits the vascular endothelial growth factor, or VEGF, pathway, for the potential treatment of a number of back-of-the-eye diseases such as age-related macular degeneration, diabetic retinopathy, diabetic macular edema and retinal vein occlusion.

        We have completed a Phase 3 trial of our product candidate KPI-121 1.0% in patients with inflammation and pain following cataract surgery and a Phase 2 trial of our product candidate KPI-121 0.25% in patients with dry eye disease. Based on our June 2015 meeting with the U.S. Food and Drug Administration, or the FDA, we expect to initiate, in the first half of 2016, two concurrent Phase 3 clinical trials of KPI-121 0.25% in patients with dry eye disease and a second Phase 3 clinical trial of KPI-121 1.0% for the treatment of inflammation and pain following cataract surgery. We anticipate filing New Drug Applications for the approval in both indications of KPI-121 in 2017, relying on the abbreviated 505(b)(2) pathway to FDA approval in the United States.

 

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Our Product Candidates

        The following table describes the development stage of each of our current product candidates:

GRAPHIC

        KPI-121 0.25% for Dry Eye Disease.    Dry eye disease is a chronic, relapsing multifactorial disease affecting the tears and ocular surface that can result in tear film instability, inflammation, discomfort, visual disturbance and ocular surface damage. Dry eye disease affects an estimated 25 million people in the United States and results in approximately $55.4 billion in direct and indirect costs in the United States each year, of which approximately $3.8 billion are direct medical costs. The prevalence of dry eye disease increases with age, and we expect that the number of dry eye cases will increase as the U.S. population continues to age. The vast majority of dry eye patients experience acute exacerbations of their symptoms, which we refer to as flares, throughout the year. Initial treatment in the United States for dry eye disease frequently consists of over-the-counter artificial tear/lubricating eye drops, most of which lubricate the eyes and help to maintain moisture on the outer surface of the eye to make eyes more moist and comfortable. These products do not treat the underlying inflammatory components of dry eye disease. In addition to artificial tears, Restasis® is sometimes prescribed as a chronic therapy for the treatment of dry eye disease. Market research commissioned by us shows that patients continue to experience flares even while being treated with existing dry eye therapies, including artificial tears and Restasis, which we believe results in a significant unmet medical need for patients suffering from dry eye disease.

        We are developing KPI-121 0.25% for the temporary relief of the signs and symptoms of dry eye disease, utilizing a two-week course of therapy administered four times a day. We believe that an approval for this indication, combined with KPI-121 0.25%'s broad mechanism of action, rapid onset of relief, favorable safety and tolerability profile and potential to be complementary to existing therapies, will result in a favorable profile for the management of flares and other dry eye associated conditions that would benefit from temporary relief of dry eye signs and symptoms. We have completed a Phase 2 trial for our product candidate, KPI-121 0.25%, in patients with dry eye disease.

        KPI-121 1.0% for Post-Surgical Inflammation and Pain.    Ocular inflammation and pain are common side effects following ocular surgery. We estimate that there were approximately 5 million ocular surgeries in the United States in 2014. The standard of care for post-surgical inflammation and pain includes anti-inflammatory drugs such as corticosteroids, which improve patient comfort and accelerate recovery. Commonly used topical ocular corticosteroid products for the treatment of post-surgical inflammation and pain are approved for dosing four times a day. This dosing regimen can

 

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be burdensome for patients as they are taking multiple eye drops following surgery, and four-times-a-day dosing frequently reduces patient compliance. There are no ocular corticosteroid products currently approved in the United States for dosing two times a day for the treatment of post-surgical inflammation and pain.

        KPI-121 1.0%, our twice-a-day product candidate for the treatment of inflammation and pain following ocular surgery, is currently in Phase 3 clinical development. We believe that KPI-121 1.0% has a favorable profile for the treatment of inflammation and pain following ocular surgery, due to its twice-a-day dosing and favorable safety and tolerability profile. We have achieved positive results in a Phase 3 trial for KPI-121 1.0% in the treatment of inflammation and pain following cataract surgery, achieving statistical significance for both primary endpoints.

        KPI-121 0.25% for Meibomian Gland Disease.    Meibomian gland disease, or MGD, is a chronic disease of the meibomian glands in the eyelid that secrete lipids to help stabilize the tear film. In MGD, the meibomian glands become blocked with thickened secretions. Chronically obstructed glands have an impaired ability to secrete lipids, resulting in changes in the tear film, which can lead to a number of additional problems, including dry eye disease. MGD can also lead to inflammation of the eyelid and ocular surface, changes in the tear film, eye irritation and discomfort and ocular surface disease. We have initiated a Phase 2 clinical trial evaluating KPI-121 0.25% administered four times a day for patients with MGD. We expect to receive top-line data from this clinical trial in the first half of 2016. Based on the results of this trial, we will determine next steps for the clinical development of KPI-121 0.25% in MGD.

        KPI-285 for Back-of-the-Eye Diseases.    Many existing therapies for back-of-the-eye diseases must be injected directly into the vitreous of the patient's eye via intravitreal injection. We believe that our MPP technology has the potential to facilitate the delivery of therapeutics into tissues in the back of the eye via topical dosing, We are evaluating KPI-285, our topically applied MPP small molecule new chemical entity, for the potential treatment of a number of eye diseases, including age-related macular degeneration, or AMD, diabetic retinopathy, or DR, diabetic macular edema, or DME, and retinal vein occlusion, or RVO, each of which involves either the leakage of existing blood vessels or the proliferation of poorly formed and leaky blood vessels in the back of the eye. Based on our progress to date, we anticipate filing an Investigational New Drug Application for KPI-285 in 2017.

        Other Potential Applications of Our MPP Technology.    While our current focus is on the application of our MPP technology in ophthalmology, we have conducted preclinical studies demonstrating the potential of our MPP technology in other therapeutic areas. Mucus limits delivery of conventionally formulated drugs to mucosal tissues such as the lung, cervical/vaginal tract and gastrointestinal tract. In preclinical studies, we have demonstrated that our MPP technology can be used to increase the mucus penetration of over fifteen classes of drugs, including anti-infective and anti-inflammatory drugs.

        Intellectual Property Portfolio.    We believe that we have a strong patent portfolio relating to our product candidates and MPP technology, including issued patents and pending patent applications covering KPI-121, KPI-285 and our MPP technology, along with pending patent applications relating to ophthalmic applications of our MPP technology. The earliest expiration date of a patent covering our current product candidates is in 2033.

        Commercialization.    We have retained worldwide commercial rights for our product candidates. If our product candidates receive marketing approval, we expect to commercialize them in the United States with our own focused, specialty sales force. We expect to explore commercialization of our product candidates in certain markets outside the United States utilizing a variety of collaboration, distribution and other marketing arrangements with one or more third parties.

 

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Our Strategy

        Our goal is to become a leading biopharmaceutical company focused on the development and commercialization of therapeutics using our proprietary MPP technology platform. Key elements of our strategy include:

    advance the clinical development of our KPI-121 0.25% product candidate for the treatment of dry eye disease;

    advance the clinical development of our KPI-121 1.0% product candidate for the treatment of post-surgical inflammation and pain;

    complete the Phase 2 trial of our KPI-121 0.25% product candidate in patients with MGD and determine next steps for our clinical development in MGD;

    maximize the commercial potential of our KPI-121 program;

    advance our KPI-285 product candidate into clinical trials for the treatment of back-of-the-eye diseases; and

    leverage our proprietary MPP technology platform to advance high-value therapeutics into clinical development.

Risks Associated with Our Business

        Our business is subject to a number of risks of which you should be aware before making an investment decision. These risks are discussed more fully in the "Risk Factors" section of this prospectus. These risks include the following:

    We have incurred significant losses since our inception. We expect to incur losses over the next several years and may never achieve or maintain profitability. As of June 30, 2015, we had an accumulated deficit of $49.4 million.

    We will need substantial additional funding. If we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate our product development programs or commercialization efforts. If we elect to obtain any additional debt financing, our ability to do so may be limited by covenants we have made under our loan and security agreement with Square 1 Bank, or our 2014 Debt Facility, and our pledge to the lenders of substantially all of our assets other than our intellectual property, as collateral.

    We depend heavily on the success of our lead product candidates, KPI-121 0.25% and KPI-121 1.0%. If we are unable to successfully complete our Phase 3 clinical programs and obtain marketing approvals for either KPI-121 0.25% or KPI-121 1.0%, or experience significant delays in doing so, or if, after obtaining marketing approvals, we fail to commercialize these product candidates, our business will be materially harmed.

    If clinical trials of KPI-121 0.25% and KPI-121 1.0% or any other product candidate that we develop fail to demonstrate safety and efficacy to the satisfaction of the FDA or other regulatory authorities or do not otherwise produce favorable results, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of such product candidate.

    If the FDA does not conclude that KPI-121 0.25% and KPI-121 1.0% satisfy the requirements under Section 505(b)(2) of the Federal Food Drug and Cosmetics Act, or if the requirements for such product candidates under Section 505(b)(2) are not as we expect, the approval pathway for those product candidates may take longer, cost more and entail greater complications and risks than anticipated, and may not be successful.

 

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    We may not be successful in our efforts to develop product candidates based on our MPP technology or expand the use of our MPP technology for treating additional diseases and conditions.

    Even if KPI-121 0.25%, KPI-121 1.0% or any of our other product candidates 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, and the market opportunity for these products may be smaller than we estimate.

    We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do.

    We may be unable to obtain and maintain patent protection for our technology and product candidates, or the scope of the patent protection obtained may not be sufficiently broad or enforceable, such that our competitors could develop and commercialize technology and products similar or identical to ours, and our ability to successfully commercialize our technology and product candidates may be impaired.

    KPI-121 0.25%, KPI-121 1.0% and certain aspects of our MPP technology are protected by patents exclusively licensed from other companies or institutions. If these third parties terminate their agreements with us or fail to maintain or enforce the underlying patents, or we otherwise lose our rights to these patents, our competitive position and our market share in the markets for any of our approved products will be harmed. In addition, if we fail to comply with our obligations in our intellectual property licenses and funding arrangements with third parties, we could lose rights that are important to our business.

Our Corporate Information

        We were incorporated under the laws of the state of Delaware on July 7, 2009 under the name Hanes Newco, Inc. We subsequently changed our name to Kala Pharmaceuticals, Inc. on December 11, 2009. Our principal executive offices are located at 100 Beaver Street, Suite 201, Waltham, Massachusetts 02453, and our telephone number is (781) 996-0399. Our website address is www.kalarx.com. The information contained on, or that can be accessed through, our website is not a part of this prospectus. We have included our website address in this prospectus solely as an inactive textual reference.

Implications of Being an Emerging Growth Company

        As a company with less than $1 billion in revenue during our last fiscal year, we qualify as an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and we may remain an emerging growth company for up to five years. For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from certain disclosure and other requirements that are applicable to public companies that are not emerging growth companies. In particular, in this prospectus, we have provided only two years of audited financial statements and have not 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.

 

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THE OFFERING

Common stock offered

              shares

Common stock to be outstanding immediately following this offering

 

            shares

Option to purchase additional shares

 

We have granted the underwriters an option for a period of 30 days to purchase up to             additional shares of our common stock.

Use of proceeds

 

The net proceeds from this offering will be approximately $          million, or $          million if the underwriters exercise their option to purchase additional shares in full, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We intend to use the net proceeds from this offering, together with our existing cash, to fund our planned clinical development of our KPI-121 program, including the manufacturing of supplies, and to fund other early stage pipeline development programs and for working capital and other general corporate purposes. See "Use of Proceeds."

Risk Factors

 

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

Proposed NASDAQ Global Market symbol

 

"KALA"

        The number of shares of our common stock to be outstanding after this offering is based on 6,054,566 shares of our common stock outstanding as of August 31, 2015 and 41,081,269 shares of our common stock issuable upon the automatic conversion of all outstanding shares of our preferred stock upon the closing of this offering.

        The number of shares of our common stock to be outstanding after this offering excludes:

    5,630,100 shares of our common stock issuable upon the exercise of stock options outstanding as of August 31, 2015 at a weighted average exercise price of $0.42 per share;

    1,052,222 shares of our common stock issuable following the closing of this offering upon the exercise of warrants outstanding as of August 31, 2015, at a weighted average exercise price of $1.41 per share;

    748,361 shares of our common stock available for future issuance under our 2009 Employee, Director and Consultant Equity Incentive Plan, as amended, or the 2009 Plan, as of August 31, 2015; and

                        additional shares of our common stock that will be available for future issuance, as of the closing of this offering, under our 2015 Equity Incentive Plan, or the 2015 Plan.

        Unless otherwise indicated, all information in this prospectus assumes:

    no exercise of the outstanding options described above;

    no exercise of the warrants;

 

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    no exercise by the underwriters of their option to purchase additional shares of our common stock;

    the automatic conversion of all outstanding shares of our preferred stock into an aggregate of 41,081,269 shares of our common stock upon the closing of this offering;

    the automatic conversion of all outstanding warrants as of August 31, 2015 to purchase 1,052,222 shares of our preferred stock, at a weighted average exercise price of $1.41 per share, into warrants to purchase 1,052,222 shares of our common stock, at a weighted average exercise price of $1.41 per share, upon the closing of this offering; and

    the filing and effectiveness of our restated certificate of incorporation and the adoption of our amended and restated bylaws, which will occur upon the closing of this offering.

 

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SUMMARY FINANCIAL DATA

        The summary financial data as of and for the years ended December 31, 2013 and 2014 have been derived from our audited financial statements appearing at the end of this prospectus. The summary financial data for the six months ended June 30, 2014 and 2015, and the balance sheet data as of June 30, 2015, have been derived from our unaudited financial statements appearing at the end of this prospectus. You should read this data together with our historical financial statements and the related notes included elsewhere in this prospectus and the "Selected Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections of this prospectus. Our historical results are not necessarily indicative of our future results, and our interim results are not necessarily indicative of results to be expected for a full fiscal year or any other interim period. The summary financial data in this section are not intended to replace our audited and unaudited financial statements and related notes appearing at the end of this prospectus.

 
  Year Ended
December 31,
  Six Months
Ended June 30,
 
 
  2013   2014   2014   2015  
 
  (in thousands, except share and per share data)
 

Revenue

  $ 50   $ 455   $ 353   $ 45  

Cost and expenses:

   
 
   
 
   
 
   
 
 

Research and development

    7,734     13,859     5,954     4,869  

General and administrative

    3,448     4,436     2,100     1,896  

Total costs and expenses

    11,182     18,295     8,054     6,765  

Loss from operations

    (11,132 )   (17,840 )   (7,701 )   (6,720 )

Interest expense (includes $54, $1,453, $1,453 and $0 related to convertible promissory notes to shareholders for the years ended December 31, 2013, 2014 and for the six months ended June 30, 2014 (unaudited) and June 30, 2015 (unaudited))

    (191 )   (1,608 )   (1,505 )   (220 )

Change in fair value of warranty liability

    (1 )   87     167     (155 )

Change in fair value Series A preferred stock forward contract

    671              

Net loss attributable to common stockholders—basic and diluted

  $ (10,653 ) $ (19,361 ) $ (9,039 ) $ (7,095 )

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

  $ (2.21 ) $ (3.68 ) $ (1.72 ) $ (1.27 )

Weighted average shares outstanding—basic and diluted

    4,811,231     5,265,847     5,262,770     5,588,087  

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

        $ (0.52 )       $ (0.17 )

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

          37,179,816           42,039,727  

 

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  As of June 30, 2015  
 
  Actual   Pro Forma(2)   Pro Forma
As Adjusted(3)
 
 
  (in thousands)
 

Balance Sheet Data:

                   

Cash

  $ 2,398   $ 14,323   $    

Total assets

    3,471     15,396        

Working capital(1)

    1,029     12,954        

Long-term debt—less current portion

    4,557     9,381        

Warrant liability

    959            

Other long-term liabilities

    22     22        

Convertible preferred stock

    43,986            

Total stockholders' (deficit) equity

    (47,556 )   4,490        

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

(2)
The pro forma balance sheet gives effect to:

our borrowing of the remaining $5.0 million available under our 2014 Debt Facility and the issuance to the lender in connection with this borrowing of warrants to purchase 138,889 shares of our Series B convertible preferred stock at an exercise price of $1.44 per share in July 2015;

our sale of 4,629,629 shares of Series B-1 convertible preferred stock in August 2015 for gross proceeds of $7.0 million;

the automatic conversion of all outstanding shares of our preferred stock into 41,081,269 shares of common stock upon closing of this offering;

the automatic conversion of all outstanding warrants to purchase shares of our preferred stock into warrants to purchase 1,052,222 shares of our common stock upon the closing of this offering; and

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

(3)
The pro forma as adjusted balance sheet gives further effect to 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 estimated 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.

        A $1.00 increase or decrease in the assumed initial public offering price of $      per share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, would increase or decrease each of cash, total assets, working capital and total stockholders' (deficit) equity on a pro forma as adjusted basis 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. An increase or decrease of 1.0 million shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase or decrease each of cash, total assets, working capital and total stockholders' (deficit) equity on a pro forma as adjusted basis by $       million, assuming no change in the assumed initial public offering price per share.

 

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RISK FACTORS

        Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below together with all of the other information contained in this prospectus, including our financial statements and the related notes appearing at the end of this prospectus, before deciding to invest in our common stock. If any of the following risks actually occur, our business, prospects, operating results and financial condition could suffer materially. In such event, the trading price of our common stock could decline and you might lose all or part of your investment.

Risks Related to Our Financial Position and Need For Additional Capital

We have incurred significant losses since our inception. We expect to incur losses over the next several years and may never achieve or maintain profitability.

        Since inception, we have incurred significant operating losses. Our net losses were $10.7 million for the year ended December 31, 2013, $19.4 million for the year ended December 31, 2014 and $7.1 million for the six months ended June 30, 2015. As of June 30, 2015, we had an accumulated deficit of $49.4 million. We have not generated any revenues to date from product sales and have financed our operations primarily through private placements of our preferred stock, convertible debt financings and borrowings under credit facilities. We have devoted substantially all of our financial resources and efforts to research and development, including preclinical studies and clinical trials. We expect to continue to incur significant expenses and operating losses over the next several years. Our net losses may fluctuate significantly from quarter to quarter and year to year.

        We anticipate that our expenses will increase substantially as compared to prior periods in connection with conducting our planned pivotal Phase 3 clinical program, consisting of two concurrent Phase 3 clinical trials of KPI-121 0.25% in patients with dry eye disease and a Phase 3 clinical trial of KPI-121 1.0% for the treatment of inflammation and pain following cataract surgery, and as a result of increased headcount, including management personnel to support our clinical, manufacturing and commercialization activities, expanded infrastructure, increased legal, compliance, accounting and investor and public relations expenses associated with being a public company and increased insurance premiums, among other factors. Our license agreement with The Johns Hopkins University, or JHU, under which we license certain of our patent rights and a significant portion of the technology for KPI-121 0.25%, KPI-121 1.0% and our other product candidates, imposes royalty and other financial obligations on us, and we may enter into additional licensing and funding arrangements with third parties that may impose milestone payment, royalty, insurance and other obligations on us.

        Our expenses will also increase if and as we:

    pursue the clinical development of KPI-121 0.25% for the treatment of meibomian gland disease, or MGD, or other additional indications or for use in other patient populations or, if approved, seek to broaden the label of KPI-121 0.25% or KPI-121 1.0%;

    pursue the preclinical and clinical development of our product candidate KPI-285 for use in the treatment of back-of-the-eye diseases, such as AMD, DR, DME and RVO;

    leverage our proprietary MPP technology platform to advance other high-value therapeutics into preclinical and clinical development;

    in-license or acquire the rights to other products, product candidates or technologies;

    seek marketing approvals for any of our product candidates that successfully complete clinical development;

    establish sales, marketing and distribution capabilities for any of our product candidates for which we obtain marketing approval;

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    scale up our manufacturing processes and capabilities to support our ongoing clinical trials of our product candidates and commercialization of any of our product candidates for which we obtain marketing approval;

    maintain, expand and protect our intellectual property portfolio;

    hire additional clinical, quality control, scientific and management 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; and

    increase our product liability and clinical trial insurance coverage as we expand our clinical trials and commercialization efforts.

        Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve profitability. Our expenses will increase if:

    we are required by the FDA or non-U.S. regulatory agencies to perform trials or studies in addition to those currently expected;

    there are any delays in receipt of regulatory clearance to begin our planned clinical programs;

    there are any delays in enrollment of patients in or completing our clinical trials or the development of our product candidates; or

    there are any third party challenges to our intellectual property portfolio, or the need arises to defend against intellectual property-related claims.

        Our ability to become and remain profitable depends on our ability to generate revenue. We do not expect to generate revenue that is sufficient unless and until we obtain marketing approval for and commercialize one of our product candidates, which we do not expect will occur before 2018, if ever. This will require us to be successful in a range of challenging activities, including:

    initiating and obtaining favorable results from our two planned Phase 3 clinical trials of KPI-121 0.25% in patients with dry eye disease;

    initiating and obtaining favorable results from our planned Phase 3 clinical trial of KPI-121 1.0% for the treatment of inflammation and pain following cataract surgery;

    obtaining marketing approval for these or other product candidates;

    manufacturing at commercial scale, marketing, selling and distributing those products for which we obtain marketing approval;

    achieving an adequate level of market acceptance of and obtaining and maintaining coverage and adequate reimbursement from third-party payors for our products; and

    obtaining, maintaining and protecting our intellectual property rights.

        We may never succeed in these activities and may never generate revenue that is sufficient to achieve profitability. Even 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, expand our business, maintain our research and development efforts, diversify our product offerings or even continue our operations. A decline in the value of our company could also cause you to lose all or part of your investment.

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        In addition, the report of our independent registered public accounting firm with respect to our financial statements appearing at the end of this prospectus contains an explanatory paragraph stating that our recurring losses from operations, negative cash flows from operations and accumulated deficit, raise substantial doubt about our ability to continue as a going concern. If we are unable to raise additional capital or sufficient capital in this offering, our business, financial condition and results of operations will be materially and adversely affected and we will need to obtain alternative financing or significantly modify our operational plans to continue as a going concern. Further, even if we successfully complete and receive the net proceeds from this offering, given our planned expenditures for the next several years, including, without limitation, expenditures in connection with our clinical trials of KPI-121 0.25% and KPI-121 1.0% and preclinical and clinical development of KPI-285, our independent registered public accounting firm may conclude, in connection with the preparation of our financial statements for fiscal year 2015 or any other subsequent period that there is substantial doubt regarding our ability to continue as a going concern.

Our limited operating history may make it difficult for you to evaluate the success of our business to date and to assess our future viability.

        We are an early-stage company. Our operations to date have been limited to organizing and staffing our company, acquiring rights to intellectual property, business planning, raising capital and developing KPI-121 and our other product candidates. Consequently, any predictions you make about our future success or viability may not be as accurate as they could be if we had a longer operating history.

        In addition, as a new business, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors. We will need to transition from a company with a research and development focus to a company capable of supporting commercial activities. We may not be successful in such a transition.

        We expect our financial condition and operating results to fluctuate significantly from quarter-to-quarter and year-to-year due to a variety of factors, including whether we conduct further feasibility studies with collaboration partners, many of which are beyond our control. Accordingly, you should not rely upon the results of any quarter or annual periods as indications of future operating performance.

We will need substantial additional funding. If we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate our product development programs or commercialization efforts.

        We expect to devote substantial financial resources to our ongoing and planned activities, particularly as we continue the development of and seek marketing approval for KPI-121 0.25% and KPI-121 1.0% and, possibly, other product candidates. Our expenses will increase if we suffer any delays in our Phase 3 clinical programs for KPI-121 0.25% or KPI-121 1.0%, including delays in enrollment of patients. We also expect to devote additional financial resources to conducting research and development, initiating clinical trials of, and potentially seeking regulatory approval for, KPI-285 and other potential product candidates.

        If we obtain marketing approval for KPI-121 0.25%, KPI-121 1.0% or any other product candidate that we develop, we expect to incur significant commercialization expenses related to product sales, marketing, distribution and manufacturing. Furthermore, upon the closing of this offering, we expect to incur additional costs associated with operating as a public company, hiring additional personnel and expanding our facilities. Accordingly, we may need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce or eliminate our research and development programs or any future commercialization efforts.

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        Our future capital requirements will depend on many factors, including:

    the progress, costs and results of our planned Phase 3 clinical trials for KPI-121 0.25% and KPI-121 1.0% and of any clinical activities for regulatory review of KPI-121 0.25% and KPI-121 1.0% outside of the United States;

    the costs and timing of process development and manufacturing scale-up activities associated with KPI-121 0.25% and KPI-121 1.0%;

    the costs, timing and outcome of regulatory review of KPI-121 0.25% and KPI-121 1.0%;

    the costs of commercialization activities for KPI-121 0.25% and KPI-121 1.0% if we receive, or expect to receive, marketing approval, including the costs and timing of establishing product sales, marketing, distribution and outsourced manufacturing capabilities;

    subject to receipt of marketing approval, revenue received from commercial sales of KPI-121 0.25% and KPI-121 1.0%;

    the progress, costs and outcome of developing KPI-121 for the treatment of additional indications or for use in other patient populations, including our ongoing Phase 2 clinical trial evaluating KPI-121 0.25% administered four times a day in patients with MGD;

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

    the scope, progress, results and costs of product development of KPI-285 and any other product candidates that we may develop;

    the extent to which we in-license or acquire rights to other products, product candidates or technologies; and

    the costs and timing of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights and defending any intellectual property-related claims.

        As of June 30, 2015, we had cash of approximately $2.4 million. We believe that the net proceeds from this offering, together with our existing cash as of June 30, 2015, the $7.0 million in cash proceeds from our Series B-1 Preferred Stock financing that we completed in August 2015 and the $5.0 million draw from our 2014 Debt Facility in July 2015 will enable us to fund our operating expenses, debt service obligations and capital expenditure requirements at least through            . However, we have based this estimate on assumptions that may prove to be wrong, and our operating plan may change as a result of many factors currently unknown to us. As a result, we could deplete our capital resources sooner than we currently expect.

        Conducting preclinical testing and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete. We may never generate the necessary data or results required to obtain regulatory approval of products with the market potential sufficient to enable us to achieve profitability. We do not expect to generate revenue from sales of any product candidates for several years, if at all. Accordingly, we will need to obtain substantial additional financing to achieve our business objectives. In addition, we may seek additional capital due to favorable market conditions or strategic considerations, even if we believe we have sufficient funds for our current or future operating plans. Adequate additional financing may not be available to us on acceptable terms, or at all. If adequate funds are not available to us on a timely basis, we may be required to delay, limit, reduce or terminate preclinical studies, clinical trials or other development activities for one or more of our product candidates or delay, limit, reduce or terminate our establishment of sales and marketing capabilities or other activities that may be necessary to commercialize our product candidates.

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Raising additional capital may cause dilution to our stockholders, including purchasers of our common stock in this offering, restrict our operations or require us to relinquish rights to our technologies or product candidates.

        Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and marketing and distribution arrangements. We do not have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Our pledge of our assets as collateral to secure our obligations under our credit facility may limit our ability to obtain additional debt financing.

        If we raise additional funds through collaborations, strategic alliances, licensing arrangements or marketing and distribution arrangements, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market products or product candidates that we would otherwise prefer to develop and market ourselves.

Our existing and future indebtedness may limit cash flow available to invest in the ongoing needs of our business.

        As of August 31, 2015, we had $10.0 million of outstanding borrowings under our 2014 Debt Facility, which represents the entire availability under the 2014 Debt Facility and which we are required to repay, following the end of an interest-only period in June 2016, in equal monthly installments until December 2018. Our obligations under this agreement are secured by substantially all of our assets other than our intellectual property. We could in the future incur additional indebtedness beyond our borrowings under the 2014 Debt Facility.

        Our substantial debt combined with our other financial obligations and contractual commitments could have significant adverse consequences, including:

    requiring us to dedicate a substantial portion of cash flow from operations to the payment of interest on, and principal of, our debt, which will reduce the amounts available to fund working capital, capital expenditures, product development efforts and other general corporate purposes;

    increasing our vulnerability to adverse changes in general economic, industry and market conditions;

    subjecting us to restrictive covenants that may reduce our ability to take certain corporate actions or obtain further debt or equity financing;

    limiting our flexibility in planning for, or reacting to, changes in our business and our industry; and

    placing us at a competitive disadvantage compared to our competitors that have less debt or better debt servicing options.

        We intend to satisfy our current and future debt service obligations with our existing cash and funds from external sources. Nonetheless, we may not have sufficient funds or may be unable to arrange for additional financing to pay the amounts due under our existing debt. Funds from external sources may not be available on acceptable terms, if at all. In addition, a failure to comply with the

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covenants under our credit facility could result in an event of default and acceleration of amounts due. If an event of default occurs and Square 1 Bank accelerates the amounts due under the 2014 Debt Facility, we may not be able to make accelerated payments, and Square 1 Bank could seek to enforce security interests in the collateral securing such indebtedness, which includes substantially all of our assets other than our intellectual property.

Risks Related to Product Development

We depend heavily on the success of our lead product candidates, KPI-121 0.25% and KPI-121 1.0%. If we are unable to successfully complete our Phase 3 clinical programs and obtain marketing approvals for either KPI-121 0.25% or KPI-121 1.0%, or experience significant delays in doing so, or if, after obtaining marketing approvals, we fail to commercialize these product candidates, our business will be materially harmed.

        We have devoted a significant portion of our financial resources and business efforts to the development of KPI-121 0.25% for the temporary relief of the signs and symptoms of dry eye disease and KPI-121 1.0% for the treatment of inflammation and pain following ocular surgery. There is a significant risk that we will fail to successfully develop KPI-121 0.25% and/or KPI-121 1.0%. Our planned Phase 3 clinical program for KPI-121 0.25% will consist of two concurrent Phase 3 clinical trials evaluating KPI-121 0.25% in approximately 700 patients with dry eye disease. Our planned Phase 3 clinical program for KPI-121 1.0% will consist of a second Phase 3 clinical trial evaluating KPI-121 1.0% in approximately 350 patients with inflammation and pain following cataract surgery. We do not expect to have top-line data from any of these Phase 3 trials available until 2017. The timing of the availability of such top-line data and the completion of our planned Phase 3 clinical programs is dependent, in part, on our ability to locate and enroll a sufficient number of eligible patients in our planned Phase 3 clinical programs on a timely basis. Even if the results of our Phase 3 clinical trials of KPI-121 0.25% and our Phase 3 clinical trial of KPI-121 1.0% are favorable, we do not plan to file a new drug application, or NDA, for approval of either KPI-121 0.25% or KPI-121 1.0% before 2017. We cannot accurately predict when or if either of these product candidates will be proven to be effective or safe in humans or whether either will receive marketing approval. Our ability to generate product revenues, which we do not expect will occur before 2018, if ever, will depend heavily on our obtaining marketing approval for, and commercializing one or both of, KPI-121 0.25% and KPI-121 1.0%.

        The success of KPI-121 0.25% and KPI-121 1.0% and any other product candidates will depend on many factors, including the following:

    initiating and obtaining favorable results from our two planned Phase 3 clinical trials of KPI-121 0.25%;

    initiating and obtaining favorable results from our second planned Phase 3 clinical trial of KPI-121 1.0%;

    applying for and receiving marketing approvals from applicable regulatory authorities for our product candidates;

    making arrangements with third-party manufacturers and suppliers of active pharmaceutical ingredients, or API, for commercial quantities of KPI-121 0.25% and KPI-121 1.0% and receiving regulatory approval of our manufacturing processes and our third-party manufacturers' facilities from applicable regulatory authorities;

    expanding and maintaining a workforce of experienced scientists and others with experience in MPP technology to continue to develop our product candidates;

    establishing sales, marketing and distribution capabilities for KPI-121 0.25% and KPI-121 1.0% and successfully launching commercial sales of any of our product candidates for which we obtain marketing approval, whether alone or in collaboration with others;

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    acceptance of KPI-121 0.25% and KPI-121 1.0% and our other product candidates, if and when approved, by patients, the medical community and third-party payors;

    effectively competing with other therapies;

    maintaining an acceptable safety profile of our products following approval;

    obtaining and maintaining coverage and adequate reimbursement from third-party payors, including government payors, for our product candidates;

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

    protecting our rights in our intellectual property portfolio.

        Successful development of KPI-121 0.25% or KPI-121 1.0% for additional indications, if any, or for use in broader patient populations and our ability, if it is approved, to broaden the label for KPI-121 0.25% or KPI-121 1.0% will depend on similar factors. If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize our product candidates, which would materially harm our business.

If clinical trials of KPI-121 0.25% and KPI-121 1.0% or any other product candidate that we develop fail to demonstrate safety and efficacy to the satisfaction of the FDA or other regulatory authorities or do not otherwise produce favorable results, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of such product candidate.

        Before obtaining marketing approval from regulatory authorities for the sale of any product candidate, including KPI-121 0.25% and KPI-121 1.0%, we must complete preclinical development and then conduct extensive clinical trials to demonstrate the safety and efficacy of our product candidates in humans. Clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome. A failure of one or more clinical trials can occur at any stage of testing. The outcome of preclinical testing and early clinical trials may not be predictive of the success of later stage clinical trials, and interim results of a clinical trial do not necessarily predict final results. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their product candidates. Furthermore, the failure of any of our product candidates to demonstrate safety and efficacy in any clinical trial could negatively impact the perception of our other product candidates and/or cause the FDA or other regulatory authorities to require additional testing before approving any of our product candidates. For example, if our Phase 2 clinical trial of KPI-121 0.25% for the treatment of MGD is unsuccessful, it may have an adverse impact on the perceived safety or efficacy of KPI-121 0.25% in other indications or of KPI-121 1.0%.

        The FDA has publicly indicated that it will require two adequate and well-controlled clinical trials demonstrating effectiveness on two primary endpoints for marketing approval of a dry eye disease drug. One of the two primary endpoints must be a sign of dry eye disease and the other must be a symptom of dry eye disease. We are not aware of any dry eye disease drug in development that has met both of these endpoints in the same clinical trial. In addition, KPI-121 0.25% did not achieve statistical significance for the endpoint of ocular discomfort severity in our completed Phase 2 clinical trial. If KPI-121 0.25% does not achieve statistical significance in both primary endpoints in our planned Phase 3 clinical trials, the FDA may require us to conduct additional clinical trials to support approval of KPI-121 0.25% in this indication. Regulatory authorities outside the United States, in particular in the European Union, have not issued guidance on the requirements for approval of a dry eye drug. Our planned Phase 3 clinical trials of KPI-121 0.25% may not be sufficient to support an application for marketing approval outside the United States.

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        Retrospective post-hoc analyses that we performed on the results of our completed Phase 2 clinical trial for KPI-121 0.25% may not be predictive of success in our upcoming Phase 3 clinical trials. Post-hoc analyses performed after unblinding trial results can result in the introduction of bias, however, we believe that these retrospective analyses provide additional information regarding our Phase 2 clinical trial and support for our upcoming Phase 3 clinical trials. We may conduct post-hoc analyses on any of our clinical trials in the future. While these analyses provide useful additional information, they are generally given less weight by regulatory authorities than pre-specified analyses.

        If we are required to conduct additional clinical trials or other testing of KPI-121 0.25% or KPI-121 1.0% or any other product candidate that we develop beyond those that we currently expect, if we are unable to successfully complete clinical trials of our product candidates or other testing, if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, we may:

    be delayed in obtaining marketing approval for our product candidates;

    not obtain marketing approval at all;

    obtain approval for indications or patient populations that are not as broad as intended or desired;

    obtain approval with labeling that includes significant use or distribution restrictions or safety warnings, including boxed warnings;

    be subject to additional post-marketing testing requirements; or

    have the product removed from the market after obtaining marketing approval.

If we experience any of a number of possible unforeseen events in connection with our clinical trials, potential marketing approval or commercialization of our product candidates could be delayed or prevented.

        We may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receive marketing approval or commercialize KPI-121 0.25%, KPI-121 1.0% or any other product candidates that we may develop, including:

    clinical trials of our product candidates may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon product development programs;

    the number of patients required for clinical trials of our product candidates may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate or participants may drop out of these clinical trials at a higher rate than we anticipate;

    our third-party contractors may fail to comply with regulatory requirements or meet their obligations to us in a timely manner, or at all;

    regulators or institutional review boards 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 clinical trial contracts or clinical trial protocols with prospective trial sites;

    we may decide, or regulators or institutional review boards may require us, to suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks;

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    regulators or institutional review boards may require us to perform additional or unanticipated clinical trials to obtain approval or we may be subject to additional post-marketing testing requirements to maintain regulatory approval;

    regulators may revise the requirements for approving our drug candidates, or such requirements may not be as we anticipate;

    the cost of clinical trials of our product candidates may be greater than we anticipate;

    the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates may be insufficient or inadequate or may be delayed;

    our product candidates may have undesirable side effects or other unexpected characteristics, causing us or our investigators, regulators or institutional review boards to suspend or terminate trials; and

    regulatory authorities may withdraw their approval of a product or impose restrictions on its distribution, such as in the form of a modified Risk Evaluation and Mitigation Strategy, or REMS.

        Our product development costs will also increase if we experience delays in testing or marketing approvals. We do not know whether any of our preclinical studies or clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. Significant preclinical or clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do and impair our ability to successfully commercialize our product candidates.

If we experience delays or difficulties in the enrollment of patients in clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented.

        We may not be able to initiate or continue clinical trials for KPI-121 0.25%, KPI-121 1.0% or any other product candidate we develop if we are unable to locate and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA or similar regulatory authorities outside the United States. Although there is a significant prevalence of disease in the areas of ophthalmology in which we are currently focused, we may nonetheless experience unanticipated difficulty with patient enrollment.

        Patient enrollment is affected by a variety of factors, including:

    the prevalence and severity of the ophthalmic disease or condition under investigation;

    the patient eligibility criteria for the trial in question;

    the perceived risks and benefits of the product candidate under study;

    the existence of existing treatments for the indications for which we are conducting clinical trials;

    the efforts to facilitate timely enrollment in clinical trials;

    the patient referral practices of physicians;

    the ability to monitor patients adequately during and after treatment;

    the proximity and availability of clinical trial sites for prospective patients;

    the conducting of clinical trials by competitors for product candidates that treat the same indications as our product candidates; and

    the lack of adequate compensation for prospective patients.

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        Our inability to locate and enroll a sufficient number of patients for our clinical trials would result in significant delays, could require us to abandon one or more clinical trials altogether and could delay or prevent our receipt of necessary regulatory approvals. Enrollment delays in our clinical trials may result in increased development costs for our product candidates, which would cause the value of our company to decline and limit our ability to obtain additional financing.

If the FDA does not conclude that KPI-121 0.25% and KPI-121 1.0% satisfy the requirements under Section 505(b)(2) of the Federal Food Drug and Cosmetics Act, or if the requirements for such product candidates under Section 505(b)(2) are not as we expect, the approval pathway for those product candidates may take longer, cost more and entail greater complications and risks than anticipated, and may not be successful.

        We intend to seek FDA approval of KPI-121 0.25% and KPI-121 1.0% through the Section 505(b)(2) regulatory pathway. The Drug Price Competition and Patent Term Restoration Act of 1984, also known as the Hatch-Waxman Act, added Section 505(b)(2) to the Federal Food, Drug and Cosmetic Act. Section 505(b)(2) permits the filing of an NDA where at least some of the information required for approval comes from studies that were not conducted by or for the applicant, and for which the applicant has not received a right of reference, which could expedite the development program for KPI-121 0.25% and KPI-121 1.0% by potentially decreasing the amount of clinical data that we would need to generate in order to obtain FDA approval. If the FDA does not allow us to pursue the Section 505(b)(2) regulatory pathway as anticipated, we may need to conduct additional clinical trials, provide additional data and information and meet additional standards for regulatory approval. If this were to occur, the time and financial resources required to obtain FDA approval for KPI-121 0.25% and KPI-121 1.0%, and complications and risks associated with KPI-121 0.25% and KPI-121 1.0%, would likely substantially increase. Even if we are allowed to pursue the Section 505(b)(2) pathway to FDA approval, we cannot assure you that KPI-121 0.25% and KPI-121 1.0% will receive the requisite approvals for commercialization.

        In addition, notwithstanding the approval of a number of products by the FDA under Section 505(b)(2) over the last few years, certain competitors and others have objected to the FDA's interpretation of Section 505(b)(2). If the FDA's interpretation of Section 505(b)(2) is successfully challenged, the FDA may be required to change its 505(b)(2) policies and practices, which could delay or even prevent the FDA from approving any NDA that we submit under Section 505(b)(2). In addition, the pharmaceutical industry is highly competitive, and Section 505(b)(2) NDAs are subject to special requirements designed to protect the patent rights of sponsors of previously approved drugs that are referenced in a Section 505(b)(2) NDA. These requirements may give rise to patent litigation and to mandatory delays in approval of our NDAs for up to 30 months, depending on the outcome of any litigation. It is not uncommon for a manufacturer of an approved product to file a citizen petition with the FDA seeking to delay approval of, or impose additional approval requirements for, pending competing products. If successful, such petitions can significantly delay, or even prevent, the approval of the new product. However, even if the FDA ultimately denies such a petition, the FDA may substantially delay approval while it considers and responds to the petition. Thus, even if we are able to utilize the Section 505(b)(2) regulatory pathway, there is no guarantee this would ultimately lead to faster product development or earlier approval of KPI-121 0.25% or KPI-121 1.0%.

        Even if KPI-121 0.25% and KPI-121 1.0% are approved under Section 505(b)(2), their approval may be subject to limitations on the indicated uses for which the products may be marketed or to other conditions of approval, or may contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the products.

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If serious adverse or unacceptable side effects are identified during the development of KPI-121 0.25%, KPI-121 1.0% or any other product candidates that we may develop, we may need to abandon or limit our development of such product candidates.

        If KPI-121 0.25%, KPI-121 1.0% or any of our other product candidates are associated with serious adverse events or undesirable side effects in clinical trials or have characteristics that are unexpected, we may need to abandon their development or limit development to more narrow uses or subpopulations in which the serious adverse events, undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. The most common adverse effects to date in trials evaluating the safety and efficacy of KPI-121 0.25% and KPI-121 1.0% have been instillation site pain, punctate keratitis, which is damage to the surface of the cornea, and photophobia, which is discomfort or pain due to exposure to light. Increases in IOP and cataract formation are additional adverse effects associated with the use of corticosteroids and in our Phase 2 trial of KPI-121 0.25%, one patient had elevated IOP as of day 29. We have no clinical safety data on or patient exposure to either KPI-121 concentration for longer than 28 days. Our understanding of the relationship between our products and these adverse effects may change as we gather more information, and additional unexpected adverse effects may occur. Many compounds that initially showed promise in clinical or earlier stage testing for treating ophthalmic disease have later been found to cause side effects that prevented further development of the compound. In addition, adverse events which had initially been considered unrelated to the study treatment may later be found to be caused by the study treatment. Moreover, incorrect or improper use of our product candidates (including use of KPI-121 0.25% more frequently than is prescribed) by patients could cause increases in IOP, and may result in additional unexpected side effects or adverse events. There can be no assurance that our product candidates will be used correctly, and if used incorrectly, such misuse could hamper commercial adoption of our product candidate, if approved, at the rate we currently expect.

We may not be successful in our efforts to develop product candidates based on our MPP technology or expand the use of our MPP technology for treating additional diseases and conditions.

        We are currently directing all of our development efforts towards applying our MPP technology to develop product candidates that are designed to diffuse through the mucus layer and enable the active drug substance to reach cells in the underlying target tissue. We have product candidates at various stages of development for treatment of eye diseases and are exploring the potential use of our MPP technology in other diseases, including diseases of the lungs, cervical/vaginal tract and gastrointestinal tract. Our existing product candidates and any other potential product candidates that we identify may not be suitable for continued preclinical or clinical development, including as a result of being shown to have harmful side effects or other characteristics that indicate that they are unlikely to be products that will receive marketing approval and achieve market acceptance. If we do not successfully develop and commercialize our product candidates that we develop based upon our MPP technology approach, we will not be able to obtain substantial product revenues in future periods.

We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.

        Because we have limited financial and managerial resources, we focus on research programs and product candidates that we identify for specific indications. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable products. If we do not accurately evaluate the commercial potential or target

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market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate.

We may in the future conduct clinical trials for product candidates at sites outside the United States, and the FDA may not accept data from trials conducted in such locations.

        We may in the future choose to conduct one or more of our clinical trials outside the United States. Although the FDA may accept data from clinical trials conducted outside the United States, acceptance of these data is subject to conditions imposed by the FDA. For example, the clinical trial must be well designed and conducted and be performed by qualified investigators in accordance with ethical principles. The trial population must also adequately represent the U.S. population, and the data must be applicable to the U.S. population and U.S. medical practice in ways that the FDA deems clinically meaningful. In addition, while these clinical trials are subject to the applicable local laws, FDA acceptance of the data will depend on its determination that the trials also complied with all applicable U.S. laws and regulations. If the FDA does not accept the data from any trial that we conduct outside the United States, it would likely result in the need for additional trials, which would be costly and time-consuming and could delay or permanently halt our development of the applicable product candidates.

Risks Related to the Commercialization of Our Product Candidates

Even if KPI-121 0.25%, KPI-121 1.0% or any of our other product candidates 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, and the market opportunity for these products may be smaller than we estimate.

        If KPI-121 0.25%, KPI-121 1.0% or any other product candidate that we develop receives marketing approval, it may nonetheless fail to gain sufficient market acceptance by physicians, patients, third-party payors and others in the medical community. While there are no drugs currently approved in the United States for the temporary relief of the signs and symptoms of dry eye disease, current treatments that are used in the United States for dry eye disease include over-the-counter artificial tears, Restasis and off-label use of corticosteroids. It is possible that doctors may continue to rely on these treatments rather than KPI-121 0.25%, if and when it is approved for marketing by the FDA. In addition, if generic versions of any products that compete with any of our product candidates are approved for marketing by the FDA, they would likely be offered at a substantially lower price than we expect to offer for our product candidates, if approved. As a result, healthcare professionals and third-party payors may choose to rely on such products rather than our product candidates.

        Common treatments in the United States for inflammation and pain following ocular surgery include corticosteroids. While the most commonly used corticosteroids are approved for four-times-a-day dosing, we plan to seek approval of KPI 1.0% with twice-a-day dosing, it is possible that doctors may continue to rely on ocular steroids and other treatments rather than KPI-121 1.0%, if and when it is approved for marketing by the FDA. It is also possible that other therapeutics will be approved for treatment of inflammation and pain following ocular surgery with twice-a-day dosing.

        If KPI-121 0.25% or KPI-121 1.0% does 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 KPI-121 0.25%, KPI-121 1.0% or any other product candidate that we develop, if approved for commercial sale, will depend on a number of factors, including:

    the efficacy and potential advantages of our product candidates compared to alternative treatments, including the existing standard of care;

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    our ability to offer our products for sale at competitive prices, particularly in light of the lower cost of alternative treatments;

    the clinical indications for which the product is approved;

    the 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 our marketing and distribution support;

    the timing of market introduction of competitive products;

    the availability of third-party coverage and adequate reimbursement, particularly by Medicare in light of the prevalence of dry eye disease and cataracts in persons over age 55;

    the prevalence and severity of any side effects; and

    any restrictions on the use of our products together with other medications.

        Our assessment of the potential market opportunity for KPI-121 0.25%, KPI-121 1.0% and our other product candidates is based on industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties, some of which we commissioned. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe these industry publications and third-party research, surveys and studies are reliable, we have not independently verified such data. In addition, the potential market opportunities for the treatment of dry eye and MGD in particular are difficult to precisely estimate. Our estimates of the potential market opportunities for the markets of our product candidates include several key assumptions based on our industry knowledge, industry publications, third-party research and other surveys. While we believe that our internal assumptions are reasonable, no independent source has verified such assumptions. If any of our assumptions or estimates, or these publications, research, surveys or studies prove to be inaccurate, then the actual market for KPI-121 0.25%, KPI-121 1.0% or any of our product candidates may be smaller than we expect, and as a result our product revenue may be limited and it may be more difficult for us to achieve or maintain profitability.

If we are unable to establish sales, marketing and distribution capabilities or enter into sales, marketing and distribution agreements with third parties, we may not be successful in commercializing KPI-121 0.25%, KPI-121 1.0% or any other product candidates that we may develop if and when they are approved.

        We do not have a sales or marketing infrastructure and have no experience in the sale, marketing or distribution of therapeutic products. To achieve commercial success for any product for which we obtained marketing approval, we will need to establish sales, marketing and distribution capabilities, either ourselves or through collaborations or other arrangements with third parties.

        In the future, we plan to build a focused sales and marketing infrastructure to market or co-promote KPI-121 0.25%, KPI-121 1.0% and possibly other product candidates that we develop in the United States, if and when they are approved, as well as distribution capabilities. There are risks involved with establishing our own sales, marketing and distribution capabilities. For example, recruiting and training a sales force is expensive and time consuming and could delay any product launch. If the commercial launch of KPI-121 0.25%, KPI-121 1.0% or any other product candidate for which we recruit a sales force and establish marketing capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses. This may be

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costly, and our investment would be lost if we cannot retain or reposition our sales and marketing personnel.

        Factors that may inhibit our efforts to commercialize KPI-121 0.25%, KPI-121 1.0% or any other product candidates on our own include:

    our inability to recruit, train and retain adequate numbers of effective sales and marketing personnel;

    the inability of sales personnel to obtain access to physicians or persuade adequate numbers of physicians to prescribe our products;

    the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; and

    unforeseen costs and expenses associated with creating an independent sales, marketing and distribution organization.

        We currently do not plan to seek regulatory approval for any of our product candidates outside the United States until after we receive regulatory approval for the applicable product candidate in the United States, and therefore, at this time we cannot be certain when, if ever, we will commercialize any of our product candidates outside the United States. If we decide to seek regulatory approval for any of our product candidates outside the United States, we may need to seek additional patent approvals, seek licenses to patents held by third parties and/or face claims of infringing third-party patent rights. If we decide to commercialize our products outside the United States, we expect to enter into arrangements with third parties to perform sales, marketing and distribution services in markets outside the United States. We may also enter into arrangements with third parties to perform these services in the United States if we do not establish our own sales, marketing and distribution capabilities in the United States or if we determine that such third-party arrangements are otherwise beneficial. Our product revenues and our profitability, if any, under any such third-party sales, marketing or distribution arrangements are likely to be lower than if we were to market, sell and distribute KPI-121 0.25%, KPI-121 1.0% or any other product candidates that we may develop ourselves. In addition, we may not be successful in entering into arrangements with third parties to sell, market and distribute KPI-121 0.25%, KPI-121 1.0% or any other product candidates or may be unable to do so on terms that are favorable to us. We likely will have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market KPI-121 0.25%, KPI-121 1.0% or our other product candidates effectively. If we do not establish sales, marketing and distribution capabilities successfully, either on our own or in collaboration with third parties, we will not be successful in commercializing KPI-121 0.25%, KPI-121 1.0% or any other product candidates that we may develop.

We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do.

        The development and commercialization of new drug products is highly competitive. We face competition with respect to KPI-121 0.25%, KPI-121 1.0% and our other product candidates, and will face competition with respect to any other product candidates that we may seek to develop or commercialize in the future, from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. Potential competitors also include academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization.

        Current disease management approaches for dry eye disease in the United States include the following: over-the-counter artificial tear eye drops, which are used on an intermittent or chronic basis

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to provide short term symptomatic relief of dryness and irritation; off-label prescription drugs, including topical steroid drops and/or oral doxycycline, which are prescribed on occasion for treatment of dry eye disease; on-label prescription drugs, including Restasis, which is the only prescription drug that is approved in the United States for increasing tear production and which is intended to be used chronically as part of the dry eye management regimen; palliative therapies, such as hot compresses for the eye and lid hygiene management; and devices, such as punctal plugs that are inserted into the tear ducts to inhibit tear drainage, resulting in more moisture on the surface of the eye.

        We are developing KPI-121 0.25% for the temporary relief of the signs and symptoms of dry eye disease, including the management of dry eye disease flares, and therefore any product that is developed for the temporary treatment of the signs and symptoms of dry eye disease could compete directly with KPI-121 0.25%. There are a number of product candidates in preclinical and clinical development in the United States for the treatment of dry eye disease. If any of these product candidates is approved and such product candidate either treats the signs and symptoms of dry eye disease or reduces the frequency of flares in dry eye patients, it could reduce the overall market opportunity for KPI-121 0.25%. These product candidates are being developed by pharmaceutical companies, biotechnology companies, and specialty pharmaceutical and generic drug companies of various sizes, such as Shire Plc, or Shire, (lifitegrast), Mimetogen Pharmaceuticals Inc., or Mimetogen, (MIM-D3), Ocular Therapeutix, Inc., or Ocular Therapeutix (OTX-DP), Rigel Pharmaceuticals, Inc., or Rigel (R348) and Allergan, Inc., or Allergan (AGN-223575, AGN-232411 and RestasisX). In addition, Oculeve, which was recently acquired by Allergan, is developing a nasal neurostimulation medical device that is intended to increase tear production.

        Following ocular surgery, topical steroids are commonly used to manage and prevent complications from post-operative inflammation. The current market leaders for topical steroids, based on revenue, in the United States are Lotemax® products and Durezol®. There are also a number of companies in the United States developing products and therapies in preclinical research and clinical development for the treatment of inflammation and pain following ocular surgery. These companies include pharmaceutical companies, biotechnology companies, and specialty pharmaceutical and generic drug companies of various sizes, such as Valeant Pharmaceuticals International, or Valeant, (sub-micron loteprednol etabonate ophthalmic gel (0.38%)), Ocular Therapeutix (Dextenza™) and Icon Bioscience, Inc. (IBI-10090). In addition, there are various formulations of steroids that are produced by compounding pharmacies and are injected into the eye following ocular surgery.

        See "Business—Competition" for additional information regarding competing products and product candidates.

        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 side effects, are more convenient or are less expensive than our products. Our competitors also may obtain 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.

        In addition, our ability to compete may be affected in many cases by insurers or other third-party payors, particularly Medicare, seeking to encourage the use of generic products. Generic products are currently being used for certain of the indications that we are pursuing, and additional products are expected to become available on a generic basis over the coming years.

        Many of the companies against which we are competing or against which we may compete in the future 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. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller and other early stage companies may also prove to be significant

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competitors, particularly through collaborative arrangements with large and established companies. 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.

If our contracted manufacturing facilities experience production issues for any reason, we may be unable to manufacture clinical supply and, if approved, commercial quantities of our product candidates for a substantial amount of time, which could harm our business.

        We currently rely on third-party contract manufacturers to manufacture clinical supplies of KPI-121 0.25% and KPI-121 1.0%. We expect to rely on third-party manufacturers to manufacture clinical supplies of KPI-285 and our other product candidates and commercial supplies of all of our products if and when approved for marketing by applicable regulatory authorities. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or manufacture our product candidates in accordance with regulatory requirements, or if there are disagreements between us and such parties, we may not be able to complete, or may be delayed in producing sufficient product candidates to meet our supply requirements. These facilities may also be affected by natural disasters, such as floods or fire, or such facilities could face manufacturing issues, such as contamination or regulatory concerns following a regulatory inspection of such facility. In such instances, we may need to locate an appropriate replacement third-party relationship, which may not be readily available or on acceptable terms, which would cause additional delay and increased expense, including as a result of additional required FDA approvals, and may have a material adverse effect on our business.

        Our third-party manufacturers are subject to inspection and approval by the FDA before we can commence the manufacture and sale of any of our product candidates, and thereafter subject to FDA inspection from time to time. Failure by our third-party manufacturers to pass such inspections and otherwise satisfactorily complete the FDA approval regimen with respect to our product candidates may result in regulatory actions such as the issuance of FDA Form 483 notices of observations, warning letters or injunctions or the loss of operating licenses. Based on the severity of any such regulatory action, our clinical or commercial supply could be interrupted or limited, which could have a material adverse effect on our business.

        We or our third-party manufacturers may also encounter shortages in the raw materials or active pharmaceutical ingredient necessary to produce our product candidates in the quantities needed for our clinical trials or, if our product candidates are approved, in sufficient quantities for commercialization, as a result of delays or disruptions in the market for the raw materials or active pharmaceutical ingredient, including shortages caused by the purchase of such raw materials or active pharmaceutical ingredient by our competitors or others. The failure of us or our third-party manufacturers to obtain the raw materials or active pharmaceutical ingredient necessary to manufacture sufficient quantities of our product candidates, may have a material adverse effect on our business.

Even if we are able to commercialize KPI-121 0.25%, KPI-121 1.0% or any other product candidate that we may develop, the products may become subject to unfavorable pricing regulations, third-party coverage or reimbursement practices or healthcare reform initiatives, which could harm our business.

        Our ability to commercialize KPI-121 0.25%, KPI-121 1.0% or any other product candidates that we may develop successfully will depend, in part, on the extent to which coverage and adequate reimbursement for these products and related treatments will be available from government healthcare programs, private health insurers, managed care plans 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. 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

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medications. Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. Coverage and reimbursement may not be available for KPI-121 0.25%, KPI-121 1.0% or any other product that we commercialize and, even if they are available, the level of reimbursement may not be satisfactory.

        Inadequate reimbursement may adversely affect the demand for, or the price of, any product candidate for which we obtain marketing approval. Obtaining and maintaining adequate reimbursement for our products may be difficult. We may be required to conduct expensive pharmacoeconomic studies to justify coverage and reimbursement or the level of reimbursement relative to other therapies. If coverage and adequate reimbursement are not available or reimbursement is available only to limited levels, we may not be able to successfully commercialize KPI-121 0.25%, KPI-121 1.0% or any other product candidate for which we obtain marketing approval.

        There may be significant delays in obtaining coverage and reimbursement for newly approved drugs, and coverage may be more limited than the indications for which the drug is approved by the FDA or similar regulatory authorities outside the United States. Moreover, eligibility for coverage and reimbursement does not imply that a drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution expenses. 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 adequate reimbursement rates from both government-funded and private payors for any approved products that we develop would compromise our ability to generate revenues and become profitable.

        The regulations that govern marketing approvals, pricing, coverage and reimbursement for new drug products vary widely from country to country. Current and future legislation may significantly change the approval requirements in ways that could involve additional costs and cause delays in obtaining approvals. Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing 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 in a particular country, but then be subject to price regulations that delay our commercial launch of the product, possibly for lengthy time periods, and negatively impact the revenues we are able to generate from the sale of the product in that country. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidate to other available therapies. 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.

        There can be no assurance that our product candidates, even if they are approved for sale in the United States or in other countries, will be considered medically reasonable and necessary for a specific indication or cost-effective by third-party payors, or that coverage and an adequate level of reimbursement will be available or that third-party payors' reimbursement policies will not adversely affect our ability to sell our product candidates profitably.

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Product liability lawsuits against us could divert our resources and could cause us to incur substantial liabilities and to limit commercialization of any products that we develop.

        We face an inherent risk of product liability exposure related to the use of our product candidates that we develop in human clinical trials. We face an even greater risk if we commercially sell any products that we develop. If we cannot successfully defend ourselves against claims that our product candidates or products caused injuries, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:

    decreased demand for any product candidates or products that we develop;

    injury to our reputation and significant negative media attention;

    withdrawal of clinical trial participants;

    significant costs to defend the related litigation;

    substantial monetary awards to trial participants or patients;

    loss of revenue;

    reduced time and attention of our management to pursue our business strategy; and

    the inability to commercialize any products that we develop.

        We currently hold $5 million in product liability insurance coverage in the aggregate, with a per incident limit of $5 million, which may not be adequate to cover all liabilities that we may incur. We may need to increase our insurance coverage as we expand our clinical trials. We will need to further increase our insurance coverage if we commence commercialization of any of KPI-121 0.25%, KPI-121 1.0% or any product candidates for which we obtain marketing approval. Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.

Risks Related to Our Dependence on Third Parties

We rely, and expect to continue to rely, on third parties to conduct our clinical trials, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such trials.

        We relied on third-party clinical research organizations, or CROs, in conducting our completed Phase 2 clinical trial of KPI-121 0.25% in patients with dry eye disease and our completed Phase 3 clinical trial of KPI-121 1.0% for the treatment of inflammation and pain following cataract surgery. We expect to continue to rely on third parties, such as CROs, clinical data management organizations, medical institutions and clinical investigators, in conducting our clinical trials of KPI-121 0.25% and KPI-121 1.0%, including the clinical trials in our Phase 3 clinical programs for these product candidates, and our ongoing Phase 2 clinical trial of KPI-121 0.25% in patients with MGD and expect to rely on these third parties to conduct clinical trials of any other product candidate that we develop. We or these third parties may terminate their engagements with us at any time for a variety of reasons, including a failure to perform by the third parties. If we need to enter into alternative arrangements, that would delay our product development activities.

        Our reliance on these third parties for clinical development activities reduces our control over these activities but does not relieve us of our responsibilities. For example, we remain responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan and protocols for the trial. Moreover, the FDA requires us to comply with standards, commonly referred to as Good Clinical Practices, or GCPs, for conducting, recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected. We also are required to register ongoing

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clinical trials and post the results of completed clinical trials on a government-sponsored database, ClinicalTrials.gov, within specified timeframes. Failure to do so can result in fines, adverse publicity and civil and criminal sanctions.

        If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our clinical trials in accordance with regulatory requirements or our stated protocols, we will not be able to obtain, or may be delayed in obtaining, marketing approvals for our product candidates and will not be able to, or may be delayed in our efforts to, successfully commercialize our product candidates. Furthermore, these third parties may also have relationships with other entities, some of which may be our competitors.

        We also rely on other third parties to store and distribute drug supplies for our clinical trials. Any performance failure on the part of our distributors could delay clinical development or marketing approval of our product candidates or commercialization of our products, producing additional losses and depriving us of potential product revenue.

We contract with third parties for the manufacture and supply of KPI-121 0.25% and KPI-121 1.0% for clinical trials and expect to continue to do so in connection with the commercialization of KPI-121 0.25% and KPI-121 1.0% and for clinical trials and commercialization of any of our other existing and any future product candidates. This reliance on third parties increases the risk that we will not have sufficient quantities of our 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 currently own or operate manufacturing facilities for the production of clinical or commercial quantities of KPI-121 0.25%, KPI-121 1.0% or any of our other product candidates. We currently rely on third-party contract manufacturers to manufacture clinical supplies of KPI-121 0.25% and KPI-121 1.0%. We expect to rely on third-party manufacturers to manufacture clinical supplies of KPI-285 and our other product candidates and commercial supplies of all of our products if and when approved for marketing by applicable regulatory authorities. Our current and anticipated future dependence upon others for the manufacture of KPI-121 0.25%, KPI-121 1.0% and any other product candidate or product that we develop may adversely affect our future profit margins and our ability to commercialize any products that receive marketing approval on a timely and competitive basis. In addition, any performance failure on the part of our existing or future manufacturers could delay clinical development or marketing approval.

        To date, we have obtained materials for KPI-121 for our clinical trials from third party manufacturers. We have supply agreements in place with these contract manufacturers to provide supply for our clinical trials and registration stability. We obtain the active pharmaceutical ingredient for KPI-121 from a third party API manufacturer. We currently obtain our supplies from this manufacturer on a purchase order basis. While we expect to enter into long-term commercial supply agreements with these third party manufacturers in early 2016, we may be unable to establish any such agreements or to do so on acceptable terms. If our current suppliers do not perform as we expect, we may be required to replace one or more suppliers. Although we believe that there are a number of potential long term replacements to our suppliers, we may incur added costs and delays in identifying and qualifying any such replacements.

        The FDA maintains strict requirements governing the manufacturing process. When a manufacturer seeks to modify or make even seemingly minor changes to that process, the FDA may require the applicant to conduct a comparability study that evaluates the potential differences in the product resulting from the change in the manufacturing process. The FDA has issued several guidances on this point. In connection with our application for approval to market KPI-121 0.25%, KPI-121 1.0% or other product candidates in the United States, we may be required to conduct a comparability study if the product we intend to market is supplied by a manufacturer different from the one who supplied

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the product evaluated in our clinical studies. Delays in designing and completing this study to the satisfaction of the FDA could delay or preclude our development and commercialization plans and thereby limit our revenues and growth.

        Reliance on third-party manufacturers entails additional risks, including:

    KPI-121 0.25%, KPI-121 1.0% and any other product that we develop may compete with other product candidates and products for access to a limited number of suitable manufacturing facilities that operate under current good manufacturing practices, or cGMP, regulations;

    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.

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

        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 regulations and that might be capable of manufacturing for us. We were previously required to change our third-party manufacturer when the manufacturer was purchased by a third party and exited the contract manufacturing business. The process of changing manufacturers can cause substantial time delays, and if we are required to change our manufacturer again in the future, it may delay our planned clinical trials or development timeline.

        Any performance failure on the part of our existing or future manufacturers could delay clinical development or marketing approval. We do not currently have arrangements in place for redundant supply for bulk drug substances. If any one of our current contract manufacturers cannot perform as agreed, we may be required to replace that manufacturer. Although we believe that there are several potential alternative manufacturers who could manufacture our product candidates, we may incur added costs and delays in identifying and qualifying any such replacement.

        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 commercialize any medicines that receive marketing approval on a timely and competitive basis.

We may enter into collaborations with third parties for the development or commercialization of our product candidates. If our collaborations are not successful, we may not be able to capitalize on the market potential of these product candidates.

        We expect to utilize a variety of types of collaboration, distribution and other marketing arrangements with third parties to develop and commercialize KPI-121 0.25%, KPI-121 1.0% or any of our other product candidates for which we obtain marketing approval in markets outside the United States. We also may enter into arrangements with third parties to perform these services in the United States if we do not establish our own sales, marketing and distribution capabilities in the United States

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for our product candidates or if we determine that such third-party arrangements are otherwise beneficial. We also may seek third-party collaborators for development and commercialization of other product candidates. Our likely collaborators for any sales, marketing, distribution, development, licensing or broader collaboration arrangements include large and mid-size pharmaceutical companies, regional and national pharmaceutical companies and biotechnology companies. We are not currently party to any such arrangement. However, if we do enter into any such arrangements with any third parties in the future, we will likely have limited control over the amount and timing of resources that our collaborators dedicate to the development or commercialization of our product candidates. Our ability to generate revenues from these arrangements will depend on our collaborators' abilities and efforts to successfully perform the functions assigned to them in these arrangements.

        Collaborations that we enter into may pose a number of risks, including the following:

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

    collaborators may not perform their obligations as expected;

    collaborators may not pursue development of our product candidates or may elect not to continue or renew development programs based on results of clinical trials or other studies, changes in the collaborators' strategic focus or available funding, or external factors, such as an acquisition, that divert resources or create competing priorities;

    collaborators may not pursue commercialization of our product candidates that receive marketing approval or may elect not to continue or renew commercialization programs based on changes in the collaborators' strategic focus or available funding, or external factors, such as an acquisition, that divert resources or create competing priorities;

    collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing;

    collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our products or product candidates if the collaborators believe that competitive products are more likely to be successfully developed or can be commercialized under terms that are more economically attractive than ours;

    product candidates discovered in collaboration with us may be viewed by our collaborators as competitive with their own product candidates or products, which may cause collaborators to cease to devote resources to the commercialization of our product candidates;

    a collaborator with marketing and distribution rights to one or more of our product candidates that achieve regulatory approval may not commit sufficient resources to the marketing and distribution of such product or products;

    disagreements with collaborators, including disagreements over proprietary rights, contract interpretation or the preferred course of development, might cause delays or termination of the research, development or commercialization of product candidates, might lead to additional responsibilities for us with respect to product candidates, or might result in litigation or arbitration, any of which would divert management attention and resources, be time-consuming and expensive;

    collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential litigation;

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    collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability; and

    collaborations may be terminated for the convenience of the collaborator and, if terminated, we could be required to raise additional capital to pursue further development or commercialization of the applicable product candidates.

        Collaboration agreements may not lead to development or commercialization of product candidates in the most efficient manner, or at all. If any collaborations that we enter into do not result in the successful development and commercialization of products or if one of our collaborators terminates its agreement with us, we may not receive any future research funding or milestone or royalty payments under the collaboration. If we do not receive the funding we expect under these agreements, our development of our product candidates could be delayed and we may need additional resources to develop our product candidates. All of the risks relating to product development, regulatory approval and commercialization described in this prospectus also apply to the activities of our collaborators.

        Additionally, subject to its contractual obligations to us, if a collaborator of ours were to be involved in a business combination, it might deemphasize or terminate the development or commercialization of any product candidate licensed to it by us. If one of our collaborators terminates its agreement with us, we may find it more difficult to attract new collaborators and our perception in the business and financial communities could be harmed.

If we are not able to establish collaborations, we may have to alter our development and commercialization plans and our business could be adversely affected.

        For some of our product candidates, we may decide to collaborate with pharmaceutical or biotechnology companies for the development and potential commercialization of those product candidates. We face significant competition in seeking appropriate collaborators. Whether we reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborator's resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator's evaluation of a number of factors. Those factors may include the design or results of clinical trials, the likelihood of approval by the FDA or similar regulatory authorities outside the United States, the potential market for the subject product candidate, the costs and complexities of manufacturing and delivering such product candidate to patients, the potential of competing products, the existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to such ownership without regard to the merits of the challenge, and industry and market conditions generally. The collaborator may also consider alternative product candidates or technologies for similar indications that may be available to collaborate on and whether such a collaboration could be more attractive than the one with us for our product candidate. We may also be restricted under future license agreements from entering into agreements on certain terms with potential collaborators. Collaborations are complex and time-consuming to negotiate and document. 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.

        If we are unable to reach agreements with suitable collaborators on a timely basis, on acceptable terms, or at all, we may have to curtail the development of a product candidate, reduce or delay its development program or one or more of our other development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to fund and undertake development or commercialization activities on our own, we may need to obtain additional expertise and additional capital, which may not be available to us on acceptable terms or at all. If we fail to enter into collaborations and do not have sufficient funds or expertise to undertake the

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necessary development and commercialization activities, we may not be able to further develop our product candidates or bring them to market or continue to develop our product platform.

Risks Related to Our Intellectual Property

We may be unable to obtain and maintain patent protection for our technology and product candidates, or the scope of the patent protection obtained may not be sufficiently broad or enforceable, such that our competitors could develop and commercialize technology and products similar or identical to ours, and our ability to successfully commercialize our technology and product candidates may be impaired.

        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 proprietary technology and product candidates. We have sought to protect our proprietary position by filing in the United States and in certain foreign jurisdictions patent applications related to our novel technologies and product candidates.

        The patent prosecution process is expensive and time-consuming, and we may not have filed or prosecuted and may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. We may also fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection.

        The patent position of pharmaceutical, biotechnology and medical device companies generally is highly uncertain, involves complex legal and factual questions and has in recent years been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain. Our pending and future patent applications may fail to result in issued patents in the United States or in other foreign countries which protect our technology or product candidates or which effectively prevent others from commercializing competitive technologies and products. In addition, the laws of foreign countries may not protect our rights to the same extent as the laws of the United States. For example, unlike patent law in the United States, European patent law precludes the patentability of methods of treatment of the human body and imposes substantial restrictions on the scope of claims it will grant if broader than specifically disclosed embodiments. Publications of discoveries in the scientific 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. Therefore, we cannot be certain whether we or our licensors were the first to make the inventions claimed in our owned or licensed patents or pending patent applications, or that we or our licensors were the first to file for patent protection of such inventions. Databases for patents and publications, and methods for searching them, are inherently limited so we may not know the full scope of all issued and pending patent applications. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are uncertain. Our pending and future patent applications may not result in patents being issued which protect our technology or product candidates, in whole or in part, or which effectively prevent others from commercializing competitive technologies and products. In particular, during prosecution of any patent application, the issuance of any patents based on the application may depend upon our ability to generate additional preclinical or clinical data that support the patentability of our proposed claims. We may not be able to generate sufficient additional data on a timely basis, or at all. Moreover, changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection.

        Even if our owned and licensed patent applications issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors from competing with us, or otherwise provide us with any competitive advantage. Our competitors may be able to circumvent our owned or licensed patents by developing similar or alternative technologies or products in a non-infringing manner. In particular, a competitor may develop an approach to deliver drugs through

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the mucus layer to the underlying target tissue that uses a different approach than our MPP technology, and therefore may not infringe on our patent rights.

        The issuance of a patent is not conclusive as to its inventorship, ownership, scope, validity or enforceability, and our owned and licensed patents may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in loss of exclusivity or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology and product candidates. 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 patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.

Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents.

        On September 16, 2011, Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes a number of significant changes to United States patent law. These include provisions that affect the way patent applications are prosecuted and may also affect patent litigation. The United States Patent Office recently developed new regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act, and in particular, the first to file provisions, only became effective on March 16, 2013. The first to file provisions limit the rights of an inventor to patent an invention if not the first to file an application for patenting that invention, even if such invention was the first invention. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents. For example, the Leahy-Smith Act provides a new administrative tribunal known as the Patent Trial and Appeals Board, or PTAB, that provides a venue for companies to challenge the validity of competitor patents at a cost that is much lower than district court litigation and on timelines that are much faster. Although it is not clear what, if any, long term impact the PTAB proceedings will have on the operation of our business, the initial results of patent challenge proceedings before the PTAB since its inception in 2013 have resulted in the invalidation of many U.S. patent claims. The availability of the PTAB as a lower-cost, faster and potentially more potent tribunal for challenging patents could therefore increase the likelihood that our own patents will be challenged, thereby increasing the uncertainties and costs of maintaining and enforcing them.

If we are not able to obtain patent term extension in the United States under the Hatch-Waxman Act and in foreign countries under similar legislation, thereby potentially extending the term of our marketing exclusivity for our product candidates, our business may be materially harmed.

        Depending upon the timing, duration and specifics of FDA marketing approval of our product candidates, one of the U.S. patents covering each of such product candidates or the use thereof may be eligible for up to five years of patent term restoration under the Hatch-Waxman Act. The Hatch-Waxman Act allows a maximum of one patent to be extended per FDA approved product. Patent term extension also may be available in certain foreign countries upon regulatory approval of our product candidates. Nevertheless, we may not be granted patent term extension either in the United States or in any foreign country 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

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term of extension, as well as the scope of patent protection during any such extension, afforded by the governmental authority could be less than we request.

        If we are unable to obtain patent term extension or restoration, or the term of any such extension is less than we request, the period during which we will have the right to exclusively market our product may be shortened and our competitors may obtain approval of competing products following our patent expiration sooner, and our revenue could be reduced, possibly materially.

        It is possible that we will not obtain patent term extension under the Hatch-Waxman Act for a U.S. patent covering one of our product candidates even where that patent is eligible for patent term extension, or if we obtain such an extension, it may be for a shorter period than we had sought. Further, for our licensed patents, we do not have the right to control prosecution, including filing with the U.S. Patent and Trademark Office, a petition for patent term extension under the Hatch-Waxman Act. Thus, if one of our licensed patents is eligible for patent term extension under the Hatch-Waxman Act, we may not be able to control whether a petition to obtain a patent term extension is filed, or obtained, from the U.S. Patent and Trademark Office.

        Also, there are detailed rules and requirements regarding the patents that may be submitted to the FDA for listing in the Approved Drug Products with Therapeutic Equivalence Evaluations, or the Orange Book. We may be unable to obtain patents covering our product candidates that contain one or more claims that satisfy the requirements for listing in the Orange Book. Even if we submit a patent for listing in the Orange Book, the FDA may decline to list the patent, or a manufacturer of generic drugs may challenge the listing. If one of our product candidates is approved and a patent covering that product candidate is not listed in the Orange Book, a manufacturer of generic drugs would not have to provide advance notice to us of any Abbreviated New Drug Application filed with the FDA to obtain permission to sell a generic version of such product candidate.

        We may also seek pediatric exclusivity for certain of our product candidates. Pediatric exclusivity is another type of non-patent marketing exclusivity in the United States and, if granted, provides for the attachment of an additional six months of marketing protection to the term of any existing regulatory exclusivity, including the non-patent and orphan exclusivity. This is not a patent term extension, but it effectively extends the regulatory period during which the FDA cannot approve another application. We cannot provide any assurance that pediatric exclusivity will be obtained for any of our product candidates.

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

        Competitors may infringe or otherwise violate our patents, the patents of our licensors, or other intellectual property. As a result, to counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time-consuming. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims against us alleging that we infringe their patents. In addition, in a patent infringement proceeding, a court may decide that a patent of ours is invalid or unenforceable, in whole or in part, construe the patent's claims narrowly or refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated, held unenforceable or interpreted narrowly, and could put any of our patent applications at risk of not yielding an issued patent. Furthermore, 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.

        We may be subject to a third-party preissuance submission of prior art to the U.S. Patent and Trademark Office, or become involved in other contested proceedings such as opposition, derivation,

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reexamination, inter partes review, post-grant review or interference proceedings in the United States or elsewhere, challenging our patent rights or the patent rights of others. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our technology or product candidates and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize products without infringing third-party patent rights. In addition, if the breadth or strength of protection provided by our patents and patent applications is threatened, it could dissuade companies from collaborating with us to license, develop or commercialize current or future product candidates.

        In the United States, the FDA does not prohibit physicians from prescribing an approved product for uses that are not described in the product's labeling. Although use of a product directed by off-label prescriptions may infringe our method-of-treatment patents, the practice is common across medical specialties, particularly in the United States, and such infringement is difficult to detect, prevent or prosecute.

Third parties may initiate legal proceedings alleging that we are infringing 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.

        Our commercial success depends upon our ability to develop, manufacture, market and sell KPI-121 0.25%, KPI-121 1.0% and our other product candidates and use our proprietary technologies without infringing or otherwise violating the intellectual property and other proprietary rights of third parties. There is considerable intellectual property litigation in the biotechnology and pharmaceutical industries. We may become party to, or threatened with, infringement litigation claims regarding our products and technology, including claims from competitors or from non-practicing entities that have no relevant product revenue and against whom our own patent portfolio may have no deterrent effect. Moreover, we may become party to future adversarial proceedings or litigation regarding our patent portfolio or the patents of third parties. Such proceedings could also include contested post-grant proceedings such as oppositions, inter-partes review, reexamination, interference or derivation proceedings before the U.S. Patent and Trademark Office or foreign patent offices. The legal threshold for initiating litigation or contested proceedings is low, so that even lawsuits or proceedings with a low probability of success might be initiated and require significant resources to defend. Litigation and contested proceedings can also be expensive and time-consuming, and our adversaries in these proceedings may have the ability to dedicate substantially greater resources to prosecuting these legal actions than we can. The risks of being involved in such litigation and proceedings may increase as our product candidates near commercialization and as we gain the greater visibility associated with being a public company. Third parties may assert infringement claims against us based on existing patents or patents that may be granted in the future. We may not be aware of all such intellectual property rights potentially relating to our product candidates and their uses. Thus, we do not know with certainty that KPI-121 0.25%, KPI-121 1.0% or any of our other product candidates, or our development and commercialization thereof, does not and will not infringe or otherwise violate any third party's intellectual property.

        If we are found to infringe or otherwise violate a third party's intellectual property rights, we could be required to obtain a license from such third party to continue developing and marketing our products and 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 access to the same technologies licensed to us and could require us to make substantial licensing and royalty payments. We could be forced, including by court order, to cease commercializing the infringing technology or product. In addition, we could be found liable for monetary damages, including treble damages and attorneys' fees if we are found to have willfully infringed a patent and could be forced to indemnify our customers or collaborators. A finding of

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infringement could also result in an injunction that prevents us from commercializing our product candidates or forces us to cease some of our business operations, which could materially harm our business. In addition, we may be forced to redesign our product candidates, seek new regulatory approvals and indemnify third parties pursuant to contractual agreements. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact on our business.

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

        Periodic maintenance and annuity fees on any issued patent must be paid to the U.S. Patent and Trademark Office and foreign patent agencies in several stages or annually over the lifetime of the patent. The U.S. Patent and Trademark Office and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. If we or our licensors fail to maintain the patents and patent applications covering our product candidates, it would have a material adverse effect on our business.

KPI-121 0.25%, KPI-121 1.0% and certain aspects of our MPP technology are protected by patents exclusively licensed from other companies or institutions. If these third parties terminate their agreements with us or fail to maintain or enforce the underlying patents, or we otherwise lose our rights to these patents, our competitive position and our market share in the markets for any of our approved products will be harmed.

        A substantial portion of our patent portfolio is in-licensed. As such, we are a party to license agreements and certain aspects of our business depend on patents and/or patent applications owned by other companies or institutions. In particular, we hold exclusive licenses for patent families relating to KPI-121 0.25%, KPI-121 1.0%, other product candidates and some aspects of our MPP technology. While we control patent prosecution of the jointly-owned patent family relating to KPI-121 0.25% and KPI-121 1.0%, for the remainder of the patent families subject to our exclusive license agreement that relate to our MPP technology, the licensor retains control of patent prosecution. Our rights with respect to in-licensed patents and patent applications may be lost if the applicable license agreement expires or is terminated. We are likely to enter into additional license agreements as part of the development of our business in the future. If we are unable to maintain these patent rights for any reason, our ability to develop and commercialize our product candidates could be materially harmed.

        Our licensors may not successfully prosecute certain patent applications, the prosecution of which they control, under which we are licensed and on which our business depends. Even if patents issue from these applications, our licensors may fail to maintain these patents, may decide not to pursue litigation against third party infringers, may fail to prove infringement, or may fail to defend against counterclaims of patent invalidity or unenforceability.

        Risks with respect to parties from whom we have obtained intellectual property rights may also arise out of circumstances beyond our control. In spite of our best efforts, our licensors might conclude that we have materially breached our intellectual property agreements and might therefore terminate the intellectual property agreements, thereby removing our ability to obtain regulatory approval and to market products covered by these intellectual property agreements. If our intellectual property

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agreements are terminated, or if the underlying patents fail to provide the intended market exclusivity, competitors would have the freedom to seek regulatory approval of, and to market, products similar or identical to ours. Moreover, if our intellectual property agreements are terminated, our former licensors and/or assignors may be able to prevent us from utilizing the technology covered by the licensed or assigned patents and patent applications. This could have a material adverse effect on our competitive business position and our business prospects

Some intellectual property which we own or have licensed may have been discovered through government funded programs and thus may be subject to federal regulations such as "march-in" rights, certain reporting requirements, and a preference for United States industry. Compliance with such regulations may limit our exclusive rights, subject us to expenditure of resources with respect to reporting requirements, and limit our ability to contract with non-U.S. manufacturers.

        Some of the intellectual property rights we own or have licensed have been generated through the use of United States government funding and may therefore be subject to certain federal regulations. For example, certain aspects of our MPP technology as well as certain aspects of our patents that use loteprednol etabonate, or LE, as an active ingredient were developed using United States government funds. As a result, the United States government may have certain rights to intellectual property embodied in our current or future products and product candidates based on our MPP technology or that use LE as an active ingredient pursuant to the Bayh-Dole Act of 1980. These United States government rights in certain inventions developed under a government-funded program include a non-exclusive, non-transferable, irrevocable worldwide license to use inventions for any governmental purpose. In addition, the United States government has the right to require us to grant exclusive, partially exclusive, or non-exclusive licenses to any of these inventions to a third party if it determines that: (i) adequate steps have not been taken to commercialize the invention; (ii) government action is necessary to meet public health or safety needs; or (iii) government action is necessary to meet requirements for public use under federal regulations (also referred to as "march-in rights"). The United States government also has the right to take title to these inventions if we fail to disclose the invention to the government and fail to file an application to register the intellectual property within specified time limits. In addition, the United States government may acquire title to these inventions in any country in which a patent application is not filed within specified time limits. Intellectual property generated under a government funded program is also subject to certain reporting requirements, compliance with which may require us to expend substantial resources. In addition, the United States government requires that any products embodying the subject invention or produced through the use of the subject invention be manufactured substantially in the United States. The manufacturing preference requirement can be waived if the owner of the intellectual property can show that reasonable but unsuccessful efforts have been made to grant licenses on similar terms to potential licensees that would be likely to manufacture substantially in the United States or that under the circumstances domestic manufacture is not commercially feasible. This preference for United States manufacturers may limit our ability to contract with non-U.S. product manufacturers for products covered by such intellectual property.

If we fail to comply with our obligations in our intellectual property licenses and funding arrangements with third parties, we could lose rights that are important to our business.

        Our license agreement with JHU, under which we license certain of our patent rights and a significant portion of the technology for KPI-121 0.25%, KPI-121 1.0% and our other product candidates, imposes royalty and other financial obligations on us and other substantial performance obligations. We also may enter into additional licensing and funding arrangements with third parties that may impose diligence, development and commercialization timelines and milestone payment, royalty, insurance and other obligations on us. If we fail to comply with our obligations under current or future license and collaboration agreements, our counterparties may have the right to terminate

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these agreements, in which event we might not be able to develop, manufacture or market any product that is covered by these agreements or may face other penalties under the agreements. Such an occurrence could diminish the value of our product. Termination of these agreements or reduction or elimination of our rights under these agreements may result in our having to negotiate new or reinstated agreements with less favorable terms, or cause us to lose our rights under these agreements, including our rights to important intellectual property or technology.

        In addition it is possible that JHU may conclude that we have materially breached the JHU licensing agreement and might therefore terminate the agreement, thereby removing our ability to obtain regulatory approval for, and to market, products covered by our license agreement with JHU. If the JHU licensing agreement is terminated, or if the underlying patents fail to provide the intended market exclusivity, competitors would have the freedom to seek regulatory approval of, and to market, products similar or identical to ours. Moreover, if our license agreement with JHU is terminated, JHU and/or its assignors may be able to prevent us from utilizing the technology covered by the licensed or assigned patents and patent applications. If we breach the agreement (including by failing to meet our payment obligations) and do not adequately cure such breach, the rights in the technology licensed to us under the JHU license agreement, including JHU's rights in our jointly owned patent rights, will revert to JHU at no cost to JHU. This could have a material adverse effect on our competitive business position and our business prospects.

We may be subject to claims by third parties asserting that our employees or we have misappropriated their intellectual property, or claiming ownership of what we regard as our own intellectual property.

        Many of our employees were previously employed at other biotechnology, medical device or pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that these employees or we have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employee's former employer. Litigation may be necessary to defend against these claims.

        In addition, while it is our policy to require our employees and contractors who may be involved in the development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who in fact develops intellectual property that we regard as our own. Our and their assignment agreements may not be self-executing or may be breached, and we may be forced to bring claims against third parties, or defend claims they may bring against us, to determine the ownership of what we regard as our intellectual property.

        If we fail in prosecuting or 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 prosecuting or defending against such claims, litigation could result in substantial costs and be a distraction to management.

Intellectual property litigation or other legal proceedings relating to intellectual property could cause us to spend substantial resources and distract our personnel from their normal responsibilities.

        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 technical and management 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

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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. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have an adverse effect on our ability to compete in the marketplace.

If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.

        In addition to seeking patents for our technology and product candidates, we also rely on trade secrets, including unpatented know-how, technology and other proprietary information, to maintain our competitive position. We seek to protect 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. Detecting the disclosure or misappropriation of a trade secret and enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them, or those to whom they communicate it, from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor, our competitive position would be harmed.

Risks Related to Regulatory Approval of Our Product Candidates and Other Legal Compliance Matters

If we are not able to obtain required regulatory approvals, we will not be able to commercialize our product candidates, and our ability to generate significant revenue will be materially impaired. The marketing approval process is expensive, time-consuming and uncertain. As a result, we cannot predict when or if we, or any collaborators we may have in the future, will obtain marketing approval to commercialize our product candidates.

        Our product candidates, including KPI-121 0.25% and KPI-121 1.0%, 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 agencies 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. We have not received approval to market KPI-121 0.25%, KPI-121 1.0% or any other product candidate from regulatory authorities in any jurisdiction. We have only limited experience in filing and supporting the applications necessary to gain marketing approvals and expect to rely on third-party consultants and vendors to assist us in this process. Securing marketing approval requires the submission of extensive preclinical and clinical data and supporting information to regulatory authorities for each therapeutic indication to establish the product candidate's safety and efficacy. Securing marketing approval also requires the submission of information about the product manufacturing process to, and inspection of manufacturing facilities by, the regulatory authorities. The FDA or other regulatory authorities may determine that KPI-121 0.25%, KPI-121 1.0% or any other product candidate that we develop is not effective, is only moderately effective or has undesirable or

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unintended side effects, toxicities or other characteristics that 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 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. Regulatory authorities 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 KPI-121 0.25%, KPI-121 1.0% or any other product candidate that we develop, the commercial prospects for such product candidate may be harmed and our ability to generate revenues will be materially impaired.

Failure to obtain marketing approval in international jurisdictions would prevent our product candidates from being marketed abroad.

        In order to market and sell KPI-121 0.25%, KPI-121 1.0% or our other product candidates in the European Union and many other jurisdictions, we or our potential third-party collaborators, must obtain separate marketing approvals and comply with numerous and varying regulatory requirements. The approval procedure varies among countries and can involve additional testing. The time required to obtain approval may differ substantially from that required to obtain FDA approval. The regulatory approval process outside the United States generally includes all of the risks associated with obtaining FDA approval. In addition, in many countries outside the United States, it is required that the product be approved for reimbursement before the product can be sold in that country. We or our potential collaborators may not obtain approvals from regulatory authorities outside the United States on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one regulatory authority outside the United States does not ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA. However, a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in others. However, a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in other countries. We may not be able to file for marketing approvals and may not receive necessary approvals to commercialize our products in any market.

The terms of approvals, ongoing regulations and post-marketing restrictions for our products may limit how we manufacture and market our products, which could materially impair our ability to generate revenue.

        Once marketing approval has been granted, an approved product and its manufacturer and marketer are subject to ongoing review and extensive regulation. We, and any potential collaborators we may have in the future, must therefore comply with requirements concerning advertising and promotion for any of our products for which we or our collaborators obtain marketing approval. Promotional communications with respect to drug products and medical devices are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the product's approved labeling. Thus, if any of our product candidates receives marketing approval, the accompanying label may limit the approved use of our product, which could limit sales of the product.

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        The FDA may also impose requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the product, including the adoption and implementation of risk evaluation and mitigation strategies. The FDA closely regulates the post-approval marketing and promotion of drugs to ensure drugs are marketed only for the approved indications and in accordance with the provisions of the approved labeling and regulatory requirements. The FDA imposes stringent restrictions on manufacturers' communications regarding off-label use and if we do not restrict the marketing of our products only to their approved indications, we may be subject to enforcement action for off-label marketing. Violations of the Federal Food, Drug, and Cosmetic Act relating to the promotion of prescription drugs may lead to investigations alleging violations of federal and state healthcare fraud and abuse laws, as well as state consumer protection laws.

        In addition, later discovery of previously unknown adverse events or other problems with our products, manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may yield various results, including:

    restrictions on such products, manufacturers or manufacturing processes;

    restrictions and warnings in the labeling and marketing of a product;

    restrictions on product distribution or use;

    requirements to conduct post-marketing clinical trials;

    warning or untitled letters;

    withdrawal of the products from the market;

    refusal to approve pending applications or supplements to approved applications that we submit;

    recall of products;

    fines, restitution or disgorgement of profits or revenue;

    suspension or withdrawal of marketing approvals;

    refusal to permit the import or export of our products;

    product seizure; or

    injunctions or the imposition of civil or criminal penalties.

        Non-compliance with European Union requirements regarding safety monitoring or pharmacovigilance can also result in significant financial penalties. Similarly, failure to comply with the European Union's requirements regarding the protection of personal information can lead to significant penalties and sanctions.

        In addition, manufacturers of approved products and those manufacturers' facilities are required to comply with extensive FDA requirements, including ensuring that quality control and manufacturing procedures conform to cGMPs applicable to drug manufacturers or quality assurance standards applicable to medical device manufacturers, which include requirements relating to quality control and quality assurance as well as the corresponding maintenance of records and documentation and reporting requirements. We, any contract manufacturers we may engage in the future, our future collaborators and their contract manufacturers will also be subject to other regulatory requirements, including submissions of safety and other post-marketing information and reports, registration and listing requirements, requirements regarding the distribution of samples to physicians, recordkeeping, and costly post-marketing studies or clinical trials and surveillance to monitor the safety or efficacy of the product such as the requirement to implement a risk evaluation and mitigation strategy.

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We may be subject to substantial penalties if we fail to comply with regulatory requirements or if we experience unanticipated problems with our products.

        Violations of the Federal Food, Drug, and Cosmetic Act relating to the promotion or manufacturing of drug products or medical devices may lead to investigations by the FDA, Department of Justice and state Attorneys General alleging violations of federal and state healthcare fraud and abuse laws, as well as state consumer protection laws. In addition, later discovery of previously unknown adverse events or other problems with our products, manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may yield various results, including:

    restrictions on such products, manufacturers or manufacturing processes;

    restrictions on the labeling or marketing of a product;

    restrictions on product distribution or use;

    requirements to conduct post-marketing studies or clinical trials;

    warning letters;

    withdrawal of the products from the market;

    refusal to approve pending applications or supplements to approved applications that we submit;

    recall of products;

    fines, restitution or disgorgement of profits or revenues;

    suspension or withdrawal of marketing approvals;

    refusal to permit the import or export of our products;

    product seizure or detention; or

    injunctions or the imposition of civil or criminal penalties.

        Non-compliance with European Union requirements regarding safety monitoring or pharmacovigilance, and with requirements related to the development of products for the pediatric population, can also result in significant financial penalties.

Our relationships with customers and third-party payors 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 and use 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 that may constrain the business or financial arrangements and relationships through which we market, sell and distribute any products for which we obtain marketing approval. In addition, we may be subject to transparency laws and patient privacy regulation by 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, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or

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      the purchase, order or recommendation of, any good or service, for which payment may be made under a federal healthcare program such as Medicare and Medicaid;

    federal civil and criminal false claims laws and civil monetary penalty laws, including the federal False Claims Act, which impose criminal and civil penalties, including civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, including the Medicare and Medicaid programs, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government;

    the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters;

    HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, and their respective implementing regulations, which imposes obligations, including mandatory contractual terms, on covered healthcare providers, health plans and healthcare clearinghouses, as well as their business associates, with respect to safeguarding the privacy, security and transmission of individually identifiable health information; 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.

        Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations may involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, including, without limitation, damages, fines, imprisonment, exclusion from participation in government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any of the physicians or other healthcare providers or entities with whom we expect to do business is found to be not in compliance with applicable laws, it may be subject to criminal, civil or administrative sanctions, including exclusions from participation in government funded healthcare programs.

Recently enacted and future legislation may affect our ability to commercialize and the prices we obtain for any products that are approved in the United States or foreign jurisdictions.

        In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could affect our ability to profitably sell or commercialize KPI-121 0.25%, KPI-121 1.0% or any other product candidate for which we obtain marketing approval. The pharmaceutical industry has been a particular focus of these efforts and have been significantly affected by legislative initiatives. Current laws, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage

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criteria and in additional downward pressure on the price that we receive for any FDA approved product.

        In the United States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or the MMA, changed the way Medicare covers and pays for pharmaceutical products. Cost reduction initiatives and other provisions of this legislation could limit coverage of and reduce the price that we receive for any FDA approved products. While the MMA applies only to product benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates. Therefore, any reduction in reimbursement that results from the MMA or other healthcare reform measures may result in a similar reduction in payments from private payors.

        In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, or collectively PPACA. Among the provisions of PPACA of importance to our business, including, without limitation, our ability to commercialize and the prices we may obtain for any of our product candidates and that are approved for sale, are the following:

    an annual, nondeductible fee on any entity that manufactures or imports specified branded prescription drugs and biologic agents;

    an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program;

    a new Medicare Part D coverage gap discount program, in which participating manufacturers must agree to offer 50% point-of-sale discounts off negotiated drug prices during the coverage gap period as a condition for the manufacturer's outpatient drugs to be covered under Medicare Part D;

    expansion of healthcare fraud and abuse laws, including the federal False Claims Act and the federal Anti-Kickback Statute, and the addition of new government investigative powers, and enhanced penalties for noncompliance;

    extension of manufacturers' Medicaid rebate liability;

    expansion of eligibility criteria for Medicaid programs; and

    expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program.

        In addition, other legislative changes have been proposed and adopted since PPACA was enacted. These changes include aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, which went into effect in April 2013. In January 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, reduced Medicare payments to several types of providers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These new laws may result in additional reductions in Medicare and other healthcare funding.

        The pricing of prescription pharmaceuticals is also subject to governmental control outside the United States. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidates to other available therapies. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our ability to generate revenues and become profitable could be impaired.

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Laws and regulations governing any international operations we may have in the future may preclude us from developing, manufacturing and selling certain products outside of the United States and require us to develop and implement costly compliance programs.

        If we expand our operations outside of the United States, we will need to dedicate additional resources to comply with numerous laws and regulations in each jurisdiction in which we plan to operate. The Foreign Corrupt Practices Act, or FCPA, prohibits any U.S. individual or business from paying, offering, authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the United States to comply with certain accounting provisions requiring the company to maintain books and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international operations.

        Compliance with the FCPA is expensive and difficult, particularly in countries in which corruption is a recognized problem. In addition, the FCPA presents particular challenges in the pharmaceutical industry, because, in many countries, hospitals are operated by the government, and doctors and other hospital employees are considered foreign officials. Certain payments to hospitals in connection with clinical trials and other work have been deemed to be improper payments to government officials and have led to FCPA enforcement actions.

        Various laws, regulations and executive orders also restrict the use and dissemination outside of the United States, or the sharing with certain non-U.S. nationals, of information classified for national security purposes, as well as certain products and technical data relating to those products. If we expand our presence outside of the United States, it will require us to dedicate additional resources to comply with these laws, and these laws may preclude us from developing, manufacturing, or selling certain products and product candidates outside of the United States, which could limit our growth potential and increase our development costs.

        The failure to comply with laws governing international business practices may result in substantial civil and criminal penalties and suspension or debarment from government contracting. The Securities and Exchange Commission also may suspend or bar issuers from trading securities on U.S. exchanges for violations of the FCPA's accounting provisions.

If we or any third-party manufacturers we engage in the future fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur significant costs.

        We and any third-party manufacturers we may engage in the future 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. From time to time and in the future, our operations may involve the use of hazardous materials, including chemicals and biological materials, and 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 for failure to comply with such laws and regulations.

        Although we maintain general liability insurance as well as 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.

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        In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research, development or production efforts. Our failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.

        Further, with respect to the operations of any future third-party contract manufacturers, it is possible that if they fail to operate in compliance with applicable environmental, health and safety laws and regulations or properly dispose of wastes associated with our products, we could be held liable for any resulting damages, suffer reputational harm or experience a disruption in the manufacture and supply of our product candidates or products.

Risks Related to Employee Matters and Managing Growth

Our future success depends on our ability to retain key executives and to attract, retain and motivate qualified personnel.

        We are highly dependent on the research and development, clinical and business development expertise of Mark Iwicki, our Chief Executive Officer, Charlie McDermott, our President and Chief Business Officer, Kim Brazzell, Ph.D., our Chief Medical Officer, and Hongming Chen, Sc.D., our Chief Scientific Officer, as well as the other principal members of our management, scientific and clinical team. Although we have entered into employment agreements with our executive officers, each of them may terminate their employment with us at any time. We do not maintain "key person" insurance for any of our executives or other employees.

        Recruiting and retaining qualified scientific, clinical, manufacturing, legal and sales and marketing personnel will also be critical to our success. The loss of the services of our executive officers or other key employees could impede the achievement of our research, development and commercialization objectives and seriously harm our ability to successfully implement our business strategy. Furthermore, replacing executive officers and key employees may be difficult and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to successfully develop, gain regulatory approval of and commercialize products. Competition to hire from this limited pool is intense, and we may be unable to hire, train, retain or motivate these key personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us. If we are unable to continue to attract and retain high quality personnel, our ability to pursue our growth strategy will be limited.

We expect to expand our development, regulatory and manufacturing capabilities and potentially implement sales, marketing and distribution capabilities, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.

        We expect to experience significant growth in the number of our employees and the scope of our operations, particularly in the areas of drug development, clinical, regulatory affairs, manufacturing, sales, marketing and distribution. To manage our anticipated future growth, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Due to our limited financial resources and our limited experience in managing such anticipated growth, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. The expansion of our operations may lead to significant costs and may divert our management and business development

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resources. Any inability to manage growth could delay the execution of our business plans or disrupt our operations.

Risks Related to Our Common Stock and This Offering

After this offering, our executive officers, directors and principal stockholders, if they choose to act together, will continue to have the ability to control all matters submitted to stockholders for approval.

        Upon the closing of this offering, our executive officers and directors and our stockholders who owned more than 5% of our outstanding common stock before this offering will, in the aggregate, beneficially own shares representing approximately                    % of our capital stock. As a result, if these stockholders were to choose to act together, they would be able to control all matters submitted to our stockholders for approval, as well as our management and affairs. For example, these persons, if they choose to act together, would control the election of directors and approval of any merger, consolidation or sale of all or substantially all of our assets.

        This concentration of voting power may:

    delay, defer or prevent a change in control;

    entrench our management and our board of directors; or

    delay or prevent a merger, consolidation, takeover or other business combination involving us on terms that other stockholders may desire.

Provisions in our corporate charter documents and under Delaware law could make an acquisition of our company, 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 certificate of incorporation and our bylaws that will become effective upon the closing of this offering may discourage, delay or prevent a merger, acquisition or other change in control of our company that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. In addition, because our board of directors is responsible for appointing the members of our management team, 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. Among other things, these provisions:

    establish a classified board of directors such that only one of three classes of directors is elected each year;

    allow the authorized number of our directors to be changed only by resolution of our board of directors;

    limit the manner in which stockholders can remove directors from our board of directors;

    establish advance notice requirements for stockholder proposals that can be acted on at stockholder meetings and nominations to our board of directors;

    require that stockholder actions must be effected at a duly called stockholder meeting and prohibit actions by our stockholders by written consent;

    limit who may call stockholder meetings;

    authorize our board of directors to issue preferred stock without stockholder approval, which could be used to institute a "poison pill" that would work to dilute the stock ownership of a

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      potential hostile acquirer, effectively preventing acquisitions that have not been approved by our board of directors; and

    require the approval of the holders of at least 75% of the votes that all our stockholders would be entitled to cast to amend or repeal specified provisions of our certificate of incorporation or bylaws that will become effective upon the closing of this offering.

        Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner.

If you purchase shares of common stock in this offering, you will suffer immediate dilution of your investment.

        The initial public offering price of our common stock will be substantially higher than the pro forma net tangible book value per share of our common stock. Therefore, if you purchase shares of our common stock in this offering, you will pay a price per share that substantially exceeds our pro forma net tangible book value per share after this offering. To the extent outstanding options or warrants are exercised, you will incur further dilution. Based on an assumed initial public offering price of $                per share, which is the midpoint of the estimated 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 net tangible book value per share, after giving effect to this offering, and the assumed initial public offering price.

An active trading market for our common stock may not develop.

        Prior to this offering, there has been no public market for our common stock. The initial public offering price for our common stock will be determined through negotiations with the underwriters. Although we applied to have our common stock approved for listing on The NASDAQ Global Market, an active trading market for our shares may never develop or be sustained following this offering. If an active market for our common stock does not develop, it may be difficult for you to sell shares you purchase in this offering without depressing the market price for the shares or at all.

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 smaller 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:

    results of clinical trials of KPI-121 0.25%, KPI-121 1.0% and our other product candidates;

    results of clinical trials of product candidates of our competitors;

    our success in commercializing KPI-121 0.25% and KPI-121 1.0%;

    the success of competitive products or technologies;

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

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

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    the recruitment or departure of key scientific or management personnel;

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

    the results of our efforts to discover, develop, acquire or in-license additional products, product candidates or technologies for the treatment of ophthalmic diseases or conditions, the costs of commercializing any such products and the costs of development of any such product candidates or technologies;

    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;

    general economic, industry and market conditions; and

    the other factors described in this "Risk Factors" section.

        In the past, following periods of volatility in the market price of a company's securities, securities class-action litigation has often been instituted against that company. We also may face securities class-action litigation if we cannot obtain regulatory approvals for or if we otherwise fail to commercialize KPI-121 0.25%, KPI-121 1.0% or our other product candidates. Such litigation, if instituted against us, could cause us to incur substantial costs to defend such claims and divert management's attention and resources.

We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.

        Our management will have broad discretion in the application of the net proceeds from this offering and could spend the proceeds in ways that do not improve our results of operations or enhance the value of our common stock. The failure by our management to apply these funds effectively could result in financial losses that could cause the price of our common stock to decline and delay the development of our product candidates. Pending their use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value.

A significant portion of our total outstanding shares are eligible to be sold into the market in the near future, which could cause the market price of our common stock to drop significantly, even if our business is doing well.

        Sales of a substantial number of shares of our common stock in the public market, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. After this offering, we will have                shares of common stock outstanding based on the number of shares outstanding as of August 31, 2015. This includes the shares that we are selling in this offering, which may be resold in the public market immediately without restriction, unless purchased by our affiliates or existing stockholders. The remaining                shares are currently restricted as a result of securities laws or lock-up agreements but will become eligible to be sold at various times after the offering. Moreover, beginning 180 days after the completion of this offering, holders of an aggregate of 41,081,269 shares of our common stock will have rights, along with holders of an additional 1,052,222 shares of our common stock issuable upon exercise of outstanding warrants, subject to specified conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. We also intend to register all shares of common stock that we may issue under our equity compensation plans. Once we register these shares, they can be freely sold in

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the public market upon issuance, subject to volume limitations applicable to affiliates and the lock-up agreements described in the "Underwriting" section of this prospectus.

We are an "emerging growth company," and the reduced disclosure requirements applicable to emerging growth companies may make our common stock less attractive to investors.

        We are an "emerging growth company," as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and may remain an emerging growth company for up to five years. As an emerging growth company, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include:

    being permitted to provide only two years of audited financial statements in this prospectus, in addition to any required unaudited interim financial statements, with correspondingly reduced "Management's Discussion and Analysis of Financial Condition and Results of Operations" disclosure;

    not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting;

    not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor's report providing additional information about the audit and the financial statements;

    reduced disclosure obligations regarding executive compensation; and

    exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

        We have taken advantage of reduced reporting obligations in this prospectus. In particular, in this prospectus, we have provided only two years of audited financial statements and have not included all of the executive compensation related information that would be required if we were not an emerging growth company. We cannot predict whether investors will find our common stock less attractive if we 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.

We will incur 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 and corporate governance practices.

        As a public company, and particularly after we are no longer an emerging growth company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of The NASDAQ Global Market and other applicable securities rules and regulations impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect that these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance, which in turn could make it more difficult for us to attract and retain qualified members of our board of directors.

        We are evaluating these rules and regulations, and cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. These rules and regulations are often subject

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to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.

        For as long as we remain an emerging growth company, we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies as described in the preceding risk factor. We may remain an emerging growth company until the end of the fiscal year in which the fifth anniversary of this offering occurs, although if the market value of our common stock that is held by non-affiliates exceeds $700 million as of any June 30 before that time or if we have annual gross revenues of $1 billion or more in any fiscal year, we would cease to be an emerging growth company as of December 31 of the applicable year. We also would cease to be an emerging growth company if we issue more than $1 billion of non-convertible debt over a three-year period.

        Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, we will be required to furnish a report by our management on our internal control over financial reporting. However, while we remain an emerging growth company, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To achieve compliance with Section 404 within the prescribed period, we will be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk that we will not be able to conclude, within the prescribed timeframe or at all, that our internal control over financial reporting is effective as required by Section 404. If we identify one or more material weaknesses in our internal control over financial reporting, it could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.

Because we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, capital appreciation, if any, will be your sole source of gain.

        We have never declared or paid cash dividends on our capital stock. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business. In addition, the terms of our 2014 Debt Facility preclude us from paying dividends without the lenders' consent, and any future debt agreements that we may enter into may preclude us from paying dividends without the lenders' consent or at all. As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA

        This prospectus contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical fact, contained in this prospectus, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans and objectives of management, are forward-looking statements. The words "anticipate," "believe," "estimate," "expect," "intend," "may," "might," "plan," "predict," "project," "target," "potential," "would," "could," "should," "continue" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

        The forward-looking statements in this prospectus include, among other things, statements about:

    our ongoing and planned clinical trials, including our two Phase 3 clinical trials of KPI-121 0.25% in patients with dry eye disease and our second Phase 3 clinical trial of KPI-121 1.0% in patients with inflammation and pain following cataract surgery;

    our plans to develop and commercialize KPI-121 0.25%, KPI-121 1.0% and any other product candidates, if they are approved;

    the timing of and our ability to submit applications for, obtain and maintain regulatory approvals for KPI-121 0.25%, KPI-121 1.0% and our other product candidates;

    the potential advantages of our product candidates;

    the rate and degree of market acceptance and clinical utility of our products;

    our estimates regarding the potential market opportunity for our product candidates;

    our commercialization, marketing and manufacturing capabilities and strategy;

    our intellectual property position;

    our ability to identify additional products, product candidates or technologies with significant commercial potential that are consistent with our commercial objectives;

    our expectations related to the use of proceeds from this offering;

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

    the impact of government laws and regulations;

    our competitive position;

    developments relating to our competitors and our industry;

    our ability to maintain and establish collaborations or obtain additional funding; and

    our expectations regarding the time during which we will be an emerging growth company under the JOBS Act.

        We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this prospectus, particularly in the "Risk Factors" section, that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

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        You should read this prospectus and the documents that we reference in this prospectus and have filed 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 what we expect. The forward-looking statements contained in this prospectus are made as of the date of this prospectus, and we do not assume any obligation to update any forward-looking statements except as required by applicable law.

        This prospectus includes statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information.

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USE OF PROCEEDS

        We estimate that the net proceeds from our issuance and sale of          shares of our common stock in this offering will be approximately $           million, assuming an initial public offering price of $          per share, which is the midpoint of the estimated 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. If the underwriters exercise their option to purchase additional shares of our common stock in full, we estimate that the net proceeds from this offering will be approximately $           million.

        A $1.00 increase (decrease) in the assumed initial public offering price of $          per share would increase (decrease) the net proceeds to us from this offering by approximately $          million, assuming 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.

        As of June 30, 2015, we had cash of $2.4 million. In July 2015 we drew the remaining $5.0 million of available funds under our 2014 Debt Facility and, in August 2015, we issued 4,629,629 shares of Series B-1 preferred stock for gross proceeds of $7.0 million. As of August 31, 2015, we had cash of $12.3 million. We currently estimate that we will use the net proceeds from this offering, together with our existing cash, as follows:

    approximately $             million to fund our planned clinical development of our KPI-121 program, including the manufacturing of supplies;

    approximately $             million to fund other early stage pipeline development programs; and

    the remainder for working capital and other general corporate purposes, including funding the costs of operating as a public company.

        This expected use of net proceeds from this offering and our existing cash represents our intentions based upon our current plans and business conditions, which could change in the future as our plans and business conditions evolve. The amounts and timing of our actual expenditures may vary significantly depending on numerous factors, including the progress of our development, the status of and results from clinical trials, the timing of regulatory submissions and the outcome of regulatory review, as well as any collaborations that we may enter into with third parties for our product candidates, and any unforeseen cash needs. As a result, our management will retain broad discretion over the allocation of the net proceeds from this offering. Based on our planned use of the net proceeds from this offering and our existing cash described above, we estimate that such funds will be sufficient to enable us to                        .

        Pending our use of the net proceeds from this offering, we intend to invest the net proceeds in a variety of capital preservation investments, including short-term, investment-grade, interest-bearing instruments and U.S. government securities.

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DIVIDEND POLICY

        We have never declared or paid cash dividends on our common stock. We currently intend to retain all available funds and any future earnings to fund the development and expansion of our business and we do not anticipate paying any cash dividends in the foreseeable future. In addition, our ability to pay cash dividends is currently restricted by the terms of our 2014 Debt Facility, and future debt financing arrangements may contain terms prohibiting or limiting the amount of dividends that may be declared or paid on our common stock. Any future determination to declare and pay dividends will be made at the discretion of our board of directors and will depend on then-existing conditions, including our results of operations, financial condition, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant.

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CAPITALIZATION

        The following table sets forth our cash and capitalization as of June 30, 2015:

    on an actual basis;

    on a pro forma basis to give effect to: (i) our borrowing of the remaining $5.0 million available under our 2014 Debt Facility and the issuance to the lender in connection with this borrowing of warrants to purchase 138,889 shares of our Series B convertible preferred stock at an exercise price of $1.44 per share in July 2015; (ii) our sale of 4,629,629 shares of Series B-1 convertible preferred stock in August 2015 for gross proceeds of $7.0 million; (iii) the automatic conversion of all outstanding shares of our convertible preferred stock into 41,081,269 shares of common stock upon closing of this offering; (iv) the automatic conversion of all outstanding warrants to purchase shares of our preferred stock into warrants to purchase 1,052,222 shares of our common stock; and (v) 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 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 estimated 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.

        The pro forma and pro forma as adjusted information below is illustrative only, and our capitalization following the closing 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 this information together with our financial statements and related notes appearing at the end of this prospectus and the information set forth under the headings "Selected Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations."

 
  As of June 30, 2015  
 
  Actual   Pro Forma   Pro Forma
As Adjusted
 
 
  (in thousands, except share and
per share data)

 

Cash

  $ 2,398   $ 14,323        

Long-term debt—less current portion

    4,557     9,381        

Warrant liability

    959            

Convertible preferred stock (Seed, Series A and B), $0.001 par value, 75,007,724 shares authorized, 36,451,640 shares issued and outstanding, actual; no shares authorized, issued or outstanding pro forma and pro forma as adjusted

    43,986            

Stockholders' deficit:

                   

Preferred stock, $0.001 par value; no shares authorized, issued or outstanding, actual; no shares authorized, issued or outstanding, pro forma and           shares authorized, no shares issued or outstanding, pro forma as adjusted

               

Common stock, $0.001 par value share; 50,100,000 shares authorized, 5,900,566 shares issued and outstanding, actual; 55,000,000 shares authorized, 46,981,835 shares issued and outstanding, pro forma;           shares authorized,           shares issued and outstanding, pro forma as adjusted

    6     47        

Additional paid-in-capital

    1,821     53,826        

Accumulated deficit

    (49,383 )   (49,383 )      

Total stockholders' (deficit) equity

    (47,556 )   4,490        

Total capitalization

  $ 1,946   $ 13,871        

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        A $1.00 increase (decrease) in the assumed initial public offering price of $      per share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, would increase (decrease) each of cash, additional paid-in capital, total stockholders' (deficit) equity and total capitalization, on a pro forma as adjusted basis by approximately $       million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering costs payable by us.

        The number of shares of common stock issued and outstanding, actual, pro forma and pro forma as adjusted in the table above excludes the following shares as of June 30, 2015:

    5,921,870 shares of common stock issuable upon exercise of stock options outstanding as of June 30, 2015 under the 2009 Plan at a weighted average exercise price of $0.40 per share;

    610,591 shares of common stock reserved for future issuance under the 2009 Plan as of June 30, 2015;

                          additional shares of our common stock that will be available for future issuance, as of the closing of this offering, under our 2015 Plan;

    913,333 shares of common stock issuable following the closing of this offering upon the exercise of outstanding warrants as of June 30, 2015, at a weighted average exercise price of $1.40 per share; and

    138,889 shares of common stock issuable following the closing of this offering upon the exercise of warrants issued in July 2015 in connection with our borrowing of the remaining $5.0 million under the 2014 Debt Facility, at a weighted average exercise price of $1.44 per share.

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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.

        Our historical net tangible book value as of June 30, 2015 was $(3.7) million, or $(0.63) per share of our common stock. Our historical net tangible book value is the amount of our total tangible assets less our total liabilities. Historical net tangible book value per share represents historical net tangible book value divided by the 5,900,566 shares of our common stock outstanding as of June 30, 2015.

        Our pro forma net tangible book value as of June 30, 2015 was $4.2 million, or $0.09 per share of our common stock. Pro forma net tangible book value represents the amount of our total tangible assets less our total liabilities, after giving effect to (i) our borrowing of $5.0 million under our 2014 Debt Facility and the issuance to the lender of warrants to purchase 138,889 shares of our Series B convertible preferred stock in July 2015; (ii) our sale of 4,629,629 shares of Series B-1 convertible preferred stock in August 2015 for gross proceeds of $7.0 million; (iii) the automatic conversion of all outstanding shares of our convertible preferred stock into 41,081,269 shares of common stock upon the closing of this offering; and (iv) the automatic conversion of all outstanding warrants to purchase preferred stock into warrants to purchase 1,052,222 shares of our common stock upon the closing of this offering. Pro forma net tangible book value per share represents pro forma net tangible book value divided by the total number of shares outstanding as of June 30, 2015, after giving effect to the pro forma adjustments described in (i) through (iv) above.

        After giving effect to 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 estimated 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, our pro forma as adjusted net tangible book value as of June 30, 2015 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 existing stockholders and immediate dilution of $            per share in pro forma as adjusted net tangible book value per share to new investors purchasing common stock in this offering. Dilution per share to new investors is determined by subtracting pro forma as adjusted net tangible book value per share after this offering 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 per share as of June 30, 2015

  $ (0.63 )      

Increase in pro forma net tangible book value per share as of June 30, 2015 attributable to pro forma adjustments

    0.72        

Pro forma net tangible book value per share as of June 30, 2015

    0.09        

Increase in pro forma net tangible book value per share attributable to new investors participating in this offering

             

Pro forma as adjusted net tangible book value per share after this offering

             

Dilution of pro forma net tangible book value per share to new investors

        $               

        A $1.00 increase or decrease in the assumed initial public offering price of $            per share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, would increase or decrease our pro forma as adjusted net tangible book value by $             million, our pro forma as adjusted net tangible book value per share by $            and dilution per share to new investors purchasing shares in this offering by $            , assuming that the number of shares offered by us, as set

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forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions. An increase of 1.0 million shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase the pro forma as adjusted net tangible book value per share after this offering by $            and decrease the dilution per share to new investors participating in this offering by $            , assuming no change in the assumed initial public offering price and after deducting estimated underwriting discounts and commissions. A decrease of 1.0 million shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would decrease the pro forma as adjusted net tangible book value per share after this offering by $            and increase the dilution per share to new investors participating in this offering by $            , assuming no change in the assumed initial public offering price and after deducting estimated underwriting discounts and commissions.

        If the underwriters exercise in full their option to purchase additional shares, our pro forma as adjusted net tangible book value per share after this offering would be $             per share, representing an immediate increase in pro forma as adjusted net tangible book value per share of $            to existing stockholders and immediate dilution of $            in pro forma as adjusted net tangible book value per share to new investors purchasing common stock in this offering, assuming an initial public offering price of $            per share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus.

        The following table summarizes, as of June 30, 2015, on a pro forma as adjusted basis described above, the total number of shares 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 at an assumed initial public offering price of $            per share, which is the midpoint of the estimated 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 shares in this offering will pay an average price per share substantially higher than our existing stockholders paid.

 
   
   
  Total
Consideration
   
 
 
  Shares Purchased    
 
 
  Average
Price Per
Share
 
 
  Number   Percent   Amount   Percent  
 
  (in thousands, except share and per share amounts)
 

Existing stockholders

              $           $    

Investors purchasing common stock in this offering

                               

Total

          100 % $       100 %      

        A $1.00 increase or decrease in the assumed initial public offering price of $            per share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, would increase or decrease the total consideration paid by new investors by $             million and, in the case of an increase, would increase the percentage of total consideration paid by new investors by             percentage points and, in the case of a decrease, would decrease the percentage of total consideration paid by new investors by percentage points, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same. An increase or decrease of 1.0 million shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase or decrease the total consideration paid by new investors by $             million and, in the case of an increase, would increase the percentage of total consideration paid by new investors by             percentage points and, in the case of a decrease, would decrease the percentage of total consideration paid by new investors by percentage points, assuming no change in the assumed initial public offering price.

        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 fully exercised, the number of

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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 number of shares of common stock held by new investors participating in the offering would be increased to        % of the total number of shares of our common stock outstanding after this offering.

        The foregoing discussion and tables are based on the number of shares of common stock outstanding as of June 30, 2015, and exclude:

    5,921,870 shares of common stock issuable upon exercise of stock options outstanding as of June 30, 2015 under the 2009 Plan, at a weighted average exercise price of $0.40 per share;

    610,591 shares of common stock reserved for future issuance under the 2009 as of June 30, 2015;

                    additional shares of our common stock that will be available for future issuance, as of the closing of this offering, under our 2015 Plan;

    913,333 shares of common stock issuable following the closing of this offering upon the exercise of outstanding warrants as of June 30, 2015, at a weighted average exercise price of $1.40 per share; and

    138,889 shares of common stock issuable following the closing of this offering upon the exercise of warrants issued in July 2015 in connection with our borrowing of the remaining $5.0 million under the 2014 Debt Facility, at a weighted average exercise price of $1.44 per share.

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SELECTED FINANCIAL DATA

        The selected financial data as of and for the years ended December 31, 2013 and 2014 have been derived from our audited financial statements appearing at the end of this prospectus. The summary financial data for the six months ended June 30, 2014 and 2015, and the balance sheet data as of June 30, 2015, have been derived from our unaudited financial statements appearing at the end of this prospectus. You should read this data together with our historical 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" sections of this prospectus. Our historical results are not necessarily indicative of our future results, and our interim results are not necessarily indicative of results to be expected for a full fiscal year or any other interim period. The selected financial data in this section are not intended to replace our audited and unaudited financial statements and related notes appearing at the end of this prospectus.

 
  Year Ended December 31,   Six Months Ended June 30,  
 
  2013   2014   2014   2015  
 
  (in thousands, except share and per share data)
 

Revenue

  $ 50   $ 455   $ 353   $ 45  

Cost and expenses:

   
 
   
 
   
 
   
 
 

Research and development

    7,734     13,859     5,954     4,869  

General and administrative

    3,448     4,436     2,100     1,896  

Total costs and expenses

    11,182     18,295     8,054     6,765  

Loss from operations

    (11,132 )   (17,840 )   (7,701 )   (6,720 )

Interest expense (includes $54, $1,453, $1,453 and $0 related to convertible promissory notes to shareholders for the years ended December 31, 2013, 2014 and for the six months ended June 30, 2014 (unaudited) and June 30, 2015 (unaudited))

    (191 )   (1,608 )   (1,505 )   (220 )

Change in fair value of warrant liability

    (1 )   87     167     (155 )

Change in fair value Series A preferred stock forward contract

    671              

Net loss attributable to common stockholders—basic and diluted

  $ (10,653 ) $ (19,361 ) $ (9,039 ) $ (7,095 )

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

  $ (2.21 ) $ (3.68 ) $ (1.72 ) $ (1.27 )

Weighted average shares outstanding—basic and diluted

    4,811,231     5,265,847     5,262,770     5,588,087  

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

        $ (0.52 )       $ (0.17 )

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

          37,179,816           42,039,727  

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  As of December 31,    
 
 
  As of June 30,
2015
 
 
  2013   2014  
 
  (in thousands)
 

Balance Sheet Data:

                   

Cash

  $ 5,312   $ 10,620   $ 2,398  

Total assets

    7,072     11,722     3,471  

Working capital(1)

    383     7,825     1,029  

Long-term debt—less current portion

    513     4,664     4,557  

Warrant liability

    751     804     959  

Other long-term liabilities

    22     39     22  

Convertible preferred stock

    21,801     43,986     43,986  

Total stockholders' deficit

    (21,599 )   (40,724 )   (47,556 )

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

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

        You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes thereto appearing at the end of this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. See "Special Note Regarding Forward-Looking Statements and Industry Data." As a result of many factors, including those factors set forth in the "Risk Factors" section of this prospectus, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

        We are a biopharmaceutical company focused on the development and commercialization of therapeutics using our proprietary nanoparticle-based Mucus Penetrating Particles, or MPP, technology, with an initial focus on the treatment of eye diseases. Our MPPs are selectively-sized nanoparticles and have proprietary coatings. We believe that these two key attributes enhance mobility of drug particles through mucus and enable them to avoid getting trapped and eliminated by mucus, resulting in even distribution on surfaces and significantly increased drug delivery to target tissues. KPI-121, our lead program, consists of topically applied MPP nanosuspensions of loteprednol etabonate, or LE, a corticosteroid designed for ocular applications. Under our KPI-121 program, we have product candidates in advanced clinical development for the indications of the temporary relief of the signs and symptoms of dry eye disease and the treatment of inflammation and pain following ocular surgery. We also have a KPI-121 product candidate in clinical development for the treatment of meibomian gland disease. We are also developing KPI-285, our topically applied MPP small molecule new chemical entity, or NCE, that inhibits the vascular endothelial growth factor, or VEGF, pathway, for the potential treatment of a number of back-of-the-eye diseases such as age-related macular degeneration, or AMD, diabetic retinopathy, or DR, diabetic macular edema, or DME, and retinal vein occlusion, or RVO.

        We have completed a Phase 3 trial of our product candidate KPI-121 1.0% in patients with inflammation and pain following cataract surgery and a Phase 2 trial of our product candidate KPI-121 0.25% in patients with dry eye disease. Based on our June 2015 meeting with the U.S. Food and Drug Administration, or the FDA, we expect to initiate, in the first half of 2016, two concurrent Phase 3 clinical trials of KPI-121 0.25% in patients with dry eye disease and a second Phase 3 clinical trial of KPI-121 1.0% for the treatment of inflammation and pain following cataract surgery. In 2017, assuming successful completion of these clinical trials, we anticipate that we will file new drug applications, or NDAs, for the approval of KPI-121 1.0% for the treatment of inflammation and pain following ocular surgery and KPI-121 0.25% for the temporary relief of the signs and symptoms of dry eye disease, in each case relying on the potentially more expeditious pathway to FDA approval under Section 505(b)(2) of the FDCA in the United States.

        We have initiated a Phase 2 clinical trial evaluating KPI-121 0.25% in patients with MGD compared to placebo for 28 days. We expect to receive top-line data from this clinical trial in the first half of 2016. Based on the results of this trial, we will determine next steps for the clinical development of KPI-121 0.25% in MGD.

        We are evaluating KPI-285, our topically applied MPP small molecule NCE for the treatment of a number of eye diseases, including AMD, DR, DME and RVO, each of which involves either the leakage of existing blood vessels or the proliferation of poorly formed and leaky blood vessels at the back of the eye. These eye diseases can significantly reduce vision and eventually lead to blindness.

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VEGF is a protein that plays a critical role in the formation of new blood vessels and increased permeability, two pathological processes that contribute to the vision loss associated with certain back-of-the-eye diseases. KPI-285 inhibits the VEGF pathway. In preclinical studies, topical administration of KPI-285 achieved concentrations in tissues in the back of the eye well above the concentrations required for in vitro inhibition of 50% of the VEGF receptor kinase activity. Based on our progress to date, we anticipate filing an Investigational New Drug Application, or IND, for KPI-285 in 2017.

        Since our inception in July 2009, we have devoted substantial resources to the research and development of nanoparticle-based drug products and our proprietary MPP technology. We have no products approved for sale and all of our revenue to date has been derived from feasibility agreements with our collaboration partners. To date, we have funded our operations primarily through private placements of convertible preferred stock, convertible promissory notes and warrants. In addition, we have borrowed under venture debt facilities to fund our operations. More particularly, since our inception and through June 30, 2015, we have raised an aggregate of $51.5 million to fund our operations, of which $39.0 million was from the sale of preferred stock, $6.0 million was from convertible promissory notes and warrants and $6.5 million was from borrowings and warrants under venture debt facilities. As of June 30, 2015, our cash balance was $2.4 million.

        Since inception, we have incurred significant operating losses. Our net loss was $10.7 million and $19.4 million for the years ended December 31, 2013 and 2014, respectively, and $9.0 million and $7.1 million for the six months ended June 30, 2014 and 2015, respectively. Substantially all of our operating losses resulted from expenses incurred in connection with our research programs and from general and administrative costs associated with our operations. We recognized revenue of $50,000 and $0.5 million for the years ended December 31, 2013 and 2014, respectively, and $0.4 million and $45,000 for the six months ended June 30, 2014 and 2015, respectively. Our revenue to date has been derived from feasibility agreements with collaboration partners. We have not generated any revenue from the sale of products. Further, we have recognized $0.2 million in research grants in the year ended December 31, 2013, which we recognized as a reduction to research and development expenses. As of June 30, 2015, we had an accumulated deficit of $49.4 million. We expect to continue to incur significant and increasing losses in the foreseeable future. Our net losses may fluctuate significantly from quarter to quarter and year to year. We anticipate that our expenses will increase substantially if and as we:

    pursue the clinical development of KPI-121 0.25% for the treatment of MGD or other additional indications or for use in other patient populations or, if approved, seek to broaden the label of KPI-121 0.25% or KPI-121 1.0%;

    pursue the clinical development of our product candidate KPI-285 for use in the treatment of back-of-the-eye diseases, such as AMD, DR, DME and RVO;

    leverage our proprietary MPP technology platform to advance high-value therapeutics into preclinical and clinical development;

    in-license or acquire the rights to other products, product candidates or technologies;

    seek marketing approvals for any of our product candidates that successfully complete clinical development;

    establish sales, marketing and distribution capabilities for our product candidates for which we obtain marketing approval;

    scale up our manufacturing processes and capabilities to support our ongoing preclinical activities and clinical trials of our product candidates and commercialization of any of our product candidates for which we obtain marketing approval;

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    maintain, expand and protect our intellectual property portfolio;

    hire additional clinical, quality control, scientific and management 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; and

    increase our product liability and clinical trial insurance coverage as we initiate our clinical trials and commercialization efforts.

        We do not expect to generate revenue from product sales until we successfully complete development and obtain regulatory approval for one or more of our product candidates, which is subject to significant uncertainty. If we obtain regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. Until such time, if ever, that we generate product revenue, we expect to finance our cash needs through a combination of public or private equity offerings, debt financings and research collaboration and license agreements. We may be unable to raise capital or enter into such other arrangements when needed or on favorable terms. Our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to develop our product candidates.

Financial Operations Overview

Revenue

        Our revenue to date has been generated through payments received through feasibility agreements with collaboration partners. For each agreement, we and our collaboration partners agreed to an investigational study with specified phases and endpoints. These studies were executed according to a predefined work plan. Under the terms of the agreements, we received an upfront payment upon inception of each agreement, additional upfront payments upon continuation to future phases after predefined objectives had been met and a final payment upon approval of a final report.

        In addition, we have received government research grants, the proceeds of which are recognized as an offset to research and development expenses.

        In the future, we may generate additional revenue through feasibility agreements or other collaboration arrangements. We expect that any revenue we generate will fluctuate in future periods as a result of the timing and completion of specified phases for each agreement. If we fail to raise additional capital, obtain regulatory approval of our products or successfully commercialize our products, our ability to generate future revenue, and our results of operations and financial position, would be materially adversely affected.

Research and development expenses

        Research and development expenses consist of costs associated with our research activities, including compensation and benefits for full-time research and development employees, an allocation of facilities expenses, overhead expenses, payments to universities under our license agreements and other outside expenses. Our research and development expenses include:

    employee-related expenses, including salaries, related benefits, travel and stock-based compensation;

    expenses incurred in connection with the preclinical and clinical development of our product candidates and under agreements with contract research organizations, or CROs;

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

    payments made under our third-party licensing agreement with The Johns Hopkins University, or JHU.

        We expense research and development costs as they are incurred. Research and development costs that are paid in advance of performance are capitalized as a prepaid expense until incurred. We track outsourced development costs by development program but do not allocate personnel costs, payments made under our license agreement or other costs to specific product candidates or development programs. These costs are included in Employee-related costs and Unallocated research and development costs in the table below.

        The following table summarizes our research and development expenses incurred during the years ended December 31, 2013 and 2014 and the six months ended June 30, 2014 and 2015.

 
  Year Ended
December 31,
  Six Months Ended
June 30,
 
 
  2013   2014   2014   2015  
 
  (in thousands)
 

KPI-121 development costs

  $ 2,719   $ 7,855   $ 3,083   $ 1,558  

KPI-285 development costs

    317     471     274     475  

Employee-related costs

    2,946     3,208     1,591     1,778  

Unallocated research and development costs

    1,752     2,325     1,006     1,058  

Total research and development

  $ 7,734   $ 13,859   $ 5,954   $ 4,869  

        We expect our research and development expenses to increase for the foreseeable future as we advance our product candidates toward regulatory approval. The process of conducting preclinical studies and clinical trials necessary to obtain regulatory approval is costly and time-consuming. We may never succeed in obtaining marketing approval for any of our product candidates. The probability of success for each product candidate may be affected by numerous factors, including preclinical data, clinical data, competition, manufacturing capability and commercial viability.

        Our research and development programs are at various stages of development. Successful development and completion of clinical trials is uncertain and may not result in approved products. Completion dates and completion costs can vary significantly for each future product candidate and are difficult to predict. We will continue to make determinations as to which product candidates to pursue and how much funding to direct to each product candidate on an ongoing basis in response to our ability to enter into collaborations with respect to each product candidate, the scientific and clinical success of each product candidate as well as ongoing assessments as to the commercial potential of product candidates. We will need to raise additional capital and may seek collaborations in the future in order to advance our various product candidates. Additional private or public financings may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a material adverse effect on our financial condition and our ability to pursue our business strategy.

General and administrative expenses

        General and administrative expenses consist primarily of salaries and related benefits, including stock-based compensation, related to our executive, finance, legal, business development and support functions. Other general and administrative expenses include travel expenses, professional fees for auditing, tax, consultants and legal services and allocated facility-related costs not otherwise included in research and development expenses.

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        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 product candidates. 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 being a public company.

Interest expense

        Interest expense primarily consists of contractual coupon interest, amortization of debt discounts and debt issuance costs recognized on the various debt facilities.

Change in fair value of warrant liability

        We recognize gains and losses on the change in the fair value of outstanding warrants to purchase our Series Seed and Series B preferred stock warrant as a component of other income (expense). We have issued warrants for the purchase of our Series Seed preferred stock and our Series B preferred stock. These warrants are financial instruments that are issuable for contingently redeemable securities. Therefore, we have classified the warrants as liabilities that we remeasure to fair value at each reporting period, and we record the re-measurement as the change in fair value of warrant liability in the statement of operations. Upon the closing of this offering, the underlying convertible preferred stock will be converted into common stock, the preferred stock warrants will become exercisable for common stock instead of preferred stock, and the fair value of the warrant liability at that time will be reclassified to additional paid-in capital.

Change in fair value of Series A preferred stock forward contract

        In February 2013, we issued shares of Series A preferred stock, and in connection with the first tranche closing, recognized a liability for the fair value of the future tranche obligation, as it met the definition of a freestanding financial instrument, or forward contract. In June 2013, our board of directors waived a milestone event provided for in the Series A preferred stock agreement. Accordingly, we closed the second tranche of Series A preferred stock in July 2013. Upon the closing of the second tranche, we adjusted the carrying value of the tranche obligation to its estimated fair value of $0. The change in fair value of the instrument was recorded as a change in fair value of Series A preferred stock forward contract in the statement of operations.

Critical Accounting Policies and Significant Judgments and Estimates

        Our financial statements are prepared in accordance with generally accepted accounting principles in the United States, or GAAP. The preparation of our financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on 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 values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.

        While our significant accounting policies are described in more detail in the notes to our financial statements appearing at the end of this prospectus, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements.

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Revenue recognition

        We recognize revenue in accordance with Accounting Standards Codification, or ASC, Topic 605, Revenue Recognition. Accordingly, we recognize revenue for each unit of accounting when all of the following four criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the seller's price to the buyer is fixed or determinable; and (4) collectability is reasonable assured. We record as deferred revenue any amounts received prior to satisfying the revenue recognition criteria.

Feasibility agreements with collaboration partners

        Our revenue to date has been generated through payments received through feasibility agreements with collaboration partners. For each agreement, we and collaboration partners agreed to an investigational study with specified phases and endpoints. These studies were executed according to a predefined work plan. Under the terms of each agreement, we received an upfront payment upon inception of the agreement, additional upfront payments upon continuation to future phases after predefined objectives had been met and, where applicable, we may receive a final payment upon approval of a final report. The terms of the feasibility agreements include investigational studies with specified phases and endpoints in exchange for consideration based upon the achievement of specified phases. Temporary cross-licenses are provided in the agreements in order to permit the parties to carry out the investigational studies, which then terminate upon completion of the studies. No other licenses to our intellectual property are granted under the feasibility agreements.

        For each agreement, we, alongside our partners, agree to conduct an investigational study with specified phases and endpoints. These studies are executed according to a predefined work plan. Under the terms of the agreements, we receive an upfront payment upon inception of the agreement, additional upfront payments upon continuation to future phases after predefined objectives have been met and, where applicable, we may receive a final payment upon approval of a final report. We account for the deliverables related to the upfront payments, which consist of the provision of research and development activities on behalf of the partner, under the proportional performance model. We account for the deliverables related to approval of the final report upon receipt of the related payment.

        We analyze multiple-element arrangements based on the guidance in ASC Topic 605-25, Revenue Recognition—Multiple-Element Arrangements, or ASC 605-25. Pursuant to this guidance, we evaluate multiple-element arrangements to determine (1) the deliverables included in the arrangement and (2) whether the individual deliverables represent separate units of accounting or whether they must be accounted for as a combined unit of accounting. This evaluation involves 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. Deliverables are considered separate units of accounting provided that the delivered item has value to the customer on a standalone basis and, if the arrangement includes a general right of return relative to the delivered item, delivery or performance of the undelivered item is considered probable and substantially in our control. In assessing whether an item has stand-alone 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 the collaboration partner can use the other deliverables for their intended purpose without the receipt of the remaining elements, whether the value of the deliverable is dependent on the undelivered item and whether there are other vendors that can provide the undelivered elements. To date, all of our multiple-element arrangements have been determined to be one unit of accounting.

        We recognize arrangement consideration allocated to each unit of accounting when all of the revenue recognition criteria in ASC 605-25 are satisfied for that particular unit of accounting. We will recognize as revenue arrangement consideration attributed to licenses that have stand-alone value

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relative to the other deliverables to be provided in an arrangement upon delivery. We will recognize as revenue arrangement consideration attributed to licenses that do not have stand-alone value relative to the other deliverables to be provided in an arrangement over our estimated performance period, as the arrangement would be accounted for as a single unit of accounting.

        At the inception of an arrangement that includes milestone payments, we evaluate whether each milestone is substantive and at risk to both parties on the basis of the contingent nature of the milestone. This evaluation includes an assessment of whether: (1) the consideration is commensurate with either our performance to achieve the milestone or the enhancement of the value of the delivered item as a result of a specific outcome resulting from our performance to achieve the milestone, (2) the consideration relates solely to past performance, and (3) the consideration is reasonable relative to all of the deliverables and payment terms within the arrangement. We evaluate factors such as the scientific, clinical, regulatory, commercial and other risks that must be overcome to achieve the respective milestone and the level of effort and investment required to achieve the respective milestone in making this assessment. There is considerable judgment involved in determining whether a milestone satisfies all of the criteria required to conclude that a milestone is substantive. Accordingly, pursuant to the guidance of ASC Topic 605-28, Revenue Recognition—Milestone Method, or ASC 605-28, revenue from milestone payments will be recognized in its entirety upon successful accomplishment of the milestone, assuming all other revenue recognition criteria are met.

Accrued 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. We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary. Examples of estimated accrued expenses include fees payable to:

    vendors in connection with clinical development activities;

    salary and employee benefits payable; and

    professional service fees for consulting and related services.

        We record accruals related to development activities based on our estimates of the services received and efforts expended pursuant to the terms of our contractual arrangements. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows and expense recognition. Payments under some of these contracts depend on clinical trial milestones. 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 our estimate, we adjust the accrual or prepaid accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period. To date, there have not been any material adjustments to our prior estimates of accrued research and development expenses.

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Preferred stock warrant liability

        We classify warrants to purchase shares of our Series Seed and Series B convertible preferred stock as a liability on our balance sheet as the warrants are free-standing financial instruments that are issuable for contingently redeemable securities. The warrants were initially recorded at fair value on date of grant, and are subsequently remeasured to fair value at each balance sheet date. Changes in the fair value of the warrants are recognized separately in our statement of operations. We will continue to adjust the liability for changes in fair value until the earlier of the exercise, conversion or expiration of the warrant.

        We utilize the Black-Scholes option-pricing model, which incorporates assumptions and estimates, to value the preferred stock warrant. We assess these assumptions and estimates on a quarterly basis as additional information impacting the assumptions is obtained. Estimates and assumptions impacting the fair value measurement include the fair value per share of the underlying Series Seed and Series B convertible preferred stock, the remaining contractual term of the warrants, risk-free interest rate, expected dividend yield, and expected volatility of the price of the underlying preferred stock. We determine the fair value per share of the underlying preferred stock by taking into consideration our most recent sales of our convertible preferred stock as well as additional factors that we deem relevant. We have historically been a private company and lack company-specific historical and implied volatility information of our stock. Therefore, we estimate expected stock volatility based on the historical volatility of publicly traded peer companies for a term equal to the remaining contractual term of the warrant. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve for time periods approximately equal to the remaining contractual term of the warrant. We have assumed a 0% dividend yield considering that our board of directors has no history of declaring dividends.

        Upon the closing of this offering, the underlying convertible preferred stock will be converted to common stock, the preferred stock warrants will become exercisable for common stock instead of preferred stock, and the fair value of the warrant liability at that time will be reclassified to additional paid-in capital. No further remeasurement of the warrants would occur if the warrants become exercisable for common stock.

Deferred income taxes

        We file U.S. federal income tax returns and Massachusetts, Kentucky, Pennsylvania, and New Hampshire state tax returns. The deferred tax assets were primarily comprised of federal and state tax net operating losses and research and development tax credit carryforwards and were recorded using enacted tax rates expected to be in effect in the years in which these temporary differences are expected to be utilized. As of December 31, 2014, the federal and state net operating loss carryforwards were approximately $39.1 million and $37.6 million, respectively, and the federal and state research and development carryforwards were $1.3 million and $0.8 million, respectively. These tax credits begin to expire in 2030 in the case of the federal tax credits and 2025 in the case of the state tax credits. At December 31, 2014, we had $0 of unrecognized tax benefits, of which $0 would affect income tax expense if recognized, before consideration of our valuation allowance.

        Utilization of the net operating loss and tax credit carryforwards may be subject to an annual limitation due to historical or future ownership percentage change rules provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitation may result in the expiration of certain net operating loss and tax credit carryforwards before their utilization. However, due to uncertainties surrounding our ability to generate future taxable income to realize these tax assets, a full valuation allowance has been established to offset our deferred tax assets.

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Stock-based compensation and common stock valuation

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, net of estimated forfeitures, over the requisite service period, which is generally the vesting period of the respective award.

        We generally issue stock option awards with service-based vesting conditions and record the expense for these awards using the straight-line method. We measure stock-based awards granted to consultants and non-employees based on the fair value of the award on the date at 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 financial reporting period prior to completion of the service, we remeasure the fair value of these awards using the then-current fair value of our common stock and updated assumption inputs in the Black-Scholes option pricing model.

        Performance-based option awards vest subject to the achievement of performance criteria as determined by management. These criteria are milestone events that are specific to our corporate goals. The grant date and fair value for each award will be determined on the date that the performance criteria is established. If, and when, we determine it is probable that the performance condition will be achieved, compensation expense will be recognized from the date of grant through the fiscal year under which the requisite service period has been rendered.

        We recognize compensation expense for only the portion of awards that are expected to vest. In developing a forfeiture rate estimate, we considered its historical experience to estimate pre-vesting forfeitures for service-based awards. The impact of a forfeiture rate adjustment will be recognized in full in the period of adjustment, and if the actual forfeiture rate is materially different from our estimate, we may be required to record adjustments to stock-based compensation expense in future periods.

        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 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.

Common stock valuation

        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 our most recently available third-party valuations of common stock and 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 valuation through the date of the grant. 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 common stock valuations were prepared using either a hybrid method, which used market approaches to estimate our enterprise value, or a probability-weighted expected return method, or PWERM, which used a combination of market approaches and a cost approach to estimate our enterprise value. The hybrid method is a PWERM where the equity value in one or more of the scenarios is calculated using an option-pricing method, or OPM. Under the PWERM methodology, the fair value of common stock is estimated 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

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returns considering each of the possible 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.

        In addition to considering the results of these third-party valuations, our board of directors considered various objective and subjective factors to determine the fair value of our common stock as of each grant date, which may be as of a date later than the most recent third-party valuation date, including the prices at which we sold shares of preferred stock and the superior rights and preferences of securities senior to our common stock at the time of each grant, the progress of our research and development programs, external market conditions affecting and trends within the biotechnology industry, and the likelihood of achieving a liquidity event.

        The assumptions underlying these valuations represent management's best estimates, which involve inherent uncertainties and the application of management judgment. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our stock-based compensation expense could be materially different.

        Following the closing of this offering, the fair value of our common stock will be determined based on the quoted market price of our common stock.

        The following table summarizes our stock-based compensation for employees and non-employees expenses incurred during the years ended December 31, 2013 and 2014 and the six months ended June 30, 2014 and 2015:

 
  Year Ended
December 31,
  Six Months
Ended
June 30,
 
 
  2013   2014   2014   2015  
 
  (in thousands)
 

Research and development

  $ 27   $ 75   $ 15   $ 72  

General and administrative

    277     160     24     120  

Total

  $ 304   $ 235   $ 39   $ 192  

        As of June 30, 2015, we had $1.1 million of total unrecognized compensation expense, net of estimated forfeitures, which is expected to be recognized over a weighted average remaining vesting period of approximately 3.2 years. We expect the impact of our stock-based compensation expense for stock options and restricted stock granted to employees and non-employees to grow in future periods due to the potential increases in the value of our common stock and headcount.

Emerging growth company status

        In April 2012, the Jumpstart Our Business Startup Act (JOBS Act) was enacted by the federal government. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.

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Results of Operations

Comparison of the six months ended June 30, 2014 and 2015

        The following table summarizes the results of our operations for the six months ended June 30, 2014 and 2015:

 
  Six Months Ended
June 30,
   
   
 
 
  Increase
(Decrease)
 
 
  2014   2015  
 
  (in thousands)
 

Revenue

  $ 353   $ 45   $ (308 )   (87 )%

Cost and expenses

                         

Research and development

    5,954     4,869     (1,085 )   (18 )%

General and administrative

    2,100     1,896     (204 )   (10 )%

Total costs and expenses

    8,054     6,765     (1,289 )   (16 )%

Loss from operations

    (7,701 )   (6,720 )   981     (13 )%

Interest expense

    (1,505 )   (220 )   1,285     (85 )%

Change in fair value of warrant liability

    167     (155 )   (322 )   (193 )%

Net loss

  $ (9,039 ) $ (7,095 ) $ 1,944     (22 )%

Revenue

        We recognized revenue of $0.4 million for the six months ended June 30, 2014 compared to $0.1 million for the same period in 2015. During the six months ended June 30, 2014, we performed services for collaboration partners under five feasibility agreements, whereas we only performed services under one such agreement during the six months ended June 30, 2015.

Research and development expenses

 
  Six Months Ended
June 30,
   
   
 
 
  Increase
(Decrease)
 
 
  2014   2015  
 
  (in thousands)
 

KPI-121 development costs

  $ 3,083   $ 1,558   $ (1,525 )   (49 )%

KPI-285 development costs

    274     475     201     73 %

Employee-related costs

    1,591     1,778     187     12 %

Unallocated research and development costs

    1,006     1,058     52     5 %

Total research and development

  $ 5,954   $ 4,869   $ (1,085 )   (18 )%

        Research and development expenses were $6.0 million for the six months ended June 30, 2014 compared to $4.9 million for the six months ended June 30, 2015, a decrease of $1.1 million, or 18%. The $1.5 million decrease in KPI-121 development costs was due to the decrease in external costs associated with our clinical trials. The higher clinical trial costs in 2014 were due to the procurement and ramp up of the Phase 3 trial in KPI-121 1.0%, in patients with inflammation and pain following cataract surgery and the Phase 2 trial in KPI-121 0.25%, in patients with dry eye disease, which began in early 2014 and were completed during 2014. During the six months ended June 30, 2015, only the Phase 2 trial in KPI-121 0.25% trial in MGD remained ongoing. This decrease in the clinical development costs on our KPI-121 program was partially offset by an increase of $0.2 million in preclinical development costs in our KPI-285 program as we focused on selecting a development candidate in June 2015. We also incurred a $0.2 million increase in employee-related costs due to higher payroll costs and increased stock compensation expense. We expect our research and development expenses to increase in the future as we continue spending on our development programs.

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General and administrative expenses

        General and administrative expenses were $2.1 million for the six months ended June 30, 2014 compared to $1.9 million for the same period in 2015, a decrease of $0.2 million, or 10%. The decrease was primarily due to a decrease of $0.2 million in employee-related costs including salary and travel due to lower senior-level general and administrative headcount during the first six months of 2015, as well as a decrease of $0.1 million in consulting costs. These decreases were partially offset by an increase of $0.1 million in stock-based compensation expense as a result of expense from options granted in the fourth quarter of 2014. We expect general and administrative expenses to increase in the future as we expand our operating activities and incur additional costs associated with being a publicly-traded company.

Interest expense

        Interest expense was $1.5 million for the six months ended June 30, 2014 compared to $0.2 million for the six months ended June 30, 2015. The higher interest expense during the six months ended June 30, 2014 was primarily due to the April 2014 conversion of our outstanding convertible promissory notes into shares of Series B preferred stock, as we incurred $1.3 million of incremental interest expense due to the write-off of the unamortized debt discount upon conversion of the notes.

Change in fair value of warrant liability

        Changes in the fair value of our preferred stock warrants resulted in a $0.2 million gain for the six months ended June 30, 2014 as compared to a $0.2 million loss for the six months ended June 30, 2015. The loss recognized for the six months ended June 30, 2015 was a result of an increase in the fair value of the warrants, which was due primarily to the increase in the fair value of the underlying preferred shares on a period-over-period basis.

Comparison of the year ended December 31, 2013 and 2014

        The following table summarizes the results of our operations for the years ended December 31, 2013 and 2014:

 
  Year Ended
December 31,
   
   
 
 
  Increase
(Decrease)
 
 
  2013   2014  
 
  (in thousands)
 

Revenue

  $ 50   $ 455   $ 405     810 %

Cost and expenses:

                         

Research and development

    7,734     13,859     6,125     79 %

General and administrative

    3,448     4,436     988     29 %

Total costs and expenses

    11,182     18,295     7,113     64 %

Loss from operations

    (11,132 )   (17,840 )   (6,708 )   60 %

Interest expense

    (191 )   (1,608 )   (1,417 )   742 %

Change in fair value of warranty liability

    (1 )   87     88     (8,800 )%

Change in fair value of Series A preferred stock forward contract

    671         (671 )   (100 )%

Net loss

  $ (10,653 ) $ (19,361 ) $ (8,708 )   82 %

Revenue

        Our revenue recognized during 2013 and 2014 was derived from feasibility agreements with collaboration partners. We recognized revenue of $0.1 million for the year ended December 31, 2013

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compared to $0.5 million for the year ended December 31, 2014. During 2014, we were performing services for collaboration partners under five feasibility agreements whereas we began performing services under our first feasibility agreement in the fourth quarter of 2013.

Research and development expenses

 
  Year Ended
December 31,
   
   
 
 
  Increase
(Decrease)
 
 
  2013   2014  
 
  (in thousands)
   
 

KPI-121 development costs

  $ 2,719   $ 7,855   $ 5,136     189 %

KPI-285 development costs

    317     471     154     49 %

Employee-related costs

    2,946     3,208     262     9 %

Unallocated research and development costs

    1,752     2,325     573     33 %

Total research and development

  $ 7,734   $ 13,859   $ 6,125     79 %

        Research and development expenses were $7.7 million for the year ended December 31, 2013 as compared to $13.9 million for the year ended December 31, 2014, an increase of $6.1 million, or 79%. KPI-121 development costs increased by $5.1 million as a result of the commencement of our clinical trials in 2014, the completion of the Phase 3 KPI-121 1.0%, in patients with inflammation and pain following cataract surgery trial in the fourth quarter of 2014 as well as the completion of the Phase 2 KPI-121 0.25%, in patients with dry eye disease in early 2015, for which the majority of clinical trial costs were incurred in 2014. We incurred an additional $0.2 million in KPI-285 development costs on a year-over-year basis. Employee-related costs increased by $0.3 million due to additional research and development employees and higher payroll costs as well as increased stock compensation costs. Unallocated research and development expenses increased by $0.5 million due primarily to an increase in facilities costs associated with moving to a new corporate headquarters with additional lab and office space in February 2014 and the accrual of development milestones in connection with our license agreement with JHU.

General and administrative expenses

        General and administrative expenses were $3.4 million for the year ended December 31, 2013 compared to $4.4 million for the year ended December 31, 2014, an increase of $1.0 million, or 29%. The increase primarily consisted of an accrual of $0.6 million due to severance costs associated with the departure of a former executive in September 2014 as well as an increase of $0.2 million due to increased headcount costs, an increase of $0.2 million in consulting and professional fees and an increase of $0.1 million due to the move of our corporate headquarters in February 2014 to a larger facility. These increases were partially offset by a decrease of $0.1 million stock compensation expense as restricted common stock was fully vested in 2013.

Interest expense

        Interest expense was $0.2 million for the year ended December 31, 2013 compared to $1.6 million for the year ended December 31, 2014. The increase in interest expense was primarily due to the April 2014 conversion of our outstanding convertible promissory notes into shares of Series B preferred stock, as we incurred $1.3 million of incremental interest expense due to the write off of the unamortized debt discount on the notes upon conversion.

Change in fair value of warrant liability

        Changes in the fair value of our preferred stock warrants resulted in an immaterial change in fair value for the year ended December 31, 2013 as compared to a $0.1 million gain for the year ended

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December 31, 2014. The gain recognized in the year ended December 31, 2014 was a result of the decrease in the fair value of the warrants associated with the 2011 Debt Facility.

Change in fair value of Series A preferred stock forward contract

        As a result of closing the second tranche of the Series A preferred stock in July 2013, we adjusted the fair value of the tranche obligation to $0, resulting in a $0.7 million gain recognized for the year ended December 31, 2013.

Liquidity and Capital Resources

        Since our inception, we have incurred significant operating losses. We have derived limited revenue to date from feasibility studies with collaboration partners. We have not yet commercialized any of our product candidates, which are in various phases of clinical development, and we do not expect to generate revenue from sales of any product for several years, if at all. We have funded our operations to date with proceeds from the sale of preferred stock, borrowings under venture debt facilities, the issuance of convertible promissory notes and warrants and to a lesser extent, payments received in connection with various feasibility studies. Through June 30, 2015, we had received gross proceeds of $51.5 million, which consists of $39.0 million from our sale of preferred stock, $6.5 million from borrowings under venture debt facilities and $6.0 million from the issuance of convertible promissory notes. Subsequent to June 30, 2015, we received gross proceeds of $7.0 million from the sale of 4,629,629 shares of Series B-1 convertible preferred stock in August 2015 as well as an additional $5.0 million draw from our 2014 Debt Facility in July 2015.

        On November 20, 2014, we entered into a venture debt facility, or the 2014 Debt Facility, for a total loan commitment of $10.0 million, of which we borrowed $5.0 million upon closing of the loan and another $5.0 million in July 2015. Under the terms of the agreement, the borrowings accrue interest at an annual rate equal to the greater of (i) 3.00% above the prime rate then in effect, or (ii) 6.25%. Principal and interest are paid in monthly installments with interest payable in arrears through the loan maturity date of December 1, 2018.

Cash flows

        As of June 30, 2015, we had $2.4 million in cash and $5.0 million in indebtedness. The indebtedness represents the aggregate outstanding principal amount under the 2014 Debt Facility.

        The following table summarizes our sources and uses of cash for each of the periods presented:

 
  Year Ended
December 31,
  Six Months
Ended June 30,
 
 
  2013   2014   2014   2015  
 
  (in thousands)
 

Net cash used in operating activities

  $ (10,842 ) $ (15,361 ) $ (6,562 ) $ (8,144 )

Net cash used in investing activities

    (841 )   (182 )   (140 )   (149 )

Net cash provided by financing activities

    15,954     20,851     16,951     71  

Increase (decrease) in cash

  $ 4,271   $ 5,308   $ 10,249   $ (8,222 )

Operating activities

        We have incurred losses since inception. During the six months ended June 30, 2015, the loss was primarily attributed to research and development activities and our general and administrative expenses, as we had limited revenue generated during the period. The cash used by our assets and liabilities was primarily due to a decrease in accrued expenses related to payments of development

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costs, development milestones and executive severance paid in early 2015 and a decrease in accounts payable as a result of payments to vendors related to our 2014 activities.

        During the six months ended June 30, 2014, cash used in operating activities was primarily attributable to our net loss as a result of increased external research and development costs associated with our clinical trials which commenced in 2014. Net cash provided by changes in our operating assets and liabilities was primarily due to increases in accounts payable and accrued expenses as we accrued development and other costs associated with the increased research and development activities in early 2014, as well as a decrease in accounts receivable due to collections of 2013 revenue.

        During the year ended December 31, 2014, our cash used in operating activities was primarily due to our net loss as we incurred increased external research and development costs associated with the commencement of our clinical trials during 2014 and increased general and administrative costs associated with increasing our infrastructure and headcount. Net cash provided by changes in our operating assets and liabilities was primarily due to an increase in accrued expenses related to increased clinical site visits and other development costs as well as an accrual for a development milestone and a decrease in accounts receivable as amounts invoiced under feasibility agreements in 2013 were collected in 2014.

        The cash provided by assets and liabilities was partially offset by cash used by a decrease in deferred revenue into revenue in 2014.

        During the year ended December 31, 2013, our cash used in operating activities, and net loss, was primarily attributed to research and development activities and our general and administrative expenses. In addition, the Company had minimal cash receipts from feasibility studies in 2013. Net cash used by changes in our operating assets and liabilities was mostly due to an increase in prepaid expenses pertaining to development costs paid in 2013, partially offset by an increase in deferred revenue.

Investing activities

        Net cash used in investing activities for the periods presented relates primarily to purchases of property and equipment, mostly laboratory equipment, and to a lesser extent, to changes in restricted cash balances. Purchases of property and equipment was $0.1 million and $0.1 million for the six months ended June 30, 2014 and 2015, respectively, and $0.8 million and $0.2 million for the years ended December 31, 2013 and 2014, respectively.

Financing activities

        Net cash provided by financing activities was $0.1 million for the six months ended June 30, 2015 and consisted solely of proceeds from the exercise of stock options.

        Net cash provided by financing activities of $17.0 million for the six months ended June 30, 2014 was the result of $17.3 million in net proceeds from the issuance of Series B convertible preferred stock, partially offset by $0.3 million in repayment of obligations under venture debt facilities.

        Net cash provided by financing activities of $20.9 million for the year ended December 31, 2014 was the result of $17.1 million in net proceeds from the issuance of Series B convertible preferred stock and $4.8 million in net proceeds from a drawdown from the 2014 Debt Facility, partially offset by $1.0 million in repayment of obligations under venture debt facilities.

        Net cash provided by financing activities of $16.0 million for the year ended December 31, 2013 was the result of $11.4 million in net proceeds from the issuance of Series A convertible preferred stock and $5.0 million in proceeds from the issuance of convertible promissory notes, partially offset by $0.5 million in repayment of obligations under venture debt facilities.

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Funding requirements

        We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance the preclinical activities and clinical trials of our product candidates in development. In addition, upon the closing of this offering, we expect to incur additional costs associated with operating as a public company.

        Our expenses will also increase if and as we:

    pursue the clinical development of KPI-121 0.25% for the treatment of MGD or other additional indications or for use in other patient populations or, if approved, seek to broaden the label of KPI-121 0.25% or KPI-121 1.0%;

    pursue the clinical development of our product candidate KPI-285 for use in the treatment of back-of-the-eye diseases, such as AMD, DR, DME and RVO;

    leverage our proprietary MPP technology platform to advance high-value therapeutics into preclinical and clinical development;

    in-license or acquire the rights to other products, product candidates or technologies;

    seek marketing approvals for any of our product candidates that successfully complete clinical development;

    establish sales, marketing and distribution capabilities for our product candidates for which we obtain marketing approval;

    scale up our manufacturing processes and capabilities to support our ongoing preclinical activities and clinical trials of our product candidates and commercialization of any of our product candidates for which we obtain marketing approval;

    maintain, expand and protect our intellectual property portfolio;

    hire additional clinical, quality control, scientific and management 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; and

    increase our product liability and clinical trial insurance coverage as we initiate our clinical trials and commercialization efforts.

        As of June 30, 2015, we had cash on hand of $2.4 million. We believe that our existing cash as of June 30, 2015, together with the additional borrowings of $5.0 million from our loan facility in July 2015 and $7.0 million of gross proceeds from our sale of Series B-1 convertible preferred stock in August 2015, will enable us to fund our operating expenses and capital expenditure requirements through December 2015, without giving effect to any anticipated proceeds from this offering. If we are unable to raise sufficient funding in 2015, we may be unable to continue to operate. This uncertainty raises substantial doubt as to our ability to continue as a going concern. The financial statements do not include any adjustment that might be necessary if we were unable to continue as a going concern. We believe that the anticipated net proceeds from this offering, together with our existing cash on hand, will enable us to fund our operating expenses and capital expenditure requirements through at least                  . We have based these estimates on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect.

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

    the progress, costs and results of our planned Phase 3 clinical trials for KPI-121 0.25% and KPI-121 1.0% and of any clinical activities for regulatory review of KPI-121 0.25% and KPI-121 1.0% outside of the United States;

    the costs and timing of process development and manufacturing scale-up activities associated with KPI-121 0.25% and KPI-121 1.0%;

    the costs, timing and outcome of regulatory review of KPI-121 0.25% and KPI-121 1.0%;

    the costs of commercialization activities for KPI-121 0.25% and KPI-121 1.0% if we receive, or expect to receive, marketing approval, including the costs and timing of establishing product sales, marketing, distribution and outsourced manufacturing capabilities;

    subject to receipt of marketing approval, revenue received from commercial sales of KPI-121 0.25% and KPI-121 1.0%;

    the progress, costs and outcome of developing KPI-121 for the treatment of additional indications or for use in other patient populations, including our ongoing Phase 2 clinical trial evaluating KPI-121 0.25% administered four times a day in patients with MGD;

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

    the scope, progress, results and costs of product development of KPI-285 and any other product candidates that we may develop;

    the extent to which we in-license or acquire rights to other products, product candidates or technologies; and

    the costs of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights and defending against intellectual property-related claims.

        Until such time, if ever, as we can generate product revenue sufficient to achieve profitability, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaboration agreements, other third-party funding, strategic alliances, licensing arrangements or marketing and distribution arrangements.

        To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through other third-party funding, collaborations agreements, strategic alliances, licensing arrangements or marketing and distribution arrangements, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market products or product candidates that we would otherwise prefer to develop and market ourselves.

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Contractual Obligations and Commitments

        The following is a summary of our significant contractual obligations as of December 31, 2014:

 
  Payments Due by Period  
Contractual Obligations
  Total   Less Than
1 Year
  More Than
1 Year and
Less Than
3 Years
  More Than
3 Years and
Less Than
5 Years
  More than
5 Years
 
 
  (in thousands)
 

Short- and long-term debt obligations(1)

  $ 5,000   $   $ 3,167   $ 1,833   $  

Interest on short- and long-term debt obligations(2)

    832     317     467     48      

Operating lease obligations(3)

    733     346     387          

Minimum license payments(4)

    114         38     76      

Total

  $ 6,679   $ 663   $ 4,059   $ 1,957   $  

(1)
Short- and long-term debt obligations relate to principal payments due on our 2014 Debt Facility.

(2)
Interest payments due on our 2014 Debt Facility.

(3)
Future minimum lease payments under our operating lease for our corporate headquarters and lab space in Waltham, Massachusetts that expires on February 1, 2017 with an average rent of approximately $29,000 per month.

(4)
Consists of annual license payments associated with the JHU license agreement of $38,000 per year prior to achievement of the first commercial sale in the United States, European Union or Japan. Upon achievement of the first commercial sale in the United States, European Union or Japan, the minimum annual license payment will increase to approximately $113,000 per year. This table does not include any other milestone or royalty payments which may become payable to third parties, as the amounts, timing and likelihood of such payments are not known with certainty.

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 in the rules and regulations of the Securities and Exchange Commission.

Recently Issued Accounting Pronouncements

        From time to time the Financial Accounting Standards Board, or FASB, or other standard-setting bodies, issue new accounting pronouncements. Where applicable, we adopt these new standards according to the specified effective dates. Unless otherwise disclosed in the notes to the financial statements appearing at the end of this prospectus, we believe that the impact of any recently issued standard(s) that are not yet effective will not have a material impact on our financial position or results of operation upon adoption.

Quantitative and Qualitative Disclosure About Market Risk

        We did not hold any cash equivalents or investments as of June 30, 2015. As of June 30, 2015, our exposure to the risk of changes in market interest rates related primarily to our borrowings under our 2014 Debt Facility, which are subject to a variable interest rate. See "Liquidity and Capital Resources" above for a discussion of the interest rates applicable to our 2014 Debt Facility. We do not expect any material impact on our operating results from a reasonably possible change in market interest rates. A 50 basis point increase or decrease in interest rates would increase or decrease annual interest expense by $25,000 related to our borrowings under our 2014 Debt Facility.

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BUSINESS

Overview

        We are a biopharmaceutical company focused on the development and commercialization of therapeutics using our proprietary nanoparticle-based Mucus Penetrating Particles, or MPP, technology, with an initial focus on the treatment of eye diseases. Our MPPs are selectively-sized nanoparticles and have proprietary coatings. We believe that these two key attributes enhance mobility of drug particles through mucus and enable them to avoid getting trapped and eliminated by mucus, resulting in even distribution on surfaces and significantly increased drug delivery to target tissues. KPI-121, our lead program, consists of topically applied MPP nanosuspensions of loteprednol etabonate, or LE, a corticosteroid designed for ocular applications. Under our KPI-121 program, we have product candidates in advanced clinical development for the indications of the temporary relief of the signs and symptoms of dry eye disease and the treatment of inflammation and pain following ocular surgery. We also have a KPI-121 product candidate in clinical development for the treatment of meibomian gland disease, or MGD. We are also developing KPI-285, our topically applied MPP small molecule new chemical entity, or NCE, that inhibits the vascular endothelial growth factor, or VEGF, pathway, for the potential treatment of a number of back-of-the-eye diseases such as age-related macular degeneration, or AMD, diabetic retinopathy, or DR, diabetic macular edema, or DME, and retinal vein occlusion, or RVO.

        We have completed a Phase 3 trial of our product candidate KPI-121 1.0% in patients with inflammation and pain following cataract surgery and a Phase 2 trial of our product candidate KPI-121 0.25% in patients with dry eye disease. Based on our June 2015 meeting with the U.S. Food and Drug Administration, or the FDA, we expect to initiate, in the first half of 2016, two concurrent Phase 3 clinical trials of KPI-121 0.25% in patients with dry eye disease and a second Phase 3 clinical trial of KPI-121 1.0% for the treatment of inflammation and pain following cataract surgery. In 2017, assuming successful completion of these clinical trials, we anticipate that we will file new drug applications, or NDAs, for the approval of KPI-121 1.0% for the treatment of inflammation and pain following ocular surgery and KPI-121 0.25% for the temporary relief of the signs and symptoms of dry eye disease, in each case relying on the potentially more expeditious pathway to FDA approval under Section 505(b)(2) of the U.S. Federal Food, Drug and Cosmetic Act, or the FDCA.

        We believe that we have a strong patent portfolio relating to our product candidates and MPP technology, including issued patents and pending patent applications covering KPI-121, KPI-285 and our MPP technology, along with pending patent applications relating to ophthalmic applications of our MPP technology. The earliest expiration date of a patent covering our current product candidates is in 2033.

        We have retained worldwide commercial rights for our product candidates. If our product candidates receive marketing approval, we expect to commercialize them in the United States with our own focused, specialty sales force. We expect to explore commercialization of our product candidates in certain markets outside the United States utilizing a variety of collaboration, distribution and other marketing arrangements with one or more third parties.

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Our Product Candidates

        The following table describes the development stage of each of our current product candidates:

GRAPHIC

KPI-121 0.25% for Dry Eye Disease

        Dry eye disease is a chronic, relapsing multifactorial disease affecting the tears and ocular surface that can result in tear film instability, inflammation, discomfort, visual disturbance and ocular surface damage. Dry eye disease can have a significant impact on quality of life and can potentially cause long-term damage to the ocular surface. Due to the impact of dry eye disease on tear film dynamics, the condition can affect performance of common vision-related activities such as reading, using a computer and driving, and can lead to complications associated with visual impairment. In addition, the vast majority of dry eye patients experience acute exacerbations of their symptoms, which we refer to as flares, throughout the year. These flares can be triggered by numerous factors, including exposure to allergens, pollution, wind and low humidity, intense visual concentration such as watching television and working at a computer, using contact lenses, smoking and sleep deprivation, which may impact tear production and/or tear film stability and cause ocular surface inflammation.

        Dry eye disease affects an estimated 25 million people in the United States and results in approximately $55.4 billion in direct and indirect costs in the United States each year, of which approximately $3.8 billion are direct medical costs. The exact prevalence of dry eye disease is unknown due to the difficulty in defining the disease and the lack of a single diagnostic test to confirm its presence. The Beaver Dam Offspring Study, a major epidemiological study published in 2014 in the American Journal of Ophthalmology, reported that in a cohort of over 3,000 patients, dry eye disease was self-reported by 14.5% of the patients. Epidemiology and market research commissioned by us indicate that there are an estimated 14.5 million patients with a diagnosis of dry eye disease in the United States. The prevalence of dry eye disease increases with age, and we expect that the number of dry eye cases will increase as the U.S. population continues to age. Additionally, based on a survey of physicians we conducted, we estimate that dry eye patients who suffer from flares experience an average of approximately three flares per year. Further, patients with dry eye disease visit a physician an average of three times a year.

        The two most commonly used treatments for dry eye disease in the United States are over-the-counter eye drops, often referred to as "artificial tears," which supplement insufficient tear production or tear film instability, and prescription Restasis, which increases tear production. However, artificial tears do not treat the underlying inflammation in dry eye disease. Moreover, market research

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commissioned by us shows that patients continue to experience flares even while being treated with existing therapies, including artificial tears and Restasis.

        We are developing KPI-121 0.25% for the temporary relief of the signs and symptoms of dry eye disease, utilizing a two-week course of therapy administered four times a day. We believe that an approval in this indication, combined with KPI-121 0.25%'s broad mechanism of action, rapid onset of relief, favorable safety and tolerability profile and potential to be complementary to existing therapies, will result in a favorable profile for the management of dry eye flares and other dry eye associated conditions that would benefit from temporary relief of dry eye signs and symptoms.

        In our Phase 2 clinical trial of 150 patients with dry eye disease, administration of KPI-121 0.25% four times a day resulted in a statistically significant reduction in the dry eye sign of conjunctival hyperemia, or redness, at day 29 compared to placebo at day 29 (p=0.0387). Significant reduction in conjunctival hyperemia was also observed at the first measurement point, two weeks after initiation of KPI-121 0.25% dosing (day 15) (p=0.0090). There was also a meaningful reduction in the dry eye symptom of patient-reported ocular discomfort severity at days 15 and 29, although such reduction did not achieve statistical significance. We did not expect to achieve statistical significance for ocular discomfort in light of the small number of patients in the trial. KPI-121 0.25% was generally well tolerated, with no clinically significant treatment-related adverse events observed during the course of the trial. Based on discussions with key advisors and a meeting with the FDA in June 2015, we plan to initiate two concurrent Phase 3 clinical trials with approximately 700 patients each in the first half of 2016 comparing KPI-121 0.25% to placebo, both administered four times a day for 14 days. Other than the length of dosing and the number of patients, these trials will have a trial design that is identical to our completed Phase 2 clinical trial of KPI-121 0.25%. We believe we will be able to demonstrate statistical significance for reductions in both conjunctival hyperemia and ocular discomfort in our upcoming Phase 3 trials, which will include much larger numbers of patients. If these trials are successful, we anticipate filing a New Drug Application, or NDA, for KPI-121 0.25% in 2017.

KPI-121 1.0% for Post-Surgical Inflammation and Pain

        Ocular inflammation and pain are common side effects following ocular surgery. We estimate that there were approximately 5 million ocular surgeries in the United States in 2014. Commonly performed ocular surgeries include, among others, cataract, vitreoretinal, cornea and glaucoma procedures. Tissue damage caused by ocular surgery leads to the production of prostaglandins and increases in blood flow to the affected area, which contribute to inflammation. The standard of care for post-surgical inflammation and pain includes anti-inflammatory drugs such as corticosteroids, which improve patient comfort and accelerate recovery through disruption of the inflammatory cascade. Commonly used topical ocular corticosteroid products for the treatment of post-surgical inflammation and pain are approved for dosing four times a day. This dosing regimen can be burdensome for patients as they are taking multiple eye drops following surgery, and four-times-a-day dosing frequently reduces patient compliance. There are no ocular corticosteroid products currently approved in the United States for dosing two times a day for the treatment of post-surgical inflammation and pain.

        KPI-121 1.0%, our twice-a-day product candidate for the treatment of inflammation and pain following ocular surgery, is currently in Phase 3 clinical development. We believe that KPI-121 1.0% has a favorable profile for the treatment of inflammation and pain following ocular surgery, due to its twice-a-day dosing and favorable safety profile.

        In our successfully completed Phase 3 clinical trial of KPI-121 1.0% in patients who had recently undergone cataract surgery, administration of KPI-121 1.0% two times a day achieved statistical significance in both primary endpoints of complete resolution of inflammation and complete resolution of pain at day eight. KPI-121 1.0% was well tolerated with no increases in intraocular pressure, or IOP, a common side effect of steroids, compared to placebo. We plan to commence a second Phase 3

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clinical trial with approximately 350 patients in the first half of 2016 comparing KPI-121 1.0% to placebo, both administered two times a day for 14 days. The key trial design elements of the second Phase 3 clinical trial will be identical to the first completed Phase 3 trial. If this trial is successful, we anticipate filing an NDA for KPI-121 1.0% in 2017. Although our Phase 3 trials of KPI-121 1.0% are in patients who have undergone cataract surgery, these trials are intended to support a label for all post-surgical ocular inflammation and pain.

KPI-121 0.25% for Meibomian Gland Disease

        MGD is a chronic disease of the meibomian glands in the eyelid that secrete lipids to help stabilize the tear film. In MGD, the meibomian glands become blocked with thickened secretions. Chronically obstructed glands have an impaired ability to secrete lipids, resulting in changes in the tear film, which can lead to a number of additional problems, including dry eye disease. MGD can also lead to inflammation of the eyelid and ocular surface, changes in the tear film, eye irritation and discomfort and ocular surface disease. MGD is currently treated primarily with warm compresses, lid massage and lid hygiene to help remove accumulated lipids in the meibomian glands and to remove debris from eye margins and the lashes. There are no approved pharmaceutical therapies for MGD in the United States, although topical steroids are occasionally used off-label to treat MGD.

        We have initiated a Phase 2 clinical trial evaluating KPI-121 0.25% administered four times a day in patients with MGD compared to placebo for 28 days. We expect to receive top-line data from this clinical trial in the first half of 2016. Based on the results of this trial, we will determine next steps for the clinical development of KPI-121 0.25% in MGD.

KPI-285 for Back-of-the Eye Diseases

        Commonly used therapies for back-of-the-eye diseases must be injected directly into the vitreous of the patient's eye via intravitreal injection, often at monthly intervals. We believe that our MPP technology has the potential to facilitate the delivery of therapeutics into tissues in the back of the eye via topical dosing, which has the potential to provide a less invasive method of administration and a competitive advantage over therapies administered by intravitreal injection.

        We are evaluating KPI-285, our topically applied MPP small molecule NCE for the potential treatment of a number of eye diseases, including AMD, DR, DME and RVO, each of which involves either the leakage of existing blood vessels or the proliferation of poorly formed and leaky blood vessels at the back of the eye. These eye diseases can significantly reduce vision and eventually lead to blindness. VEGF is a protein that plays a critical role in the formation of new blood vessels and increased permeability, two pathological processes that contribute to the vision loss associated with certain back-of-the-eye diseases. KPI-285 inhibits the VEGF pathway. In preclinical studies, topical administration of KPI-285 achieved concentrations in tissues in the back of the eye well above the concentrations required for in vitro inhibition of 50% of the VEGF receptor kinase activity. Based on our progress to date, we anticipate filing an Investigational New Drug Application, or IND, for KPI-285 in 2017.

Other Potential Applications of our MPP Technology

        While our current focus is on the application of our MPP technology in ophthalmology, we have conducted preclinical studies demonstrating the potential of our MPP technology in other therapeutic areas. Mucus limits delivery of conventionally formulated drugs to the lung, cervical/vaginal tract, gastrointestinal tract and other mucus-protected tissues. In preclinical studies, we have demonstrated that our MPP technology can be used to increase the mucus penetration of over fifteen classes of drugs, including anti-infective and anti-inflammatory drugs.

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Strategy

        Our goal is to become a leading biopharmaceutical company focused on the development and commercialization of therapeutics using our proprietary MPP technology platform. Key elements of our strategy include:

    Advance the clinical development of our KPI-121 product candidates.  We are focused on initiating and completing our two concurrent Phase 3 clinical trials of KPI-121 0.25% administered four times a day in patients with dry eye disease and our second Phase 3 clinical trial of KPI-121 1.0% administered two times a day for the treatment of inflammation and pain following cataract surgery. We expect to receive top-line data from these clinical trials in 2017. If these trials are successful, we plan to submit applications for marketing approval of the product candidates in the United States in 2017. We are also currently conducting a Phase 2 clinical trial evaluating KPI-121 0.25% administered four times a day in MGD. We expect to receive top-line data from this clinical trial in the first half of 2016. Based on the results of this trial, we will determine next steps for our clinical development program in MGD.

    Maximize the commercial potential of our KPI-121 program.  We have retained worldwide commercialization rights to our KPI-121 product candidates for all indications. If we receive marketing approval for either KPI-121 0.25% or KPI-121 1.0%, we plan to commercialize the approved product(s) in the United States with our own specialty sales force that will target ophthalmologists and optometrists. We expect to explore commercialization of our product candidates in certain markets outside the United States utilizing a variety of collaboration, distribution and other marketing arrangements with one or more third parties.

    Advance KPI-285 into clinical trials for the treatment of back-of-the-eye diseases.  We are developing our KPI-285 product candidate, our topically applied MPP small molecule NCE for the potential treatment of a number of eye diseases, including AMD, DR, DME and RVO. We are currently conducting preclinical studies of KPI-285 and anticipate filing an IND in 2017.

    Leverage our proprietary MPP technology platform to advance high-value therapeutics into clinical development. While our current focus is in ophthalmology, we believe the ability of our MPP technology platform to facilitate the penetration of drug molecules through mucus provides us with the opportunity to develop drugs in other diseases, including diseases of the lung, cervical/vaginal tract and gastrointestinal tract. We are evaluating additional product opportunities with significant unmet medical needs that we believe can be addressed by our proprietary MPP technology.

Our MPP Technology

Opportunities in Drug Delivery across Mucosal Barriers

        The body is surrounded by boundary tissues that play the important physiological role of preventing foreign bodies from penetrating into the body. The mucus that coats these tissues, the eyes, lung, cervical/vaginal tract and gastrointestinal tract, for example, serves as a protective barrier to trap and eliminate particulate matter, such as viruses, bacteria and allergens, before these agents can enter the underlying tissues and cause infections or elicit reactions. However, in playing this pivotal role of protection, mucus can also hinder medical treatments by limiting the penetration of medications to mucus-protected tissues, thereby reducing their therapeutic effect.

        Mucus also makes it difficult to treat many ophthalmic diseases. The body can rapidly eliminate drugs delivered to the eye via the tear film protecting the surface of the eye, which can significantly limit the effectiveness of these drugs. This is the case both for drugs designed to treat conditions in the front of the eye, such as dry eye disease, post-surgical pain and inflammation and MGD, as well as for drugs designed to treat conditions in the back of the eye, such as retinal diseases. We believe that our

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proprietary MPP technology has the potential to address this clear unmet medical need for more efficient delivery of drugs administered via topical ocular dosing.

MPP Technology

        Our MPPs are selectively-sized nanoparticles and have proprietary coatings. We believe that these two key attributes enhance mobility of drug particles through mucus and enable them to avoid getting trapped and eliminated by mucus, resulting in even distribution on surfaces and significantly increased drug delivery to target tissues.

        In a preclinical study, MPPs and conventional particles were administered intravaginally to mice. Ten minutes after administration, the vaginal tissues were dissected and stained. The image on the left below shows the distribution of the conventional particles and the image on the right below shows the distribution of the MPPs. The conventional particles aggregated in the lumenal mucus and did not reach the target tissues. In contrast, the MPPs coated the entire vaginal epithelium, including all the target surfaces.

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Source: Laura M. Ensign et al., Mucus-Penetrating Nanoparticles for Vaginal Drug Delivery Protect Against Herpes Simplex Virus, Science Translational Medicine, June 14, 2012.

        While a significant portion of conventionally formulated ophthalmic drugs are rapidly eliminated via the tear film, we have shown that our MPPs are capable of achieving higher concentration on the surface of the eye, thereby enabling the active drug substance to reach cells in the underlying ocular tissue at higher levels.

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        The graphic below illustrates the ability of our MPP drug nanoparticles to penetrate the tear and membrane-bound mucins to reach the ocular surface, as compared to conventional, non-coated particles, which adhere to the mucins in the tear film and are cleared with the tears through blinking.

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This graphic is included for illustrative purposes only and is not intended to provide an actual representation of the proportion of nanoparticles that reach the eye surface or the way in which our MPP drug nanoparticles interact with the ocular surface.

        Our initial focus is to leverage our MPP technology to enhance delivery of drugs into the eye. In preclinical studies, KPI-121 demonstrated favorable pharmacokinetic characteristics and increased drug penetration into ocular tissues as compared to a branded form of LE. We administered either 0.4% KPI-121 or 0.5% branded LE to the eyes of two groups of rabbits. As illustrated in the line graph below, the concentrations of LE in aqueous humor, a transparent gelatinous fluid that fills the anterior

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and posterior chambers between the lens and the cornea, of the rabbit eyes treated with KPI-121 were more than three times higher than the rabbit eyes treated with branded LE 30 minutes after dosing.


LE in Aqueous Humor

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        We administered KPI-121 0.5%, branded LE 0.5%, or 0.5% of an LE non-MPP nanoparticle, to the eyes of three groups of rabbits and measured the amount of LE that was delivered to the cornea. The non-MPP nanoparticle was similar in size to our MPP nanoparticles but lacked the proprietary surface coating used in our MPP nanoparticles. As illustrated in the line graph below, concentrations of LE in the cornea of the rabbit eyes treated with KPI-121 were more than three times higher than the concentrations in rabbits treated with branded LE between 20 and 40 minutes after dosing. In addition, the rabbit eyes treated with the non-MPP nanoparticles had concentrations of LE similar to that in the rabbit eyes treated with branded LE and did not display the improved drug bioavailability properties observed with KPI-121. We believe these results highlight the importance of our proprietary MPP technology and show that KPI-121's improved pharmacokinetic profile has the potential to reduce the dosing strength and/or frequency of administration of LE with KPI-121 as compared to branded LE.


LE in Cornea

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        We have also demonstrated the ability of our MPP nanoparticles to increase the mucus penetration of over fifteen classes of drugs. While our current focus is in ophthalmology, in preclinical studies, our MPP technology has been effective in delivering drugs to the lungs, cervical/vaginal tract, gastrointestinal tract and other mucus-protected tissues. We have the ability to vary the rate of drug release as appropriate for the targeted disease state and tissue. As a result, drugs can be delivered either in rapid release formulations or as sustained release formulations that slowly release drug over a time period that ranges from hours to days.

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Eye Disease

        The human eye is often segmented into two sections—the front and back of the eye. The front of the eye consists of tissues and structures responsible for the protection and maintenance of the eye (including the cornea, conjunctiva and tear film), for providing nutrition to the various tissues of the eye (aqueous humor) and for facilitating the optimal transfer and focusing of light to the retina (including the cornea, iris and lens). Front-of-the-eye diseases include ocular inflammation, dry eye disease, MGD, infection, allergy and refractive disorders. Physicians typically treat diseases that affect the front of the eye with topically applied eye drops. A major limitation of these treatments is that the eye rapidly eliminates topically applied medications via the tear film, limiting the penetration of drugs into the ocular tissue.

        The back of the eye contains the retina, which is the light sensing layer of tissue, the choroid, which is a key vascular layer of the eye, the vitreous humor, which is a transparent gel that fills the vitreous chamber between the lens and the retina, and the optic nerve, which transmits visual information from the retina to the brain. Common back-of-the-eye diseases include AMD, DR, DME and RVO. These diseases frequently result in damage to the vasculature of the eye, leading to poor function and/or leaking of existing vessels and often leading to proliferation of new, abnormal and leaky blood vessels in the back of the eye. These conditions can lead to retinal damage, scarring and irreversible loss of vision. The most common treatments for these diseases involve administration of biologic agents that block the VEGF pathway and prevent or retard the blood vessel leakage and/or proliferation. Unfortunately, physicians must inject these biologic agents directly into the vitreous of the eye via frequent intravitreal injections, or IVTs, to maintain vision. Topical administration of therapeutics to treat back-of-the eye diseases has not yet been demonstrated to be effective in the management of retinal disease, most likely due to insufficient delivery of drug to the back of the eye.

Our Product Candidates

KPI-121

        KPI-121, our lead program, consists of MPP nanosuspensions of LE designed to enhance penetration through the mucus layer of the tear film to enable LE to reach the underlying ocular tissue. We believe that our KPI-121 product candidates have a favorable profile for the treatment of front-of-the-eye inflammatory conditions due to their broad mechanism of action, rapid onset of relief and favorable safety and tolerability profile. LE is a corticosteroid developed specifically for the treatment of ophthalmic conditions and is designed to limit side effects, such as increases in IOP and cataract formation, that are associated with other ocular steroids. The first LE containing product was approved by the FDA in 1998.

        All of our KPI-121 product candidates are eye drops that are topically administered as an aqueous suspension of LE. In preclinical studies, KPI-121 has demonstrated superior pharmacokinetic characteristics and bioavailability as compared to branded LE, with increased penetration of LE into ocular tissues. Our KPI-121 product candidates include:

    KPI-121 0.25%, administered four times a day, which we are developing for the temporary relief of the signs and symptoms of dry eye disease and for the treatment of MGD; and

    KPI-121 1.0%, administered two times a day, which we are developing for the treatment of inflammation and pain following ocular surgery.

        We have completed a Phase 2 clinical trial of KPI-121 0.25% and a pivotal Phase 3 clinical trial of KPI-121 1.0%. We anticipate that in 2017, assuming successful completion of our planned clinical trials, we will file NDAs for approval of KPI-121 0.25% for the temporary relief of the signs and symptoms of dry eye disease and KPI-121 1.0% for the treatment of inflammation and pain following ocular surgery. We expect both NDA submissions will be filed under section 505(b)(2) of the FDCA, or

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section 505(b)(2). The section 505(b)(2) pathway provides an alternate and potentially more expeditious pathway to FDA approval for new or improved formulations, or new uses of previously approved products, by enabling an applicant to rely, in part, on the FDA's findings of safety and efficacy for an existing product, or published literature, in support of the NDA. An NDA filed under section 505(b)(2) would allow us to reference the extensive data already collected by the FDA on LE to supplement the safety and efficacy data generated in our clinical trials of KPI-121.

KPI-121 0.25% for Dry Eye Disease

Dry Eye Disease Overview

        Dry eye disease is a chronic, relapsing multifactorial disease affecting the tears and ocular surface that can result in tear film instability, inflammation, discomfort, visual disturbance and ocular surface damage. While the precise cause of dry eye disease is not fully understood, it often involves impairment of the lacrimal unit, which consists of the lacrimal glands, ocular surface and the sensory and motor nerves that connect them, and has a significant inflammatory component. Dry eye disease can have a significant impact on quality of life and can potentially cause long-term damage to the ocular surface. Due to the impact of dry eye disease on tear film dynamics, the condition can affect performance of common vision-related activities such as reading, using a computer and driving, and can lead to complications associated with visual impairment.

        In addition to the disease's chronic nature, a significant number of patients experience acute exacerbations of their symptoms, which we refer to as flares, throughout the year that can cause significant discomfort and disability. As illustrated in the graphic below, these flares can be triggered by numerous factors, such as environmental stimuli related to exposure to allergens, pollution, wind and low humidity. Intense visual concentration, such as watching television or working at a computer, can also trigger flares. Other potential triggers include using contact lenses, smoking and sleep deprivation, which can impact tear film stability and lead to ocular surface inflammation.

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        Dry eye disease affects an estimated 25 million people in the United States and results in approximately $55.4 billion in direct and indirect costs in the United States each year, of which approximately $3.8 billion are direct medical costs. The exact prevalence of dry eye disease is unknown due to the difficulty in defining the disease and the lack of a single diagnostic test to confirm its presence. The Beaver Dam Offspring Study, a major epidemiological study published in 2014 in the American Journal of Ophthalmology, reported that in a cohort of over 3,000 patients, dry eye disease was self-reported by 14.5% of the patients. The prevalence of dry eye disease increases with age, and we expect that the number of dry eye cases will increase as the average age of the U.S. population continues to increase.

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        Epidemiology and market research commissioned by us indicate that there are an estimated 14.5 million patients with a diagnosis of dry eye disease in the United States. Additionally, based on a survey of physicians we conducted, we estimate that dry eye patients who suffer from flares experience an average of approximately three flares per year. Further, patients with dry eye disease visit a physician an average of three times a year.

Limitations of Existing Treatments for Dry Eye Disease

        Initial treatment for dry eye disease in the United States frequently consists of over-the-counter artificial tear/lubricating eye drops. Most over-the-counter artificial tears work by lubricating the eyes and helping to maintain moisture on the outer surface of the eye to make eyes more moist and comfortable. These products do not treat the underlying inflammatory components of dry eye disease.

        In addition to artificial tears, Restasis is sometimes prescribed as a chronic therapy for the treatment of dry eye disease. Restasis is a topically applied, ophthalmic formulation of the immuno-suppressant cyclosporine. Restasis is not approved for the treatment of the signs and symptoms of dry eye disease, but rather for increasing tear production in patients whose tear production is presumed to be suppressed due to ocular inflammation associated with dry eye disease. We believe that approximately 10% of patients with moderate or severe dry eye disease in the United States use Restasis. Restasis had sales in the United States of approximately $1.0 billion in 2014. Restasis, however, frequently causes burning upon instillation, and, according to the package insert, 17% of patients in clinical trials of Restasis reported ocular burning upon instillation.

        Market research commissioned by us shows that patients continue to experience flares even while being treated with existing dry eye therapies, including artificial tears and Restasis, which we believe results in a significant unmet medical need for patients suffering from dry eye disease.

        Topically applied steroids have been shown to provide some clinical benefit to patients with dry eye disease. However, no topical steroid products are approved in the United States for the treatment of dry eye disease, and there is no widely established treatment paradigm for the safe use of steroids in dry eye disease. As a result, off-label use of steroids in dry eye disease has been limited.

KPI-121 0.25% Opportunity in Dry Eye

        We believe that KPI-121 0.25% has a favorable profile for the management of dry eye disease flares, including the following attributes:

    Broad mechanism of action.  LE is a corticosteroid. Corticosteroids are known for their broad anti-inflammatory properties.

    Rapid onset of relief.  In our Phase 2 clinical trial, patients treated with KPI-121 0.25% reported reductions in ocular discomfort within one to two days of initiation of treatment.

    Favorable safety and tolerability profile.  LE is one of the safest topical ocular steroids available due to its unique pharmacokinetics. LE was designed to be metabolized after exerting its anti-inflammatory action in the eye. The metabolism of LE to inactive metabolites reduces exposure of the trabecular meshwork, an area of tissue located in the anterior chamber that is responsible for draining the aqueous humor from the eye, to active steroid, thus reducing the risk of an increase in IOP relative to other steroids. To date, we have clinical data from approximately 340 patients treated with KPI-121 and have seen similar profiles with respect to mean IOP and the frequency of increases in IOP levels in patients treated with KPI-121 compared to patients treated with placebo. In our Phase 2 clinical trial of KPI-121 0.25% in dry eye disease, only 6.9% of patients treated with KPI-121 0.25% reported instillation site pain as compared to 3.8% for placebo.

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    Potentially complementary to existing therapies.  The mechanism of action and rapid onset of relief of KPI-121 0.25% in dry eye disease is distinct from that of artificial tears and Restasis. It is therefore expected to be complementary to these products and other treatments used in the treatment of dry eye disease.

        If we successfully complete our development program and receive FDA approval of our NDA for KPI-121 0.25% for the temporary relief of the signs and symptoms of dry eye disease, we believe that we will have the first FDA-approved product for this indication with demonstrated safety and efficacy and an easy-to-follow dosing regimen to manage dry eye disease flares.

KPI-121 0.25% Phase 2 Clinical Trial Results

        In 2014, we conducted a Phase 2 double-masked, randomized, controlled clinical trial of KPI-121 0.25% in 150 patients with dry eye disease at nine clinical sites. Patients were enrolled in the trial based on their magnitude of conjunctival hyperemia and ocular discomfort prior to treatment. Patients had a two week run-in with placebo administered four times a day and were required to maintain a similar magnitude of conjunctival hyperemia and ocular discomfort following this run-in period to be included in the randomization portion of the trial. Upon achieving the trial entry criteria after this run-in period, patients were randomized to receive either KPI-121 0.25% or a placebo four times a day for 28 days. Safety and efficacy assessments were made over the four week dosing period.

        The FDA has publicly indicated that it will require demonstration of statistically significant improvements in both a sign and a symptom in two pivotal clinical trials in dry eye patients to satisfy the efficacy criteria for an NDA approval. For our Phase 2 clinical trial, the primary sign endpoint was a reduction in conjunctival hyperemia at day 29, as measured via a 0 to 4 scale ranging from no hyperemia (score=0) to severe hyperemia (score=4), and the primary symptom endpoint was ocular discomfort severity, as reported by the patient on a visual analog scale ranging from 0 to 100 mm (0 mm=very mild; 100 mm=very severe).

        KPI-121 0.25% achieved statistical significance for the primary clinical sign endpoint of conjunctival hyperemia at day 29 with a treatment difference between KPI-121 0.25% and placebo of 0.21 units (p=0.0387). The line graph on the left below plots the mean conjunctival hyperemia score for patients in the KPI-121 0.25% treatment arm and the placebo treatment arm, in each case as measured on days one, 15 and 29 of the trial. As illustrated below, the treatment difference at day 15 between KPI-121 0.25% and placebo was 0.26 units (p=0.0090). In addition, a significantly higher proportion of patients treated with KPI-121 0.25% demonstrated a reduction of one unit or greater in conjunctival hyperemia as compared to patients treated with placebo. The bar graph on the right below shows the number and percentage of patients in each of the KPI-121 0.25% and placebo

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treatment arms who demonstrated a reduction of one unit or greater in conjunctival hyperemia scores at days 15 and 29 of the trial.

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        In the trial, patients treated with KPI-121 0.25% also showed reductions in the symptom endpoint of ocular discomfort severity. While KPI-121 0.25% did not achieve statistical significance for this endpoint, the treatment difference between KPI-121 0.25% and placebo for reduction of ocular discomfort was 4.1 mm at day 15 (p=0.1072) and 2.6 mm at day 29 (p=0.3674). We did not expect to achieve statistical significance for ocular discomfort in light of the small number of patients in the trial (73 patients were treated with KPI-121 0.25% and 77 patients were treated with placebo). We believe we will be able to demonstrate statistical significance for ocular discomfort severity in our upcoming Phase 3 trials, which will include much larger numbers of patients.

        The line graph on the left below plots the mean ocular discomfort severity score for patients in the KPI-121 0.25% and placebo treatment arms, in each case measured as the mean of the seven days prior to days one, 15 and 29 of the trial. We have conducted post-hoc analyses of the data using the three- and five-day ocular discomfort mean data. Utilizing the three-day mean data for the statistical analysis yielded a treatment difference at day 15 of 4.4 mm (p=0.084). Although post-hoc analyses performed after unblinding trial results can result in the introduction of bias, we believe that these retrospective analyses provide additional information regarding our Phase 2 clinical trial and support for our upcoming Phase 3 clinical trials. Based on our discussions with the FDA, we plan to use either three, five or seven day ocular discomfort means for the statistical analysis in the upcoming Phase 3 clinical trials.

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        The line graph on the right below plots the mean daily ocular discomfort score for patients in the KPI-121 0.25% and placebo treatment arms for the first 14 days of the trial, showing rapid reduction in the severity of ocular discomfort for patients dosed with KPI-121.

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        KPI-121 0.25% was generally well tolerated, with no significant treatment-related safety findings observed during the course of the trial. The only treatment-emergent adverse event reported in greater than 3% of patients was instillation site pain, which was reported in 6.9% of patients treated with KPI-121 0.25% compared to 3.8% of patients treated with placebo. Patients in the KPI-121 0.25% and placebo treatment arms had a similar profile with respect to mean IOP, and the number of patients with an IOP increase of greater than 5 mm Hg was similar in the two treatment groups. The table below shows the mean IOP measurements for patients in the KPI-121 0.25% administered four times a day, or QID, and placebo treatment arms, in each case as measured on days one, 15 and 29 of the trial.


Mean IOP (mm Hg) in Study Eye

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        The table below shows the number of patients in the KPI-121 0.25% and placebo treatment arms who experienced an IOP increase of 5 mm Hg or greater from baseline (as measured at the onset of treatment) on days 15 and 29 of the trial.


Number of Patients with IOP Increase of Greater than 5 mm Hg in Study Eye

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Phase 3 Clinical Development Program

        Based on discussions with key advisors and a meeting with the FDA, we plan to initiate two Phase 3 clinical trials of approximately 700 patients each in the second quarter of 2016 comparing KPI-121 0.25% to placebo, both administered four times a day for 14 days. At our meeting with the FDA in June 2015, we presented our development program and the key elements of our Phase 3 clinical trial design. Both Phase 3 trials will have the same patient inclusion/exclusion criteria as the Phase 2 trial and will use the same primary endpoints of conjunctival hyperemia and ocular discomfort severity, but in the Phase 3 trials these endpoints will be measured at day 15 compared to day 29 in the Phase 2 trial. We believe using week two as the primary endpoint in the Phase 3 trials will be advantageous because the statistical results of the Phase 2 trial were more robust at day 15 than at day 29. We believe ophthalmologists and optometrists are familiar with two week dosing regimens from their use of other steroids for post-surgical inflammation and pain, and we discussed with the FDA the use of a two-week dosing regimen for KPI-121 for the temporary relief of the signs and symptoms of dry eye in our June meeting. Except for the number of patients (approximately 700 in each of the Phase 3 trials versus 150 in the Phase 2 trial) and the duration of dosing (14 days in the Phase 3 trials versus 28 days in the completed Phase 2 trial), the Phase 3 trial design will be identical to the Phase 2 trial design. Sample size calculations indicate that the Phase 3 trial will have 99% power to achieve the primary endpoint of conjunctival hyperemia and a greater than 90% power to achieve the primary endpoint of ocular discomfort severity.

        Based on our discussions with the FDA, we believe that following completion of the two Phase 3 trials, we will have generated sufficient safety information to support an NDA submission and that the only additional clinical trial required will be a small pharmacokinetic trial in healthy volunteers to evaluate plasma levels of LE and its key metabolites following topical dosing of KPI-121 0.25%.

KPI-121 1.0% for Post-Surgical Inflammation and Pain

Post-Surgical Inflammation and Pain Overview

        Ocular inflammation and pain frequently occur following ocular surgery. Trauma caused by surgery leads to production of prostaglandins, increases in blood flow to the affected area and protein and cellular debris resulting in inflammation. If left untreated, inflammation of the eye may result in further ocular complications, including cystoid macular edema, which can lead to significant vision impairment. The standard of care for managing inflammation following ocular surgery consists of anti-inflammatory drugs, such as steroids, which are typically administered via eye drops multiple times per day. These drugs reduce post-surgical inflammation and pain experienced by patients.

Limitations of Existing Treatments for Post-Surgical Inflammation and Pain

        LE is a unique steroid that was designed to limit side effects, such as increases in IOP and cataract formation, that are associated with other ocular steroids. The first LE containing product, Lotemax, was approved by the FDA in 1998. Subsequent gel and ointment formulations of Lotemax were approved by the FDA for the treatment of post-operative inflammation and pain following ocular surgery. Durezol is a topical steroid approved by the FDA for the treatment of inflammation and pain associated with ocular surgery. Durezol eye drops are dosed four times a day for two weeks followed by dose tapering based on patient response.

        The most commonly used ocular steroids, including Lotemax products and Durezol, are approved for the treatment of post-surgical inflammation and pain with a four-times-a-day dosing regimen. This dosing regimen can be burdensome for patients as they are taking multiple eye drops following surgery, and four-times-a-day dosing frequently reduces patient compliance with the prescribed medication. There is currently no marketed ocular steroid product with an approved twice-a-day dosing regimen.

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KPI-121 1.0% Opportunity in Post-Surgical Inflammation and Pain

        We believe that KPI-121 1.0% has a favorable profile for the treatment of inflammation and pain following ocular surgery, including the following attributes:

    Twice daily dosing.  In our completed Phase 3 clinical trial, patients who had undergone cataract surgery and were treated with KPI-121 1.0% demonstrated a significant increase in the resolution of inflammation and pain after seven days of dosing using a twice daily dosing regimen as compared to patients treated with placebo. Given the accepted view in ophthalmic literature that less frequent dosing leads to higher patient compliance, we believe the ability to achieve a significant reduction in inflammation and pain following surgery with a twice-a-day product will be a key differentiating attribute of KPI-121 1.0%.

    Favorable safety and tolerability profile.  LE is one of the safest topical ocular steroids available due to its unique pharmacokinetics. LE was designed to be metabolized after exerting its anti-inflammatory action in the eye. The metabolism of LE to inactive metabolites reduces exposure of the trabecular meshwork to the active steroid, thus reducing risk of IOP increase relative to other steroids. To date, we have clinical data from approximately 340 patients treated with KPI-121 and have seen similar profiles with respect to mean IOP and the frequency of increases in IOP levels in patients treated with KPI-121 compared to patients treated with placebo. In our completed Phase 3 clinical trial, KPI-121 1.0% had a tolerability profile comparable to placebo.

KPI-121 1.0% Phase 3 Clinical Trial

        In 2014, we conducted a Phase 3 multi-center, randomized, double-masked, placebo-controlled, parallel-group trial designed to evaluate two dosing regimens of KPI-121 ophthalmic suspension versus placebo in patients following cataract surgery. Patients who had a threshold degree of ocular inflammation on the day after surgery were randomized to receive either KPI-121 1.0% administered twice a day, or BID, KPI-121 0.25% administered four times a day or placebos administered with the same frequency, in each case for two weeks. The primary endpoints for each of the KPI-121 treatment arms were:

    the proportion of patients with complete resolution (grade=0) of anterior chamber cells, which is an objective measure of intraocular inflammation, at post-operative day eight and maintained through the end of the trial with no need for rescue medication; and

    the proportion of patients with complete resolution of pain (grade=0) at post-operative day eight and maintained through the end of the trial with no need for rescue medication.

        At day eight, statistically significance in the primary endpoint of complete resolution of inflammation with no need for rescue medications was achieved with both KPI-121 1.0% (p=0.0024) and KPI-121 0.25% (p<0.0001). Statistical significance in the primary endpoint of complete resolution of ocular pain by day eight with no need for rescue medications was also achieved for KPI-121 1.0% (p=0.0019) and KPI-121 0.25% (p=0.0003). The bar graph on the left below shows the number of patients in the KPI-121 0.25% and placebo treatment arms who had complete resolution of inflammation and complete resolution of pain at day eight of treatment, and the bar graph on the right

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below shows the number of patients in the KPI-121 1.0% and placebo treatment arms who had complete resolution of inflammation and complete resolution of pain at day eight of treatment.

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        Both KPI-121 1.0% and KPI-121 0.25% were well-tolerated in this trial. The table below shows the number of patients in the KPI-121 1.0%, KPI-121 0.25% and placebo treatment arms who experienced IOP increases of 5 mm Hg or greater as compared to baseline (measured prior to onset of treatment) on days four, eight, 15 and 18 of the trial. As shown below, only between 1% and 3% of patients treated with KPI-121 experienced increases in IOP of greater than 5 mm Hg, which was similar to the IOP increases observed in the placebo group.


Number of Patients with IOP Increase of Greater than 5 mm Hg in Study Eye

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Phase 3 Clinical Development Program

        Based on our discussions with the FDA, we plan to commence a second Phase 3 clinical trial of KPI-121 1.0% for the treatment of inflammation and pain following cataract surgery in the first half of 2016. The Phase 3 clinical trial will compare KPI-121 1.0% administered twice a day for 14 days to placebo in approximately 350 patients. The primary endpoints in the trial will be the same as those in the initial Phase 3 trial:

    the proportion of patients with complete resolution (grade=0) of inflammation as measured by anterior chamber cells at post-operative day eight and maintained through the end of the trial with no need for rescue medication; and

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    the proportion of patients with complete resolution of pain (grade=0) at post-operative day eight and maintained through the end of the trial with no need for rescue medication.

        Based on our discussions with the FDA, we believe that once we complete the second Phase 3 trial, we will have generated sufficient safety information to support an NDA submission and that the only additional clinical trial required will be a small pharmacokinetic trial in healthy volunteers to evaluate plasma levels of LE and its key metabolites following topical dosing of KPI-121 1.0%. Although we are conducting our Phase 3 trials of KPI-121 1.0% in patients who have undergone cataract surgery, these trials are intended to support a label for all post-surgical ocular inflammation and pain.

KPI-121 in Meibomian Gland Disease

        MGD is a chronic disease of the meibomian glands in the eyelid that secrete lipids to help stabilize the tear film. In MGD, the meibomian glands become blocked with thickened secretions. Chronically obstructed glands have an impaired ability to secrete lipids, resulting in changes in the tear film, which can lead to a number of additional problems, including dry eye disease. MGD can also lead to inflammation of the eyelid and ocular surface, changes in the tear film, eye irritation and discomfort and ocular surface disease.

        MGD is currently treated primarily with warm compresses, lid massage and lid hygiene to help remove accumulated lipids in the meibomian glands and to remove debris from eye margins and the lashes. There are no approved pharmaceutical therapies for MGD in the United States, although topical steroids are occasionally used off-label to treat MGD.

        We have initiated a Phase 2 clinical trial evaluating KPI-121 0.25% in patients with MGD compared to placebo for 28 days. The primary endpoints for the trial are a reduction in posterior lid margin hyperemia, as measured with a 0 to 4 scale ranging from no hyperemia (score=0) to severe hyperemia (score=4), and ocular discomfort severity, as reported by the patient on a visual analog scale ranging from 0 to 100 mm (0 mm=very mild; 100 mm=very severe). We expect to receive top-line data from this clinical trial in the first half of 2016. Based on the results of this trial, we will determine next steps for the clinical development program of KPI-121 in MGD.

KPI-285

Back-of-the-Eye Disease

        There are a range of back-of-the-eye diseases and conditions that adversely affect vision.

Age-Related Macular Degeneration (AMD)

        AMD is a degeneration of the macula of the retina that leads to impairment and loss of central vision. There are two categories of AMD: "Dry" AMD, which involves slow deterioration of the retina with submacular drusen, atrophy, loss of macular function and central vision impairment; and "Wet" AMD, which involves growth of abnormal blood vessels under the retina and macula, resulting in edema, tissue damage and rapid loss of central vision. If untreated, neovascularization in Wet AMD patients typically results in significant vision loss and the formation of a scar under the macular region of the retina. Most cases begin as Dry AMD, which can progress to Wet AMD. Wet AMD is a leading cause of blindness in people over the age of 55 in the United States and the European Union. The incidence of Wet AMD increases substantially with age, and we expect that the number of cases of Wet AMD will increase with growth of the elderly population in the United States.

        The current standard of care for Wet AMD is intraocular injection of drugs that target VEGF, one of the key proteins involved in neovascularization.

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Diabetic Retinopathy (DR) and Diabetic Macular Edema (DME)

        DR is an ocular complication of diabetes involving changes of retinal blood vessels that lead to significant visual impairment. These changes include dysfunction of retinal vasculature (nonproliferative retinopathy), with vascular occlusion and increased permeability, leading to retinal hypoxia and DME. The disease can further progress to proliferative retinopathy with retinal neovascularization, hemorrhage and retinal detachment.

        Among an estimated 19.8 million adults in the United States aged forty years and older known to have diabetes, the prevalence rate for DME is 3.8%, or approximately 746,000 people. DME is the leading cause of visual impairment and blindness in Americans between 20 and 74 years old.

Retinal Vein Occlusion (RVO)

        RVO is a blockage of the small veins that carry blood away from the retina. The disease can cause sudden blurring or vision loss in all or part of one eye. RVO has been estimated to affect 16 million people worldwide.

Limitations of Existing Treatments for Back-of-the-Eye Disease

        VEGF is a protein that plays a critical role in the formation of new blood vessels and increased permeability, two pathological processes that contribute to the vision loss associated with certain back-of-the-eye diseases. Several VEGF tyrosine kinase inhibitors have been investigated in AMD patients in clinical trials. These inhibitors have been administered in a variety of ways, including intravitreal injection, oral administration and topical dosing. To date, no VEGF tyrosine kinase inhibitors have been approved in the United States for the treatment of ocular diseases. We believe that there is a substantial market opportunity for a safe and effective topically applied VEGF tyrosine kinase inhibitors to treat various retinal diseases, such as AMD, DR, DME, RVO and related neovascular diseases.

        The most common treatments for back-of-the-eye diseases involve administration of biologic agents that block the VEGF pathway and prevent or retard the blood vessel leakage and/or proliferation. Unfortunately, physicians must inject these biologic agents directly into the vitreous of the eye via frequent IVTs to maintain vision. Sales of the two leading IVT biologic agents used to treat eye diseases associated with abnormal blood vessel proliferation, Genentech's Lucentis® and Regeneron's Eylea®, were over $3.4 billion in the aggregate in the United States in 2014. Topical administration of therapeutics to treat back-of-the-eye diseases has not yet been demonstrated to be effective in the management of retinal disease, most likely due to insufficient delivery of drug to the back of the eye.

KPI-285 for the Potential Treatment of Wet AMD, DR, DME and RVO

        KPI-285 is our MPP small molecule NCE that is designed to be a potent VEGF receptor kinase inhibitor. KPI-285 is engineered with our MPP technology to facilitate its penetration into tissues in the back of the eye following topical dosing. In preclinical studies, KPI-285 demonstrated a potency of less than one nanomolar against the VEGF receptor-2 kinase and good selectivity against particular growth factor receptor kinases, cell cycle kinases and other detrimental receptors. KPI-285 is designed to be administered topically as an eye drop.

        In preclinical studies, topical administration of KPI-285 achieved concentrations in tissues in the back of the eye well above the concentrations required for in vitro inhibition of 50% of the VEGF receptor kinase activity. In addition, in a rabbit model of VEGF induced vascular leakage, topically applied KPI-285 MPP reduced leakage to an extent similar to that achieved with an IVT injection of Genentech's Avastin®, a recombinant human monoclonal antibody that binds to VEGF. In this model, vascular leakage of fluorescein was induced by IVT injections of VEGF. The extent of fluorescein

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leakage observed in various treatment groups was scored in a blinded fashion on a scale from 0 to 4, with 0 being no leakage and 4 being heavy leakage. As shown in the photographs below, the magnitude of the effect achieved with topical administration of KPI-285 5.0% was similar to that observed with IVT injection of Avastin.

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        We believe that an effective topical therapy for patients with retinal diseases such as AMD, DR, DME and RVO will be a significant advancement in the treatment of these diseases and could increase patient compliance and reduce treatment burden in patients suffering from these sight threatening diseases. Based on our progress to date, we anticipate filing an IND for KPI-285 in 2017.

Potential Applications in Other Diseases

        Mucus limits delivery of conventionally formulated drugs to mucosal tissues such as the lung, cervical/vaginal and gastrointestinal tract. While our current focus is in ophthalmology, our MPP technology has been effective in preclinical studies in enhancing drug delivery to these other tissues. We have also demonstrated in preclinical studies that MPP technology can be used to increase mucus penetration of over fifteen classes of drugs.

Competition

        The biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. While we believe that our technologies, knowledge, experience and scientific resources provide us with competitive advantages, we face competition from many different sources, including major pharmaceutical, specialty pharmaceutical and biotechnology companies, academic institutions and governmental agencies and public and private research institutions. Any product candidates that we successfully develop and commercialize will compete with existing therapies and new therapies that may become available in the future.

        Our competitors include large pharmaceutical and biotechnology companies, and specialty pharmaceutical and generic drug companies. Many of our competitors 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.

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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. Smaller or early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.

        The key competitive factors affecting the success of KPI-121 0.25%, KPI-121 1.0% and our other product candidates, if approved, are likely to be the product candidate's efficacy, safety, method of administration, convenience, price, the level of generic competition and the availability of insurance coverage and reimbursement from government and other third-party payors.

        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 side effects, are more convenient or are less expensive than any products that we may develop. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours. In addition, our ability to compete may be affected because in many cases insurers or other third-party payors seek to encourage the use of generic products.

Competition in Dry Eye Disease

        While there are no drugs currently approved in the United States specifically for the treatment of the signs and symptoms of dry eye disease, the current disease management approaches for dry eye disease in the United States include the following: over-the-counter artificial tear eye drops, which are used on an intermittent or chronic basis to provide short term symptomatic relief of dryness and irritation; off-label prescription drugs, including topical steroid drops and/or oral doxycycline, which are prescribed on occasion for treatment of dry eye disease; on-label prescription drugs, including Restasis, which is the only prescription drug that is approved in the United States for increasing tear production and which is intended to be used chronically as part of the dry eye management regimen; palliative therapies, such as hot compresses for the eye and lid hygiene management; and devices, such as punctal plugs that are inserted into the tear ducts to inhibit tear drainage, resulting in more moisture on the surface of the eye.

        We are developing KPI-121 0.25% for the temporary relief of the signs and symptoms of dry eye disease, including the management of dry eye disease flares. Any product that is developed for the temporary treatment of the signs and symptoms of dry eye disease could directly compete with KPI-121 0.25%.

        There are a number of product candidates in preclinical research and clinical development by third parties in the United States for the treatment of dry eye disease. If any of these product candidates is approved and such product candidate either treats the signs and symptoms of dry eye disease or reduces the frequency of flares in dry eye patients, it could reduce the overall market opportunity for KPI-121 0.25%. Based on publicly available information, we have identified, among others, the following product candidates in clinical development in the United States: Shire has submitted an NDA to the FDA for small molecule LF1a antagonist, lifitegrast, which is formulated for topical delivery; Mimetogen has a small molecule TrkA agonist, MIM-D3, which is formulated for topical delivery and is currently in Phase 3 clinical development; Ocular Therapeutix has a bioresorbable hydrogel-based steroid product candidate, OTX-DP, which is currently in Phase 2 clinical development. Rigel has a small molecule Jak/Syk inhibitor, R348, which is being formulated for topical delivery and is currently in Phase 2 clinical development; and Allergan has molecules AGN-223575, AGN-232411 and RestasisX, each of which is currently in a Phase 2 clinical trial in the United States. There are also other product candidates for treatment of dry eye disease in the United States in earlier stage development. Further, Oculeve, which was recently acquired by Allergan, is developing a nasal neurostimulation medical device that is intended to increase tear production.

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Competition in Inflammation and Pain Following Ocular Surgery

        Following ocular surgery, topical steroids are commonly prescribed to manage and prevent complications from post-operative inflammation.

        Currently marketed topical steroids are the main competition to KPI-121 for the treatment of inflammation and pain following ocular surgery. The current market leaders in the United States are Lotemax products and Durezol. Generic topical steroid formulations consist mainly of products containing prednisolone, fluorometholone or dexamethasone. In addition, there are various formulations of steroids that are produced by compounding pharmacies and are injected into the eye following ocular surgery.

        There are a number of product candidates in preclinical research and clinical development by third parties in the United States for the treatment of inflammation and pain following ocular surgery, including the following: Valeant is developing an LE gel, which is formulated for topical delivery and is currently in Phase 3 clinical development; Ocular Therapeutix is developing Dextenza, a punctal plug that is currently in Phase 3 clinical development; and Icon Bioscience, Inc. is developing IBI-10090, which is formulated as a drug delivery system, or DDS, to be injected into the eye following ocular surgery and is currently in Phase 3 clinical development.

        There are also other product candidates for treatment of pain and inflammation following ocular surgery in the United States that are in earlier stage development.

Competition in Back-of-the-Eye Disease

        A number of therapies have been developed to block the effects of VEGF by binding to and sequestering the protein. These include Regeneron Pharmaceuticals, Inc.'s Eylea, a recombinant fusion protein containing portions of the human VEGF receptor that binds to soluble VEGF; and Genentech, Inc.'s Lucentis, a recombinant humanized monoclonal antibody fragment that binds to and inhibits VEGF, and Avastin, a recombinant human monoclonal antibody that binds to VEGF. Avastin is approved as an anti-cancer agent, but is widely used off-label in ophthalmic diseases. All of these therapies are administered by intravitreal injections and must be regularly dosed for optimal efficacy.

        In addition to IVTs, there are also two marketed DDS that are used to treat back-of-the-eye diseases: Ozurdex®, which releases dexamethasone, a corticosteroid, and is marketed by Allergan, and Iluvien®, which releases fluocinolone acetonide and is marketed by Alimera Sciences.

        There are a number of other companies working on topically applied small molecules for the treatment of back-of-the-eye diseases. The three most advanced programs are Bayer AG's topical small molecule RTKI targeting the VEGF pathway in Wet-AMD patients, which is in Phase 2 clinical development, PanOptica Inc.'s molecule for treatment of retinal disease, which is in Phase 2 clinical development for the treatment of Wet AMD and DR, and Ohr Pharmaceutical Inc.'s squalamine, a small molecule anti-angiogenic drug for the treatment of Wet AMD, which is in Phase 3 clinical development.

        There are a number of other preclinical research and clinical development programs being conducted by third parties to develop treatments for Wet AMD. We expect that product candidates currently in clinical development, or that could enter clinical development in the near future, may represent significant competition if approved. These product candidates may provide efficacy, safety, convenience and other benefits that are not provided by currently marketed therapies.

Sales and Marketing

        In light of our stage of development, we have not yet established a commercial organization or distribution capabilities. We have retained commercial rights for our product candidates for which we may receive marketing approvals in territories in which we believe it is possible to access the market through a

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focused, specialty sales force. If our product candidates receive marketing approval, we plan to commercialize them in the United States with our own focused, specialty sales force. We expect to explore commercialization of our product candidates in certain markets outside the United States utilizing a variety of collaboration, distribution and other marketing arrangements with one or more third parties.

Manufacturing

        We utilize our substantial in-house expertise and know-how to develop and scale up our manufacturing processes before these processes are transferred to third-party contract manufacturers, and to understand and establish controls of critical process parameters. We also have personnel with deep product development experience who actively manage the third-party contract manufacturers producing KPI-121 and other products that we may develop in the future.

        Our KPI-121 drug product is currently manufactured at qualified contract manufacturing facilities in compliance with current good manufacturing practice, or cGMP, regulations. We expect that the same facilities will be used to manufacture commercial lots of both dosage strengths of KPI-121. Preparation of the concentrated milled suspension is performed by a third party using a manufacturing process developed by us. The milled suspension is sterilized by gamma radiation at a separate third party facility. The sterilized milled suspension is then diluted to the final drug product concentrations and filled into multi-dose ophthalmic dropper bottles at a third-party manufacturer.

        We have supply agreements in place with these contract manufacturers to support KPI-121 clinical and registration manufacturing, release testing, registration stability, and clinical labeling and packaging. We plan to enter into long term commercial supply agreements with these contract manufacturers by early 2016.

        We obtain the active pharmaceutical ingredient from a third-party manufacturer. We currently obtain our supplies from this manufacturer on a purchase order basis. We plan to enter into a long term commercial supply agreement with this manufacturer by early 2016.

Intellectual Property

        Our success depends significantly on our ability to obtain and maintain proprietary protection for our product candidates, technology and know-how, to operate without infringing the proprietary rights of others and to prevent others from infringing our proprietary rights. We seek to protect our proprietary position by, among other methods, filing U.S. and certain foreign patent applications related to our proprietary technology, inventions and improvements that are important to the development of our business, where patent protection is available. We also rely on trade secrets, know-how, continuing technological innovation and in-licensing opportunities to develop and maintain our proprietary position.

        As of August 31, 2015, we owned or exclusively licensed a total of five U.S. patents and 26 U.S. patent applications, including original filings, continuations and divisional applications, as well as three foreign patents and 83 foreign patent applications. Our patent portfolio includes the following patents and patent applications that we own or exclusively license:

    a composition-of-matter patent covering KPI-121 issued in the United States, which is expected to expire in 2033, and related patent applications filed in the United States, Australia, Canada, the European Patent Office, Japan, and South Korea, which, if granted, and if the appropriate maintenance, renewal, annuity or other governmental fees are paid, are expected to expire in 2033;

    a composition-of-matter United States patent application covering KPI-121 1.0% and KPI-121 0.25%, and a related patent cooperation treaty, or PCT, international patent application, any

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      national phase filings of which, if granted, and if the appropriate maintenance, renewal, annuity or other governmental fees are paid, are expected to expire in 2033;

    patent applications filed in the United States, Australia, Brazil, Canada, Chile, China, the European Patent Office, Japan, South Korea, Mexico, New Zealand, and Thailand relating to ophthalmic applications of our MPP technology, which, if granted, and if the appropriate maintenance, renewal, annuity or other governmental fees are paid, are expected to expire in 2033;

    composition-of-matter patent applications covering KPI-285 filed in the United States, Australia, Brazil, Canada, China, the European Patent Office, India, Japan, South Korea, Mexico, and New Zealand, which, if granted, and if the appropriate maintenance, renewal, annuity or other governmental fees are paid, are expected to expire in 2034;

    an in-licensed U.S. patent covering methods for treating an eye disease or disorder by injecting or instilling a drug delivery system, which is expected to expire in 2031, and related patent applications filed in the United States, Canada, and the European Patent Office, which, if granted, and if the appropriate maintenance, renewal, annuity or other governmental fees are paid, are expected to expire in 2031; and

    an in-licensed composition-of-matter U.S. patent related to our MPP technology, which is expected to expire in 2028, and related patent applications filed in the United States and the European Patent Office, which, if granted, and if the appropriate maintenance, renewal, annuity or other governmental fees are paid, are expected to expire in 2025.

        The term of individual patents depends upon the legal term for patents in the countries in which they are granted. In most countries, including the United States, the patent term is generally 20 years from the earliest claimed filing date of a non-provisional patent application in the applicable country. In the United States, a patent's term may, in certain cases, be lengthened by patent term adjustment, which compensates a patentee for administrative delays by the U.S. Patent and Trademark Office in examining and granting a patent, or may be shortened if a patent is terminally disclaimed over a commonly owned patent or a patent naming a common inventor and having an earlier expiration date. The Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Act, permits a patent term extension of up to five years beyond the expiration date of a U.S. patent as partial compensation for the length of time the drug is under regulatory review while the patent is in force. 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 applicable to each regulatory review period 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. We cannot provide any assurance that any patent term extension with respect to any U.S. patent will be obtained and, if obtained, the duration of such extension.

        Similar provisions are available in the European Union and certain other foreign jurisdictions to extend the term of a patent that covers an approved drug. In the future, if and when our product candidates receive approval by the FDA or foreign regulatory authorities, we expect to apply for patent term extensions on issued patents covering those products, depending upon the length of the clinical trials for each drug and other factors. The expiration dates referred to above are without regard to potential patent term extension or other market exclusivity that may be available to us. However, we cannot provide any assurances that any such patent term extension of a foreign patent will be obtained and, if obtained, the duration of such extension.

Trade Secrets

        In addition to patents, we may rely, in some circumstances, on trade secrets to protect our technology. However, trade secrets can be difficult to protect. We seek to protect our proprietary

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technology and processes, and obtain and maintain ownership of certain technologies, in part, by confidentiality and invention assignment agreements with our employees, consultants, scientific advisors and contractors. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems.

License Agreements

The Johns Hopkins University

        In November 2009, we entered into an exclusive license agreement with The Johns Hopkins University, or JHU, which was amended in November 2012, May 2014, and August 2014 and amended in part by the JHU settlement agreement described below. We refer to the amended license agreement with JHU as the JHU license agreement. Pursuant to the JHU license agreement, JHU granted us an exclusive, worldwide, sublicenseable license under specified patent rights covering various aspects of MPP technology, including JHU's interest in patent rights that we jointly own with JHU, to research, develop, make, use and sell products and provide services in any field. JHU also granted us a non-exclusive license to use specified know-how with limits on JHU's right to license the know-how to other commercial entities.

    Financial Terms

        In connection with the JHU license agreement, we paid JHU an upfront license fee in the low tens of thousands of dollars and issued to JHU a low single digits percentage of our common stock. We also reimbursed JHU for the prosecution and maintenance costs incurred by JHU for the licensed patent rights prior to our entering into the JHU license agreement, and we are responsible for all or, in specified cases, a portion of the ongoing costs relating to the prosecution and maintenance of the JHU patent rights licensed to us. We paid JHU fees in the low tens of thousands of dollars upon entering into certain of the amendments to the JHU license agreement. We have also paid JHU an aggregate of approximately $261,000 in minimum annual royalty fees and development milestones and are obligated to pay fees upon achievement of additional specified development milestones and achievement of specified commercial milestones under the license agreement.

        In connection with the JHU license agreement and the JHU settlement agreement described below, we are obligated to make certain future payments to JHU. Beginning in 2017, we are obligated to pay JHU future annual minimum royalties that will not exceed approximately $113,000 per year. In addition, we must pay JHU a tiered royalty rate in the low single-digits on annual sales by us or our affiliates of products or services covered by a valid issued claim, or certain pending claims, of a licensed JHU patent right in the country of sale, from which we may, under specified circumstances, offset portions of amounts we must pay as royalties on other patent rights in order to commercialize a licensed product or licensed service up to a maximum reduction of a mid-double digit percentage. We must also pay a percentage, ranging from low single digits to low double digits, of certain consideration we or our affiliates receive from sublicensing rights under the licensed JHU intellectual property, subject to specified offsets and deductions. We may offset against each minimum annual payment the royalties and sublicense income that we pay to JHU in the preceding twelve month period. We are also obligated to pay to JHU certain milestone payments, which will not exceed approximately $1.9 million in the aggregate, if certain development and commercial events are achieved. The JHU patent rights sublicensed to us by GrayBug under the JHU settlement agreement described below are considered in the same way as the JHU patent rights directly licensed to us by JHU for purposes of determining these payments.

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    Diligence Obligations

        We are required to use commercially reasonable efforts to develop and introduce the licensed products and licensed services to the market, including developing licensed products suitable for different indications, consistent with sound and reasonable business practice and judgment, and, after introducing a licensed product or licensed service into the market, we must endeavor to keep licensed products and licensed services reasonably available to the public consistent with sound and reasonable business practice and judgment.

    Term and Termination

        The JHU license agreement will expire on a country-by-country basis upon the expiration of the last to expire licensed patent in such country or, if no licensed patent issues in such country, then in November 2029. Either we or JHU may terminate the JHU license agreement for the other party's breach that is not cured within specified time periods or if the other party is subject to certain bankruptcy protections. In addition we may terminate the JHU license agreement, for any reason, upon 90 days' prior written notice.

GrayBug, LLC and The Johns Hopkins University

        A dispute arose between us, JHU, and GrayBug, Inc. (formerly known as GrayBug, LLC), or GrayBug, over rights licensed to us and GrayBug under certain patent rights owned by JHU. In October 2014, we, GrayBug, and JHU resolved this matter by entering into a Settlement and License Agreement, which was amended in January 2015, which we refer to as the JHU settlement agreement.

        Under the JHU settlement agreement, GrayBug granted us, under specified patent rights that are exclusively licensed to GrayBug by JHU in all fields, an exclusive, worldwide royalty-free sublicense in the field of use of a particle with specified characteristics for delivery of a biologically active material through mucus, mucin, or a mucosal barrier where such delivery does not involve administration via injection to the eye, which we refer to as the Kala sublicense field. In turn, we granted GrayBug, under specified patent rights that are exclusively licensed to us by JHU in all fields, including JHU's rights in certain patent rights that we jointly own with JHU, an exclusive, worldwide royalty-free sublicense in the field of use of a particle with specified characteristics for delivery of a biologically active material to the eye via injection, excluding any particle comprising or consisting of loteprednol etabonate. In addition, JHU granted us, under the terms of the JHU license agreement, an exclusive, sublicenseable, worldwide license under certain additional specified patent rights relating to further aspects of MPP technology in the Kala sublicense field. JHU also granted us certain rights to obtain a non-exclusive license to certain additional patent rights and, if we obtain such a license, we would have the exclusive right to negotiate for a specified time period an exclusive license under such patent rights in the Kala sublicense field. Under the JHU settlement agreement, we agreed not to exercise our rights under the JHU patent rights licensed or sublicensed to us, including the patent rights that we jointly own with JHU, to use a particular active ingredient. Each party to the JHU settlement agreement may sublicense the rights granted to it pursuant to the JHU settlement agreement, subject to notice requirements and the requirement that any such sublicense must involve some aspect of collaboration, joint research, development, manufacture, partnership or the like. In any event, sublicenses beyond a specified number of tiers are not permitted without the original licensing party's written consent.

        We, GrayBug and JHU each released the others, and certain persons affiliated with them, from any claims and losses known to the releasing party as of the effective date of the JHU settlement agreement in connection with the dispute that led to the JHU settlement agreement.

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    Financial Terms

        The JHU settlement agreement also amended certain of our financial obligations under the JHU license agreement, which we have reflected in the description above. Neither we nor GrayBug owe the other any royalties, milestone payments or other payments with respect to the sublicenses and other rights granted to each other. In addition, JHU agreed that we are not responsible for paying to JHU any sublicense fees or other payments due under our JHU license agreement that may otherwise have arisen as a result of our granting GrayBug the sublicenses under the JHU settlement agreement.

        For the specified patent rights directly licensed to us by JHU in the Kala sublicense field under the JHU settlement agreement, we reimbursed JHU for a portion of the patent prosecution and maintenance costs incurred prior to entering the JHU settlement agreement, and we are responsible for a portion of ongoing costs relating to the prosecution and maintenance of the JHU patent rights directly licensed to us by JHU under the JHU settlement agreement, except that we are responsible for all of the ongoing prosecution and maintenance costs of any of these JHU patent rights for which there is no other direct licensee of JHU.

    Term and Termination

        The JHU settlement agreement will expire upon the expiration of all the patent rights that are the subject of the JHU settlement agreement. We may terminate one or more of the licenses or sublicenses granted to us in the JHU settlement agreement for convenience. We or GrayBug may terminate one or more the sublicenses granted to the other party under the JHU patent rights if the other party, or its employees, officers, directors, agents or representatives, takes certain steps to oppose, attempt to invalidate or prevent the issuance of any of the patent rights directly licensed to the terminating party by JHU.

Government Regulation and Product Approvals

        Government authorities in the United States, at the federal, state and local level, and in other countries and jurisdictions, including the European Union, extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, marketing, post-approval monitoring and reporting, and import and export of pharmaceutical products. The processes for obtaining regulatory approvals in the United States and in foreign countries and jurisdictions, along with subsequent compliance with applicable statutes and regulations and other regulatory authorities, require the expenditure of substantial time and financial resources.

Review and Approval of Drugs in the United States

        In the United States, the FDA regulates drug products under the Federal Food, Drug, and Cosmetic Act, or FDCA, and implementing regulations. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations requires the expenditure of substantial time and financial resources The failure to comply with applicable requirements under the FDCA and other applicable laws at any time during the product development process, approval process or after approval may subject an applicant and/or sponsor to a variety of administrative or judicial sanctions, including refusal by the FDA to approve pending applications, withdrawal of an approval, imposition of a clinical hold, issuance of warning letters and other types of letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement of profits, or civil or criminal investigations and penalties brought by the FDA and the Department of Justice or other governmental entities.

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        An applicant seeking approval to market and distribute a new drug product in the United States must typically undertake the following:

    completion of preclinical laboratory tests, animal studies and formulation studies in compliance with the FDA's good laboratory practice, or GLP, regulations;

    submission to the FDA of an IND, which must take effect before human clinical trials may begin;

    approval by an independent institutional review board, or IRB, representing each clinical site before each clinical trial may be initiated;

    performance of adequate and well-controlled human clinical trials in accordance with good clinical practices, or GCP, to establish the safety and efficacy of the proposed drug product for each indication;

    preparation and submission to the FDA of an NDA;

    review of the product by an FDA advisory committee, where appropriate or if applicable;

    satisfactory completion of one or more FDA inspections of the manufacturing facility or facilities at which the product, or components thereof, are produced to assess compliance with current Good Manufacturing Practices, or cGMP, requirements and to assure that the facilities, methods and controls are adequate to preserve the product's identity, strength, quality and purity;

    satisfactory completion of FDA audits of clinical trial sites to assure compliance with GCPs and the integrity of the clinical data;

    payment of user fees and securing FDA approval of the NDA; and

    compliance with any post-approval requirements, including Risk Evaluation and Mitigation Strategies, or REMS, and post-approval studies required by the FDA.

Preclinical Studies

        Preclinical studies include laboratory evaluation of the purity and stability of the manufactured drug substance or active pharmaceutical ingredient and the formulated drug or drug product, as well as in vitro and animal studies to assess the safety and activity of the drug for initial testing in humans and to establish a rationale for therapeutic use. The conduct of preclinical studies is subject to federal regulations and requirements, including GLP regulations. The results of the preclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and plans for clinical trials, among other things, are submitted to the FDA as part of an IND. Some long-term preclinical testing, such as animal tests of reproductive adverse events and carcinogenicity, may continue after the IND is submitted.

Human Clinical Trials in Support of an NDA

        Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators in accordance with GCP requirements, which include, among other things, the requirement that all research subjects provide their informed consent in writing before their participation in any clinical trial. Clinical trials are conducted under written study protocols detailing, among other things, the inclusion and exclusion criteria, the objectives of the study, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. A protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND. An IND automatically becomes effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions related to a proposed clinical trial and places the trial on clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns

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before the clinical trial can begin. The FDA can place an IND on clinical hold at any point in development, and depending upon the scope of the hold, clinical trial(s) may not restart until resolution of the outstanding concerns to the FDA's satisfaction.

        In addition, an IRB representing each institution participating in the clinical trial must review and approve the plan for any clinical trial before it commences at that institution, and the IRB must conduct a continuing review and reapprove the study at least annually. The IRB must review and approve, among other things, the study protocol and informed consent information to be provided to study subjects. An IRB must operate in compliance with FDA regulations. Information about certain clinical trials must be submitted within specific timeframes to the National Institutes of Health for public dissemination on their ClinicalTrials.gov website.

        Human clinical trials are typically conducted in three sequential phases, which may overlap or be combined:

    Phase 1.  The drug is initially introduced into healthy human subjects or, in certain indications such as cancer, patients with the target disease or condition and tested for safety, dosage tolerance, absorption, metabolism, distribution, excretion and, if possible, to gain an early indication of its effectiveness and to determine optimal dosage.

    Phase 2.  The drug is administered to a limited patient population to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance and optimal dosage.

    Phase 3.  The drug is administered to an expanded patient population, generally at geographically dispersed clinical trial sites, in well-controlled clinical trials to generate enough data to statistically evaluate the efficacy and safety of the product for approval, to establish the overall risk-benefit profile of the product and to provide adequate information for the labeling of the product.

        Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and more frequently if serious adverse events occur. In addition, IND safety reports must be submitted to the FDA for any of the following: serious and unexpected suspected adverse reactions; findings from other studies or animal or in vitro testing that suggest a significant risk in humans exposed to the drug; and any clinically important increase in the case of a serious suspected adverse reaction over that listed in the protocol or investigator brochure. Phase 1, Phase 2 and Phase 3 clinical trials may not be completed successfully within any specified period, or at all. Furthermore, 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 are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution, or an institution it represents, if the clinical trial is not being conducted in accordance with the IRB's requirements or if the drug has been associated with unexpected serious harm to patients. The FDA will typically inspect one or more clinical sites to assure compliance with GCP and the integrity of the clinical data submitted.

Section 505(b)(2) NDAs

        NDAs for most new drug products are based on two full clinical studies which must contain substantial evidence of the safety and efficacy of the proposed new product. These applications are submitted under Section 505(b)(1) of the FDCA. The FDA is, however, authorized to approve an alternative type of NDA under Section 505(b)(2) of the FDCA. This type of application allows the applicant to rely, in part, on the FDA's previous findings of safety and efficacy for a similar product, or published literature. Specifically, Section 505(b)(2) applies to NDAs for a drug for which the investigations made to show whether or not the drug is safe for use and effective in use and relied upon by the applicant for approval of the application "were not conducted by or for the applicant and

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for which the applicant has not obtained a right of reference or use from the person by or for whom the investigations were conducted."

        Thus, Section 505(b)(2) authorizes the FDA to approve an NDA based on safety and effectiveness data that were not developed by the applicant. NDAs filed under Section 505(b)(2) may provide an alternate and potentially more expeditious pathway to FDA approval for new or improved formulations or new uses of previously approved products. If the Section 505(b)(2) applicant can establish that reliance on the FDA's previous approval is scientifically appropriate, the applicant may eliminate the need to conduct certain preclinical or clinical studies of the new product. The FDA may also require companies to perform additional studies or measurements to support the change from the approved product. The FDA may then approve the new drug candidate for all or some of the label indications for which the referenced product has been approved, as well as for any new indication sought by the Section 505(b)(2) applicant.

Submission of an NDA to the FDA

        Assuming successful completion of required clinical testing and other requirements, the results of the preclinical studies and clinical trials, together with detailed information relating to the product's chemistry, manufacture, controls and proposed labeling, among other things, are submitted to the FDA as part of an NDA requesting approval to market the drug product for one or more indications. Under federal law, the submission of most NDAs is additionally subject to an application user fee, and the sponsor of an approved NDA is also subject to annual product and establishment user fees. These fees are typically increased annually.

        The FDA conducts a preliminary review of an NDA within 60 days of its receipt and informs the sponsor by the 74th day after the FDA's receipt of the submission to determine whether the application is sufficiently complete to permit substantive review. The FDA may request additional information rather than accept an NDA for filing. In this event, the application must be resubmitted with the additional information. The resubmitted application is also subject to review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in-depth substantive review. The FDA has agreed to specified performance goals in the review process of NDAs. Most such applications are meant to be reviewed within ten months from the date of filing, and most applications for "priority review" products are meant to be reviewed within six months of filing. The review process may be extended by the FDA for three additional months to consider new information or clarification provided by the applicant to address an outstanding deficiency identified by the FDA following the original submission.

        Before approving an NDA, the FDA typically will inspect the facility or facilities where the product is or will be manufactured. These pre-approval inspections may cover all facilities associated with an NDA submission, including drug component manufacturing (such as active pharmaceutical ingredients), finished drug product manufacturing, and control testing laboratories. The FDA will not approve an application 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. Additionally, before approving an NDA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP.

        In addition, as a condition of approval, the FDA may require an applicant to develop a REMS. REMS use risk minimization strategies beyond the professional labeling to ensure that the benefits of the product outweigh the potential risks. To determine whether a REMS is needed, the FDA will consider the size of the population likely to use the product, seriousness of the disease, expected benefit of the product, expected duration of treatment, seriousness of known or potential adverse events, and whether the product is a new molecular entity. REMS can include medication guides, physician communication plans for healthcare professionals, and elements to assure safe use, or

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ETASU. ETASU may include, but are not limited to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring, and the use of patient registries. The FDA may require a REMS before approval or post-approval if it becomes aware of a serious risk associated with use of the product. The requirement for a REMS can materially affect the potential market and profitability of a product.

        The FDA is required to refer an application for a novel drug to an advisory committee or explain why such referral was not made. Typically, an advisory committee is a panel of independent experts, including clinicians and other scientific experts, that reviews, evaluates and provides a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.

Fast Track, Breakthrough Therapy and Priority Review Designations

        The FDA is authorized to designate certain products for expedited review if they are intended to address an unmet medical need in the treatment of a serious or life-threatening disease or condition. These programs are fast track designation, breakthrough therapy designation and priority review designation.

        Specifically, the FDA may designate a product for fast track review if it is intended, whether alone or in combination with one or more other drugs, for the treatment of a serious or life-threatening disease or condition, and it demonstrates the potential to address unmet medical needs for such a disease or condition. For fast track products, sponsors may have greater interactions with the FDA and the FDA may initiate review of sections of a fast track product's NDA before the application is complete. This rolling review may be available if the FDA determines, after preliminary evaluation of clinical data submitted by the sponsor, that a fast track product may be effective. The sponsor must also provide, and the FDA must approve, a schedule for the submission of the remaining information and the sponsor must pay applicable user fees. However, the FDA's time period goal for reviewing a fast track application does not begin until the last section of the NDA is submitted. In addition, the fast track designation may be withdrawn by the FDA if the FDA believes that the designation is no longer supported by data emerging in the clinical trial process.

        Second, in 2012, Congress enacted the Food and Drug Administration Safety and Innovation Act, or FDASIA. This law established a new regulatory scheme allowing for expedited review of products designated as "breakthrough therapies." A product may be designated as a breakthrough therapy if it is intended, either 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 product may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. The FDA may take certain actions with respect to breakthrough therapies, including holding meetings with the sponsor throughout the development process; providing timely advice to the product sponsor regarding development and approval; involving more senior staff in the review process; assigning a cross-disciplinary project lead for the review team; and taking other steps to design the clinical trials in an efficient manner.

        Third, the FDA may designate a product for priority review if it is a drug that treats a serious condition and, if approved, would provide a significant improvement in safety or effectiveness. The FDA determines, on a case-by-case basis, whether the proposed drug represents a significant improvement when compared with other available therapies. Significant improvement may be illustrated by evidence of increased effectiveness in the treatment of a condition, elimination or substantial reduction of a treatment-limiting drug reaction, documented enhancement of patient compliance that may lead to improvement in serious outcomes, and evidence of safety and effectiveness in a new

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subpopulation. A priority designation is intended to direct overall attention and resources to the evaluation of such applications, and to shorten the FDA's goal for taking action on a marketing application from ten months to six months.

Accelerated Approval Pathway

        The FDA may grant accelerated approval to a drug for a serious or life-threatening condition that provides meaningful therapeutic advantage to patients over existing treatments based upon a determination that the drug has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit. The FDA may also grant accelerated approval for such a condition when the product has an effect on an intermediate clinical endpoint that can be measured earlier than an effect on irreversible morbidity or mortality, or IMM, and that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity or prevalence of the condition and the availability or lack of alternative treatments. Drugs granted accelerated approval must meet the same statutory standards for safety and effectiveness as those granted traditional approval.

        For the purposes of accelerated approval, a surrogate endpoint is a marker, such as a laboratory measurement, radiographic image, physical sign or other measure that is thought to predict clinical benefit, but is not itself a measure of clinical benefit. Surrogate endpoints can often be measured more easily or more rapidly than clinical endpoints. An intermediate clinical endpoint is a measurement of a therapeutic effect that is considered reasonably likely to predict the clinical benefit of a drug, such as an effect on IMM. The FDA has limited experience with accelerated approvals based on intermediate clinical endpoints, but has indicated that such endpoints generally may support accelerated approval where the therapeutic effect measured by the endpoint is not itself a clinical benefit and basis for traditional approval, if there is a basis for concluding that the therapeutic effect is reasonably likely to predict the ultimate clinical benefit of a drug.

        The accelerated approval pathway is most often used in settings in which the course of a disease is long and an extended period of time is required to measure the intended clinical benefit of a drug, even if the effect on the surrogate or intermediate clinical endpoint occurs rapidly. Thus, accelerated approval has been used extensively in the development and approval of drugs for treatment of a variety of cancers in which the goal of therapy is generally to improve survival or decrease morbidity and the duration of the typical disease course requires lengthy and sometimes large trials to demonstrate a clinical or survival benefit.

        The accelerated approval pathway is usually contingent on a sponsor's agreement to conduct, in a diligent manner, additional post-approval confirmatory studies to verify and describe the drug's clinical benefit. As a result, a drug candidate approved on this basis is subject to rigorous post-marketing compliance requirements, including the completion of Phase 4 or post-approval clinical trials to confirm the effect on the clinical endpoint. Failure to conduct required post-approval studies, or confirm a clinical benefit during post-marketing studies, would allow the FDA to withdraw the drug from the market on an expedited basis. All promotional materials for drug candidates approved under accelerated regulations are subject to prior review by the FDA.

The FDA's Decision on an NDA

        On the basis of the FDA's evaluation of the NDA and accompanying information, including the results of the inspection of the manufacturing facilities, the FDA may issue an approval letter or a complete response letter. An approval letter authorizes commercial marketing of the product with specific prescribing information for specific indications. A complete response letter generally outlines the deficiencies in the submission and may require substantial additional testing or information in order for the FDA to reconsider the application. If and when those deficiencies have been addressed to the

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FDA's satisfaction in a resubmission of the NDA, the FDA will issue an approval letter. The FDA has committed to reviewing such resubmissions in two or six months depending on the type of information included. Even with submission of this additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.

        If the FDA approves a product, it may limit the approved indications for use for the product, require that contraindications, warnings or precautions be included in the product labeling, require that post-approval studies, including Phase 4 clinical trials, be conducted to further assess the drug's safety after approval, require testing and surveillance programs to monitor the product after commercialization, or impose other conditions, including distribution restrictions or other risk management mechanisms, including REMS, which can materially affect the potential market and profitability of the product. The FDA may prevent or limit further marketing of a product based on the results of post-market studies or surveillance programs. After approval, many types of changes to the approved product, such as adding new indications, manufacturing changes and additional labeling claims, are subject to further testing requirements and FDA review and approval.

Post-Approval Requirements

        Drugs manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion and reporting of adverse experiences with the product. After approval, most changes to the approved product, such as adding new indications or other labeling claims, are subject to prior FDA review and approval. There also are continuing, annual user fee requirements for any marketed products and the establishments at which such products are manufactured, as well as new application fees for supplemental applications with clinical data.

        In addition, drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and state agencies, and are subject to periodic unannounced inspections by the FDA and these state agencies for compliance with cGMP requirements. Changes to the manufacturing process are strictly regulated and often require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting and documentation requirements upon the sponsor and any third-party manufacturers that the sponsor may decide to use. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance.

        Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical trials to assess new safety risks; or imposition of distribution or other restrictions under a REMS program. Other potential consequences include, among other things:

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

    fines, warning letters or holds on post-approval clinical trials;

    refusal of the FDA to approve pending NDAs or supplements to approved NDAs, or suspension or revocation of product license approvals;

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

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    injunctions or the imposition of civil or criminal penalties.

        The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Drugs may be promoted only for the approved indications and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability.

        In addition, the distribution of prescription pharmaceutical products is subject to the Prescription Drug Marketing Act, or PDMA, which regulates the distribution of drugs and drug samples at the federal level, and sets minimum standards for the registration and regulation of drug distributors by the states. Both the PDMA and state laws limit the distribution of prescription pharmaceutical product samples and impose requirements to ensure accountability in distribution.

Abbreviated New Drug Applications for Generic Drugs

        In 1984, with passage of the Hatch-Waxman Amendments to the FDCA, Congress authorized the FDA to approve generic drugs that are the same as drugs previously approved by the FDA under the NDA provisions of the statute. To obtain approval of a generic drug, an applicant must submit an abbreviated new drug application, or ANDA, to the agency. In support of such applications, a generic manufacturer may rely on the preclinical and clinical testing previously conducted for a drug product previously approved under an NDA, known as the reference-listed drug, or RLD.

        Specifically, in order for an ANDA to be approved, the FDA must find that the generic version is identical to the RLD with respect to the active ingredients, the route of administration, the dosage form, and the strength of the drug. At the same time, the FDA must also determine that the generic drug is "bioequivalent" to the innovator drug. Under the statute, a generic drug is bioequivalent to a RLD if "the rate and extent of absorption of the drug do not show a significant difference from the rate and extent of absorption of the listed drug..."

        Upon approval of an ANDA, the FDA indicates whether the generic product is "therapeutically equivalent" to the RLD in its publication Approved Drug Products with Therapeutic Equivalence Evaluations, also referred to as the Orange Book. Physicians and pharmacists consider a therapeutic equivalent generic drug to be fully substitutable for the RLD. In addition, by operation of certain state laws and numerous health insurance programs, the FDA's designation of therapeutic equivalence often results in substitution of the generic drug without the knowledge or consent of either the prescribing physician or patient.

        Under the Hatch-Waxman Amendments, the FDA may not approve an ANDA until any applicable period of non-patent exclusivity for the RLD has expired. The FDCA provides a period of five years of non-patent data exclusivity for a new drug containing a new chemical entity. For the purposes of this provision, a new chemical entity, or NCE, is a drug that contains no active moiety that has previously been approved by the FDA in any other NDA. An active moiety is the molecule or ion responsible for the physiological or pharmacological action of the drug substance. In cases where such NCE exclusivity has been granted, an ANDA may not be filed with the FDA until the expiration of five years unless the submission is accompanied by a Paragraph IV certification, in which case the applicant may submit its application four years following the original product approval.

        The FDCA also provides for a period of three years of exclusivity if the NDA includes reports of one or more new clinical investigations, other than bioavailability or bioequivalence studies, that were conducted by or for the applicant and are essential to the approval of the application. This three-year exclusivity period often protects changes to a previously approved drug product, such as a new dosage form, route of administration, combination or indication. Three-year exclusivity would be available for a drug product that contains a previously approved active moiety, provided the statutory requirement for

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a new clinical investigation is satisfied. Unlike five-year NCE exclusivity, an award of three-year exclusivity does not block the FDA from accepting ANDAs seeking approval for generic versions of the drug as of the date of approval of the original drug product. The FDA typically makes decisions about awards of data exclusivity shortly before a product is approved.

Hatch-Waxman Patent Certification and the 30-Month Stay

        Upon approval of an NDA or a supplement thereto, NDA sponsors are required to list with the FDA each patent with claims that cover the applicant's product or an approved method of using the product. Each of the patents listed by the NDA sponsor is published in the Orange Book. When an ANDA applicant files its application with the FDA, the applicant is required to certify to the FDA concerning any patents listed for the reference product in the Orange Book, except for patents covering methods of use for which the ANDA applicant is not seeking approval. To the extent that the Section 505(b)(2) applicant is relying on studies conducted for an already approved product, the applicant is required to certify to the FDA concerning any patents listed for the approved product in the Orange Book to the same extent that an ANDA applicant would.

        Specifically, the applicant must certify with respect to each patent that:

    the required patent information has not been filed;

    the listed patent has expired;

    the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration; or

    the listed patent is invalid, unenforceable or will not be infringed by the new product.

        A certification that the new product will not infringe the already approved product's listed patents or that such patents are invalid or unenforceable is called a Paragraph IV certification. If the applicant does not challenge the listed patents or indicates that it is not seeking approval of a patented method of use, the ANDA application will not be approved until all the listed patents claiming the referenced product have expired (other than method of use patents involving indications for which the ANDA applicant is not seeking approval).

        If the ANDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the NDA and patent holders once the ANDA has been accepted for filing by the FDA. The NDA and patent holders may then initiate a patent infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days after the receipt of a Paragraph IV certification automatically prevents the FDA from approving the ANDA until the earlier of 30 months after the receipt of the Paragraph IV notice, expiration of the patent, or a decision in the infringement case that is favorable to the ANDA applicant.

        To the extent that the Section 505(b)(2) applicant is relying on studies conducted for an already approved product, the applicant is required to certify to the FDA concerning any patents listed for the approved product in the Orange Book to the same extent that an ANDA applicant would. As a result, approval of a Section 505(b)(2) NDA can be stalled until all the listed patents claiming the referenced product have expired, until any non-patent exclusivity, such as exclusivity for obtaining approval of a new chemical entity, listed in the Orange Book for the referenced product has expired, and, in the case of a Paragraph IV certification and subsequent patent infringement suit, until the earlier of 30 months, settlement of the lawsuit or a decision in the infringement case that is favorable to the Section 505(b)(2) applicant.

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Pediatric Studies and Exclusivity

        Under the Pediatric Research Equity Act of 2003, an NDA or supplement thereto must contain data that are adequate to assess the safety and effectiveness of the drug product 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. With enactment of the FDASIA in 2012, sponsors must also submit pediatric study plans prior to the assessment data. Those plans must contain an outline of the proposed pediatric study or studies the applicant plans to conduct, including study objectives and design, any deferral or waiver requests, and other information required by regulation. The applicant, the FDA, and the FDA's internal review committee must then review the information submitted, consult with each other, and agree upon a final plan. The FDA or the applicant may request an amendment to the plan at any time.

        The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of some or all pediatric data until after approval of the product for use in adults, or full or partial waivers from the pediatric data requirements. Additional requirements and procedures relating to deferral requests and requests for extension of deferrals are contained in FDASIA. Unless otherwise required by regulation, the pediatric data requirements do not apply to products with orphan designation.

        Pediatric exclusivity is another type of non-patent marketing exclusivity in the United States and, if granted, provides for the attachment of an additional six months of marketing protection to the term of any existing regulatory exclusivity, including the non-patent and orphan exclusivity. This six-month exclusivity may be granted if an NDA sponsor submits pediatric data that fairly respond to a written request from the FDA for such data. The data do not need to show the product to be effective in the pediatric population studied; rather, if the clinical trial is deemed to fairly respond to the FDA's request, the additional protection is granted. If reports of requested pediatric studies are submitted to and accepted by the FDA within the statutory time limits, whatever statutory or regulatory periods of exclusivity or patent protection cover the product are extended by six months. This is not a patent term extension, but it effectively extends the regulatory period during which the FDA cannot approve another application. We cannot provide any assurance that pediatric exclusivity will be obtained for any of our product candidates.

Orphan Drug Designation and Exclusivity

        Under the Orphan Drug Act, the FDA may designate a drug product as an "orphan drug" if it is intended to treat a rare disease or condition (generally meaning that it affects fewer than 200,000 individuals in the United States, or more in cases in which there is no reasonable expectation that the cost of developing and making a drug product available in the United States for treatment of the disease or condition will be recovered from sales of the product). A company must request orphan product designation before submitting an NDA. If the request is granted, the FDA will disclose the identity of the therapeutic agent and its potential use. Orphan product designation does not convey any advantage in or shorten the duration of the regulatory review and approval process.

        If a product with orphan status receives the first FDA approval for the disease or condition for which it has such designation or for a select indication or use within the rare disease or condition for which it was designated, the product generally will be receiving orphan product exclusivity. Orphan product exclusivity means that the FDA may not approve any other applications for the same product for the same indication for seven years, except in certain limited circumstances. Competitors may receive approval of different products for the indication for which the orphan product has exclusivity and may obtain approval for the same product but for a different indication. If a drug or drug product designated as an orphan product ultimately receives marketing approval for an indication broader than what was designated in its orphan product application, it may not be entitled to exclusivity.

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Patent Term Restoration and Extension

        A patent claiming a new drug product may be eligible for a limited patent term extension under the Hatch-Waxman Act, which permits a patent restoration of up to five years for patent term lost during product development and the FDA regulatory review. The restoration period granted is typically one-half the time between the effective date of an IND and the submission date of an NDA, plus the time between the submission date of an NDA and the ultimate approval date. Patent term restoration cannot be used to extend the remaining term of a patent past a total of 14 years from the product's approval date. Only one patent applicable to an approved drug product is eligible for the extension, and the application for the extension must be submitted prior to the expiration of the patent in question. A patent that covers multiple drugs for which approval is sought can only be extended in connection with one of the approvals. The U.S. Patent and Trademark Office reviews and approves the application for any patent term extension or restoration in consultation with the FDA. We cannot provide any assurance that any patent term extension with respect to any U.S. patent will be obtained and, if obtained, the duration of such extension, in connection with any of our product candidates.

Review and Approval of Drug Products in the European Union

        In order to market any product outside of the United States, a company must also comply with numerous and varying regulatory requirements of other countries and jurisdictions regarding quality, safety and efficacy and governing, among other things, clinical trials, marketing authorization, commercial sales and distribution of products. Whether or not it obtains FDA approval for a product, the company would need to obtain the necessary approvals by the comparable foreign regulatory authorities before it can commence clinical trials or marketing of the product in those countries or jurisdictions. The approval process ultimately varies between countries and jurisdictions and can involve additional product testing and additional administrative review periods. The time required to obtain approval in other countries and jurisdictions might differ from and be longer than that required to obtain FDA approval. Regulatory approval in one country or jurisdiction does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country or jurisdiction may negatively impact the regulatory process in others.

Procedures Governing Approval of Drug Products in the European Union

        Pursuant to the European Clinical Trials Directive, a system for the approval of clinical trials in the European Union has been implemented through national legislation of the member states. Under this system, an applicant must obtain approval from the competent national authority of a European Union member state in which the clinical trial is to be conducted. Furthermore, the applicant may only start a clinical trial after a competent ethics committee has issued a favorable opinion. Clinical trial application must be accompanied by an investigational medicinal product dossier with supporting information prescribed by the European Clinical Trials Directive and corresponding national laws of the member states and further detailed in applicable guidance documents.

        To obtain marketing approval of a product under European Union regulatory systems, an applicant must submit a marketing authorization application, or MAA, either under a centralized or decentralized procedure. The centralized procedure provides for the grant of a single marketing authorization by the European Commission that is valid for all European Union member states. The centralized procedure is compulsory for specific products, including for medicines produced by certain biotechnological processes, products designated as orphan medicinal products, advanced therapy products and products with a new active substance indicated for the treatment of certain diseases. For products with a new active substance indicated for the treatment of other diseases and products that are highly innovative or for which a centralized process is in the interest of patients, the centralized procedure may be optional.

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        Under the centralized procedure, the Committee for Medicinal Products for Human Use, or the CHMP, established at the EMA is responsible for conducting the initial assessment of a product. The CHMP is also responsible for several post-authorization and maintenance activities, such as the assessment of modifications or extensions to an existing marketing authorization. Under the centralized procedure in the European Union, the maximum timeframe for the evaluation of an MAA is 210 days, excluding clock stops, when additional information or written or oral explanation is to be provided by the applicant in response to questions of the CHMP. Accelerated evaluation might be granted by the CHMP in exceptional cases, when a medicinal product is of major interest from the point of view of public health and in particular from the viewpoint of therapeutic innovation. In this circumstance, the EMA ensures that the opinion of the CHMP is given within 150 days.

        The decentralized procedure is available to applicants who wish to market a product in various European Union member states where such product has not received marketing approval in any European Union member states before. The decentralized procedure provides for approval by one or more other, or concerned, member states of an assessment of an application performed by one member state designated by the applicant, known as the reference member state. Under this procedure, an applicant submits an application based on identical dossiers and related materials, including a draft summary of product characteristics, and draft labeling and package leaflet, to the reference member state and concerned member states. The reference member state prepares a draft assessment report and drafts of the related materials within 210 days after receipt of a valid application. Within 90 days of receiving the reference member state's assessment report and related materials, each concerned member state must decide whether to approve the assessment report and related materials.

        If a member state cannot approve the assessment report and related materials on the grounds of potential serious risk to public health, the disputed points are subject to a dispute resolution mechanism and may eventually be referred to the European Commission, whose decision is binding on all member states.

Data and Market Exclusivity in the European Union

        In the European Union, new chemical entities qualify for eight years of data exclusivity upon marketing authorization and an additional two years of market exclusivity. This data exclusivity, if granted, prevents regulatory authorities in the European Union from referencing the innovator's data to assess a generic (abbreviated) 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 eleven 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 held to bring a significant clinical benefit in comparison with existing therapies. Even if a compound is considered to be a new chemical entity and the sponsor is able to gain the prescribed period of data exclusivity, another company nevertheless could also market another version of the product if such company can complete a full MAA with a complete database of pharmaceutical test, preclinical tests and clinical trials and obtain marketing approval of its product.

Periods of Authorization and Renewals

        Marketing authorization is valid for five years in principle and the marketing authorization may be renewed after five years on the basis of a re-evaluation of the risk-benefit balance by the EMA or by the competent authority of the authorizing member state. To this end, the marketing authorization holder must provide the EMA or the competent authority with a consolidated version of the file in respect of quality, safety and efficacy, including all variations introduced since the marketing authorization was granted, at least six months before the marketing authorization ceases to be valid. Once renewed, the marketing authorization is valid for an unlimited period, unless the European

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Commission or the competent authority decides, on justified grounds relating to pharmacovigilance, to proceed with one additional five-year renewal. Any authorization which is not followed by the actual placing of the drug on the European Union market (in case of centralized procedure) or on the market of the authorizing member state within three years after authorization ceases to be valid (the so-called sunset clause).

Orphan Drug Designation and Exclusivity

        Regulation 141/2000 provides that a drug shall be designated as an orphan drug if its sponsor can establish: that the product is intended for the diagnosis, prevention or treatment of a life-threatening or chronically debilitating condition affecting not more than five in ten thousand persons in the European Community when the application is made, or that the product is intended for the diagnosis, prevention or treatment of a life-threatening, seriously debilitating or serious and chronic condition in the European Community and that without incentives it is unlikely that the marketing of the drug in the European Community would generate sufficient return to justify the necessary investment. For either of these conditions, the applicant must demonstrate that there exists no satisfactory method of diagnosis, prevention or treatment of the condition in question that has been authorized in the European Community or, if such method exists, the drug will be of significant benefit to those affected by that condition.

        Regulation 847/2000 sets out criteria and procedures governing designation of orphan drugs in the European Union. Specifically, an application for designation as an orphan product can be made any time prior to the filing of an application for approval to market the product. Marketing authorization for an orphan drug leads to a ten-year period of market exclusivity. This period may, however, be reduced to six years if, at the end of the fifth year, it is established that the product no longer meets the criteria for orphan drug designation, for example because the product is sufficiently profitable not to justify market exclusivity. Market exclusivity can be revoked only in very selected cases, such as consent from the marketing authorization holder, inability to supply sufficient quantities of the product, demonstration of "clinically relevant superiority" by a similar medicinal product, or, after a review by the Committee for Orphan Medicinal Products, requested by a member state in the fifth year of the marketing exclusivity period (if the designation criteria are believed to no longer apply). Medicinal products designated as orphan drugs pursuant to Regulation 141/2000 shall be eligible for incentives made available by the European Community and by the member states to support research into, and the development and availability of, orphan drugs.

Pharmaceutical Coverage, Pricing and Reimbursement

        Significant uncertainty exists as to the coverage and reimbursement status of products approved by the FDA and other government authorities. Sales of products will depend, in part, on the extent to which third-party payors, including government health programs in the United States such as Medicare and Medicaid, commercial health insurers and managed care organizations, provide coverage, and establish adequate reimbursement levels for, such products. The process for determining whether a payor will provide coverage for a product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the product once coverage is approved. Third-party payors are increasingly challenging the prices charged, examining the medical necessity, and reviewing the cost-effectiveness of medical products and services and imposing controls to manage costs. Third-party payors may limit coverage to specific products on an approved list, or formulary, which might not include all of the approved products for a particular indication.

        In order to secure coverage and reimbursement for any product that might be approved for sale, a company may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of the product, in addition to the costs required to obtain FDA or other comparable regulatory approvals. Nonetheless, product candidates may not be considered

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medically necessary or cost effective. Additionally, a payor's decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Further, one payor's determination to provide coverage for a drug product does not assure that other payors will also provide coverage for the drug product. Third-party reimbursement may not be sufficient to maintain price levels high enough to realize an appropriate return on investment in product development.

        The containment of healthcare costs also has become a priority of federal, state and foreign governments and the prices of drugs have been a focus in this effort. Governments have shown significant interest in implementing cost-containment programs, including price controls, restrictions on reimbursement and requirements for substitution of generic products. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit a company's revenue generated from the sale of any approved products. 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 a company or its collaborators receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.

        Outside the United States, ensuring adequate coverage and payment for our product candidates will face challenges. Pricing of prescription pharmaceuticals is subject to governmental control in many countries. Pricing negotiations with governmental authorities can extend well beyond the receipt of regulatory marketing approval for a product and may require us to conduct a clinical trial that compares the cost effectiveness of our product candidates or products to other available therapies. The conduct of such a clinical trial could be expensive and result in delays in our commercialization efforts.

        In the European Union, pricing and reimbursement schemes vary widely from country to country. Some countries provide that drug products may be marketed only after a reimbursement price has been agreed. Some countries may require the completion of additional studies that compare the cost-effectiveness of a particular drug candidate to currently available therapies. For example, the European Union provides options for its member states to restrict the range of drug products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. European Union member states may approve a specific price for a drug product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the drug product on the market. Other member states allow companies to fix their own prices for drug products, but monitor and control company profits. The downward pressure on healthcare costs in general, particularly prescription drugs, has become intense. As a result, increasingly high barriers are being erected to the entry of new products. In addition, in some countries, cross-border imports from low-priced markets exert competitive pressure that may reduce pricing within a country. Any country that has price controls or reimbursement limitations for drug products may not allow favorable reimbursement and pricing arrangements.

Healthcare Law and Regulation

        Healthcare providers and third-party payors play a primary role in the recommendation and prescription of drug products that are granted regulatory approval. Arrangements with providers, consultants, third-party payors and customers are subject to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain our business and/or financial arrangements. Such restrictions under applicable federal and state healthcare laws and regulations, include the following:

    the federal Anti-Kickback Statute, which prohibits, among other things, persons and entities from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made, in whole or in part, under a federal healthcare program such as Medicare and Medicaid;

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    the federal civil and criminal false claims laws, including the civil False Claims Act, and civil monetary penalties laws, which prohibit individuals or entities from, among other things, knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government;

    the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created additional federal criminal laws that prohibit, among other things, knowingly and willingly executing, or attempting to execute, a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters;

    HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and its implementing regulations, which also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;

    the federal transparency requirements known as the federal Physician Payments Sunshine Act, under the Patient Protection and Affordable Care Act, as amended by the Health Care Education Reconciliation Act, or the Affordable Care Act, which requires certain manufacturers of drugs, devices, biologics and medical supplies to report annually to the Centers for Medicare & Medicaid Services, or CMS, within the U.S. Department of Health and Human Services, information related to payments and other transfers of value to physicians and teaching hospitals and physician ownership and investment interests; and

    analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, which may apply to healthcare items or services that are reimbursed by non-governmental third-party payors, including private insurers.

        Some state laws require pharmaceutical companies to comply with the pharmaceutical industry's voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government in addition to requiring drug manufacturers to report information related to payments to physicians and other healthcare providers or marketing expenditures. State and foreign laws also govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.

Healthcare Reform

        There have been a number of federal and state proposals during the last few years regarding the pricing of pharmaceutical and biopharmaceutical products, government control and other changes to the healthcare system in the United States.

        By way of example, the United States and state governments continue to propose and pass legislation designed to reduce the cost of healthcare. In March 2010, the United States Congress enacted the Affordable Care Act, which, among other things, includes changes to the coverage and payment for drug products under government healthcare programs. Among the provisions of the Affordable Care Act of importance to our potential drug candidates are:

    an annual, nondeductible fee on any entity that manufactures or imports specified branded prescription drugs and biologic agents, apportioned among these entities according to their market share in certain government healthcare programs;

    expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to certain individuals with income at or below 133% of the federal poverty level, thereby potentially increasing a manufacturer's Medicaid rebate liability;

    expanded manufacturers' rebate liability under the Medicaid Drug Rebate Program by increasing the minimum rebate for both branded and generic drugs and revising the definition of "average

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      manufacturer price," or AMP, for calculating and reporting Medicaid drug rebates on outpatient prescription drug prices;

    addressed 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;

    expanded the types of entities eligible for the 340B drug discount program;

    established the Medicare Part D coverage gap discount program by requiring manufacturers to provide a 50% point-of-sale-discount off the negotiated price of applicable brand drugs to eligible beneficiaries during their coverage gap period as a condition for the manufacturers' outpatient drugs to be covered under Medicare Part D; and

    a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research.

        Other legislative changes have been proposed and adopted in the United States since the Affordable Care Act was enacted. For example, in August 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2012 through 2021, was unable to reach required goals, thereby triggering the legislation's automatic reduction to several government programs. This includes aggregate reductions of Medicare payments to providers up to 2% per fiscal year, which went into effect in April 2013 and will remain in effect through 2024 unless additional Congressional action is taken. In January 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, further reduced Medicare payments to several providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.

        There have been, and likely will continue to be, legislative and regulatory proposals at the foreign, federal and state levels directed at broadening the availability of healthcare and containing or lowering the cost of healthcare. Such reforms could have an adverse effect on anticipated revenues from product candidates that we may successfully develop and for which we may obtain regulatory approval and may affect our overall financial condition and ability to develop product candidates.

Employees

        As of August 31, 2015, we had 14 full-time employees, including a total of eight employees with M.D. or Ph.D. degrees. Of these full-time employees, 10 employees are engaged in research and development. 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

        Our principal facilities consist of office and laboratory space. We occupy approximately 11,747 square feet of office space in Waltham, Massachusetts under a lease that expires in January 2017.

Legal Proceedings

        We are not currently subject to any material legal proceedings.

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MANAGEMENT

        The following table sets forth the name, age as of August 31, 2015 and position of each of our executive officers and directors.

Name
  Age   Position

Mark Iwicki

    48   Chief Executive Officer and Chairman of the Board

Charles McDermott

    43   President and Chief Business Officer

Kim Brazzell, Ph.D. 

    63   Chief Medical Officer

Hongming Chen, Sc.D. 

    44   Chief Scientific Officer

Mary Reumuth, C.P.A. 

    40   Vice President, Finance and Corporate Controller and Treasurer

Kevin Bitterman, Ph.D. 

    38   Director

Robert Langer, Sc.D. 

    67   Director

Robert Paull(4)

    39   Director

Howard Rosen

    57   Director

Rajeev Shah

    38   Director

Robert Tepper, M.D. 

    60   Director

Karen Wagner, Ph.D. 

    45   Director

(1)
Member of the Audit Committee.

(2)
Member of the Compensation Committee.

(3)
Member of the Nominating and Corporate Governance Committee.

(4)
We anticipate that Mr. Paull will resign from our board of directors prior to the effectiveness of the registration statement of which this prospectus forms a part. Effective upon his resignation, our board of directors will consist of seven members and two vacancies.

        Mark Iwicki has served as our Chief Executive Officer and Chairman of our board of directors since September 2015. Previously he served as Executive Chairman of our board of directors from April 2015 to September 2015. Prior to joining us, Mr. Iwicki served as President and Chief Executive Officer of Civitas Therapeutics, Inc., or Civitas, a biopharmaceutical company which was acquired by Acorda Therapeutics, from January 2014 to October 2014. Prior to Civitas, Mr. Iwicki served as President and Chief Executive Officer at Blend Therapeutics, Inc., or Blend, a biopharmaceutical company, from December 2012 to January 2014. Prior to Blend, Mr. Iwicki was President and Chief Executive Officer of Sunovion Pharmaceuticals Inc. (formerly Sepracor Inc.), or Sunovion, a pharmaceutical company. Mr. Iwicki was at Sepracor/Sunovion from October 2007 to June 2012. Prior to joining Sepracor Inc., Mr. Iwicki was Vice President and Business Unit Head at Novartis Pharmaceuticals Corporation from March 1998 to October 2007. Prior to that, Mr. Iwicki held management positions at Astra Merck Inc. and Merck & Co., Inc. In addition to serving on our board of directors, Mr. Iwicki also currently serves on the boards of Aimmune Therapeutics, Inc., a public company, and privately held companies Nimbus Therapeutics, Taris Biomedical, Merus B.V. and Oxeia Biopharmaceuticals, Inc. Mr. Iwicki holds a B.S. in Business Administration from Ball State University and an M.B.A. from Loyola University. We believe that Mr. Iwicki's extensive experience as a pharmaceutical industry leader managing all stages of drug development and commercialization in multiple therapeutic areas qualifies him to serve as a member of our board of directors.

        Charles McDermott has served as our President and Chief Business Officer since June 2015. Previously he served as our Interim President and Chief Business Officer from October 2014 to June 2015 and our Executive Vice President of Development from June 2013 to October 2014. Prior to joining us, Mr. McDermott served first as Director and then Vice President of Business Development, Eye Care and Drug Delivery at Allergan, an ophthalmic industry leader, where he worked from April 2005 to May 2013. Prior to joining Allergan, Mr. McDermott held a variety of business development positions at deCODE Genetics, Inc. (now DGI resolutions, Inc.) or deCODE Genetics, a

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biopharmaceutical company, from January 2001 to March 2005. Prior to deCODE Genetics, Mr. McDermott was a research scientist in the angiogenesis pharmacology group at Agouron Pharmaceuticals, Inc. Mr. McDermott holds an M.B.A. from the University of San Diego, an M.A. in Molecular, Cellular and Developmental Biology from the University of California at Santa Barbara, a B.S. in Biochemistry and Molecular Biology from the University of California Santa Cruz and a Certificate in Clinical Trial Design and Management from the University of California San Diego Extension.

        Kim Brazzell, Ph.D. has served as our Chief Medical Officer since February 2013. Dr. Brazzell has also served as Chief Medical Officer of Mimetogen Pharmaceuticals, Inc., a clinical stage biotechnology company, since January 2012, and as a Principal of Acuity Advisors, LLC, an ophthalmic consulting company, since February 2015. Dr. Brazzell also held several executive positions at Inspire Pharmaceuticals, Inc., or Inspire, a specialty pharmaceutical company focusing on ophthalmic products, including Executive Vice President of Medical and Scientific Affairs from 2010 to 2011, Executive Vice President and Head of Ophthalmology Business from 2009 to 2010, and Senior Vice President of Ophthalmic Research and Development from 2004 to 2008. Prior to joining Inspire, Dr. Brazzell served as Global Head of Clinical R&D and Senior Vice President, U.S. R&D, of Novartis Ophthalmics AG from 2000 to 2004. Dr. Brazzell also served as Vice President, R&D at Ciba Vision Ophthalmics, Inc. and as Associate Director, R&D, at Alcon Laboratories, Inc. Dr. Brazzell received a B.S. in Pharmacy and a Ph.D. in Pharmaceutical Sciences from the University of Kentucky.

        Hongming Chen, Sc.D. has served as our Chief Scientific Officer since October 2014. Prior to that, Dr. Chen served as our Executive Vice President of Research from October 2013 to October 2014 and our Vice President of Research from January 2010 to October 2013. Prior to joining us, Dr. Chen served as Director of Formulation Development at TransForm Pharmaceuticals Inc., or TransForm, from 2000 to January 2010. Before joining TransForm, Dr. Chen conducted vaccine delivery research and development at AstraZeneca plc from 1997 to 2000, and at Merck & Co., Inc. from 1996 to 1997. In 2015, Dr. Chen was elected to the College of Fellows at the American Institute for Medical and Biological Engineering. Dr. Chen received a B.S. in Chemical Engineering from The University of Texas at Austin in 1992 and both an M.S. and a Sc.D. in Chemical Engineering from the Massachusetts Institute of Technology.

        Mary Reumuth, C.P.A. has served as our Vice President, Finance since December 2014 and as our Corporate Controller and Treasurer since February 2014. Prior to joining us, Ms. Reumuth acted as an independent financial consultant from November 2012 to January 2014 and prior to that served as Corporate Controller for Enobia Pharma Corp., or Enobia, a global biopharmaceutical company acquired by Alexion Pharmaceuticals, Inc., from May 2011 to June 2012. Prior to Enobia, Ms. Reumuth served as Director of Finance at Verenium Corporation, or Verenium, a biotechnology company, from December 2007 to March 2011. Ms. Reumuth held a variety of finance and accounting positions at Genzyme Corporation, or Genzyme, (now a Sanofi Company), and ILEX Oncology, Inc., or ILEX (acquired by Genzyme) from 2001 to 2007. Prior to ILEX, Ms. Reumuth was an auditor at Ernst & Young LLP. Ms. Reumuth earned her Bachelor's degree in Business Administration from Texas A&M University—Corpus Christi, and is a Certified Public Accountant.

        Kevin Bitterman, Ph.D. has served as a member of our board of directors since December 2009. Dr. Bitterman is a partner at Polaris Partners, or Polaris, where he has been since 2004 and has focused on investments in life sciences companies. Prior to joining Polaris, Dr. Bitterman completed his Ph.D. in genetics at Harvard Medical School. Dr. Bitterman is a co-founder of Sirtris Pharmaceuticals, Inc. acquired by GlaxoSmithKline plc and was the founding CEO at Visterra Inc., Editas Medicine and Morphic Rock Therapeutic. Dr. Bitterman currently serves as a director of private companies Editas Medicine, Inc., InSeal Medical, Neuronetics, Inc., Visterra, Inc., TARIS Biomedical, Direct Vet Marketing, Inc. and Morphic Rock Therapeutic, Inc. and also serves as director on the board of public company Genocea Biosciences, Inc. Additionally, Kevin serves on the Scientific

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Advisory Board of the Massachusetts Life Sciences Center (MLSC) and on the Board of Directors of the New England Venture Capital Association (NEVCA). He received a Ph.D. in Genetics from Harvard Medical School and a B.A. in Biology from Rutgers College. We believe that Dr. Bitterman's extensive experience investing in, guiding and leading start-up and early phase companies, as well as his experience as a director of other private and public companies, qualifies him to serve as a member of our board of directors.

        Robert Langer, Sc.D. has served as a member of our board of directors since December 2009. Dr. Langer has been an Institute Professor at MIT since 2005, and prior to that was a Professor at MIT since 1977. Dr. Langer received his B.S. from Cornell University and his Sc.D. from the Massachusetts Institute of Technology, or MIT, both in Chemical Engineering. Dr. Langer currently serves on the board of directors of public companies Ocata Therapeutics, Inc. and BIND Therapeutics, Inc. and UK public company Puretech Health plc, and previously served on the board of directors of public companies Momenta Pharmaceuticals, Inc., from 2001 to 2009, Wyeth from 2004 to 2009, Fibrocell Science, Inc. from 2010 to 2012 and Millipore Corp from 2009 to 2010. Dr. Langer also served as a director on the FDA Science Board from 1995 to 2002, including his service as chairman from 1999 to 2002. We believe that Dr. Langer's pioneering academic work, and his extensive medical and scientific knowledge and experience and his previous service on public company boards of directors qualify him to serve as a member of our board of directors.

        Robert Paull has served as a member of our board of directors since July 2009. Mr. Paull is a co-founder and venture partner at Lux Capital Management, or Lux Capital, where he has been since October 2004 and has focused on ventures in healthcare. In addition to joining Lux Capital, Mr. Paull served as our founding Chief Executive Officer, President and Treasurer from November 2009 to June 2012. Mr. Paull also served as founding Chief Executive Officer of Genocea Biosciences Inc., a vaccine discovery and development company, from August 2006 to February 2009 and is the co-founder of Lux Research, Inc., an emerging technology market research and consulting firm, which was founded in January 2004. Mr. Paull holds a B.S. in Architecture from the University of Virginia. We believe that Mr. Paull's extensive experience guiding and investing in healthcare ventures qualifies him to serve as a member of our board of directors.

        Howard Rosen has served as a member of our board of directors since January 2014. Mr. Rosen has served as interim Chief Executive Officer of AcelRx Pharmaceuticals, Inc., or AcelRx, a public company developing products for pain relief, since April 2015. Since 2008, Mr. Rosen has served as a consultant to several companies in the biotechnology industry. He has also served as a lecturer at Stanford University in Chemical Engineering since 2008 and in Management since 2011. Mr. Rosen served as interim President and Chief Executive Officer of Pearl Therapeutics, Inc. from June 2010 to March 2011. From 2004 to 2008, Mr. Rosen was Vice President of Commercial Strategy at Gilead Sciences, Inc., a biopharmaceutical company. Mr. Rosen was President of ALZA Corporation, a pharmaceutical and medical systems company that merged with Johnson & Johnson, a global healthcare company, in 2001, from 2003 until 2004. Prior to that, from 1994 until 2003, Mr. Rosen held various positions at ALZA Corporation. Mr. Rosen is chairman of the board of directors of Alcobra, Ltd., a public pharmaceutical company and also serves on the board of directors of AcelRx Pharmaceuticals, Inc., a public company developing products for pain relief. Mr. Rosen is also currently a member of the board of directors of private biotechnology company Entrega, Inc. Mr. Rosen holds a B.S. in Chemical Engineering from Stanford University, an M.S. in Chemical Engineering from the Massachusetts Institute of Technology and an M.B.A. from the Stanford Graduate School of Business. We believe that Mr. Rosen's experience in the biopharmaceutical industry, including his specific experience with the commercialization of pharmaceutical products, qualifies him to serve as a member of our board of directors.

        Rajeev Shah has served as a member of our board of directors since July 2015. Mr. Shah has been a Managing Director and Portfolio Manager at RA Capital Management, LLC, or RA Capital, since

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2004. Prior to joining RA Capital, Mr. Shah was a Senior Project Leader at Altus Pharmaceuticals Inc., a spin-off of Vertex Pharmaceuticals Inc., from 2001 to 2004. Mr. Shah holds a B.A. in Chemistry with a concentration in Economics from Cornell University. We believe that Mr. Shah's experience with biotechnology companies qualifies him to serve as a member of our board of directors.

        Robert Tepper, M.D. has served as a member of our board of directors since December 2009. Dr. Tepper co-founded Third Rock Ventures, L.P., or ThirdRock, in March 2007 and focuses on the formation, development and scientific strategy of Third Rock's portfolio companies, as well as actively identifying and evaluating new investments. Prior to joining Third Rock, Dr. Tepper served as President of Research and Development at Millennium Pharmaceuticals, Inc., or Millennium. Prior to joining Millennium in 1994, he served as principal investigator in the laboratory of tumor biology at the Massachusetts General Hospital Cancer Center. Dr. Tepper is also a founder and former member of the scientific advisory board of Cell Genesys/Abgenix. Dr. Tepper serves as an adjunct faculty member at Harvard Medical School and Massachusetts General Hospital and is an advisory board member of several healthcare institutions, including the Partners HealthCare Center for Personalized Genetic Medicine, Harvard Medical School and Tufts Medical School. Dr. Tepper is a board member of private life sciences companies Alcresta, Inc., Allena Pharmaceuticals, Inc., Constellation Pharmaceuticals Inc., Jounce Therapeutics, Inc. and Neon Therapeutics, Inc., as well as public biopharmaceutical company bluebird bio Inc. Dr. Tepper also serves on the board of overseers at Tufts University and on the Council of the National Center for Advancing Translational Sciences at the National Institutes of Health. Dr. Tepper holds an A.B. in biochemistry from Princeton University and an M.D. from Harvard Medical School. We believe that Dr. Tepper's experience in the venture capital industry, particularly with biotech and pharmaceutical companies, combined with his experience building and operating research and development operations, on the boards of public and private life sciences companies and as faculty and advisory board member of several healthcare institutions, qualify him to serve as a member of our board of directors.

        Karen Wagner, Ph.D. has served as a member of our board of directors since April 2014. Dr. Wagner has been a General Partner of Ysios Capital since April 2015 and a Venture Partner of Ysios Capital since August 2007. At Ysios, Dr. Wagner focuses on therapeutic investments and on the identification and evaluation of investment opportunities. From August 2008 to March 2015, Dr. Wagner was the sole owner of a consultancy firm providing business development and strategy support to biotechnology companies. Dr. Wagner currently serves as an observer on the board of directors of Minoryx, a Spanish private biotechnology company. Dr. Wagner holds an M.S. in Molecular Biology and a Ph.D. in Cell Biology, both from the University of Konstanz, Germany. We believe that Dr. Wagner's experience in the biotechnology industry, and specifically in business development, qualifies her to serve as a member of our board of directors.

Board Composition and Election of Directors

    Board Composition

        Our board of directors is currently authorized to have nine members and currently consists of seven members and two vacancies. Our directors hold office until their successors have been elected and qualified or until the earlier of their resignation or removal.

        Our certificate of incorporation and bylaws that will become effective upon the closing of this offering provide that the authorized number of directors may be changed only by resolution of our board of directors. Our certificate of incorporation and bylaws will also provide that our directors may be removed only for cause by the affirmative vote of the holders of 75% of our shares of capital stock present in person or by proxy and entitled to vote, 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.

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        In accordance with the terms of our certificate of incorporation and bylaws that will become effective upon the closing of this offering, our board of directors will be divided into three classes, class I, class II and class III, with members of each class serving staggered three-year terms. Upon the closing of this offering, the members of the classes will be divided as follows:

    the class I directors will be            and            , and their term will expire at the annual meeting of stockholders to be held in            ;

    the class II directors will be            and            , and their term will expire at the annual meeting of stockholders to be held in            ; and

    the class III directors will be            ,             and            , and their term will expire at the annual meeting of stockholders to be held in            .

        Upon the expiration of the term of a class of directors, directors in that class will be eligible to be elected for a new three-year term at the annual meeting of stockholders in the year in which their term expires.

        The classification of our board of directors may have the effect of delaying or preventing changes in our control or management. See "Description of Capital Stock—Delaware Anti-Takeover Law and Certain Charter and Bylaw Provisions."

    Director Independence

        Applicable NASDAQ rules require a majority of a listed company's board of directors to be comprised of independent directors within one year of listing. In addition, the NASDAQ rules require that, subject to specified exceptions, each member of a listed company's audit, compensation and nominating and corporate governance committees be independent under the Securities Exchange Act of 1934, as amended, or the Exchange Act. Audit committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Exchange Act and compensation committee members must also satisfy the independence criteria set forth in Rule 10C-1 under the Exchange Act. Under applicable NASDAQ rules, a director will only qualify as an "independent director" if, in the opinion of the listed company's board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In order to be considered independent for purposes of Rule 10A-3, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the board of directors, or any other board committee, accept, directly or indirectly, any consulting, advisory, or other compensatory fee from the listed company or any of its subsidiaries or otherwise be an affiliated person of the listed company or any of its subsidiaries. In order to be considered independent for purposes of Rule 10C-1, the board must consider, for each member of a compensation committee of a listed company, all factors specifically relevant to determining whether a director has a relationship to such company which is material to that director's ability to be independent from management in connection with the duties of a compensation committee member, including, but not limited to: (1) the source of compensation of the director, including any consulting advisory or other compensatory fee paid by such company to the director; and (2) whether the director is affiliated with the company or any of its subsidiaries or affiliates.

        In                2015, our board of directors undertook a review of the composition of our board of directors and its committees and the independence of each director. Based upon information requested from and provided by each director concerning his or her background, employment and affiliations, including family relationships, our board of directors has determined that each of our directors, with the exception of Mark Iwicki, is an "independent director" as defined under applicable NASDAQ rules. In making such determination, our board of directors considered the relationships that each such non-employee director has with our company and all other facts and circumstances that our board of

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directors deemed relevant in determining his or her independence, including the beneficial ownership of our capital stock by each non-employee director. Mr. Iwicki is not an independent director under these rules because he is our Chief Executive Officer.

        There are no family relationships among any of our directors or executive officers.

Board Committees

        Our board of directors has established an audit committee, a compensation committee and a nominating and corporate governance committee, each of which operates under a charter that has been approved by our board. The composition of each committee will be effective as of the date of this prospectus.

    Audit Committee

        The members of our audit committee are            ,             and            .            is the chair of the audit committee. Our audit committee's responsibilities will include:

    appointing, approving the compensation of, and assessing the independence of our registered public accounting firm;

    overseeing the work of our independent registered public accounting firm, including through the receipt and consideration of reports from that firm;

    reviewing and discussing with management and our independent registered public accounting firm our annual and quarterly financial statements and related disclosures;

    monitoring our internal control over financial reporting, disclosure controls and procedures and code of business conduct and ethics;

    overseeing our internal audit function;

    overseeing our risk assessment and risk management policies;

    establishing policies regarding hiring employees from our independent registered public accounting firm and procedures for the receipt and retention of accounting related complaints and concerns;

    meeting independently with our internal auditing staff, if any, our independent registered public accounting firm and management;

    reviewing and approving or ratifying any related person transactions; and

    preparing the audit committee report required by Securities and Exchange Commission, or SEC, rules.

        All audit and non-audit services, other than de minimis non-audit services, to be provided to us by our independent registered public accounting firm must be approved in advance by our audit committee.

        Our board of directors has determined that            is an "audit committee financial expert" as defined in applicable SEC rules. We believe that the composition of our audit committee will meet the requirements for independence under current NASDAQ and SEC rules and regulations.

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    Compensation Committee

        The members of our compensation committee are            ,             and            .            is the chair of the compensation committee. Our compensation committee's responsibilities will include:

    reviewing and approving, or making recommendations to our board of directors with respect to, the compensation of our chief executive officer and our other executive officers;

    overseeing an evaluation of our senior executives;

    overseeing and administering our cash and equity incentive plans;

    reviewing and making recommendations to our board of directors with respect to director compensation;

    reviewing and discussing annually with management our "Compensation Discussion and Analysis" disclosure if and to the extent then required by SEC rules; and

    preparing the compensation committee report if and to the extent then required by SEC rules.

        We believe that the composition of our compensation committee will meet the requirements for independence under current NASDAQ and SEC rules and regulations.

    Nominating and Corporate Governance Committee

        The members of our nominating and corporate governance committee are            ,             and            .             is the chair of the nominating and corporate governance committee. Our nominating and corporate governance committee's responsibilities will include:

    identifying individuals qualified to become members of our board of directors;

    recommending to our board of directors the persons to be nominated for election as directors and to each of our board's committees;

    reviewing and making recommendations to our board with respect to our board leadership structure;

    reviewing and making recommendations to our board with respect to management succession planning;

    developing and recommending to our board of directors corporate governance principles; and

    overseeing an annual evaluation of our board of directors.

        We believe that the composition of our nominating and corporate governance committee will meet the requirements for independence under current NASDAQ and SEC rules and regulations.

Compensation Committee Interlocks and Insider Participation

        None of our executive officers serves as a member of the board of directors or compensation committee, or other committee serving an equivalent function, of any other entity that has one or more of its executive officers serving as a member of our board of directors or our compensation committee. None of the members of our compensation committee is, or has ever been, an officer or employee of our company.

Code of Ethics and Code of Conduct

        We have adopted a written code of business conduct and ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. We have posted a current copy of the code on our website, www.kalarx.com. In addition, we intend to post on our website all disclosures that are required by law or NASDAQ stock market listing standards concerning any amendments to, or waivers from, any provision of the code.

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EXECUTIVE COMPENSATION

        This following discussion relates to the compensation of our former Chief Executive Officer, Guillaume Pfefer, our Chief Scientific Officer, Hongming Chen, and our Interim President and Chief Business Officer, Charles McDermott, for fiscal year 2014. These three individuals are collectively referred to in this prospectus as our named executive officers. In September 2014, Mr. Pfefer ceased to be our Chief Executive Officer. In April 2015, we hired Mark Iwicki as our Executive Chairman and in September 2015 appointed Mr. Iwicki as our Chief Executive Officer. Since Mr. Iwicki was not one of our executive officers during 2014, a discussion of his compensation is not included in the tables below. Each year, our compensation committee and board of directors review and determine the compensation of our named executive officers.

        In preparing to become a public company, we have begun a thorough review of all elements of our executive compensation program, including the function and design of our equity incentive programs. We have begun, and expect to continue in the coming months, to evaluate the need for revisions to our executive compensation program to ensure that our program is competitive with the companies with which we compete for executive talent and is appropriate for a public company.

Summary Compensation Table

        The following table sets forth information regarding compensation awarded to, earned by or paid to each of our named executive officers for the year ended December 31, 2014.

Name and Principal Position
  Year   Salary
($)
  Bonus
($)(1)
  Option
awards
($)(2)
  All other
compensation
($)(3)
  Total
($)
 

Guillaume Pfefer(4)

    2014     248,356             610,996     859,352  

Former Chief Executive Officer

                                     

Hongming Chen, Sc.D. 

   
2014
   
290,671
   
83,933
   
174,171
   
1,804
   
550,579
 

Chief Scientific Officer

                                     

Charles McDermott

   
2014
   
297,329
   
85,287
   
154,737
   
1,836
   
539,189
 

Interim President and Chief Business

                                     

Officer(5)

                                     

(1)
Except where noted, the amounts reported in the "Bonus" column reflect discretionary annual cash bonuses payable to our executive officers for their 2014 performance.

(2)
The amounts reported in the "Option awards" column reflect the aggregate fair value of stock-based compensation awarded during the year computed in accordance with the provisions of FASB ASC Topic 718. See Note 10 to our financial statements appearing at the end of this prospectus regarding assumptions underlying the valuation of equity awards.

(3)
The compensation included in the "All other compensation" column consists of premiums we paid to each of our named executive officers for life insurance, and of severance payments made to Mr. Pfefer in connection with his departure in September 2014.

(4)
Mr. Pfefer served as our Chief Executive Officer from July 2012 until September 2014. Upon his departure, he received, pursuant to his employment agreement with us, a severance package consisting of one year base salary, a prorated bonus of $50,000 for 2014, one year of medical, dental and vision insurance, outplacement services, accrued vacation payout and forgiveness of his outstanding loan from us.

(5)
Mr. McDermott served as our Interim President and principal executive officer from August 2014 until the hiring of Mr. Iwicki in April 2015.

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Narrative to Summary Compensation Table

        In 2014, we paid annualized base salaries of $285,000, which was increased to $315,000 in August 2014, to Mr. McDermott and $274,900, which was increased to $310,000 in August 2014, to Dr. Chen. We paid an annualized base salary of $370,000 to Mr. Pfefer up until his departure in September 2014. We use base salaries to recognize the experience, skills, knowledge and responsibilities required of all our employees, including our named executive officers. None of our named executive officers is currently party to an employment agreement or other agreement or arrangement that provides for automatic or scheduled increases in base salary.

        Performance-based bonuses, which are calculated as a percentage of base salary, are designed to motivate our employees to achieve annual goals based on our strategic, financial and operating performance objectives. From time to time, our board of directors has approved discretionary annual cash bonuses to our named executive officers with respect to their prior year performance.

        Although we do not have a formal policy with respect to the grant of equity incentive awards to our executive officers, or any formal equity ownership guidelines applicable to them, we believe that equity grants provide our executives with a strong link to our long-term performance, create an ownership culture and help to align the interests of our executives and our stockholders. In addition, we believe that equity grants with a time-based vesting feature promote executive retention because this feature incents our executive officers to remain in our employment during the vesting period. Accordingly, our board of directors periodically reviews the equity incentive compensation of our named executive officers and from time to time may grant equity incentive awards to them in the form of stock options. In 2014, based upon our overall performance, we granted to Dr. Chen options to purchase 574,146 shares of our common stock, and to Mr. McDermott options to purchase 594,117 shares of our common stock.

        Prior to this offering, our executives were eligible to participate in the 2009 Plan. During 2014, all stock options were granted pursuant to the 2009 Plan. Following the closing of this offering, our employees and executives will be eligible to receive stock options and other stock-based awards pursuant to the 2015 stock incentive plan, or the 2015 Plan.

        We use stock options to compensate our executive officers in the form of initial grants in connection with the commencement of employment and also at various times, often but not necessarily annually, if we have performed as expected or better than expected. Prior to this offering, the award of stock options to our executive officers, other than our Chief Executive Officer, has been made by our board or compensation committee, and the award of stock options to our Chief Executive Officer has been made by our board. None of our executive officers is currently party to an employment agreement that provides for automatic award of stock options. We have granted stock options to our executive officers with both time-based and performance-based vesting. The options that we have granted to our executive officers with time-based vesting typically become exercisable as to 25% of the shares underlying the option on the first anniversary of the grant date, and as to an additional 1/48th of the shares underlying the option monthly thereafter. Going forward, we expect annual and other grants made to existing executive officers and employees will vest monthly as to 1/48th of the shares underlying the option. The options that we have granted to date to our executive officers with performance-based vesting become exercisable upon the occurrence of specified business transactions or other specified milestones. Vesting and exercise rights cease shortly after termination of employment except in the case of death or disability and, in certain circumstances upon a change in control. Prior to the exercise of an option, the holder has no rights as a stockholder with respect to the shares subject to such option, including no voting rights and no right to receive dividends or dividend equivalents.

        We have historically granted stock options with exercise prices that are equal to the fair market value of our common stock on the date of grant as determined by our board of directors, based on a number of objective and subjective factors. The exercise price of all stock options granted after the

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closing of this offering will be equal to the fair market value of shares of our common stock on the date of grant, which will be determined by reference to the closing market price of our common stock on the date of grant.

Outstanding Equity Awards at December 31, 2014

        The following table sets forth information regarding all outstanding stock options and restricted stock held by each of our named executive officers as of December 31, 2014.

 
  Option Awards  
Name
  Number of
securities
underlying
unexercised
options (#)
exercisable
  Number of
securities
underlying
unexercised
options (#)
unexercisable
  Equity
incentive
plan
awards;
Number of
securities
underlying
unexercised
unearned
options (#)
  Option
exercise
price
($)
  Option
expiration
date
 

Guillaume Pfefer(1)

    587,443             0.11     3/31/2015  

Hongming Chen, Sc.D. 

   
180,000
   
   
   
0.09
   
6/18/2020
 

    29,375     625 (2)       0.09     6/16/2021  

    22,500     7,500 (3)       0.11     6/26/2022  

    9,390     20,661 (4)       0.43     9/27/2023  

    59,806     514,340 (5)       0.44     10/2/2024  

Charles McDermott

   
69,046
   
115,079

(6)
 
   
0.13
   
6/14/2023
 

    15,343     46,032 (7)       0.13     6/14/2023  

                125,000 (8)   0.13     6/14/2023  

          271,090 (9)         0.44     10/2/2024  

                323,027 (10)   0.44     10/3/2018  

(1)
In connection with Mr. Pfefer's departure from the Company, unvested options to purchase 352,467 shares were cancelled and the option expiration date on his vested options was changed from June 25, 2022 to March 31, 2015.

(2)
Dr. Chen's option to purchase 30,000 shares of common stock vests over four years, with 25% of the shares underlying the option vested on January 1, 2012 and 2.0833% of the shares vesting monthly thereafter.

(3)
Dr. Chen's option to purchase 30,000 shares of common stock vests over four years, in equal monthly installments, beginning on January 1, 2012.

(4)
Dr. Chen's option to purchase 30,051 shares of common stock vests over four years, with 25% of the shares underlying the option vested on September 27, 2014 and 2.0833% of the shares vesting monthly thereafter.

(5)
Dr. Chen's option to purchase 574,146 shares of common stock vests over four years, in equal monthly installments, beginning on August 21, 2014.

(6)
Mr. McDermott's option to purchase 184,125 shares of common stock vests over four years, with 25% of the shares underlying the option vested on June 3, 2014 and 2.0833% of the shares vesting monthly thereafter.

(7)
Mr. McDermott's option to purchase 61,375 shares of common stock was subject to the condition that we close a significant collaboration or licensing arrangement, as determined by our board of directors, provided that such closing occurred on or prior to December 31, 2013. This condition was waived on December 20, 2013, and Mr. McDermott's option to purchase vests as follows: 25% of the shares underlying the option vested on December 20, 2014, and 2.0833% of the shares vesting monthly thereafter.

(8)
Mr. McDermott's option to purchase 125,000 shares of common stock vests with respect to 100% of the shares underlying the option immediately prior to the closing of a change of control with aggregate consideration in excess of $300 million, provided that such closing occurs on or prior to June 3, 2018.

(9)
Mr. McDermott's option to purchase 271,090 shares of common stock vests over four years, with 25% of the shares underlying the option vested on February 4, 2015 and 1.7857% of the shares vesting monthly thereafter.

(10)
Mr. McDermott's option to purchase 323,027 shares of common stock vests as follows: either (A) upon a change of control with aggregate consideration (i) in excess of $400 million, with respect to 100% of the shares underlying the option, (ii) from $300 million to $400 million, with respect to 66.667% of the shares underlying the option or (iii) from $250 million to $300 million, with respect to 33.333% of the shares underlying the option or (B) following our initial public offering with a resulting market capitalization of over $250 million with respect to 100% of the shares underlying the option, in each case, provided that such change of control or initial public offering occurs on or prior to June 3, 2018.

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Stock Option and Other Compensation Plans

        In this section we describe our 2009 Employee, Director and Consultant Equity Incentive Plan, as amended to date, or the 2009 Plan and our 2015 Equity Incentive Plan, or the 2015 Plan. Prior to this offering, we granted awards to eligible participants under the 2009 Plan. Following the effectiveness of the registration statement for this offering, we expect to grant awards to eligible participants under the 2015 Plan.

    2009 Plan

        Our 2009 Plan was adopted by our board of directors and approved by our stockholders on December 11, 2009 and subsequently amended by our board in 2012, 2013, 2014 and 2015. The 2009 Plan provides for the grant of incentive stock options, non-qualified options, shares, restricted or otherwise, of our common stock, and other stock-based awards. We refer to awards granted under our 2009 Plan as stock rights. Our employees, directors and consultants are eligible to receive stock rights under our 2009 Plan; however incentive stock options may only be granted to our employees who are deemed to be residents of the United States. As of August 31, 2015, a maximum of 7,208,027 shares of our common stock, or the equivalent of such number after our board of directors makes any adjustments upon any change in capitalization or corporate transaction, were authorized for issuance under the 2009 Plan.

        The type of stock right granted under our 2009 Plan and the terms of such stock right are set forth in the applicable stock right award agreement.

        Pursuant to the 2009 Plan, our board of directors (or a committee to which our board delegates its authority) administers the 2009 Plan. Subject to the provisions of the 2009 Plan, our board of directors is authorized to:

    interpret the provisions of the 2009 Plan and all stock rights and make all rules and determinations that it deems necessary or advisable for the administration of the 2009 Plan;

    determine which employees, directors and consultants will be granted stock rights;

    determine the number of shares of our common stock for which a stock right will be granted;

    specify the terms and conditions upon which a stock right may be granted;

    amend any term or condition of an outstanding stock right, including, without limitation, to reduce or increase the exercise price or purchase price, accelerate the vesting or extend the expiration date, provided that no such change will impair a participant's rights under any prior grant unless we obtain the participant's consent;

    purchase and/or cancel a stock right previously granted and grant other stock rights in substitution, which may cover the same or a different number of shares and which may have a lower or higher exercise or purchase price per share, based on such terms and conditions as the board of directors establishes and the participant accepts; and

    adopt any sub-plans applicable to residents of any specified jurisdiction as it deems necessary or appropriate to facilitate the 2009 Plan or to comply with or take advantage of any tax or other laws applicable to us, any of our affiliates, or to participants, which sub-plans may include additional restrictions or conditions applicable to stock rights or shares issuable pursuant to a stock right.

Effect of certain changes in capitalization

        If our shares of common stock are subdivided or combined into a greater or smaller number of shares, if we issue shares of common stock as a stock dividend, or if we make any distribution of

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additional, new or different shares or securities of ours or any distribution of non-cash assets with respect to our shares of common stock, then, subject to the terms of the 2009 plan, our board of directors shall proportionately and appropriately adjust:

    the number of shares of our common stock available for issuance under the 2009 Plan;

    the number of shares of our common stock deliverable upon the exercise of an option or acceptance of a stock grant;

    the exercise or purchase price per share; and

    any other term or condition of a stock right.

Effect of certain corporate transactions

        In the event that we are consolidated with or acquired by another entity in a merger, consolidation, or sale of all or substantially all of our assets (other than a transaction to merely change the state of incorporation), which we refer to as corporate transactions, our board of directors, or the board of directors of any entity assuming our obligations under the 2009 Plan, must take one of the following actions pursuant to the 2009 Plan as to outstanding options, subject to the terms of the 2009 plan:

    provide for the continuation of the outstanding options by equitably substituting for the shares of our common stock then underlying such options either with securities of any successor or acquiring entity or the consideration payable with respect to the outstanding shares of our common stock in connection with the corporate transaction;

    provide by written notice to the participants that the outstanding options will terminate unless exercised (to the extent then exercisable or made partially or fully exercisable by our board of directors for purposes of the corporate transaction) within a specified period following the date of the notice; or

    terminate each outstanding option in exchange for a payment equal to the consideration payable upon consummation of the corporate transaction to a holder of the number of shares of our common stock into which such option would have been exercisable (to the extent then exercisable or made partially or fully exercisable by our board of directors for purposes of the corporate transaction), minus the aggregate exercise price of such option.

        If there is a corporate transaction, our board of directors, or the board of directors of any entity assuming our obligations under the 2009 Plan, must take one of the following actions pursuant to the 2009 Plan as to outstanding stock grants, restricted or otherwise, subject to the terms of the 2009 plan:

    provide for the continuation of the outstanding stock grants on the same terms and conditions by equitably substituting for the shares of our common stock then subject to such stock grants either with securities of any successor or acquiring entity or the consideration payable with respect to the outstanding shares of our common stock in connection with the corporate transaction; or

    provide that each outstanding stock grant will terminate in exchange for a payment equal to the consideration payable upon consummation of the corporate transaction to a holder of the number of shares of our common stock comprising such stock grant (to the extent such stock grant is no longer subject to any forfeiture or repurchase rights or our board of directors waives all forfeiture and repurchase rights upon the corporate transaction).

        In taking any of the above actions with respect to stock rights, our board of directors will not be obligated to treat all stock rights, all stock rights held by a participant, or all stock rights of the same type, identically.

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        As of August 31, 2015, options to purchase 5,630,100 shares of common stock were outstanding under the 2009 Plan, at a weighted average exercise price of $0.42 per share, and 829,566 options to purchase shares of our common stock had been exercised.

        Our board of directors may amend or terminate the 2009 Plan, except that any amendment that our board of directors determines is of a scope that requires shareholder approval will be subject to obtaining shareholder approval and any modification or amendment of the 2009 Plan that adversely affects a participant's rights will require such participant's consent.

        No further awards will be made under our 2009 Plan on or after the effectiveness of the registration statement for this offering; however, awards outstanding under our 2009 Plan will continue to be governed by their existing terms.

    2015 Stock Incentive Plan

        Our board of directors has adopted, and we expect our stockholders to approve, the 2015 Plan, which will become effective immediately prior to the effectiveness of the registration statement for this offering. The 2015 Plan provides for the grant of incentive stock options, non-qualified options, stock appreciation rights, restricted stock awards, restricted stock units and other stock-based awards. Upon effectiveness of the 2015 Plan, the number of shares of our common stock that will be reserved for issuance under the 2015 Plan will be the sum of: (1)         ; plus (2) the number of shares (up to            shares) equal to the sum of the number of shares of our common stock then available for issuance under the 2009 Plan and the number of shares of our common stock subject to outstanding awards under the 2009 Plan that expire, terminate or are otherwise surrendered, cancelled, forfeited or repurchased by us at their original issuance price pursuant to a contractual repurchase right; plus (3) an annual increase, to be added on the first day of each fiscal year, beginning with the fiscal year ending December 31, 2017 and continuing until, and including, the fiscal year ending December 31, 2025, equal to the lowest of          shares of our common stock,        % of the number of shares of our common stock outstanding on the first day of such fiscal year and an amount determined by our board of directors.

        Our employees, officers, directors, consultants and advisors will be eligible to receive awards under the 2015 Plan. Incentive stock options, however, may only be granted to our employees.

        Pursuant to the terms of the 2015 Plan, our board of directors (or a committee delegated by our board of directors) will administer the plan and, subject to any limitations in the plan, will select the recipients of awards and determine:

    the number of shares of our common stock covered by options and the dates upon which the options become exercisable;

    the type of options to be granted;

    the duration of options, which may not be in excess of ten years;

    the exercise price of options, which must be at least equal to the fair market value of our common stock on the date of grant; and

    the number of shares of our common stock subject to and the terms of any stock appreciation rights, restricted stock awards, restricted stock units or other stock-based awards and the terms and conditions of such awards, including conditions for repurchase, issue price and repurchase price (though the measurement price of stock appreciation rights must be at least equal to the fair market value of our common stock on the date of grant and the duration of such awards may not be in excess of ten years).

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        If our board of directors delegates authority to an executive officer to grant awards under the 2015 Plan, the executive officer will have the power to make awards to all of our employees, except executive officers. Our board of directors will fix the terms of the awards to be granted by such executive officer, including the exercise price of such awards (which may include a formula by which the exercise price will be determined), and the maximum number of shares subject to awards that such executive officer may make.

    Effect of certain changes in capitalization

        Upon the occurrence of any stock split, reverse stock split, stock dividend, recapitalization, combination of shares, reclassification of shares, spin-off or other similar change in capitalization or event, or any dividend or distribution to holders of our common stock other than an ordinary cash dividend, our board of directors shall equitably adjust:

    the number and class of securities available under the 2015 Plan;

    the share counting rules under the 2015 Plan;

    the number and class of securities and exercise price per share of each outstanding option;

    the share and per-share provisions and the measurement price of each outstanding stock appreciation right;

    the number of shares subject to, and the repurchase price per share subject to, each outstanding restricted stock award; and

    the share and per-share related provisions and the purchase price, if any, of each other stock-based award.

    Effect of certain corporate transactions

        Upon a merger or other reorganization event (as defined in our 2015 Plan), our board of directors may, on such terms as our board determines (except to the extent specifically provided otherwise in an applicable award agreement or other agreement between the participant and us), take any one or more of the following actions pursuant to the 2015 Plan as to some or all outstanding awards, other than restricted stock awards:

    provide that all outstanding awards shall be assumed, or substantially equivalent awards shall be substituted, by the acquiring or successor corporation (or an affiliate thereof);

    upon written notice to a participant, provide that all of the participant's unvested and/or vested but unexercised awards will terminate immediately prior to the consummation of such reorganization event unless exercised by the participant (to the extent then exercisable) within a specified period following the date of the notice;

    provide that outstanding awards shall become exercisable, realizable or deliverable, or restrictions applicable to an award shall lapse, in whole or in part, prior to or upon such reorganization event;

    in the event of a reorganization event pursuant to which holders of shares of our common stock will receive a cash payment for each share surrendered in the reorganization event, make or provide for a cash payment to participants with respect to each award held by a participant equal to (1) the number of shares of our common stock subject to the vested portion of the award (after giving effect to any acceleration of vesting that occurs upon or immediately prior to such reorganization event) multiplied by (2) the excess, if any, of the cash payment for each share surrendered in the reorganization event over the exercise, measurement or purchase price

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      of such award and any applicable tax withholdings, in exchange for the termination of such award; and/or

    provide that, in connection with a liquidation or dissolution, awards shall convert into the right to receive liquidation proceeds (if applicable, net of the exercise, measurement or purchase price thereof and any applicable tax withholdings).

        Our board of directors does not need to take the same action with respect to all awards, all awards held by a participant or all awards of the same type.

        In the case of certain restricted stock units, no assumption or substitution is permitted, and the restricted stock units will instead be settled in accordance with the terms of the applicable restricted stock unit agreement.

        Upon the occurrence of a reorganization event other than a liquidation or dissolution, the repurchase and other rights with respect to outstanding restricted stock awards will continue for the benefit of the successor company and will, unless our board of directors may otherwise determine, apply to the cash, securities or other property into which shares of our common stock are converted or exchanged pursuant to the reorganization event. Upon the occurrence of a reorganization event involving a liquidation or dissolution, all restrictions and conditions on each outstanding restricted stock award will automatically be deemed terminated or satisfied, unless otherwise provided in the agreement evidencing the restricted stock award or any other agreement between the participant and us.

        At any time, our board of directors may, in its sole discretion, provide that any award under the 2015 Plan will become immediately exercisable in full or in part, free of some or all restrictions or conditions, or otherwise realizable in whole or in part as the case may be.

        No award may be granted under the 2015 Plan on or after the date that is ten years following the effectiveness of the registration statement related to this offering. Our board of directors may amend, suspend or terminate the 2015 Plan at any time, except that stockholder approval may be required to comply with applicable law or stock market requirements.

401(k) Plan

        We maintain a defined contribution employee retirement plan for our employees. Our 401(k) plan is intended to qualify as a tax-qualified plan under Section 401 of the Internal Revenue Code of 1986, as amended, so that contributions to our 401(k) plan, and income earned on such contributions, are not taxable to participants until withdrawn or distributed from the 401(k) plan. Our 401(k) plan provides that each participant may contribute up to 90% of his or her pre-tax compensation, up to a statutory limit, which is $18,000 for 2015. Participants who are at least 50 years old can also make "catch-up" contributions, which in 2015 may be up to an additional $5,500 above the statutory limit. Under our 401(k) plan, each employee is fully vested in his or her deferred salary contributions. Employee contributions are held and invested by the plan's trustee, subject to participants' ability to give investment directions by following certain procedures. We do not currently make discretionary contributions or matching contributions to our 401(k) plan.

Limitation of Liability and Indemnification

        Our certificate of incorporation, which will become effective upon the closing of this offering, limits the personal liability of directors for breach of fiduciary duty to the maximum extent permitted by the Delaware General Corporation Law, or the DGCL, and provides that no director will have personal liability to us or to our stockholders for monetary damages for breach of fiduciary duty as a director. However, these provisions do not eliminate or limit the liability of any of our directors:

    for any breach of the director's duty of loyalty to us or our stockholders;

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    for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law;

    for voting for or assenting to unlawful payments of dividends, stock repurchases or other distributions; or

    for any transaction from which the director derived an improper personal benefit.

        Any amendment to or repeal of these provisions will not eliminate or reduce the effect of these provisions in respect of any act, omission or claim that occurred or arose prior to such amendment or repeal. If the DGCL is amended to provide for further limitations on the personal liability of directors of corporations, then the personal liability of our directors will be further limited to the greatest extent permitted by the DGCL.

        In addition, our certificate of incorporation, which will become effective upon the closing of this offering, provides that we must indemnify our directors and officers and we must advance expenses, including attorneys' fees, to our directors and officers in connection with legal proceedings, subject to very limited exceptions.

        We maintain a general liability insurance policy that covers specified liabilities of our directors and officers arising out of claims based on acts or omissions in their capacities as directors or officers. In addition, we have entered into indemnification agreements with certain of our directors, and we intend to enter into indemnification agreements with all of our directors prior to the completion of this offering. These indemnification agreements may require us, among other things, to indemnify each such director for some expenses, including attorneys' fees, judgments, fines and settlement amounts incurred by him or her in any action or proceeding arising out of his or her service as one of our directors.

        Some of our non-employee directors may, through their relationships with their employers, be insured or indemnified against specified liabilities incurred in their capacities as members of our board of directors.

        Insofar as indemnification for liabilities arising under the Securities Act of 1933, or the Securities Act, may be permitted to directors, executive officers or persons controlling us, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

Rule 10b5-1 Sales Plans

        Our directors and executive officers may adopt written plans, known as Rule 10b5-1 plans, in which they will contract with a broker to buy or sell shares of our common stock on a periodic basis. Under a Rule 10b5-1 plan, a broker executes trades pursuant to parameters established by the director or officer when entering into the plan, without further direction from the director or officer. It also is possible that the director or officer could amend or terminate the plan when not in possession of material, nonpublic information. In addition, our directors and executive officers may buy or sell additional shares outside of a Rule 10b5-1 plan when they are not in possession of material, nonpublic information.

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Director Compensation

        The table below shows all compensation to our directors during 2014.

Name
  Fees earned or
paid in cash
($)
  Option
awards
($)(1)
  All other
compensation
  Total
($)
 

Robert Paull

                 

Robert Tepper

                 

Kevin Bitterman

                 

Karen Wagner

                 

David Donabedian

                 

Howard Rosen

    55,000     83,253 (2)   2,500 (3)   140,753  

Bernard Gilly

    40,000             40,000  

Robert Langer

        90,349 (4)   60,000 (5)   150,349  

(1)
The amounts reported in the "Option awards" column reflect the aggregate fair value of stock-based compensation awarded during the year computed in accordance with the provisions of FASB ASC Topic 718. See Note 10 to our financial statements appearing at the end of this prospectus regarding assumptions underlying the valuation of equity awards.

(2)
Represents an option to purchase 199,199 shares of common stock granted to Mr. Rosen in October 2014. The option has an exercise price of $0.44 per share and expires ten years after the date of grant. This option vests over four years, in equal monthly installments, beginning on February 28, 2014, accelerating upon the occurrence of a sale event of the Company. As of December 31, 2014, Mr. Rosen held 16,875 shares of our common stock and options to purchase 224,324 shares of common stock.

(3)
Mr. Rosen received $2,500 in consulting fees in 2014 pursuant to a consulting agreement with us.

(4)
Represents an option to purchase 229,594 shares of common stock granted to Dr. Langer in October 2014. The grant has an exercise price of $0.44 per share and expires ten years after the date of grant. This option vests over four years, in equal monthly installments, beginning on November 2, 2014. As of December 31, 2014, Dr. Langer held 1,700,000 shares of our common stock and options to purchase 229,594 shares of common stock.

(5)
Dr. Langer received $60,000 in consulting fees in 2014 pursuant to a consulting agreement with us.

        Prior to this offering, the compensation of our non-employee directors was established through arm's length negotiation at the time the director was elected, taking into account the responsibilities of each director and the director's qualifications and prior experience and industry data for such positions. This compensation was reviewed and recommended by our compensation committee and approved by our board of directors.

        Mr. Rosen was appointed to our board of directors as an independent director and chairperson of our board of directors in January 2014. His annual cash compensation as chairperson was set at $60,000.

        Mr. Gilly served as a member of our board of directors from December 2012 to May 2015. His annual cash compensation was set at $40,000.

        Following this offering, our non-employee directors will be compensated for their services on our board of directors as follows:

    each non-employee director will receive an option to purchase            shares of our common stock upon his or her initial election or appointment to our board of directors;

    each non-employee director will receive an option to purchase            shares of our common stock on the anniversary of his or her election to the board;

    each non-employee director will receive an annual fee of $        ; and

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    each non-employee director who serves as chairman of a committee of our board of directors will receive additional compensation as follows:

    chairman of the audit committee—an additional annual fee of $        ;

    chairman of the compensation committee—an additional annual fee of $        ; and

    chairman of the nominating and corporate governance committee—an additional annual fee of $    .

        Each member of our board of directors also will continue to be entitled to be reimbursed for reasonable travel and other expenses incurred in connection with attending meetings of our board of directors and any committee of our board of directors on which he or she serves.

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TRANSACTIONS WITH RELATED PERSONS

        Since January 1, 2012, we have engaged in the following transactions with our directors, executive officers and holders of more than 5% of our voting securities, and affiliates of our directors, executive officers and holders of more than 5% of our voting securities. We believe that all of these transactions were on terms as favorable as could have been obtained from unrelated third parties.

Series A Preferred Stock Financing

        In February and July 2013, we issued and sold, in two tranches, an aggregate of 9,583,432 shares of our Series A preferred stock at a price per share of $1.20 for an aggregate purchase price of $11.5 million. The following table sets forth the aggregate number of shares of our Series A preferred stock that we issued and sold to our 5% stockholders and their affiliates in these transactions and the aggregate purchase price for such shares:

Purchaser(1)
  Shares of
Series A
preferred
stock
  Cash
Purchase
Price
 

Entities affiliated with Lux Capital

    1,666,666   $ 2,000,000  

Entities affiliated with Polaris Ventures

    2,500,000   $ 3,000,000  

Third Rock Ventures

    2,500,000   $ 3,000,000  

CVF, LLC

    2,500,000   $ 3,000,000  

(1)
See "Principal Stockholders" for additional information about shares held by these entities.

2013 Convertible Promissory Notes

        In December 2013, we entered into agreements for the issuance of an aggregate of $5 million in convertible promissory notes, or the 2013 Notes. The 2013 Notes accrued interest at 8% per year and we were required to pay all outstanding interest and principal within 30 days written demand of the creditors holding a majority of the aggregate amount of the then outstanding principal amount under the 2013 Notes; provided, however, that in the absence of an event of default, such demand could not be made prior to December 18, 2014. Concurrently with the issuance of the 2013 Notes, we issued rights to obtain warrants to each holder of the 2013 Notes. The number of shares underlying the warrants is equal to 20% of the principal amount the lender provided to us divided by the warrant exercise price.

        The following table sets forth the aggregate principal amount of our 2013 Notes that we issued and sold to our 5% stockholders and their affiliates in these transactions and the aggregate purchase price for such shares:

Purchaser(1)
  Principal
Amount of
2013 Notes
 

Entities affiliated with Lux Capital

  $ 1,250,000  

Entities affiliated with Polaris Ventures

  $ 1,250,000  

Third Rock Ventures

  $ 1,250,000  

CVF, LLC

  $ 1,250,000  

(1)
See "Principal Stockholders" for additional information about shares held by these entities.

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Series B Preferred Financing

        In April 2014, we issued and sold an aggregate of 15,624,999 shares of our Series B preferred stock at a price per share of $1.44 for an aggregate purchase price of $22.5 million, which included conversion the outstanding principal and interest on the 2013 Notes. Additionally, upon closing of this offering, the warrants issued to holders of our 2013 Notes became exercisable into 694,444 shares of our Series B preferred stock. The following table sets forth the aggregate number of shares of our Series B preferred stock and warrants to purchase our Series B preferred stock that we issued and sold to our 5% stockholders and their affiliates in these transactions and the aggregate purchase price for such shares:

Purchaser(1)
  Shares of
Series B
Preferred
Stock
  Series B
Preferred
Stock
Warrants
  Cash
Purchase
Price
 

Entities affiliated with Lux Capital

    2,300,703     173,611   $ 3,313,012  

Entities affiliated with Polaris Ventures

    2,265,764     173,611   $ 3,262,700  

Third Rock Ventures

    2,265,764     173,611   $ 3,262,700  

CVF, LLC

    916,961     173,611   $ 1,320,424  

Ysios Capital

    3,472,222       $ 5,000,000  

AbbVie, Inc.(2)

    3,819,444       $ 5,500,000  

(1)
See "Principal Stockholders" for additional information about shares held by these entities.

(2)
AbbVie, Inc. sold its shares of Series B preferred stock to funds affiliated with RA Capital in July 2015.

Series B-1 Preferred Stock Financing

        In August 2015, we issued and sold 4,629,629 shares of our Series B-1 preferred stock to an entity affiliated with Wellington Management Company. See "Principal Stockholders" for additional information about the shares held by such entity.

Guillaume Pfefer Loan

        We granted a loan of $150,000 to Guillaume Pfefer, a former executive in 2012, as part of his offer letter agreement. The term of the loan was five years, maturing on December 28, 2017 and the interest rate was equal to the minimum applicable federal rate in effect at the date of the loan. Under the terms of the agreement, and provided that Mr. Pfefer remained an employee, the initial aggregate principal amount of the loan plus any accrued but unpaid interest would be forgiven in varying amounts upon each annual anniversary such that the entire loan would be forgiven on the fourth year anniversary of the issuance of the loan. In addition, in the event that the employee was terminated other than for cause or good reason as defined in the loan agreement, 100% of the unforgiven portion of the outstanding balance of the loan would be forgiven as of the date of such occurrence. In September 2014, Mr. Pfefer left us and the outstanding balance of the loan plus accrued interest was forgiven.

Registration Rights

        We are a party to a registration rights agreement with the holders of our preferred stock, including our 5% stockholders and their affiliates and entities affiliated with some of our directors. This registration rights agreement provides these holders the right, subject to certain conditions, beginning 180 days following the completion of this offering, to demand that we file a registration statement or to request that their shares be covered by a registration statement that we are otherwise filing.

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        See "Description of Capital Stock—Registration Rights" for additional information regarding these registration rights.

Indemnification Agreements

        Our certificate of incorporation, which will become effective upon the closing of this offering, provides that we will indemnify our directors and officers to the fullest extent permitted by Delaware law. In addition, we have entered into indemnification agreements with certain of our directors, and we intend to enter into indemnification agreements with all of our directors prior to the completion of this offering.

Policies and Procedures for Related Person Transactions

        Our board of directors has adopted written policies and procedures for the review of any transaction, arrangement or relationship in which our company is a participant, the amount involved exceeds $120,000 and one of our executive officers, directors, director nominees or 5% stockholders, or their immediate family members, each of whom we refer to as a "related person," has a direct or indirect material interest.

        If a related person proposes to enter into such a transaction, arrangement or relationship, which we refer to as a "related person transaction," the related person must report the proposed related person transaction to our                        . The policy calls for the proposed related person transaction to be reviewed and, if deemed appropriate, approved by our audit committee. Whenever practicable, the reporting, review and approval will occur prior to entry into the transaction. If advance review and approval is not practicable, the committee will review, and, in its discretion, may ratify the related person transaction. The policy also permits the chairman of the audit committee to review and, if deemed appropriate, approve proposed related person transactions that arise between committee meetings, subject to ratification by the committee at its next meeting. Any related person transactions that are ongoing in nature will be reviewed annually.

        A related person transaction reviewed under the policy will be considered approved or ratified if it is authorized by the audit committee after full disclosure of the related person's interest in the transaction. As appropriate for the circumstances, the audit committee will review and consider:

    the related person's interest in the related person transaction;

    the approximate dollar value of the amount involved in the related person transaction;

    the approximate dollar value of the amount of the related person's interest in the transaction without regard to the amount of any profit or loss;

    whether the transaction was undertaken in the ordinary course of our business;

    whether the terms of the transaction are no less favorable to us than terms that could have been reached with an unrelated third party;

    the purpose of, and the potential benefits to us of, the transaction; and

    any other information regarding the related person transaction or the related person in the context of the proposed transaction that would be material to investors in light of the circumstances of the particular transaction.

        Our audit committee may approve or ratify the transaction only if it determines that, under all of the circumstances, the transaction is in our best interests. Our audit committee may impose any conditions on the related person transaction that it deems appropriate.

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        In addition to the transactions that are excluded by the instructions to the SEC's related person transaction disclosure rule, our board of directors has determined that the following transactions do not create a material direct or indirect interest on behalf of related persons and, therefore, are not related person transactions for purposes of this policy:

    interests arising solely from the related person's position as an executive officer of another entity, whether or not the person is also a director of the entity, that is a participant in the transaction where the related person and all other related persons own in the aggregate less than a 10% equity interest in such entity, the related person and his or her immediate family members are not involved in the negotiation of the terms of the transaction and do not receive any special benefits as a result of the transaction and the amount involved in the transaction is less than the greater of $200,000 or 5% of the annual gross revenues of the company receiving payment under the transaction; and

    a transaction that is specifically contemplated by provisions of our certificate of incorporation or by-laws.

        The policy provides that transactions involving compensation of executive officers shall be reviewed and approved by our compensation committee in the manner specified in the compensation committee's charter.

        We did not have a written policy regarding the review and approval of related person transactions prior to this offering. Nevertheless, with respect to such transactions, it has been the practice of our board of directors to consider the nature of and business reasons for such transactions, how the terms of such transactions compared to those which might be obtained from unaffiliated third parties and whether such transactions were otherwise fair to and in the best interests of, or not contrary to, our best interests. In addition, all related person transactions required prior approval, or later ratification, by our board of directors.

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PRINCIPAL STOCKHOLDERS

        The following table sets forth information with respect to the beneficial ownership of our common stock as of August 31, 2015 by:

    each of our directors;

    each of our named executive officers;

    all of our directors and executive officers as a group; and

    each person, or group of affiliated persons, who is known by us to beneficially own more than 5% of our common stock.

        The column entitled "Percentage of shares beneficially owned—Before Offering" is based on a total of 47,135,835 shares of our common stock outstanding as of August 31, 2015, assuming the automatic conversion of all outstanding shares of our preferred stock into an aggregate of 41,081,269 shares of our common stock upon the closing of this offering. The column entitled "Percentage of Shares Beneficially Owned—After Offering" is based on                shares of our common stock to be outstanding after this offering, including the shares of our common stock that we are selling in this offering, but not including any additional shares issuable upon exercise of outstanding options or warrants. The table also assumes the automatic conversion of all outstanding warrants to purchase 1,052,222 shares of our preferred stock into warrants to purchase 1,052,222 shares of our common stock.

        Beneficial ownership is determined in accordance with the rules and regulations of the SEC and includes voting or investment power with respect to our common stock. Shares of our common stock subject to options and warrants that are currently exercisable or exercisable within 60 days after August 31, 2015 are considered outstanding and beneficially owned by the person holding the options for the purpose of calculating the percentage ownership of that person but not for the purpose of calculating the percentage ownership of any other person. Except as otherwise noted, the persons and entities in this table have sole voting and investing power with respect to all of the shares of our common stock beneficially owned by them, subject to community property laws, where applicable.

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Except as otherwise set forth below, the address of each beneficial owner is c/o Kala Pharmaceuticals, Inc., 100 Beaver Street, Suite 201, Waltham, MA 02453.

 
   
  Percentage of
shares
beneficially owned
 
 
  Number of
shares
beneficially
owned
 
Name and Address of Beneficial Owner
  Before
Offering
  After
Offering
 

5% Stockholders:

                   

Entities affiliated with Polaris Ventures(1)

    8,616,747     18.2 %           

Entities affiliated with Lux Capital(2)

    6,328,315     13.4 %      

Third Rock Ventures(3)

    8,616,749     18.2 %      

Wellington Management Company(4)

    4,629,629     9.8 %      

CVF, LLC(5)

    3,590,572     7.6 %      

Ysios Capital(6)

    3,472,222     7.4 %      

Entities affiliated with RA Capital(7)

    3,819,444     8.1 %      

Justin Hanes

    3,135,000     6.7 %      

Directors and Named Executive Officers:

                   

Mark Iwicki(8)

    177,405     *        

Guillaume Pfefer

    587,443     1.2 %      

Charles McDermott(9)

    242,035     *        

Hongming Chen, Sc.D.(10)

    433,821     *        

Kevin Bitterman, Ph.D.(11)

    8,616,747     18.2 %      

Robert Langer, Sc.D.(12)

    1,747,398     3.7 %      

Robert Paull(13)

    6,328,315     13.4 %      

Howard Rosen(14)

    123,211     *        

Rajeev Shah(15)

    3,819,444     8.1 %      

Robert Tepper, M.D.(16)

    8,616,749     18.2 %      

Karen Wagner, Ph.D.(17)

    3,472,222     7.4 %      

All current executive officers and directors as a group (13 persons)(18)

    34,477,862     70.7 %      

*
Less than one percent

(1)
Consists of (a) 8,147,078 shares of common stock issuable upon conversion of preferred stock and 167,523 shares of common stock issuable upon the exercise of warrants held by Polaris Venture Partners V, L.P., (b) 158,786 shares of common stock issuable upon conversion of preferred stock and 3,265 shares of common stock issuable upon the exercise of warrants held by Polaris Venture Partners Entrepreneurs' Fund V, L.P., (c) 55,806 shares of common stock issuable upon conversion of preferred stock and 1,148 shares of common stock issuable upon the exercise of warrants held by Polaris Venture Partners Founders' Fund V, L.P. and (d) 81,466 shares of common stock issuable upon conversion of preferred stock and 1,675 shares of common stock issuable upon the exercise of warrants held by Polaris Venture Partners Special Founders' Fund V, L.P. Each of Polaris Venture Partners V, L.P., Polaris Venture Partners Special Founder's Fund V, L.P., Polaris Venture Partners Founders' Fund V, L.P. and Polaris Venture Partners Entrepreneurs' Fund V, L.P. (collectively, the "Funds") has the sole voting and investment power with respect to the shares directly held by it. The general partner of each of the Funds is Polaris Venture Management Co. V, LLC, or Polaris Management. Polaris Management may be deemed to have sole voting and investment power with respect to the shares held by the Funds and disclaims beneficial ownership of all the shares held by the Funds except to the extent of its proportionate pecuniary interest therein. The members of North Star Venture Management 2000, LLC, Terrence McGuire and Jonathan Flint, collectively the Management Members, are also members of Polaris Management, and as members of the general partner, they may be deemed to share voting and investment power

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    over the shares held by the Funds. The Management Members disclaim beneficial ownership of such shares, except to the extent of their proportionate pecuniary interest therein. Kevin Bitterman, one of our directors, is a partner of Polaris Management. Mr. Bitterman disclaims beneficial ownership of all the shares held by the Funds except to the extent of his proportionate pecuniary interest therein. The address for each of the individuals and entities listed above is Polaris Venture Partners, 1000 Winter Street, Suite 3350, Waltham, MA 02451.

(2)
Consists of (a) 5,992,867 shares of common stock issuable upon conversion of preferred stock and 80,744 shares of common stock issuable upon the exercise of warrants held by Lux Ventures II, LP ("Lux II") and (b) 251,318 shares of common stock issuable upon conversion of preferred stock and 3,386 shares of common stock issuable upon the exercise of warrants held by Lux Ventures II Sidecar, L.P. ("Lux II Sidecar"). Lux Venture Partners II, L.P. ("Lux Venture Partners") is the general partner of Lux II and Lux II Sidecar. Lux Venture Associates II, LLC ("Lux Associates") is the general partner of Lux Venture Partners and Lux Capital Management, LLC ("Lux Management") is the sole member of Lux Venture Partners. Joshua Wolfe and Peter Hebert are the individual managers of Lux Management (the "Individual Managers"). Lux Venture Partners, Lux Associates and Lux Management disclaim beneficial ownership of such shares, except to the extent of their pecuniary interest therein. Lux Management, as sole member, may be deemed to share voting and investment powers for the shares held by Lux II and Lux II Sidecar. As one of two individual managers, each of the Individual Managers disclaims beneficial ownership over the shares reported herein, and in all events disclaims beneficial ownership except to the extent of his pecuniary interest therein. The mailing address of the beneficial owner is 295 Madison Avenue, 24th Floor, New York, NY 10017.

(3)
Consists of 8,443,138 shares of common stock issuable upon conversion of preferred stock and 173,611 shares of common stock issuable upon the exercise of warrants held by Third Rock Ventures, L.P. ("TRV LP"). Each of Third Rock Ventures GP, L.P., ("TRV GP LP"), the general partner of TRV LP, and Third Rock Ventures GP, LLC ("TRV GP LLC"), the general partner of TRV GP LP, and Mark Levin, Kevin Starr and Robert Tepper, the managers of TRV GP LLC, may be deemed to share voting and investment power with respect to all shares held by TRV LP. Dr. Tepper disclaims beneficial ownership of all shares held by TRV LP, except to the extent of his pecuniary interest therein. The address for TRV LP is 29 Newbury Street, Boston, MA 02116.

(4)
Consists of 4,629,629 shares of common stock issuable upon conversion of preferred stock held by Hadley Harbor Master Investors (Cayman) L.P. Wellington Management Company LLP is the investment adviser to this entity. Wellington Management Company LLP is an investment adviser registered under the Investment Advisers Act of 1940, as amended, and is an indirect subsidiary of Wellington Management Group LLP. Wellington Management Company LLP and Wellington Management Group LLP may each be deemed to share beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of the shares indicated in the table, all of which are held of record by Hadley Harbor Master Investors (Cayman) LLP or a nominee (Italianflare & Co.) on its behalf. The business address of the entity named in the table is c/o Wellington Management Company LLP, 280 Congress Street, Boston, Massachusetts, 02110. The business address of Wellington Management Company LLP and Wellington Management Group LLP is 280 Congress Street, Boston, MA 02110.

(5)
Consists of 3,416,961 shares of common stock issuable upon conversion of preferred stock and 173,611 shares of common stock issuable upon the exercise of warrants held by CVF, LLC. Richard H. Robb, manager of CVF, LLC, exercises voting and investment power with respect to shares held by CVF, LLC. Mr. Robb disclaims beneficial ownership of all shares held by CVF, LLC except to the extent of his pecuniary interest therein. The mailing address of the beneficial owner is 222 N. LaSalle Street, Suite 2000, Chicago, IL 60601.

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(6)
Consists of 3,472,222 shares of common stock issuable upon conversion of preferred stock held by Ysios Biofund I FCR Regimen Simplificado ("Ysios Biofund I"). Ysios Capital Partners SGEIC SA, is the general partner of Ysios Biofund I. Investment decisions with respect to the shares held by Ysios Biofund I were made by an investment committee at Ysios Biofund I, of which Karen Wagner, a member of our board of directors, is a member. Dr. Wagner disclaims beneficial ownership of all shares held by Ysios Biofund I, except to the extent of her pecuniary interest therein. The address for Ysios Biofund I is c/o Ysios Capital Partners SGEIC SA, Travessera de Gracia, 11-08021 Barcelona, Spain.

(7)
Consists of (a) 3,143,402 shares of common stock issuable upon conversion of preferred stock held by RA Capital Healthcare Fund, L.P. ("RA Capital") and (b) 676,042 shares of common stock issuable upon conversion of preferred stock held by Blackwell Partners LLC—Series A ("Blackwell"). RA Capital Management, LLC ("RA Capital Management") is the general partner of RA Capital and the investment advisor to Blackwell. Investment decisions with respect to the shares held by RA Capital and Blackwell were made by a portfolio management team at RA Capital Management of which Rajeev Shah, a member of our board of directors, is a member. Mr. Shah disclaims beneficial ownership of all shares held by RA Capital and Blackwell, except to the extent of his pecuniary interest therein. The address for each of RA Capital, Blackwell and RA Capital Management is 20 Park Plaza, Suite 1200, Boston, MA 02116.

(8)
Consists of shares of common stock underlying options held by Mr. Iwicki that are exercisable as of August 31, 2015 or will become exercisable within 60 days after such date.

(9)
Consists of shares of common stock underlying options held by Mr. McDermott that are exercisable as of August 31, 2015 or will become exercisable within 60 days after such date.

(10)
Consists of (a) 154,000 shares of common stock owned by Dr. Chen and (b) 279,821 shares of common stock underlying options held by Dr. Chen that are exercisable as of August 31, 2015 or will become exercisable within 60 days after such date.

(11)
Consists of the shares described in note 1 above.

(12)
Consists of (a) 1,700,000 shares of common stock owned by Dr. Langer and (b) 57,398 shares of common stock underlying options held by Dr. Langer that are exercisable as of August 31, 2015 or will become exercisable within 60 days after such date.

(13)
Consists of the shares described in note 2 above.

(14)
Consists of (a) 16,875 shares of common stock owned by Mr. Rosen and (b) 106,336 shares of common stock underlying options held by Mr. Rosen that are exercisable as of August 31, 2015 or will become exercisable within 60 days after such date.

(15)
Consists of the shares described in note 7 above.

(16)
Consists of the shares described in note 3 above.

(17)
Consists of the shares described in note 6 above.

(18)
Includes (a) 1,166,067 shares of common stock underlying options that are exercisable as of August 31, 2015 or will become exercisable within 60 days after such date and (b) 431,352 shares of common stock issuable upon the exercise of warrants.

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DESCRIPTION OF CAPITAL STOCK

        The following description of our capital stock and provisions of our certificate of incorporation and bylaws are summaries and are qualified by reference to the certificate of incorporation and the bylaws that will be in effect upon the closing of this offering. We have filed copies of these documents with the SEC as exhibits to our registration statement of which this prospectus forms a part. The description of the capital stock reflects changes to our capital structure that will occur upon the closing of this offering.

        Upon the closing of this offering, our authorized capital stock will consist of            shares of our common stock, par value $0.001 per share, and            shares of our preferred stock, par value $0.001 per share, all of which preferred stock will be undesignated.

        As of August 31, 2015, we had issued and outstanding:

    6,054,566 shares of our common stock held by 14 stockholders of record;

    11,243,209 shares of our Series Seed preferred stock held by 11 stockholders of record that are convertible into 11,243,209 shares of our common stock;

    9,583,432 shares of our Series A preferred stock held by 10 stockholders of record that are convertible into 9,583,432 shares of our common stock;

    15,624,999 shares of our Series B preferred stock held by 21 stockholders of record that are convertible into 15,624,999 shares of our common stock; and

    4,629,629 shares of our Series B-1 preferred stock held by 1 stockholder of record that are convertible into 4,629,629 shares of our common stock.

        Upon the closing of this offering, all of the outstanding shares of our preferred stock will automatically convert into an aggregate of 41,081,269 shares of our common stock.

Common Stock

        Holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders and do not have cumulative voting rights. Each election of directors by our stockholders will be determined by a plurality of the votes cast by the stockholders entitled to vote on the election. Holders of common stock are entitled to receive proportionately any dividends as may be declared by our board of directors, subject to any preferential dividend rights of outstanding preferred stock.

        In the event of our liquidation or dissolution, the holders of our common stock are entitled to receive proportionately all assets available for distribution to stockholders after the payment of all debts and other liabilities and subject to the prior rights of any of our outstanding preferred stock. Holders of our common stock have no preemptive, subscription, redemption or conversion rights. The rights, preferences and privileges of holders of our common stock are subject to and may be adversely affected by the rights of the holders of shares of any series of our preferred stock that we may designate and issue in the future.

Preferred Stock

        Under the terms of our certificate of incorporation that will become effective upon the closing of this offering, our board of directors is authorized to issue shares of preferred stock in one or more series without stockholder approval. Our board of directors has the discretion to determine the rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, of each series of preferred stock.

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        The purpose of authorizing our board of directors to issue preferred stock and determine its rights and preferences is to eliminate delays associated with a stockholder vote on specific issuances. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions, future financings and other corporate purposes, could have the effect of making it more difficult for a third party to acquire, or could discourage a third party from seeking to acquire, a majority of our outstanding voting stock. Upon the closing of this offering, there will be no shares of preferred stock outstanding, and we have no present plans to issue any shares of preferred stock.

Warrants

        As of August 31, 2015, we had outstanding:

    warrants held by Lighthouse Capital Partners VI, L.P., or Lighthouse, to purchase up to an aggregate of 80,000 shares of our Series Seed preferred stock, at an exercise price of $1.00 per share, which we refer to as the Lighthouse warrants; and

    warrants to purchase up to an aggregate of 972,222 shares of our Series B preferred stock, at an exercise price of $1.44 per share, which we refer to as the Series B warrants.

        Upon the closing of this offering:

    the Lighthouse warrants will become exercisable for an aggregate of 80,000 shares of our common stock, at an exercise price of $1.00 per share; and

    the Series B warrants will become exercisable for an aggregate of 972,222 shares of our common stock, at an exercise price of $1.44 per share.

        These warrants provide for adjustments in the event of specified mergers, reorganizations, reclassifications, stock dividends, stock splits or other changes in our corporate structure.

Options

        As of August 31, 2015, options to purchase an aggregate of 5,630,100 shares of our common stock, at a weighted average exercise price of $0.42 per share, were outstanding.

Delaware Anti-Takeover Law and Certain Charter and Bylaw Provisions

    Delaware Law

        We are subject to Section 203 of the Delaware General Corporation Law. Subject to certain exceptions, Section 203 prevents a publicly held Delaware corporation from engaging in a "business combination" with any "interested stockholder" for three years following the date that the person became an interested stockholder, unless either the interested stockholder attained such status with the approval of our board of directors, the business combination is approved by our board of directors and stockholders in a prescribed manner or the interested stockholder acquired at least 85% of our outstanding voting stock in the transaction in which it became an interested stockholder. A "business combination" includes, among other things, a merger or consolidation involving us and the "interested stockholder" and the sale of more than 10% of our assets. In general, an "interested stockholder" is any entity or person beneficially owning 15% or more of our outstanding voting stock and any entity or person affiliated with or controlling or controlled by such entity or person. The restrictions contained in Section 203 are not applicable to any of our existing stockholders that will own 15% or more of our outstanding voting stock upon the closing of this offering.

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    Staggered Board; Removal of Directors

        Our certificate of incorporation and our bylaws divide our board of directors into three classes with staggered three-year terms. In addition, our certificate of incorporation and our bylaws provide that directors may be removed only for cause and only by the affirmative vote of the holders of 75% of our shares of capital stock present in person or by proxy and entitled to vote. Under our certificate of incorporation and bylaws, 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. Furthermore, our certificate of incorporation provides that the authorized number of directors may be changed only by the resolution of our board of directors. The classification of our board of directors and the limitations on the ability of our stockholders to remove directors, change the authorized number of directors and fill vacancies could make it more difficult for a third party to acquire, or discourage a third party from seeking to acquire, control of our company.

    Stockholder Action; Special Meeting of Stockholders; Advance Notice Requirements for Stockholder Proposals and Director Nominations

        Our certificate of incorporation and our bylaws provide that any action required or permitted to be taken by our stockholders at an annual meeting or special meeting of stockholders may only be taken if it is properly brought before such meeting and may not be taken by written action in lieu of a meeting. Our certificate of incorporation and our bylaws also provide that, except as otherwise required by law, special meetings of the stockholders can only be called by the chairman of our board of directors, our chief executive officer or our board of directors. In addition, our bylaws establish an advance notice procedure for stockholder proposals to be brought before an annual meeting of stockholders, including proposed nominations of candidates for election to our board of directors. Stockholders at an annual meeting may only consider proposals or nominations specified in the notice of meeting or brought before the meeting by or at the direction of our board of directors, or by a stockholder of record on the record date for the meeting who is entitled to vote at the meeting and who has delivered timely written notice in proper form to our secretary of the stockholder's intention to bring such business before the meeting. These provisions could have the effect of delaying until the next stockholder meeting stockholder actions that are favored by the holders of a majority of our outstanding voting securities. These provisions also could discourage a third party from making a tender offer for our common stock because even if the third party acquired a majority of our outstanding voting stock, it would be able to take action as a stockholder, such as electing new directors or approving a merger, only at a duly called stockholders meeting and not by written consent.

    Super-Majority Voting

        The Delaware General Corporation Law provides generally that the affirmative vote of a majority of the shares entitled to vote on any matter is required to amend a corporation's certificate of incorporation or bylaws unless a corporation's certificate of incorporation or bylaws, as the case may be, requires a greater percentage. Our bylaws may be amended or repealed by a majority vote of our board of directors or the affirmative vote of the holders of at least 75% of the votes that all our stockholders would be entitled to cast in any annual election of directors. In addition, the affirmative vote of the holders of at least 75% of the votes that all our stockholders would be entitled to cast in any election of directors is required to amend or repeal or to adopt any provisions inconsistent with any of the provisions of our certificate of incorporation described above.

Registration Rights

        We have entered into a second amended and restated registration investors' rights agreement dated April 16, 2014, as amended on April 8, 2015 and August 17, 2015, or the registration rights agreement, with holders of our preferred stock. Beginning 180 days following the closing of this

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offering, holders of a total of 41,081,269 shares of our common stock along with holders of an additional 1,052,222 shares of our common stock issuable upon the exercise of warrants, will have the right to require us to register these shares under the Securities Act under specified circumstances. After registration pursuant to these rights, these shares will become freely tradable without restriction under the Securities Act. If not otherwise exercised, the rights under the registration rights agreement described below will expire seven years after the closing of this offering.

    Demand and Form S-3 Registration Rights

        Beginning 180 days after this offering, subject to specified limitations set forth in the registration rights agreement, at any time, the holders of at least 50% of the then outstanding shares having rights under the registration rights agreement (excluding shares held by our chief executive officer), or the registrable securities, may demand that we register registrable securities then outstanding under the Securities Act for purposes of a public offering having an aggregate offering price to the public of not less than $10.0 million. We are not obligated to file a registration statement pursuant to this provision on more than two occasions.

        In addition, subject to specified limitations set forth in the registration rights agreement, at any time after we become eligible to file a registration statement on Form S-3, holders of the registrable securities then outstanding may request that we register their registrable securities on Form S-3 for purposes of a public offering for which the reasonably anticipated aggregate offering price to the public would exceed $1.0 million. We are not obligated to file a registration statement pursuant to this provision on more than two occasions in any 12-month period.

    Incidental Registration Rights

        If, at any time after the closing of this offering, we propose to register for our own account any of our securities under the Securities Act, the holders of registrable securities will be entitled to notice of the registration and, subject to specified exceptions, have the right to require us to use our reasonable best efforts to register all or a portion of the registrable securities then held by them in that registration.

        In the event that any registration in which the holders of registrable securities participate pursuant to our registration rights agreement is an underwritten public offering, we have agreed to enter into an underwriting agreement in usual and customary form and use our reasonable best efforts to facilitate such offering.

    Expenses

        Pursuant to the registration rights agreement, we are required to pay all registration expenses, including all registration and filing fees, exchange listing fees, printing expenses, fees and expenses of one counsel selected by the selling stockholders to represent the selling stockholders, state Blue Sky fees and expenses, and the expense of any special audits incident to or required by any such registration, but excluding underwriting discounts, selling commissions and the fees and expenses of the selling stockholders' own counsel (other than the counsel selected to represent all selling stockholders). We are not required to pay registration expenses if the registration request under the registration rights agreement is withdrawn at the request of holders of at least 50% of the registrable securities, unless the withdrawal is related to information concerning the business or financial condition of us learned by the selling stockholders after the initiation of such registration request.

        The registration rights agreement contains customary cross-indemnification provisions, pursuant to which we are obligated to indemnify the selling stockholders in the event of material misstatements or omissions in the registration statement attributable to us or any violation or alleged violation whether by action or inaction by us under the Securities Act, the Exchange Act, any state securities or Blue Sky

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law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities or Blue Sky law in connection with such registration statement or the qualification or compliance of the offering, and they are obligated to indemnify us for material misstatements or omissions in the registration statement attributable to them.

Transfer Agent and Registrar

        The transfer agent and registrar for our common stock will be                .

NASDAQ Global Market

        We intend to apply to have our common stock listed on The NASDAQ Global Market under the symbol "KALA."

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SHARES ELIGIBLE FOR FUTURE SALE

        Prior to this offering, there has been no public market for our common stock, and a liquid trading market for our common stock may not develop or be sustained after this offering. Future sales of substantial amounts of our common stock in the public market, including shares issued upon exercise of outstanding options, or the anticipation of these sales, could adversely affect market prices prevailing from time to time and could impair our ability to raise capital through sales of equity securities.

        Upon the closing of this offering, we will have outstanding                shares of our common stock, after giving effect to the issuance of                shares of our common stock in this offering, assuming no exercise by the underwriters of their option to purchase additional shares of our common stock.

        Of the shares to be outstanding immediately after the closing of this offering, we expect that the                shares to be sold in this offering will be freely tradable without restriction under the Securities Act unless purchased by our "affiliates," as that term is defined in Rule 144 under the Securities Act. The remaining                shares of our common stock will be "restricted securities" under Rule 144, and we expect that substantially all of these restricted securities will be subject to the 180-day lock-up period under the lock-up agreements as described below. These restricted securities may be sold in the public market upon release or waiver of any applicable lock-up agreements and only if registered or pursuant to an exemption from registration, such as Rule 144 or 701 under the Securities Act.

Rule 144

        In general, under Rule 144, beginning 90 days after the date of this prospectus, any person who is not our affiliate and has held their shares for at least six months, including the holding period of any prior owner other than one of our affiliates, may sell those shares without restriction, subject to the availability of current public information about us. In addition, under Rule 144, any person who is not our affiliate and has not been our affiliate at any time during the preceding three months and has held their shares for at least one year, including the holding period of any prior owner other than one of our affiliates, would be entitled to sell an unlimited number of shares immediately upon the closing of this offering without regard to whether current public information about us is available.

        Beginning 90 days after the date of this prospectus, a person who is our affiliate or who was our affiliate at any time during the preceding three months and who has beneficially owned restricted securities for at least six months, including the holding period of any prior owner other than one of our affiliates, is entitled to sell a number of shares within any three-month period that does not exceed the greater of:

    1% of the number of shares of our common stock then outstanding, which will equal approximately                shares immediately after this offering; and

    the average weekly trading volume in our common stock on The NASDAQ Global Market during the four calendar weeks preceding the date of filing of a Notice of Proposed Sale of Securities Pursuant to Rule 144 with respect to the sale.

        Sales under Rule 144 by our affiliates are also subject to manner of sale provisions and notice requirements and to the availability of current public information about us.

        Upon waiver or expiration of the 180-day lock-up period described below, approximately                shares of our common stock will be eligible for sale under Rule 144. We cannot estimate the number of shares of our common stock that our existing stockholders will elect to sell under Rule 144.

Rule 701

        In general, under Rule 701 of the Securities Act, any of our employees, consultants or advisors, other than our affiliates, who purchased shares from us in connection with a qualified compensatory

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stock plan or other written agreement is eligible to resell these shares 90 days after the date of this prospectus in reliance on Rule 144, but without compliance with the various restrictions, including the availability of public information about us, holding period and volume limitations, contained in Rule 144. Subject to the 180-day lock-up period described below, approximately                shares of our common stock, based on shares outstanding as of                        , 2015 will be eligible for sale in accordance with Rule 701.

Lock-up Agreements

        We, our directors and executive officers and substantially all of our stockholders have agreed that, without the prior written consent of J.P. Morgan Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated on behalf of the underwriters, we and they will not, subject to limited exceptions, during the period ending 180 days after the date of this prospectus:

    offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of our common stock or any securities convertible into or exercisable or exchangeable for our common stock, or publicly disclose an intention to do the same;

    enter into any swap or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of our common stock or any securities convertible into or exchangeable or exercisable for share of our common stock, whether any such transaction is to be settled by delivery of shares of our common stock or such other securities, in cash or otherwise; or

    make any demand for, or exercise any right with respect to, the registration of any shares of our common stock or any securities convertible into or exchangeable or exercisable for shares of our common stock.

        These agreements are subject to certain exceptions, as described in the section of this prospectus entitled "Underwriting."

Registration Rights

        Beginning 180 days after the closing of this offering, the holders of an aggregate of 41,081,269 shares of our common stock, along with holders of an additional 1,052,222 shares of our common stock issuable upon the exercise of warrants, will have rights, subject to certain conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. After registration pursuant to these rights, these shares will become freely tradable without restriction under the Securities Act. See "Description of Capital Stock—Registration Rights" for additional information regarding these registration rights.

Stock Options and Form S-8 Registration Statement

        As of August 31, 2015, we had outstanding options to purchase an aggregate of 5,630,100 shares of our common stock, of which options to purchase 1,432,769 shares were vested. Following this offering, we intend to file a registration statement on Form S-8 under the Securities Act to register all of the shares of our common stock subject to outstanding options and reserved for future options and other awards under our 2009 Plan and our 2015 Plan. See "Executive Compensation—Stock Option and Other Compensation Plans" for additional information regarding these plans. Accordingly, shares of our common stock registered under the registration statements will be available for sale in the open market, subject to Rule 144 volume limitations applicable to affiliates, and subject to any vesting restrictions and lock-up agreements applicable to these shares.

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CERTAIN MATERIAL U.S. FEDERAL TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF COMMON STOCK

        The following is a general discussion of material U.S. federal income and estate tax considerations relating to ownership and disposition of our common stock by a non-U.S. holder. For purposes of this discussion, the term "non-U.S. holder" means a beneficial owner (other than a partnership or other pass-through entity) of our common stock that is not, for U.S. federal income tax purposes:

    an individual who is a citizen or resident of the United States;

    a corporation, or 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 or of any political subdivision of the United States;

    an estate the income of which is subject to U.S. federal income taxation regardless of its source; or

    a trust if (1) a U.S. court is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have authority to control all substantial decisions of the trust or (2) the trust has a valid election in effect under applicable U.S. Treasury Regulations to be treated as a U.S. person.

        This discussion does not address the tax treatment of partnerships or other entities that are pass-through entities for U.S. federal income tax purposes or persons who hold their common stock through partnerships or other pass-through entities. A partner in a partnership or other pass-through entity that will hold our common stock should consult his, her or its own tax advisor regarding the tax consequences of the ownership and disposition of our common stock through a partnership or other pass-through entity, as applicable.

        This discussion is based on current provisions of the U.S. Internal Revenue Code of 1986, as amended, which we refer to as the Code, existing and proposed U.S. Treasury Regulations promulgated thereunder, current administrative rulings and judicial decisions, all as in effect as of the date of this prospectus and all of which are subject to change or to differing interpretation, possibly with retroactive effect. Any change could alter the tax consequences to non-U.S. holders described in this prospectus. There can be no assurance that the Internal Revenue Service, or the IRS, will not challenge one or more of the tax consequences described in this prospectus.

        We assume in this discussion that each non-U.S. holder holds shares of our common stock as a capital asset (generally, property held for investment) for U.S. federal income tax purposes. This discussion does not address all aspects of U.S. federal income and estate taxation that may be relevant to a particular non-U.S. holder in light of that non-U.S. holder's individual circumstances nor does it address any aspects of U.S. state, local or non-U.S. taxes, the alternative minimum tax, or the Medicare tax on net investment income. This discussion also does not consider any specific facts or circumstances that may apply to a non-U.S. holder and does not address the special tax rules applicable to particular non-U.S. holders, such as:

    financial institutions;

    brokers or dealers in securities;

    tax-exempt organizations;

    pension plans;

    owners that hold our common stock as part of a straddle, hedge, conversion transaction, synthetic security or other integrated investment or who have elected to mark securities to market;

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    insurance companies;

    controlled foreign corporations;

    passive foreign investment companies;

    non-U.S. governments; and

    certain U.S. expatriates.

        THIS DISCUSSION IS FOR GENERAL INFORMATION ONLY AND IS NOT, AND IS NOT INTENDED TO BE, LEGAL OR TAX ADVICE. PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE U.S. FEDERAL, STATE, LOCAL, ESTATE AND NON-U.S. INCOME AND OTHER TAX CONSIDERATIONS OF ACQUIRING, HOLDING AND DISPOSING OF OUR COMMON STOCK, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGES IN APPLICABLE LAWS.

Distributions

        As discussed under "Dividend Policy" above, we do not expect to make cash dividends to holders of our common stock in the foreseeable future. If we make distributions in respect of our common stock, those distributions generally will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles, subject to the tax treatment described in this section. If a distribution exceeds our current and accumulated earnings and profits, the excess will be treated as a tax-free return of the non-U.S. holder's investment, up to the non-U.S. holder's tax basis in the common stock. Any remaining excess will be treated as capital gain, subject to the tax treatment described below under the heading "Gain on Sale, Exchange or Other Taxable Disposition of Our Common Stock." Any such distributions will also be subject to the discussion below under the heading "FATCA."

        Dividends paid to a non-U.S. holder generally will be subject to withholding of U.S. federal income tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty between the United States and such holder's country of residence.

        Dividends that are treated as effectively connected with a trade or business conducted by a non-U.S. holder within the United States, and, if an applicable income tax treaty so provides, that are attributable to a permanent establishment or a fixed base maintained by the non-U.S. holder within the United States, are generally exempt from the 30% withholding tax if the non-U.S. holder satisfies applicable certification and disclosure requirements (generally including provision of a properly executed IRS Form W-8ECI (or applicable successor form) certifying that the dividends are effectively connected with the non-U.S. holder's conduct of a trade or business within the United States). However, such U.S. effectively connected income, net of specified deductions and credits, is taxed in the hands of the non-U.S. holder at the same graduated U.S. federal income tax rates as would apply if such holder were a United States person (as defined in the Code). Any U.S. effectively connected income received by a non-U.S. holder that is classified as a corporation for U.S. federal income tax purposes may also, under certain circumstances, be subject to an additional "branch profits tax" at a 30% rate or such lower rate as may be specified by an applicable income tax treaty between the United States and such holder's country of residence.

        A non-U.S. holder of our common stock who claims the benefit of an applicable income tax treaty between the United States and such holder's country of residence generally will be required to provide a properly executed IRS Form W-8BEN or W-8BEN-E (or successor form) and satisfy applicable certification and other requirements. Non-U.S. holders are urged to consult their own tax advisors regarding their entitlement to benefits under a relevant income tax treaty and the specific methods available to them to satisfy these requirements.

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        A non-U.S. holder that is eligible for a reduced rate of U.S. withholding tax under an income tax treaty may obtain a refund or credit of any excess amounts withheld by timely filing an appropriate claim with the IRS.

Gain on Sale, Exchange or Other Taxable Disposition of Our Common Stock

        Subject to the discussion below under the heading "FATCA," a non-U.S. holder generally will not be subject to U.S. federal income tax or withholding tax on any gain realized upon such non-U.S. holder's sale, exchange or other disposition of our common stock unless:

    the gain is effectively connected with the non-U.S. holder's conduct of a trade or business in the United States, and, if an applicable income tax treaty so provides, the gain is attributable to a permanent establishment or fixed base maintained by the non-U.S. holder in the United States; in these cases, the non-U.S. holder generally will be taxed on a net income basis at the graduated U.S. federal income tax rates applicable to U.S. persons, and, if the non-U.S. holder is a foreign corporation, an additional branch profits tax at a rate of 30% (or a lower rate as may be specified by an applicable income tax treaty between the United States and such holder's country of residence) may also apply;

    the non-U.S. holder is a non-resident alien present in the United States for 183 days or more in the taxable year of the disposition and certain other requirements are met, in which case the non-U.S. holder will be subject to a 30% tax (or such lower rate as may be specified by an applicable income tax treaty between the United States and such holder's country of residence) on the net gain derived from the disposition, which may be offset by certain U.S.-source capital losses of the non-U.S. holder recognized in the taxable year of the disposition, if any; or

    we are or have been, at any time during the five-year period preceding such disposition (or the non-U.S. holder's holding period, if shorter) a "U.S. real property holding corporation" 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. Generally, a corporation is a "U.S. real property holding corporation" if the fair market value of its "United States real property interests" (as defined in the Code and applicable regulations) equals or exceeds 50% of the sum of the fair market value of its worldwide real property interests plus its other assets used or held for use in a trade or business. Although there can be no assurance, we believe that we are not currently, and we do not anticipate becoming, a "U.S. real property holding corporation" for U.S. federal income tax purposes. If we are determined to be a U.S. real property holding corporation and either our common stock is not regularly traded on an established securities market or a non-U.S. holder holds more than 5% of our outstanding common stock, directly or indirectly, during the applicable testing period, then a purchaser of shares of our common stock from a non-U.S. holder generally will withhold 10% of the proceeds payable to such non-U.S. holder and the non-U.S. holder's net gain derived from the disposition of shares of our common stock generally will be taxed in the same manner as gain that is effectively connected with the conduct of a U.S. trade or business, except that the branch profits tax generally will not apply.

Federal Estate Tax

        Shares of our common stock that are owned or treated as owned by an individual who is not a citizen or resident of the United States (as specially defined for U.S. federal estate tax purposes) at the time of death are considered U.S.-situs assets and will be included in the individual's gross estate for U.S. federal estate tax purposes. Such shares, therefore, may be subject to U.S. federal estate tax, unless an applicable estate tax or other treaty provides otherwise.

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Information Reporting and Backup Withholding

        We must report annually to the IRS and to each non-U.S. holder the gross amount of the distributions on our common stock paid to such holder and the tax withheld, if any, with respect to such distributions. Non-U.S. holders generally will have to comply with specific certification procedures to establish that the holder is not a U.S. person (as defined in the Code) in order to avoid backup withholding at the applicable rate with respect to dividends on our common stock. Generally, a holder will comply with such procedures if it provides a properly executed IRS Form W-8BEN or W-8BEN-E (or other applicable IRS Form W-8), or otherwise meets documentary evidence requirements for establishing that it is a non-U.S. holder, or otherwise establishes an exemption. Dividends paid to non-U.S. holders subject to withholding of U.S. federal income tax, as described above under "Distributions," will generally be exempt from U.S. backup withholding.

        Information reporting and backup withholding generally will apply to the proceeds of a disposition of our common stock by a non-U.S. holder effected by or through the U.S. office of any broker, U.S. or non-U.S., unless the holder certifies its status as a non-U.S. holder and satisfies certain other requirements, or otherwise establishes an exemption. Generally, information reporting and backup withholding will not apply to a payment of disposition proceeds to a non-U.S. holder where the transaction is effected outside the United States through a non-U.S. office of a broker. However, for information reporting purposes, dispositions effected through a non-U.S. office of a broker with substantial U.S. ownership or operations generally will be treated in a manner similar to dispositions effected through a U.S. office of a broker. Non-U.S. holders should consult their own tax advisors regarding the application of the information reporting and backup withholding rules to them.

        Copies of information returns may be made available to the tax authorities of the country in which the non-U.S. holder resides or is incorporated under the provisions of a specific treaty or agreement.

        Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules from a payment to a non-U.S. holder can be refunded or credited against the non-U.S. holder's U.S. federal income tax liability, if any, provided that an appropriate claim is timely filed with the IRS.

FATCA

        The Foreign Account Tax Compliance Act, or FATCA, generally imposes a 30% withholding tax on dividends on, and gross proceeds from the sale or disposition of, our common stock if paid to a foreign entity unless (i) if the foreign entity is a "foreign financial institution," the foreign entity undertakes certain due diligence, reporting, withholding, and certification obligations, (ii) if the foreign entity is not a "foreign financial institution," the foreign entity identifies certain of its U.S. investors, or (iii) the foreign entity is otherwise exempt under FATCA.

        Withholding under FATCA generally (1) applies to payments of dividends on our common stock, and (2) will apply to payments of gross proceeds from a sale or other disposition of our common stock made after December 31, 2016. An intergovernmental agreement between the United States and an applicable foreign country may modify the requirements described in this section. Under certain circumstances, a non-U.S. holder may be eligible for refunds or credits of the tax. Non-U.S. holders should consult their own tax advisors regarding the possible implications of FATCA on their investment in our common stock.

        The preceding discussion of material U.S. federal tax considerations is for general information only. It is not, and is not intended to be, legal or tax advice. Prospective investors should consult their own tax advisors regarding the particular U.S. federal, state, local, estate and non-U.S. income and other tax consequences of acquiring, holding and disposing of our common stock, including the consequences of any proposed changes in applicable laws.

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UNDERWRITING

        We are offering the shares of common stock described in this prospectus through a number of underwriters. J.P. Morgan Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated are acting as joint book-running managers of the offering and as representatives of the underwriters. We have entered into an underwriting agreement with the underwriters. Subject to the terms and conditions of the underwriting agreement, we have agreed to sell to the underwriters, and each underwriter has severally agreed to purchase, at the public offering price less the underwriting discounts and commissions set forth on the cover page of this prospectus, the number of shares of common stock listed next to its name in the following table:

Name
  Number of
Shares
J.P. Morgan Securities LLC                 
Merrill Lynch, Pierce, Fenner & Smith
                      Incorporated
                
BMO Capital Markets Corp.                  
Wedbush Securities Inc.                  
Total                 

        The underwriters are committed to purchase all the common shares offered by us if they purchase any shares. The underwriting agreement also provides that if an underwriter defaults, the purchase commitments of non-defaulting underwriters may also be increased or the offering may be terminated.

        The underwriters propose to offer the common shares directly to the public at the initial public offering price set forth on the cover page of this prospectus and to certain dealers at that price less a concession not in excess of $          per share. Any such dealers may resell shares to certain other brokers or dealers at a discount of up to $          per share from the initial public offering price. After the initial public offering of the shares, the offering price and other selling terms may be changed by the underwriters. Sales of shares made outside of the United States may be made by affiliates of the underwriters.

        The underwriters have an option to buy up to              additional shares of common stock from us to cover sales of shares by the underwriters which exceed the number of shares specified in the table above. The underwriters have 30 days from the date of this prospectus to exercise this option to purchase additional shares. If any shares are purchased pursuant to the underwriters' option to purchase additional shares, the underwriters will purchase shares in approximately the same proportion as shown in the table above. If any additional shares of common stock are purchased, the underwriters will offer the additional shares on the same terms as those on which the shares are being offered.

        The underwriting fee is equal to the public offering price per share of common stock less the amount paid by the underwriters to us per share of common stock. The following table shows the per share and total underwriting discounts and commissions to be paid to the underwriters assuming both no exercise and full exercise of the underwriters' option to purchase additional shares.

 
  Without
option exercise
  With full
option exercise
 

Per Share

  $              $             

Total

  $              $             

        We estimate that the total expenses of this offering, including registration, filing and listing fees, printing fees and legal and accounting expenses, but excluding the underwriting discounts and commissions, will be approximately $          . We have agreed to reimburse the underwriters up to

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$          for expenses related to any filing with, and any clearance of this offering by, the Financial Industry Regulatory Authority, Inc.

        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 directors, executive officers and substantially all of our stockholders have agreed not to (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of our common stock or any securities convertible into or exercisable or exchangeable for our common stock (including, without limitation, common stock or such other securities which may be deemed to be beneficially owned by such directors, executive officers, managers and members in accordance with the rules and regulations of the SEC and securities which may be issued upon exercise of a stock option or warrant) or (2) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the common stock or such other securities, whether any such transaction described in clause (1) or (2) is to be settled by delivery of common stock or such other securities, in cash or otherwise, or (3) in the case of our directors, executive officers and stockholders, make any demand for or exercise any right with respect to the registration of any shares of our common stock or any security convertible into or exercisable or exchangeable for our common stock, in each case without the prior written consent of J.P. Morgan Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated for a period of 180 days after the date of this prospectus.

        J.P. Morgan Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated, in their sole discretion, may release the common stock and other securities subject to the lock-up agreements described above in whole or in part at any time with or without notice.

        We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act.

        We intend to apply to have our common stock approved for listing on The NASDAQ Global Market under the symbol "KALA."

        In connection with this offering, the underwriters may engage in stabilizing transactions, which involves making bids for, purchasing and selling shares of common stock in the open market for the purpose of preventing or retarding a decline in the market price of the common stock while this offering is in progress. These stabilizing transactions may include making short sales of the common stock, which involves the sale by the underwriters of a greater number of shares of common stock than they are required to purchase in this offering, and purchasing shares of common stock on the open market to cover positions created by short sales. Short sales may be "covered" shorts, which are short positions in an amount not greater than the underwriters' option to purchase additional shares referred to above, or may be "naked" shorts, which are short positions in excess of that amount. The underwriters may close out any covered short position either by exercising their option to purchase additional shares, in whole or in part, or by purchasing shares in the open market. In making this determination, the underwriters will consider, among other things, the price of shares available for purchase in the open market compared to the price at which the underwriters may purchase shares through the option to purchase additional shares. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market that could adversely affect investors who purchase in this offering. To the

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extent that the underwriters create a naked short position, they will purchase shares in the open market to cover the position.

        The underwriters have advised us that, pursuant to Regulation M of the Securities Act, they may also engage in other activities that stabilize, maintain or otherwise affect the price of the common stock, including the imposition of penalty bids. This means that if the representatives of the underwriters purchase common stock in the open market in stabilizing transactions or to cover short sales, the representatives can require the underwriters that sold those shares as part of this offering to repay the underwriting discount received by them.

        These activities may have the effect of raising or maintaining the market price of the common stock or preventing or retarding a decline in the market price of the common stock, and, as a result, the price of the common stock may be higher than the price that otherwise might exist in the open market. If the underwriters commence these activities, they may discontinue them at any time. The underwriters may carry out these transactions on The NASDAQ Global Market, in the over-the-counter market or otherwise.

        Prior to this offering, there has been no public market for our common stock. The initial public offering price will be determined by negotiations between us and the representatives of the underwriters. In determining the initial public offering price, we and the representatives of the underwriters expect to consider a number of factors including:

    the information set forth in this prospectus and otherwise available to the representatives;

    our prospects and the history and prospects for the industry in which we compete;

    an assessment of our management;

    our prospects for future earnings;

    the general condition of the securities markets at the time of this offering;

    the recent market prices of, and demand for, publicly traded common stock of generally comparable companies; and

    other factors deemed relevant by the underwriters and us.

        Neither we nor the underwriters can assure investors that an active trading market will develop for our common shares, or that the shares will trade in the public market at or above the initial public offering price.

        The underwriters and their respective affiliates are full-service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities. Certain of the underwriters and their affiliates have provided in the past to us and our affiliates and may provide from time to time in the future certain commercial banking, financial advisory, investment banking and other services for us and such affiliates in the ordinary course of their business, for which they have received and may continue to receive customary fees and commissions. In addition, from time to time, certain of the underwriters and their affiliates may effect transactions for their own account or the account of customers, and hold on behalf of themselves or their customers, long or short positions in our debt or equity securities or loans, and may do so in the future.

Selling restrictions

        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

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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.

Notice to prospective investors in the European Economic Area

        In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive, each, a Relevant Member State, from and including the date on which the European Union Prospectus Directive, or the EU Prospectus Directive, was implemented in that Relevant Member State, or the Relevant Implementation Date, an offer of securities described in this prospectus may not be made to the public in that Relevant Member State prior to the publication of a prospectus in relation to the shares which has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the EU Prospectus Directive, except that, with effect from and including the Relevant Implementation Date, an offer of securities described in this prospectus may be made to the public in that Relevant Member State at any time:

    1.
    to any legal entity which is a qualified investor as defined under the EU Prospectus Directive;

    2.
    to fewer than 100 or, if the Relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive, 150 natural or legal persons (other than qualified investors as defined in the EU Prospectus Directive); or

    3.
    in any other circumstances falling within Article 3(2) of the EU Prospectus Directive, provided that no such offer of securities described in this prospectus shall result in a requirement for the publication by us of a prospectus pursuant to Article 3 of the EU Prospectus Directive.

For the purposes of this provision, the expression an "offer of securities to the public" in relation to any securities in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the securities to be offered so as to enable an investor to decide to purchase or subscribe for the securities, as the same may be varied in that Member State by any measure implementing the EU Prospectus Directive in that Member State. The expression "EU Prospectus Directive" means Directive 2003/71/EC (and any amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State) and includes any relevant implementing measure in each Relevant Member State, and the expression "2010 PD Amending Directive" means Directive 2010/73/EU.

Notice to prospective investors in the United Kingdom

        This document is only being distributed to and is only directed at (i) persons who are outside the United Kingdom or (ii) to investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, or the "Order," or (iii) high net worth entities, and other persons to whom it may lawfully be communicated, falling with Article 49(2)(a) to (d) of the Order (all such persons together being referred to as "relevant persons"). The securities are only available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such securities will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents.

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Notice to prospective investors in Switzerland

        The shares may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange, or SIX, or on any other stock exchange or regulated trading facility in Switzerland. This document has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering or marketing material relating to the shares or the offering may be publicly distributed or otherwise made publicly available in Switzerland.

        Neither this document nor any other offering or marketing material relating to the offering, the Company, the shares have been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of shares will not be supervised by, the Swiss Financial Market Supervisory Authority FINMA, and the offer of shares has not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes, or CISA. The investor protection afforded to acquirers of interests in collective investment schemes under the CISA does not extend to acquirers of shares.

Notice to prospective investors in the Dubai International Financial Centre

        This prospectus relates to an Exempt Offer in accordance with the Offered Securities Rules of the Dubai Financial Services Authority, or DFSA. This prospectus 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 herein and has no responsibility for the prospectus. The shares to which this prospectus relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the shares offered should conduct their own due diligence on the shares. If you do not understand the contents of this prospectus you should consult an authorized financial advisor.

Notice to prospective investors in Australia

        No placement document, prospectus, product disclosure statement or other disclosure document has been lodged with the Australian Securities and Investments Commission, in relation to the offering. This prospectus does not constitute a prospectus, product disclosure statement or other disclosure document under the Corporations Act 2001, or 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, or 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.

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        This prospectus 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 prospectus is appropriate to their needs, objectives and circumstances, and, if necessary, seek expert advice on those matters.

Notice to prospective investors in Hong Kong

        The securities have not been offered or sold and will not be offered or sold in Hong Kong, by means of any document, other than (a) to "professional investors" as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance; or (b) in other circumstances which do not result in the document being a "prospectus" as defined in the Companies Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of that Ordinance. No advertisement, invitation or document relating to the securities has been or may be issued or has been or may be in the possession of any person for the purposes of issue, 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 of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to securities which are or are intended to be disposed of only to persons outside Hong Kong or only to "professional investors" as defined in the Securities and Futures Ordinance and any rules made under that Ordinance.

Notice to prospective investors in Japan

        The securities have not been and will not be registered under the Financial Instruments and Exchange Law of Japan (Law No. 25 of 1948, as amended) and, accordingly, will not be offered or sold, directly or indirectly, in Japan, or for the benefit of any Japanese Person or to others for re-offering or resale, directly or indirectly, in Japan or to any Japanese Person, except in compliance with all applicable laws, regulations and ministerial guidelines promulgated by relevant Japanese governmental or regulatory authorities in effect at the relevant time. For the purposes of this paragraph, "Japanese Person" shall mean any person resident in Japan, including any corporation or other entity organized under the laws of Japan.

Notice to prospective investors in Singapore

        This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of Non-CIS Securities may not be circulated or distributed, nor may the Non-CIS Securities 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 under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore, or the SFA, (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), 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.

        Where the Non-CIS Securities are subscribed or purchased under Section 275 of the SFA by a relevant person which is:

    (a)
    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; or

    (b)
    a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor,

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securities (as defined in Section 239(1) of the SFA) of that corporation or the beneficiaries' rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the Non-CIS Securities pursuant to an offer made under Section 275 of the SFA except:

    (a)
    to an institutional investor or to a relevant person defined in Section 275(2) of the SFA, or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA;

    (b)
    where no consideration is or will be given for the transfer;

    (c)
    where the transfer is by operation of law;

    (d)
    as specified in Section 276(7) of the SFA; or

    (e)
    as specified in Regulation 32 of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 of Singapore.

Notice to prospective investors in Canada

        The shares may be sold 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 shares must be made in accordance with an exemption from, 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 (or, in the case of securities issued or guaranteed by the government of a non-Canadian jurisdiction, section 3A.4) 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.

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LEGAL MATTERS

        The validity of the shares of common stock offered hereby is being passed upon for us by Wilmer Cutler Pickering Hale and Dorr LLP, Boston, Massachusetts. Davis Polk & Wardwell LLP, New York, New York is acting as counsel for the underwriters in connection with this offering.


EXPERTS

        The financial statements as of December 31, 2013 and 2014, and for each of the two years in the period ended December 31, 2014, included in this prospectus have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing herein (which report expresses an unqualified opinion on the financial statements and includes an explanatory paragraph regarding the going concern uncertainty). Such financial statements have been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.


WHERE YOU CAN FIND MORE INFORMATION

        We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the shares of common stock we are offering to sell. This prospectus, which constitutes part of the registration statement, does not include all of the information contained in the registration statement and the exhibits, schedules and amendments to the registration statement. For further information with respect to us and our common stock, we refer you to the registration statement and to the exhibits and schedules to the registration statement. Statements contained in this prospectus about the contents of any contract, agreement or other document are not necessarily complete, and, in each instance, we refer you to the copy of the contract, agreement or other document filed as an exhibit to the registration statement. Each of these statements is qualified in all respects by this reference.

        You may read and copy the registration statement of which this prospectus is a part at the SEC's public reference room, which is located at 100 F Street, N.E., Room 1580, Washington, DC 20549. You can request copies of the registration statement by writing to the SEC and paying a fee for the copying cost. Please call the SEC at 1-800-SEC-0330 for more information about the operation of the SEC's public reference room. In addition, the SEC maintains an Internet website, which is located at http://www.sec.gov, that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. You may access the registration statement of which this prospectus is a part at the SEC's Internet website. Upon completion of this offering, we will be subject to the information reporting requirements of the Securities Exchange Act of 1934, as amended and we will file reports, proxy statements and other information with the SEC.

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INDEX TO FINANCIAL STATEMENTS

 
  Page  

Report of Independent Registered Public Accounting Firm

    F-2  

Balance Sheets as of December 31, 2013, 2014 and June 30, 2015 (unaudited) and June 30, 2015 Pro Forma (unaudited)

    F-3  

Statements of Operations for the years ended December 31, 2013 and 2014 and for the six months ended June 30, 2014 (unaudited) and June 30, 2015 (unaudited)

    F-4  

Statements of Convertible Preferred Stock and Stockholders' Deficit for the years ended December 31, 2013 and 2014 and for the six months ended June 30, 2015 (unaudited)

    F-5  

Statements of Cash Flows for the years ended December 31, 2013 and 2014 and for the six months ended June 30, 2014 and June 30, 2015 (unaudited)

    F-6  

Notes to Financial Statements

    F-7  

F-1



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Kala Pharmaceuticals, Inc.
Waltham, Massachusetts

        We have audited the accompanying balance sheets of Kala Pharmaceuticals, Inc. (the "Company") as of December 31, 2013 and 2014, and the related statements of operations, convertible preferred stock and stockholders' deficit, and cash flows for each of the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements based on our audits.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, such financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2013 and 2014, and the results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.

        The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company's recurring losses from operations, negative cash flows from operations and accumulated deficit raise substantial doubt about its ability to continue as a going concern. Management's plans concerning these matters are also described in Note 1 to the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Deloitte & Touche LLP

Boston, Massachusetts
September 18, 2015

F-2



KALA PHARMACEUTICALS, INC.

BALANCE SHEETS

(In thousands, except share and per share amounts)

 
  December 31,    
   
 
 
  June 30,
2015
  Pro Forma
June 30,
2015
 
 
  2013   2014  
 
   
   
  (unaudited)
  (unaudited)
 

Assets

                         

Current assets:

                         

Cash

  $ 5,312   $ 10,620   $ 2,398   $ 2,398  

Accounts receivable

    263     38     8     8  

Employee loan receivable—current portion

    40              

Prepaid expenses and other current assets

    352     120     126     126  

Total current assets

    5,967     10,778     2,532     2,532  

Non-current assets:

                         

Property and equipment, net

    911     835     830     830  

Restricted cash

    118     109     109     109  

Employee loan receivable—noncurrent portion

    76              

Total assets

  $ 7,072   $ 11,722   $ 3,471   $ 3,471  

Liabilities, Convertible Preferred Stock and Stockholders' Deficit

                         

Current liabilities:

                         

Current portion of long-term debt (includes $3,622, $0, $0, and $0 in convertible promissory notes to shareholders as of December 31, 2013, 2014, June 30, 2015 (unaudited) and June 30, 2015 pro forma (unaudited))

  $ 4,162   $   $ 167   $ 167  

Accounts payable

    436     429     325     325  

Accrued expenses

    786     2,524     1,011     1,011  

Deferred revenue

    200              

Total current liabilities

    5,584     2,953     1,503     1,503  

Long-term liabilities:

                         

Long-term debt—less current portion

    513     4,664     4,557     4,557  

Warrant liability

    751     804     959      

Other long-term liabilities

    22     39     22     22  

Total long-term liabilities

    1,286     5,507     5,538     4,579  

Total liabilities

    6,870     8,460     7,041     6,082  

Commitments and Contingencies (Note 13)

                         

Convertible preferred stock, 23,823,209 shares authorized as of December 31, 2013 and 75,007,724 shares authorized at December 31, 2014 and June 30, 2015 (unaudited)

                         

Series Seed convertible preferred stock, $0.001 par value—11,323,209 shares designated at December 31, 2013 and 2014 and June 30, 2015 (unaudited); 11,243,209 shares issued and outstanding at December 31, 2013 and 2014 and June 30, 2015 (unaudited); liquidation value of $11,243 at December 31, 2013 and 2014 and June 30, 2015 (unaudited); no shares issued or outstanding, pro forma as of June 30, 2015 (unaudited)

    11,065     11,065     11,065      

Series A convertible preferred stock, $0.001 par value—12,500,000 shares designated at December 31, 2013 and 9,583,432 shares designated at December 31, 2014 and June 30, 2015 (unaudited); 9,583,432 shares issued and outstanding at December 31, 2013 and 2014 and June 30, 2015 (unaudited); liquidation value of $11,500 at December 31, 2013 and 2014 and June 30, 2015 (unaudited); no shares issued or outstanding, pro forma as of June 30, 2015 (unaudited)

    10,736     10,736     10,736      

Series B convertible preferred stock, $0.001 par value—0 shares designated at December 31, 2013 and 16,597,221 shares designated at December 31, 2014 and June 30, 2015 (unaudited); 0 shares issued and outstanding at December 31, 2013 and 15,624,999 issued and outstanding at December 31, 2014 and June 30, 2015 (unaudited); liquidation value of $22,500 at December 31, 2014 and June 30, 2015 (unaudited); no shares issued or outstanding, pro forma as of June 30, 2015 (unaudited)

        22,185     22,185      

Stockholders' deficit:

                         

Common stock, $0.001 par value—32,260,000, 48,600,000, and 50,100,000 shares authorized at December 31, 2013 and 2014 and June 30, 2015 (unaudited); 5,256,690, 5,268,875 and 5,900,566 shares issued and outstanding at December 31, 2013 and 2014 and June 30, 2015 (unaudited); 42,352,206 shares issued and outstanding, pro forma as of June 30, 2015 (unaudited); (4,685, 0 and 0 shares subject to repurchase as of December 31, 2013 and 2014 and June 30, 2015 (unaudited)

    5     5     6     42  

Additional paid-in capital

    1,323     1,559     1,821     46,730  

Accumulated deficit

    (22,927 )   (42,288 )   (49,383 )   (49,383 )

Total stockholders' deficit

    (21,599 )   (40,724 )   (47,556 )   (2,611 )

Total liabilities, convertible preferred stock and stockholders' deficit

  $ 7,072   $ 11,722   $ 3,471   $ 3,471  

   

The accompanying notes are an integral part of these financial statements.

F-3



KALA PHARMACEUTICALS, INC.

STATEMENTS OF OPERATIONS

(In thousands, except share and per share amounts)

 
  Year Ended December 31,   Six Months Ended June 30,  
 
  2013   2014   2014   2015  
 
   
   
  (unaudited)
 

Revenue

  $ 50   $ 455   $ 353   $ 45  

Costs and expenses:

                         

Research and development

    7,734     13,859     5,954     4,869  

General and administrative

    3,448     4,436     2,100     1,896  

Total costs and expenses

    11,182     18,295     8,054     6,765  

Loss from operations

    (11,132 )   (17,840 )   (7,701 )   (6,720 )

Interest expense (includes $54, $1,453, $1,453 and $0 related to convertible promissory notes to shareholders for the years ended December 31, 2013, 2014 and the six months ended June 30, 2014 (unaudited) and June 30, 2015 (unaudited))

    (191 )   (1,608 )   (1,505 )   (220 )

Change in fair value of warrant liability

    (1 )   87     167     (155 )

Change in fair value of Series A preferred stock forward contract

    671              

Net loss attributable to common stockholders—basic and diluted

  $ (10,653 ) $ (19,361 ) $ (9,039 ) $ (7,095 )

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

  $ (2.21 ) $ (3.68 ) $ (1.72 ) $ (1.27 )

Weighted average shares outstanding—basic and diluted

    4,811,231     5,265,847     5,262,770     5,588,087  

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

        $ (0.52 )       $ (0.17 )

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

          37,179,816           42,039,727  

   

The accompanying notes are an integral part of these financial statements.

F-4



KALA PHARMACEUTICALS, INC.

STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT

(In thousands, except share amounts)

 
  Convertible
Preferred Stock,
$0.001 Par Value
Series Seed
  Convertible
Preferred Stock,
$0.001 Par Value
Series A
  Convertible
Preferred Stock
$0.001 Par Value
Series B
   
   
   
   
   
   
 
 
   
  Common Stock
$0.001 Par Value
   
   
   
 
 
   
   
   
   
 
 
   
  Additional
Paid-in
Capital
  Accumulated
Deficit
  Total
Stockholders'
Deficit
 
 
  Shares   Amount   Shares   Amount   Shares   Amount    
  Shares   Amount  
 
   
 

Balance—January 1, 2013

    11,243,209   $ 11,065       $       $         4,352,292   $ 4   $ 327   $ (12,274 ) $ (11,943 )

Issuance of Series A preferred stock—net of issuance costs of $93 and fair value of forward contract of $671

            9,583,432     10,736                                  

Beneficial conversion feature associated with issuance of convertible promissory notes

                                        689         689  

Vesting of restricted common stock

                                868,023     1     233         234  

Stock-based compensation

                                        70         70  

Exercise of stock options

                                36,375         4         4  

Net loss

                                            (10,653 )   (10,653 )

Balances—December 31, 2013

    11,243,209     11,065     9,583,432     10,736                 5,256,690     5     1,323     (22,927 )   (21,599 )

Issuance of Series B preferred stock—net of issuance costs of $315

                    12,062,214     17,055                          

Issuance of Series B preferred stock upon conversion of note payable and accrued interest

                    3,562,785     5,130                          

Vesting of restricted common stock

                                4,685         2         2  

Stock-based compensation

                                        233         233  

Exercise of stock options

                                7,500         1         1  

Net loss

                                              (19,361 )   (19,361 )

Balances at December 31, 2014

    11,243,209     11,065     9,583,432     10,736     15,624,999     22,185         5,268,875     5     1,559     (42,288 )   (40,724 )

Stock-based compensation (unaudited)

                                        192         192  

Exercise of stock options (unaudited)

                                631,691     1     70         71  

Net loss (unaudited)

                                            (7,095 )   (7,095 )

Balances at June 30, 2015 (unaudited)

    11,243,209   $ 11,065     9,583,432   $ 10,736     15,624,999   $ 22,185         5,900,566   $ 6   $ 1,821   $ (49,383 ) $ (47,556 )

   

The accompanying notes are an integral part of these financial statements.

F-5



KALA PHARMACEUTICALS, INC.

STATEMENTS OF CASH FLOWS

(In thousands)

 
  Years Ended
December 31,
  Six Months Ended
June 30,
 
 
  2013   2014   2014   2015  
 
   
   
  (unaudited)
 

Cash flows from operating activities:

                         

Net loss

  $ (10,653 ) $ (19,361 ) $ (9,039 ) $ (7,095 )

Adjustments to reconcile net loss to cash used in operating activities:

                         

Depreciation

    201     298     146     155  

Interest on convertible notes—noncash

    14              

Change in fair value of warrant liability

    1     (87 )   (167 )   155  

Amortization of debt discount and debt issuance costs

    62     1,382     1,346     59  

Change in fair value of preferred stock forward contract

    (671 )            

Stock-based compensation

    304     235     39     192  

Loss on disposal of fixed asset

        1     1      

Deferred rent

    13     6          

Increase (decrease) in cash from:

                         

Accounts receivable

    (263 )   225     182     29  

Prepaid expenses and other current assets

    (347 )   154     179     (6 )

Employee loan receivable

    (78 )   116     21      

Deposits and other assets

    30              

Accounts payable

    72     (8 )   501     (104 )

Accrued expenses

    264     1,872     361     (1,512 )

Deferred revenue

    200     (200 )   (200 )    

Other liabilities

    9     6     68     (17 )

Net cash used in operating activities

    (10,842 )   (15,361 )   (6,562 )   (8,144 )

Cash flows from investing activities:

                         

Purchases of property and equipment

    (789 )   (225 )   (143 )   (149 )

Sale of property and equipment

        3     3      

Restricted cash

    (52 )   40          

Net cash used in investing activities

    (841 )   (182 )   (140 )   (149 )

Cash flows from financing activities:

                         

Proceeds from issuance of Series A preferred stock

    11,500              

Proceeds from issuance of Series B convertible preferred stock

        17,370     17,370      

Proceeds from issuance of venture debt

        5,000          

Payment of venture debt issuance costs

        (210 )        

Payment of equity issuance costs

    (93 )   (267 )   (154 )    

Proceeds from issuance of convertible notes

    5,000              

Repayment of venture debt

    (457 )   (1,043 )   (266 )    

Proceeds from exercise of stock options

    4     1     1     71  

Net cash provided by financing activities

    15,954     20,851     16,951     71  

Net increase (decrease) in cash

    4,271     5,308     10,249     (8,222 )

Cash at beginning of period

    1,041     5,312     5,312     10,620  

Cash at end of period

  $ 5,312   $ 10,620   $ 15,561   $ 2,398  

Supplemental disclosure of non-cash investing and financing activities:

                         

Convertible notes and accrued interest converted to Series B convertible preferred stock

  $   $ 5,130   $ 5,130   $  

Convertible note proceeds allocated to beneficial conversion feature

  $ 689   $   $   $  

Venture debt proceeds allocated to warrant liability

  $ 689   $ 140   $   $  

Proceeds allocated to Series A Preferred Stock Milestone Obligation

  $ 671   $   $   $  

Supplemental cash flow information—Cash paid for interest

  $ 109   $ 71   $ 39   $ 155  

   

The accompanying notes are an integral part of these financial statements.

F-6



KALA PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share amounts)

1. NATURE OF BUSINESS AND BASIS OF PRESENTATION

        Nature of Business—Kala Pharmaceuticals, Inc. (the "Company") was incorporated on July 7, 2009, and is a biopharmaceutical company focused on the development and commercialization of therapies using our proprietary nanoparticle-based Mucus Penetrating Particles, or MPP, technology, with an initial focus on the treatment of eye disease. KPI-121, the Company's lead program, consists of topically applied MPP nanosuspensions of loteprednol etabonate, or LE, a corticosteroid designed for ocular applications. Under its KPI-121 program, the Company has product candidates in advanced clinical development for the indications of the temporary relief of the signs and symptoms of dry eye disease and the treatment of inflammation and pain following ocular surgery. We also have a KPI-121 product candidate in clinical development for the treatment of meibomian gland disease. The Company is also developing KPI-285, its topically applied MPP small molecule new chemical entity, or NCE, that inhibits the vascular endothelial growth factor, or VEGF, pathway, for the potential treatment of a number of back-of-the-eye diseases such as age-related macular degeneration, or AMD, diabetic retinopathy, or DR, diabetic macular edema, or DME, and retinal vein occlusion, or RVO.

        The Company is engaged in research and development activities, raising capital, and recruiting skilled personnel. The Company is subject to a number of risks similar to those of other companies conducting high-risk, early-stage research and development of pharmaceutical product candidates. Principal among these risks are dependence on key individuals, competition from other products and companies, intellectual property and the technical risks associated with the successful research, development and marketing of its product candidates. The Company's success is dependent upon its ability to raise additional capital in order to fund ongoing research and development, obtain regulatory approval of its products, successfully commercialize its products, generate revenue, meet its obligations, and, ultimately, attain profitable operations.

        Basis of Presentation—The accompanying financial statements have been prepared on a going concern basis which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Since inception, the Company has not generated revenue from the sale of products and has incurred recurring losses and negative cash flows from operations, including a net loss of $19,361 for the year ended December 31, 2014 and $7,095 (unaudited) for the six months ended June 30, 2015. As of December 31, 2014 and June 30, 2015, the Company had an accumulated deficit of $42,288 and $49,383 (unaudited), respectively. The Company expects to incur additional operating losses and negative operating cash flows for the foreseeable future. The Company also has debt repayments of $1,167 due in 2016. These factors, along with the Company's history and near term forecast of incurring significant net losses and negative operating cash flows, raise substantial doubt regarding its ability to continue as a going concern.

        Management's Plans—The Company has financed its operations to date primarily through the issuance of convertible preferred stock, convertible promissory notes and debt. The Company's ability to continue as a going concern is contingent upon its ability to raise additional capital sufficient to cover costs and meet its obligations on a timely basis and, ultimately, attain profitable operations. Management plans to obtain capital through the issuance of additional equity and debt or through corporate partnerships in order to continue to operate as a going concern. There can be no assurance that the Company will be able to generate revenue sufficient to cover its costs or obtain capital on acceptable terms, if at all. The financial statements do not include any adjustments relating to the

F-7



KALA PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share and per share amounts)

1. NATURE OF BUSINESS AND BASIS OF PRESENTATION (Continued)

recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

        The Company is seeking to complete an initial public offering ("IPO") of its common stock. Upon the closing of a qualified public offering on specified terms, the Company's outstanding convertible preferred stock (See Note 8) will automatically convert into shares of common stock. In the event the Company does not complete an IPO, the Company expects to seek additional funding through private financings, debt financing, collaboration agreements or research grants.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expense, and related disclosures. The Company bases estimates and assumptions on historical experience when available and on various factors that it believes to be reasonable under the circumstances. The Company evaluates its estimates and assumptions on an ongoing basis. Estimates relied upon in preparing these financial statements include the fair value of common stock, preferred stock, warrants, accrued expenses and the recoverability of the Company's net deferred tax assets and related valuation allowance. Actual results may differ from these estimates under different assumptions or conditions.

        Unaudited Interim Financial Information—The accompanying balance sheet as of June 30, 2015, the statements of operations and cash flows for the six months ended June 30, 2014 and 2015, and the statement of convertible preferred stock and stockholders' deficit for the six months ended June 30, 2015 are unaudited. The unaudited interim financial statements have been prepared on the same basis as the audited annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for a fair statement of the Company's financial position as of June 30, 2015 and the results of its operations and its cash flows for the six months ended June 30, 2014 and 2015. The financial data and other information disclosed in these notes related to the six months ended June 30, 2014 and 2015 are unaudited. The results for the six months ended June 30, 2015 are not necessarily indicative of results to be expected for the year ending December 31, 2015, any other interim periods, or any future year or period.

        Unaudited Pro Forma Information—On September 11, 2015, the Company's Board of Directors (the "Board") authorized the Company to confidentially submit a draft registration statement to the Securities and Exchange Commission to sell shares of its common stock to the public. The unaudited pro forma balance sheet as of June 30, 2015 assumes the automatic conversion of all the outstanding preferred stock into shares of common stock and the reclassification of the Company's outstanding warrants to purchase shares of Series Seed Convertible Preferred Stock and Series B Convertible Preferred Stock from liability classification to equity classification, in each case occurring upon the closing of the Company's proposed IPO, as if these transactions had occurred as of June 30, 2015.

        Unaudited pro forma net loss per share applicable to common stockholders is computed using the weighted-average number of common shares outstanding after giving effect to the conversion of all the outstanding convertible preferred stock into shares of common stock as if such conversion had occurred on January 1, 2014, or the date of original issuance, if later.

F-8



KALA PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share and per share amounts)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

        Cash and Concentration of Credit Risk—The Company's cash balance is maintained with a bank in the United States that the Company believes to be of high quality. Deposits with this bank may exceed the amount of insurance provided on such deposits; however, these deposits may be redeemed upon demand, and, therefore, bear minimal risk. The Company's accounts receivable balances are due from counterparties to collaboration agreements that the Company believes to be creditworthy.

        During the year ended December 31, 2013, one counterparty accounted for 100% of the Company's revenue. During the year ended December 31, 2014, five counterparties accounted for all of the Company's revenue, including three customers who accounted for 55%, 16% and 14% of total revenue, respectively. During the six months ended June 30, 2015 (unaudited), one counterparty accounted for 100% of the Company's revenue. At December 31, 2013, two counterparties accounted for 76% and 19% of the Company's accounts receivable, respectively. At December 31, 2014 and June 30, 2015, one counterparty accounted for all of the Company's accounts receivable as of each such date.

        Restricted Cash—As of December 31, 2013 and 2014 and June 30, 2015, the Company had restricted cash of $148, $109 and $109 (unaudited), respectively, which represents certificates of deposit serving as collateral for the Company's credit card and facility leases. As of December 31, 2013 and 2014 and June 30, 2015, $118, $109 and $109 (unaudited) was classified as non-current assets, respectively, and $30, $0 and $0 was recorded in prepaid expenses and other current assets, respectively.

        Deferred Offering Costs—The Company capitalizes certain legal, professional accounting and other third-party fees that are directly associated with the IPO as other non-current assets until the IPO is consummated. After consummation of the IPO, these costs will be recorded in stockholders' equity (deficit) as a reduction of additional paid-in capital generated as a result of the offering. Should the IPO no longer be considered probable of being consummated, the deferred offering costs would be expensed immediately as a charge to operating expenses in the statement of operations. The Company did not incur any offering costs during the periods presented.

        Property and Equipment, net—Property and equipment are recorded at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the related assets. Depreciation expense is included in research and development and general and administrative expenses. Laboratory equipment is depreciated over five years and office and computer equipment is depreciated over three years. Leasehold improvements are depreciated over the shorter of their useful life or the life of the lease. Major additions and upgrades are capitalized; maintenance and repairs, which do not improve or extend the life of the respective assets, are expensed as incurred.

        Patent Costs—Costs to secure and defend patents are expensed as incurred and are classified as general and administrative expenses in the Company's statements of operations.

        Impairment of Long-Lived Assets—Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. When such events occur, the Company compares the carrying amounts of the assets to their undiscounted expected future cash flows. If the undiscounted cash flows are insufficient to recover the carrying value, the assets are recorded at the lesser of the carrying value or fair value. For the years

F-9



KALA PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share and per share amounts)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

ended December 31, 2013 and 2014 and six months ended June 30, 2015 (unaudited), no impairments were recorded.

        Fair Value Measurements—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 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 preferred stock warrant liability is carried at fair value determined according to the fair value hierarchy described above (See Note 7) and classified as a Level 3 measurement. The carrying value of accounts receivable, accounts payable and accrued expenses approximate their fair value due to the short-term nature of these assets and liabilities. Management believes that the Company's long-term debt (See Note 6) bears interest at the prevailing market rate for instruments with similar characteristics and, accordingly, the carrying value of long-term debt, including the current portion, also approximates its fair value. The fair value of the outstanding debt was estimated using a discounted cash flow analysis based on current market interest rates for debt issuances with similar remaining years to maturity, adjusted for credit risk, which represents a Level 3 measurement.

        Segment Information—Operating segments are identified as components of an enterprise about which separate discrete financial information is made available for evaluation by the chief operating decision maker ("CODM") in making decisions regarding resource allocation and assessing performance. The CODM is the Company's Chief Executive Officer. The Company manages its operations as a single segment for the purposes of assessing performance and making operating decisions. The Company's singular focus is on the development and commercialization of therapeutics using its proprietary nanoparticle-based Mucus Penetrating Particles technology. All of the Company's tangible assets are held in the United States. To date, all of the Company's revenue has been generated in the United States.

        Revenue Recognition—Revenue is recognized when the following criteria have been met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered and risk of loss has passed; (3) the seller's price to the buyer is fixed or determinable; and

F-10



KALA PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share and per share amounts)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(4) collectability is reasonably assured. Deferred revenue is recorded for any amounts received prior to satisfying the revenue recognition criteria.

        The Company generates revenue from feasibility agreements with third-party collaboration partners to analyze the effects of combining the partners' proprietary pharmaceutical compounds with the Company's MPP technology. The agreements contain multiple deliverables, including (a) the use of the Company's technology and (b) research and development of product candidates. Such agreements may provide for consideration to the Company in the form of upfront payments, research and development services, milestone payments and royalties.

        For each agreement, the Company and its partners agree to conduct an investigational study with specified phases and endpoints. These studies are executed according to a predefined work plan. Under the terms of the agreements, the Company receives an upfront payment upon inception of the agreement, additional upfront payments upon continuation to future phases after predefined objectives have been met and, where applicable, the Company may receive a final payment upon approval of a final report. The Company accounts for the deliverables related to the upfront payments, which consist of the provision of research and development activities on behalf of the partner, using the proportional performance model. The Company accounts for the deliverables related to approval of the final report upon receipt of the related payment. The Company's agreements are typically less than one year in duration. The Company recognized revenue of $50, $455, $353 (unaudited) and $45 (unaudited) during the years ended December 31, 2013 and 2014 and six months ended June 30, 2014 and 2015, respectively. The costs incurred by the Company related to these research services are recorded as research and development expenses within the statements of operations. As of December 31, 2013 the Company recorded $200 as deferred revenue related to the agreements. As of December 31, 2014 and June 30, 2015 (unaudited), the Company did not have any deferred revenue.

        Multiple-deliverable arrangements are analyzed to determine whether the deliverables can be separated or whether they must be accounted for as a single unit of accounting. When deliverables are separable, consideration received is allocated to the separate units of accounting based on the relative selling price method and the appropriate revenue recognition principles are applied to each unit. Since inception, all multiple-deliverable arrangements have been determined to be one unit of accounting.

        When the Company determines that an arrangement should be accounted for as a single unit of accounting, it must determine the period over which the performance obligations will be performed and revenue will be recognized. Nonrefundable upfront license fees under the agreement are initially recorded as deferred revenue upon receipt and are recognized as revenue over the Company's performance period, as defined in the agreement. Research and development service revenue is recognized over the research term as the research and development services are provided. The cost of such services is reflected in research and development costs in the period in which it is incurred.

        At the inception of each arrangement that includes payments for optional research or milestones, the Company evaluates whether each option or milestone is substantive and at risk to both parties on the basis of the contingent nature of the option or milestone. This evaluation includes an assessment of whether (1) the consideration is commensurate with either the entity's performance to achieve the milestone or the enhancement of the value of the delivered item as a result of a specific outcome resulting from the entity's performance to achieve the milestone; (2) the consideration relates solely to

F-11



KALA PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share and per share amounts)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

past performance; and (3) the consideration is reasonable relative to all of the deliverables and payment terms within the arrangement. Substantive options and milestones are recognized as revenue upon the achievement of the milestone, assuming all other revenue recognition criteria are met.

        Grant Accounting—The Company applied for and was awarded three research grants with various government agencies. The Company submits qualifying expenses and capital purchases for reimbursement under each specified program, which occurs after the Company has made the capital purchases and/or incurred the research and development expenses. The Company recognizes these grants when there is reasonable assurance that the Company will comply with the conditions attached to the grant agreement and the grant will be received. The Company evaluates the conditions of each individual grant as of each reporting period to ensure that the Company has reached reasonable assurance of meeting the conditions of each grant arrangement and that it is expected that the grant will be received as a result of meeting the necessary conditions. Grants are recognized in the statements of operations as a reduction in the related costs for which the grant is intended to compensate.

        The Company records the grants upon incurring such expenses, as approval and reimbursement are considered to be perfunctory once the qualifying program has been approved. A reduction of research and development expense related to research and development costs is recognized as such expenses are incurred. A reduction of the asset's costs basis is recorded related to qualifying capital purchases made. During the years ended December 31, 2013 and 2014 and six months ended June 30, 2014 and 2015, $153, $0, $0 (unaudited) and $0 (unaudited), respectively, was recorded as a reduction of research and development costs. Substantially all amounts available to the Company under the three research grants were fully utilized as of December 31, 2013.

        Research and Development Costs—Research and development expenses consist of expenses incurred in performing research and development activities, including compensation and benefits for full-time research and development employees, an allocation of facilities expenses, overhead expenses, payments to universities under the Company's license agreements and other outside expenses. Research and development costs are expensed as incurred. Research and development costs that are paid in advance of performance, including nonrefundable prepayments for goods or services, are deferred and capitalized as a prepaid expense. 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.

        Accrued Expenses—The Company accrues expenses related to development activities performed by third-parties based on an evaluation of services received and efforts expended pursuant to the terms of the contractual arrangements. Payments under some of these contracts depend on clinical trial milestones. There may be instances in which payments made to the Company's vendors will exceed the level of services provided and result in a prepayment of expenses. In accruing service fees, the Company estimates 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, the Company will adjust the accrual or prepaid expense accordingly.

F-12



KALA PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share and per share amounts)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

        Stock-Based Compensation—The Company accounts for all stock-based payment awards granted to employees and non-employees as compensation expense at fair value. The Company's stock-based payments include stock options and grants of common stock, including common stock subject to vesting. The measurement date for employee awards is the date of grant, and stock-based compensation costs are recognized as expense over the employees' requisite service period, which is the vesting period, on a straight-line basis. The measurement date for nonemployee awards is generally the date the services are completed, resulting in periodic adjustments to stock-based compensation during the vesting terms for changes in the fair value of the awards. Stock-based compensation costs for nonemployees are recognized as expense over the vesting period on a straight-line basis. Stock-based compensation is classified in the accompanying statements of operations based on the function to which the related services are provided.

        The Company recognizes compensation expense for only the portion of awards that are expected to vest. In developing a forfeiture rate estimate, the Company has considered its historical experience to estimate pre-vesting forfeitures for service-based awards. The impact of a forfeiture rate adjustment will be recognized in full in the period of adjustment, and if the actual forfeiture rate is materially different from the Company's estimate, the Company may be required to record adjustments to stock-based compensation expense in future periods.

        The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The Company historically has 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 and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded stock price. 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 on common stock and does not expect to pay any cash dividends in the foreseeable future.

        Common Stock Valuation—Due to the absence of an active market for the Company's common stock, the Company utilized methodologies in accordance with the framework of the American Institute of Certified Public Accountants Technical Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation, to estimate the fair value of its common stock. In determining the exercise prices for options granted, the Company has considered the estimated fair value of the common stock as of the measurement date. The estimated fair value of the common stock has been determined at each grant date based upon a variety of factors, including the illiquid nature of the common stock, arm's-length sales of the Company's capital stock (including redeemable convertible preferred stock), the effect of the rights and preferences of the preferred shareholders, and the prospects of a liquidity event. Among other factors are the Company's financial position and historical financial performance, the status of technological developments within the Company's research, the composition and ability of the current research and management team, an evaluation or benchmark of the Company's competition, and the current business climate in the marketplace. Significant changes to

F-13



KALA PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share and per share amounts)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

the key assumptions underlying the factors used could result in different fair values of common stock at each valuation date.

        Preferred Stock Warrants—The Company classifies warrants to purchase shares of its Series Seed, Series A and Series B preferred stock as a liability on its balance sheets as these warrants are free-standing financial instruments that are exercisable for contingently redeemable shares. The warrants are recorded in long-term liabilities at fair value, estimated using the Black-Scholes model, and marked to market at each balance sheet date. The change in carrying value is reported as the change in fair value of warrant liability in the accompanying statements of operations. The Company will continue to adjust the liability for changes in fair value until the earlier of the exercise of the warrant, the expiration of the warrant or the warrant converting to a warrant to purchase common stock, which will occur upon the closing of the IPO in accordance with the conversion rights described in Note 8.

        Income Taxes—Deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been included in the Company's financial statements and tax returns. Deferred tax assets and liabilities are determined based upon the differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities and for loss and credit carryforwards using enacted tax rates expected to be in effect in the years in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized.

        The Company provides reserves for potential payments of tax to various tax authorities related to uncertain tax positions and other issues. The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. As a result, reserves are based on a determination of whether and how much of a tax benefit taken by the Company in its tax filings or positions is more likely than not to be realized following resolution of any potential contingencies present. Potential interest and penalties associated with such uncertain tax positions are recorded as a component of income tax expense.

        Net Loss per Share and Unaudited Pro Forma Loss per Share—Basic net loss per share is computed using the weighted-average number of common shares outstanding during the period. Diluted net loss per share is computed using the weighted average number of common shares outstanding during the period and, if dilutive, the weighted average number of potential shares of common stock, including the assumed exercise of stock options, warrants and unvested restricted stock. Net loss per share attributable to common stockholders is calculated using the two-class method, which is an earnings allocation formula that determines net loss per share for the holders of the Company's common shares and participating securities. The Company's convertible preferred stock contains participation rights in any dividend paid by the Company and is deemed to be a participating security. Net loss attributable to common stockholders and participating preferred shares are allocated to each share on an as-converted basis as if all of the earnings for the period had been distributed. The

F-14



KALA PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share and per share amounts)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

participating securities do not include a contractual obligation to share in losses of the Company and are not included in the calculation of net loss per share in the periods that have a net loss.

        Diluted net loss per share is computed using the more dilutive of (a) the two-class method or (b) the if converted method. The Company allocates earnings first to preferred stockholders based on dividend rights and then to common and preferred stockholders based on ownership interests. The weighted average number of common shares included in the computation of diluted net loss gives effect to all potentially dilutive common equivalent shares, including outstanding stock options, warrants, preferred stock and the potential issuance of stock upon the conversion of the Company's convertible notes. Common stock equivalent shares are excluded from the computation of diluted net loss per share if their effect is antidilutive. 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. When a gain is recorded pursuant to a change in fair value of the warrant liability during the period, the Company assesses whether the impact of reversing the gain and including the additional securities is dilutive, and if so, will adjust dilutive EPS. The Company reported a net loss attributable to common stockholders for the years ended December 31, 2013 and 2014 and the six months ended June 30, 2014 and 2015 (unaudited).

        Comprehensive Loss—Comprehensive loss is equal to net loss for the periods presented.

        Recently Adopted Accounting Pronouncements—In June 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidations, which removes all incremental reporting requirements from Generally Accepted Accounting Principles (GAAP) for development stage entities. A development stage entity is defined as an entity that devotes substantially all of its efforts to establishing a new business. In a development stage entity, planned principal operations have not started or, if they have started, have produced no significant revenue. The Company elected to early adopt the amendment for its financial statements as of December 31, 2013 and accordingly, no longer presents inception-to-date information in its statements of operations, statements of convertible preferred stock and shareholders' deficit or statements of cash flows.

        In April 2015, the FASB issued ASU No. 2015-03, InterestImputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs related to a debt liability be presented in the balance sheet as a direct reduction in the carrying amount of that debt liability. The amendments in ASU 2015-03 are effective for the annual periods ending after December 15, 2015. Early adoption is permitted. Upon adoption, the amendments in ASU No. 2015-03 are required to be applied on a retrospective basis as a change in accounting principle for all prior periods presented. The Company elected to early adopt this guidance and recorded all previously recognized debt issuance costs as a direct reduction to the carrying amount of the related debt liability at each reporting date. As a result of the change in accounting principle, the Company reclassified debt issuance costs previously reported as other assets and decreased the carrying value of debt by $5, $70 and $57 (unaudited) as of December 31, 2013 and 2014 and June 30, 2015, respectively.

F-15



KALA PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share and per share amounts)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

        Recently Issued Accounting Pronouncements—In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09 (ASU No. 2014-09), Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition guidance in Topic 605, Revenue Recognition, and most industry-specific guidance throughout the Industry Topics of the Codification and provides that entities should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. This guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The Company is currently evaluating the potential impact of ASU 2014-09 on its financial statements.

        In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial StatementsGoing Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity's ability to Continue as a Going Concern, which provides guidance in Generally Accepted Accounting Principles (GAAP) about management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. The amendments in ASU 2014-15 are effective for the annual period ending after December 15, 2016 and for annual and interim periods thereafter. Early adoption is permitted. The Company is currently evaluating the potential impact of ASU 2014-15 on its financial statements.

3. PREPAID EXPENSES AND OTHER CURRENT ASSETS

        Prepaid expenses and other current assets consist of the following:

 
  December 31,    
 
 
  June 30,
2015
 
 
  2013   2014  
 
   
   
  (unaudited)
 

Development costs

  $ 262   $   $  

Rent

        52     53  

Insurance

    1     42     48  

Restricted cash

    30          

Other

    59     26     25  

Prepaid expenses and other current assets

  $ 352   $ 120   $ 126  

F-16



KALA PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share and per share amounts)

4. PROPERTY AND EQUIPMENT, NET

        Property and equipment, net, consists of the following:

 
  December 31,   June 30,  
 
  2013   2014   2015  
 
   
   
  (unaudited)
 

Laboratory equipment

  $ 1,267   $ 1,357   $ 1,506  

Leasehold improvements

        93     93  

Computer hardware and software

    40     54     54  

Office equipment

    14     23     23  

Furniture and fixtures

        11     11  

Property and equipment—at cost

    1,321     1,538     1,687  

Less: Accumulated depreciation

    (410 )   (703 )   (857 )

Property and equipment, net

  $ 911   $ 835   $ 830  

        Depreciation expense for the years ended December 31, 2013 and 2014 and six months ended June 30, 2014 and 2015 was $201, $298, $146 (unaudited) and $155 (unaudited), respectively.

5. ACCRUED EXPENSES

        Accrued expenses consist of the following:

 
  December 31,   June 30,  
 
  2013   2014   2015  
 
   
   
  (unaudited)
 

Development costs

  $ 68   $ 1,196   $ 358  

Compensation and benefits

    546     785     524  

Professional fees

    142     494     72  

Other

    30     49     57  

Accrued expenses

  $ 786   $ 2,524   $ 1,011  

6. DEBT

2011 Debt Facility

        On July 18, 2011, the Company entered into a venture debt facility ("2011 Debt Facility") with a total loan commitment of $1,500, all of which was borrowed during 2011. Under the 2011 Debt Facility, borrowings accrued interest at 8.75% per annum and interest and principal became payable on a monthly basis over a period of 36 months beginning on May 1, 2012. The Company recorded a debt discount for issuance costs of $15 that was amortized to interest expense through the maturity date. The borrowings carried a prepayment fee of 1% of the outstanding principal amount if paid in 2014 or thereafter and a final payment fee of $41 which was amortized to interest expense. In connection with the closing of the 2014 Debt Facility (as defined below), the outstanding balance of the 2011 Debt Facility was paid in full. In addition, the Company paid the prepayment fee of $6 and the final payment fee of $41.

F-17



KALA PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share and per share amounts)

6. DEBT (Continued)

        In connection with the 2011 Debt Facility, the Company issued a warrant (the "2011 Debt Facility Warrant") to purchase 45,000 shares of Series Seed Convertible Preferred Stock at an exercise price of $1.00 per share. In 2012, the Company entered into an amendment to the 2011 Debt Facility that increased the number of shares underlying the 2011 Debt Facility Warrant to 80,000. The warrant expires in July 2019. The warrant is measured at fair value using the Black-Scholes model (See Note 7). As of December 31, 2013 and 2014 and June 30, 2015, the estimated fair value of the warrant liability in connection with the 2011 Debt Facility was $62, $59 and $75 (unaudited), respectively.

        As of December 31, 2013, the unpaid principal balance of the 2011 Debt Facility was $1,043, and the discount balance was $32. As of December 31, 2014 and June 30, 2015 (unaudited), the unpaid principal balance was $0. During the year ended December 31, 2013, the Company recognized interest expense of $130 related to the 2011 Debt Facility, of which $21 related to the amortization of the debt discount (including debt issuance, lender and closing costs) and $109 related to the contractual coupon interest accrual. During the year ended December 31, 2014, the Company recognized interest expense of $95, including $31 of amortization of the debt discount and $64 of coupon interest accrual. In the six months ended June 30, 2014, the Company recognized interest expense of $48 (unaudited), including $9 (unaudited) of amortization of the debt discount and $39 (unaudited) of coupon interest accrual. The Company did not recognize interest expense pertaining to the 2011 Debt Facility in the six months ended June 30, 2015 (unaudited).

2013 Convertible Promissory Notes

        On December 18, 2013, the Company entered into agreements with certain preferred stockholders for the issuance of an aggregate of $5,000 in convertible promissory notes (collectively referred to as the "2013 Notes"). The 2013 Notes accrue interest at 8% per year and the Company would be required to pay all outstanding interest and principal within 30 days upon written demand of the creditors holding a majority of the aggregate amount of the then outstanding principal under the 2013 Notes; provided, however, that, in the absence of an event of default, such demand may not be made prior to December 18, 2014.

        The holders of the 2013 Notes had the right to convert, at any time after June 18, 2014 but prior to the closing of a Qualified Financing, as defined in the 2013 Note agreements, all, but not less than all of the outstanding amount under the 2013 Notes into shares of the Series A Preferred Stock at a conversion price of $1.20 per share (subject to adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to such shares). A Qualified Financing is defined as the first sale of convertible preferred stock by the Company to investors, after the date of issuance of the 2013 Notes, with immediately available gross proceeds to the Company of at least $10,000.

        On April 16, 2014, the Company issued 15,624,999 shares of Series B Senior Convertible Preferred Stock ("Series B") for gross proceeds of $22,500 or $1.44 per share. The gross proceeds include the balance of the outstanding principal and interest of the 2013 Notes of $5,130 which converted into 3,562,785 shares of Series B Preferred Stock pursuant to the terms of the 2013 Notes.

F-18



KALA PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share and per share amounts)

6. DEBT (Continued)

        Under the terms of the 2013 Notes, and concurrent with the issuance of the 2013 Notes, the Company issued rights to obtain warrants to each holder of the 2013 Notes, which would be exercisable into either Series A Preferred Stock or the shares issued in the next Qualified Financing. The number of shares underlying the warrants is equal to 20% of the principal amount the lender provided to the Company divided by the warrant exercise price, which would result in the issuance of warrants to purchase 833,333 shares of Series A Preferred Stock. Upon the closing of the Series B Preferred Stock, the warrants issued to the holders of the 2013 Notes became exercisable into 694,444 shares of Series B Preferred Stock at an exercise price of $1.44 per share. The warrants expire in April 2021.

        The warrants were initially measured at fair value as a separate liability. At each reporting period, the warrants will be re-measured at fair value and marked-to-market with changes in the fair value being recorded as a component of income or loss in the statement of operations. The fair value of the warrants at issuance was determined to be $689 using a probability-weighted Black-Scholes option-pricing model with a 75% probability of being exercisable for a future series of preferred stock and a 25% probability of being exercisable for Series A Preferred Stock. Given the short period of time between the warrant issuance date and December 31, 2013, the change in fair value of the warrants during 2013 was immaterial. As of December 31, 2013 and 2014 and June 30, 2015, the estimated fair value of the warrant liability in connection with the 2013 Notes was $689, $605 and $708 (unaudited), respectively.

        The impact of allocating the fair value to the detachable warrants resulted in a beneficial conversion feature associated with optional conversion of the 2013 Notes into Series A on the date of issuance. The value of the beneficial conversion feature upon issuance of the 2013 Notes was $689 and was recorded as a debt discount.

        The original debt discount associated with the 2013 Notes, resulting from debt issuance costs, the fair value of the warrants and the beneficial conversion feature, was $1,378 and was amortized as interest expense using the effective interest method over the period from the date of issuance to the earliest redemption date of the 2013 Notes, December 18, 2014. Upon conversion of the 2013 Notes into Series B preferred stock in April 2014, the remaining debt discount was amortized to interest expense. During the year ended December 31, 2013, the Company recognized interest expense of $54 related to the 2013 Notes, of which $41 related to the amortization of the discount and $13 related to the contractual coupon interest accrual. During the year ended December 31, 2014, and in the six months ended June 30, 2014, the Company recognized interest expense of $1,453 (unaudited) of which $1,337 (unaudited) related to the amortization of the discount and $116 (unaudited) related to the contractual coupon interest accrual.

2014 Debt Facility

        On November 20, 2014, the Company entered into a venture debt facility ("2014 Debt Facility") for a total loan commitment of $10,000, of which $5,000 was borrowed upon entering into the agreement. Under the terms of the facility, the borrowings accrue interest at an annual rate equal to the greater of (i) 3.00% above the Prime Rate then in effect, or (ii) 6.25%. Interest will be paid in monthly installments with interest payable in arrears, and monthly principal payments will begin in June 2016. The Company incurred debt issuance costs of $72 and paid $138 in fees on behalf of the lender, all of which were recorded within debt discount (a reduction to the long-term debt balance) and are

F-19



KALA PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share and per share amounts)

6. DEBT (Continued)

being amortized to interest expense using the effective interest method through the maturity date. The borrowings carry a prepayment fee which ranges from 0.3% to 0.9% if paid prior to the maturity date of December 1, 2018. The Company has not accrued for this prepayment fee as it does not intend to prepay the outstanding balance. The 2014 Debt Facility is not subject to financial covenants.

        The 2014 Debt Facility is senior debt and is secured by substantially all of the assets of the Company other than intellectual property. In the event the Company is determined to be in default under the debt facility agreement, the debt accrues interest at five percentage points above the interest rate applicable immediately prior to the occurrence of the event of default and the lender has the right to declare all outstanding principal and interest payable. Under the terms of the 2014 Debt Facility, certain events including but not limited to, the Company's failure to pay obligations when due, failure to perform obligations under the agreement, insolvency or the occurrence of any circumstance that could reasonably be expected to have a material adverse effect on the Company, constitute events of default.

        In connection with the 2014 Debt Facility and the initial borrowing of $5,000, the Company issued warrants (the "2014 Warrants") to purchase 138,889 shares of Series B convertible preferred stock at an exercise price of $1.44 per share. The 2014 Warrants expire in November 2024. Upon issuance, the Company recorded a liability for the fair value of the 2014 Warrants of $140, which was estimated using the Black-Scholes option-pricing model. Given the short period of time between the warrant issuance date and December 31, 2014, the change in the fair value of the warrants during 2014 was immaterial. As of December 31, 2014 and June 30, 2015, the estimated fair value of the warrant liability was $140 and $176 (unaudited), respectively.

        As of December 31, 2014 and June 30, 2015 (unaudited), the unpaid principal balance was $5,000. The unamortized discount was $336 and $276 (unaudited) as of December 31, 2014 and June 30, 2015, respectively. The Company recognized interest expense of $50 related to the 2014 Debt Facility during the year ended December 31, 2014, which consisted of the amortization of the debt discount of $14 and contractual coupon interest of $36. During the six months ended June 30, 2015, the Company recognized interest expense of $220 (unaudited), which consisted of amortization of the debt discount of $59 (unaudited) and the contractual coupon interest of $161 (unaudited).

        The future annual principal payments due under the 2014 Debt Facility as of December 31, 2014 are as follows:

Year Ending December 31,
   
 

2015

  $  

2016

    1,167  

2017

    2,000  

2018

    1,833  

Total

  $ 5,000  

        In July, 2015, the Company borrowed the remaining $5,000 available under the 2014 Debt Facility. In connection with the borrowing, the Company issued additional warrants to the lender to purchase 138,889 shares of Series B convertible preferred stock at an exercise price of $1.44 per share.

F-20



KALA PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share and per share amounts)

7. FAIR VALUE OF FINANCIAL INSTRUMENTS

        The Company's preferred stock warrants associated with the issuances of the 2013 Notes and 2011 and 2014 Debt Facilities are recorded at fair value according to the fair value hierarchy. The assets and liabilities measured at fair value on a recurring basis as of December 31, 2013 and 2014, and June 30, 2015 and the input categories associated with those assets and liabilities are as follows:

 
  Fair Value Measurements
as of December 31, 2013 Using:
 
 
  Level 1   Level 2   Level 3   Total  

2013 Notes—warrant liability

  $   $   $ 689   $ 689  

2011 Debt Facility—warrant liability

            62     62  

Total warrant liability

  $   $   $ 751   $ 751  

 

 
  Fair Value Measurements
as of December 31, 2014 Using:
 
 
  Level 1   Level 2   Level 3   Total  

2013 Notes—warrant liability

  $   $   $ 605   $ 605  

2014 Debt Facility—warrant liability

                140     140  

2011 Debt Facility—warrant liability

            59     59  

Total warrant liability

  $   $   $ 804   $ 804  

 

 
  Fair Value Measurements
as of June 30, 2015 Using:
(unaudited)
 
 
  Level 1   Level 2   Level 3   Total  

2013 Notes—warrant liability

  $   $   $ 708   $ 708  

2014 Debt Facility—warrant liability

                176     176  

2011 Debt Facility—warrant liability

            75     75  

Total warrant liability

  $   $   $ 959   $ 959  

        The Company has classified the value of the warrants as Level 3 measurements within the fair value hierarchy because the fair value is derived using significant unobservable inputs, which include

F-21



KALA PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share and per share amounts)

7. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

the estimated fair value of the underlying preferred stock. The Company determined the fair values of the warrants, using the Black-Scholes option-pricing model using the following inputs:

 
  Year Ended
December 31,
  Six Months Ended
June 30,
 
 
  2013   2014   2014   2015  

2011 Warrant—2011 Debt Facility:

                       

Volatility

  70%     100.64 %   103 %   95.6 %

Risk-free interest rate

  3.04%     1.49 %   1.61 %   1.2 %

Estimated fair value of underlying shares

  $1.00   $ 1.00   $ 1.00   $ 1.00  

Remaining contractual term (years)

  5.5     4.5     5.1     3.7  

Expected dividend yield

  0%     0 %   0 %   0 %

Exercise price

  $1.00   $ 1.00   $ 1.00   $ 1.00  

Shares underlying warrants

  80,000     80,000     80,000     80,000  

2013 Warrants—2013 Notes:

 

 

   
 
   
 
   
 
 

Volatility

  72.50%     56.46 %   52.69 %   64.2 %

Risk-free interest rate

  2.26%     1.86 %   2.05 %   1.64 %

Estimated fair value of underlying shares

  $1.20 - $1.44   $ 1.44   $ 1.44   $ 1.44  

Remaining contractual term (years)

  7     6     7     5.3  

Expected dividend yield

  0%     0 %   0 %   0 %

Exercise price

  $1.20 - $1.44   $ 1.44   $ 1.44   $ 1.44  

Shares underlying warrants

  833,333     694,444     694,444     694,444  

2014 Warrants—2014 Debt Facility:

 

 

   
 
   
 
   
 
 

Volatility

  n/a     52.57 %   n/a     72.8 %

Risk-free interest rate

  n/a     2.19 %   n/a     2.2 %

Estimated fair value of underlying shares

  n/a   $ 1.44     n/a   $ 1.44  

Remaining contractual term (years)

  n/a     10     n/a     8.65  

Expected dividend yield

  n/a     0 %   n/a     0 %

Exercise price

  n/a   $ 1.44     n/a   $ 1.44  

Shares underlying warrants

  n/a     138,889     n/a     138,889  

        With respect to the aggregate warrant liabilities recorded as of December 31, 2013 and 2014 and June 30, 2015 (unaudited), a change in the assumptions regarding estimated volatility and/or the estimated fair value of the preferred stock could have a significant impact on the resulting fair values of the warrant liabilities.

        Changes in the fair value of the Company's Level 3 liabilities measured at fair value during the years ended December 31, 2013 and 2014 and six months ended June 30, 2015 (unaudited), which was

F-22



KALA PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share and per share amounts)

7. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

recorded under the caption "change in fair value of warrant liability" on the accompanying statements of operations, were as follows:

 
  Warrant Liability  

Fair value—January 1, 2013

  $ 61  

Issuance date fair value of warrant issued during 2013

    689  

Issuance date fair value of Series A Preferred Stock forward contract

    671  

Expiration of Series A Preferred Stock forward contract

    (671 )

Change in fair value of warrant liability

    1  

Fair value—December 31, 2013

    751  

Issuance date fair value of warrant issued during 2014

    140  

Change in fair value of warrant liability

    (87 )

Fair value—December 31, 2014

    804  

Change in fair value of warrant liability

    155  

Fair value—June 30, 2015 (unaudited)

  $ 959  

8. CONVERTIBLE PREFERRED STOCK

        Preferred Stock consisted of the following as of December 31, 2013:

 
  Designated
Shares
  Issuance
Dates
  Shares Issued
and
Outstanding
  Liquidation
Value
  Carrying
Value
  Common Stock
Issuable Upon
Conversion
 

Series Seed

    11,323,209   December 2009     2,000,001                    

        October 2010     2,000,003                    

        February 2012     7,243,205                    

              11,243,209   $ 11,243   $ 11,065     11,243,209  

Series A

   
12,500,000
 

February 2013

   
4,791,716
                   

        July 2013     4,791,716                    

              9,583,432   $ 11,500   $ 10,736     9,583,432  

F-23



KALA PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share and per share amounts)

8. CONVERTIBLE PREFERRED STOCK (Continued)

        Preferred Stock consisted of the following as of December 31, 2014 and June 30, 2015 (unaudited):

 
  Designated
Shares
  Issuance
Dates
  Shares Issued
and
Outstanding
  Liquidation
Value
  Carrying
Value
  Common Stock
Issuable Upon
Conversion
 

Series Seed

    11,323,209   December 2009     2,000,001                    

        October 2010     2,000,003                    

        February 2012     7,243,205                    

              11,243,209   $ 11,243   $ 11,065     11,243,209  

Series A

   
9,583,432
 

February 2013

   
4,791,716
                   

        July 2013     4,791,716                    

              9,583,432   $ 11,500   $ 10,736     9,583,432  

Series B

   
16,597,221
 

April 2014

   
15,624,999
 
$

22,500
 
$

22,185
   
15,624,999
 

Series Seed Convertible Preferred Stock

        In December 2009, the Company issued an aggregate of 2,000,001 shares of Series Seed Convertible Preferred Stock ("Series Seed") for gross proceeds of $2,000 or $1.00 per share. In October 2010, the Company issued an aggregate of 2,000,003 shares of Series Seed to existing investors for gross proceeds of $2,000 or $1.00 per share. In February 2012, the Company issued an aggregate of 7,243,205 shares of Series Seed to existing and new investors, which included 6,150,000 shares for gross proceeds of $6,150 and 1,093,205 shares converted from convertible debt of $1,000 principal and $93 accrued interest. Costs incurred in connection with each of the individual issuances of Series Seed stock were $124, $39 and $15 respectively, which have been recorded as a reduction to the carrying amount of the Series Seed.

Series A Convertible Preferred Stock

        On February 14, 2013, the Company issued 4,791,716 shares of Series A Preferred Stock, par value $0.001 per share, at a purchase price of $1.20 per share for gross proceeds of $5,750.

        Additionally, in accordance with the terms of the Series A purchase agreement, investors were granted the right to purchase up to an additional 4,791,716 shares of Series A Preferred Stock, at a price of $1.20 per share, upon the Company meeting certain milestone criteria by December 31, 2013, approval of the Board and approval of the investors holding a majority of the outstanding shares of Series A Preferred Stock. The Company determined the right of the investors to purchase shares of Series A in a future tranche met the definition of a freestanding financial instrument and was recognized as a liability at fair value upon the initial issuance on February 14, 2013. Upon the first tranche closing, the Company recognized a liability of $671 for the fair value of the future tranche obligation. The fair value of the freestanding instrument tranche obligation was determined using Black-Scholes option-pricing models on the date of the issuance using the following assumptions: fair value of convertible preferred stock of $1.07, expected life of 0.9 years, risk-free interest rate of 0.15%, expected dividends of 0% and expected volatility of 48.4%.

F-24



KALA PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share and per share amounts)

8. CONVERTIBLE PREFERRED STOCK (Continued)

        In June 2013, the Board approved waiving one of the milestone events provided for in the Series A Preferred Stock Agreement. Accordingly, the second tranche of Series A closed on July 15, 2013 and the Company issued 4,791,716 shares of Series A Preferred Stock for gross proceeds of $5,750, or $1.20 per share. Upon the close of the second tranche, the Company adjusted the carrying value of the tranche obligation to its estimated fair value of $0 through a charge to other income (expense), net, in the statement of operations. The fair value of the freestanding instrument tranche obligation immediately prior to the second Series A closing was determined using Black-Scholes option-pricing models on the date of the issuance using the following assumptions: fair value of convertible preferred stock of $1.20, expected life of 0 years, risk-free interest rate of 0.00%, expected dividends of 0% and expected volatility of 9.9%. Costs incurred in connection with the issuance of the Series A Preferred Stock were $93, which have been recorded as a reduction in the carrying amount of the Series A Preferred Stock.

Series B Convertible Preferred Stock

        On April 16, 2014, the Company issued 15,624,999 shares of Series B Senior Convertible Preferred Stock ("Series B") for gross proceeds of $22,500 or $1.44 per share which included conversion of the outstanding principal and interest on the 2013 Notes (Note 6) of $5,130, which converted into 3,562,785 shares of Series B preferred stock pursuant to the terms of the Notes. Costs incurred in connection with the issuance of the Series B preferred stock were $315, of which $48 was paid in 2013 and $267 was paid in 2014.

Terms Applicable to Each Series of Preferred Stock

        The Series Seed, Series A and Series B shares (preferred stock) are classified outside of stockholders' equity (deficit) because the shares contain certain redemption features that are not solely within the control of the Company.

        The rights, preferences, and privileges of the preferred stock are as follows:

        Voting—Preferred stockholders are entitled to vote on all matters and are entitled to the number of votes equal to the number of shares of common stock into which each share of preferred stock is then convertible.

        Dividends—Preferred stockholders are entitled to receive, when, as and if declared by the Board out of any funds legally available, dividends at the rate of 8% of the original issue price per share. No such dividends have been declared or paid through December 31, 2014 or June 30, 2015 (unaudited).

        Liquidation Rights—Upon any liquidation, dissolution, or winding-up of the Company, whether voluntary or involuntary, each holder of the then outstanding Series B Preferred Stock shall be entitled to distribution, before any distribution of payments is made to holders of Series Seed or Series A Preferred Stock or common stockholders, an amount equal to the greater of (i) $1.44 per share plus any declared but unpaid dividends and (ii) the amount such holder would have received if such holder had converted its shares into common stock immediately prior to such liquidation, dissolution, or winding-up of the Company. After the payment of the preferential amounts to the holders of the Series B Preferred Stock, the holders of the Series Seed and Series A Preferred Stock are entitled to a

F-25



KALA PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share and per share amounts)

8. CONVERTIBLE PREFERRED STOCK (Continued)

distribution of an amount equal to the greater of (i)(A) in the case of the series seed $1.00 per share, (B) in the case of the Series A $1.20 per share, plus, in each case, an amount equal to all declared but unpaid dividends; and (ii) the amount such holder would have received if such holder had converted its shares into common stock immediately prior to such liquidation, dissolution, or winding-up of the Company.

        If there are insufficient assets legally available to make the distribution to the holders of the Series Seed, Series A and Series B Preferred Stock in full, then the available assets shall be distributed on a pro rata basis, first to the holders of the Series B Preferred Stock, then any remaining assets available will be distributed on a pro rata basis to the holders of the Series Seed and Series A Preferred Stock. Any remaining assets legally available for distribution after satisfaction of the liquidation preferences of the Preferred Stock shall be distributed to the holders of common stock on a pro-rata basis based upon the number of shares of common stock held by the common stockholders.

        Conversion—Each share of Preferred Stock is convertible into common stock, at any time, at the option of the holder, at the then applicable conversion rate for each series of Preferred Stock and subject to adjustment in accordance with anti-dilution provisions. As of December 31, 2014 and June 30, 2015 (unaudited), each share of Preferred Stock is convertible into one share of common stock. Each share of Preferred Stock will automatically convert into common stock at the then applicable conversion rate for each series of Preferred Stock upon the earlier of (i) the closing of the Company's first underwritten public offering of its common stock at a price per share of not less than $12.50 subject to certain adjustments, in which the Company receives aggregate gross proceeds of at least $30,000, and that is listed on the New York Stock Exchange or NASDAQ Stock Market or (ii) a date specified by vote or written consent of the majority of the outstanding Preferred Stock. In addition, in the event that any holder of at least 500,000 shares of preferred stock does not participate in a Qualified Financing, as defined in the Company's Certificate of Incorporation, and/or restated from time to time (the "Charter"), effective upon the consummation of the Qualified Financing, a portion of the holder's Preferred Stock (as determined in accordance with the Charter) will automatically convert into a new series of Preferred Stock with the conversion price for such new series fixed at the applicable conversion price in effect immediately prior to the consummation of the Qualified Financing, and such conversion price will not be subject to any adjustment thereafter.

9. COMMON STOCK

        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.

        Voting—Each holder of outstanding shares of common stock shall be entitled to one vote in respect of each share. The holders of outstanding shares of common stock, voting together as a single class, shall be entitled to elect one director. The number of authorized shares of common stock may be increased or decreased by the affirmative vote of a majority of the outstanding shares of common Stock and preferred Stock voting together as a single class.

        Dividends—Subject to the payment in full of all preferential dividends to which the holders of the Preferred Stock are entitled hereunder, the holders of common stock shall be entitled to receive dividends out of funds legally available therefor at such times and in such amounts as the Board may

F-26



KALA PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share and per share amounts)

9. COMMON STOCK (Continued)

determine in its sole discretion, with holders of preferred stock and common stock sharing pari passu in such dividends.

        Liquidation Rights—Upon any liquidation, after the payment or provision for payment of all debts and liabilities of the Company and all preferential amounts to which the holders of preferred stock are entitled with respect to the distribution of assets in liquidation, the holders of common stock shall be entitled to share ratably in the remaining assets of the Company available for distribution.

        Reserved Shares—As of December 31, 2013 and 2014 and June 30, 2015, the Company has reserved the following shares of common stock for potential conversion of the outstanding convertible preferred stock, convertible preferred stock issuable upon exercise of rights under warrants and exercise of stock options:

 
  December 31,    
 
 
  June 30,
2015
 
 
  2013   2014  
 
   
   
  (unaudited)
 

Convertible preferred stock

    20,826,641     36,451,640     36,451,640  

Warrant rights to acquire preferred stock in connection with 2013 Notes(1)

        694,444     694,444  

Warrant rights to acquire preferred stock in connection with 2014 Debt Facility

        138,889     138,889  

Warrant rights to acquire preferred stock in connection with 2011 Debt Facility

    80,000     80,000     80,000  

2009 stock option plan

    3,173,830     5,744,909     6,532,461  

Total

    24,080,471     43,109,882     43,897,434  

(1)
As of December 31, 2013, contingently exercisable warrants for 833,333 shares of Series A preferred stock were issued. Upon closing of the Series B preferred stock financing, the warrants ceased to be contingently exercisable and became exercisable for 694,444 shares of Series B preferred stock.

10. STOCK-BASED COMPENSATION

        Stock Incentive Plan—On December 11, 2009, the Board adopted the 2009 Stock Incentive Plan (the "2009 Plan") for the issuance of common stock and stock options to employees, officers, directors, consultants, and advisors. As of December 31, 2014 and June 30, 2015, the Board had authorized 5,788,784 shares and 7,208,027 shares (unaudited), respectively, of common stock to be issued under the 2009 Plan. Under the 2009 Plan, the Board determined the number of shares of common stock to be granted pursuant to the awards, as well as the exercise price and terms of such awards. The exercise price of incentive stock options cannot be less than the fair value of the common stock on the date of grant.

        Stock options awarded under the 2009 Plan expire 10 years after the grant date, unless the Board sets a shorter term. Options granted under the plan generally vest over a four-year period. As of December 31, 2014 and June 30, 2015, there were 547,836 shares and 610,591 shares (unaudited),

F-27



KALA PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share and per share amounts)

10. STOCK-BASED COMPENSATION (Continued)

respectively, of common stock available for future grant under the 2009 Plan. Upon the exercise of stock options, the Company issues new shares of common stock. The Company does not hold any treasury shares.

        Stock Options—In determining the exercise prices for options granted, the Board has considered the fair value of the common stock as of the measurement date. The fair value of the common stock has been determined by the Board based on a variety of factors, including the Company's financial position, the status of development efforts within the Company, the composition and ability of the current scientific and management teams, the current climate in the market place, the illiquid nature of the Company's common stock, arm's-length sale of the Company's preferred stock, the effect of the rights and preferences of the preferred stockholders, and the prospects of a liquidity event, among others.

        During 2013 and 2014, the Company granted 280,375 and 323,027 stock options, respectively, to certain individuals, which contain performance-based vesting criteria. These criteria are milestone events that are specific to the Company's corporate goals. Stock-based compensation expense associated with performance-based stock options is recognized if the achievement of the performance condition is considered probable using management's best estimates. During the year ended December 31, 2013, management determined that a performance-based milestone was achieved and recorded stock-based compensation expense that was negligible. The remaining milestones were not deemed to be probable of achievement as of December 31, 2013 and 2014 and June 30, 2015 (unaudited).

        During 2014, an employee became a consultant to the Company. The former employee's options continued to vest through December 31, 2014, or the end of the consultancy period. The Company recognized $51 in stock compensation expense as a result of this modification during the year ended December 31, 2014.

        For the year ended December 31, 2013, the Company granted 188,000 stock options to non-employees, respectively. The Company did not grant any options to non-employees for the year ended December 31, 2014 and six months ended June 30, 2015 (unaudited). The Company recognized $9, $18, $9 (unaudited) and $6 (unaudited) in stock compensation expense to non-employees for the years ended December 31, 2013 and 2014 and six months ended June 30, 2014 and 2015, respectively.

        A portion of the unvested stock options will vest upon the sale of all or substantially all of the stock or assets of the Company.

F-28



KALA PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share and per share amounts)

10. STOCK-BASED COMPENSATION (Continued)

        A summary of option activity for employee and non-employee awards under the Plan for the year ended December 31, 2014 and six months ended June 30, 2015 is as follows:

 
  Number of
Shares
  Weighted
Average
Exercise Price
  Weighted Average
Remaining
Contractual Term
  Aggregate
Intrinsic
Value
 
 
   
   
  (Years)
   
 

Outstanding at January 1, 2014

    2,791,639   $ 0.13     8.5   $  

Granted

    2,907,901     0.44     9.5        

Exercised

    (7,500 )   0.13              

Forfeited

    (494,967 )   0.16              

Outstanding at December 31, 2014

    5,197,073   $ 0.30     7.5   $ 1,609  

Granted

    1,439,243     0.64     10        

Exercised

    (631,691 )   0.11              

Forfeited

    (82,755 )   0.19              

Outstanding at June 30, 2015 (unaudited)

    5,921,870   $ 0.40     8.5   $ 3,508  

Vested and expected to vest at December 31, 2014

    4,379,631   $ 0.29     7.5   $ 1,391  

Options exercisable at December 31, 2014

    1,595,964   $ 0.14     6.5   $ 751  

Vested and expected to vest at June 30, 2015 (unaudited)

    4,816,170   $ 0.38     8.4   $ 2,962  

Options exercisable at June 30, 2015 (unaudited)

    1,456,571   $ 0.23     7.4   $ 1,114  

        The Company records stock-based compensation related to stock options granted at fair value. The Company utilizes the Black-Scholes option-pricing model to estimate the fair value of stock option grants and to determine the related compensation expense. The assumptions used in calculating the fair value of stock-based payment awards represent management's best estimates. The assumptions used in determining fair value of the stock options for the years ended December 31, 2013 and 2014 and six months ended June 30, 2015 are as follows:

 
  Year Ended
December, 31,
  Six Months Ended
June 30,
 
  2013   2014   2014   2015
 
   
   
  (unaudited)

Expected volatility

  73% - 78%   72% - 81%   n/a   111% - 112%

Weighted average risk-free interest rate

  1.02% - 1.91%   1.22% - 2.37%   n/a   1.82% - 1.95%

Expected dividend yield

  0%   0%   n/a   0%

Expected term (in years)

  5.90 - 9.45   3.63 - 9.96   n/a   5.87 - 6.07

        The Company derived the risk-free interest rate assumption from the U.S. Treasury rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the awards being valued. The Company based the assumed dividend yield on its expectation of not paying dividends in the foreseeable future. The Company calculated the weighted-average expected term of options using the simplified method, as the Company lacks relevant historical data due to the Company's limited

F-29



KALA PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share and per share amounts)

10. STOCK-BASED COMPENSATION (Continued)

operating experience. The estimated volatility is based upon the historical volatility of comparable companies with publicly available share prices. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

        The weighted average grant-date fair value of options granted during the years ended December 31, 2013 and 2014 and the six months ended June 30, 2015 was $0.16, $0.29 and $0.54 (unaudited), respectively. The fair value is being expensed over the vesting period of the options on a straight-line basis as the services are being provided. The Company has recorded aggregate stock-based compensation expense related to the issuance of stock option awards of $70, $233, $37 (unaudited) and $192 (unaudited) during the years ended December 31, 2013 and 2014 and the six months ended June 30, 2014 and 2015, respectively. As of December 31, 2014 and June 30, 2015, there was $774 and $1,073 (unaudited), respectively, of unrecognized compensation cost related to the stock options granted under the 2009 Plan, which is expected to be expensed over a weighted-average period of 3.5 and 3.2 years (unaudited), respectively. Stock-based compensation expense was classified in the statements of operations as follows:

 
  Year Ended
December, 31,
  Six Months
Ended
June 30,
 
 
  2013   2014   2014   2015  
 
   
   
  (unaudited)
 

Research and development

  $ 27   $ 75   $ 15   $ 72  

General and administrative

    277     160     24     120  

Total

  $ 304   $ 235   $ 39   $ 192  

        The Company received cash proceeds from the exercise of stock options of $4, $1, $1 (unaudited) and $71 (unaudited) during the years ended December 31, 2013 and 2014 and for the six months ended June 30, 2014 and 2015, respectively.

        Restricted Common Stock—In 2009 and 2010, the Company issued 5,165,000 and 60,000 shares of common stock, respectively, with a par value of $0.001 per share. Of this amount, 180,000 fully vested shares were issued in connection with a license agreement with a fair value of less than $1 which was recorded as stock compensation expense in 2009. The remaining 5,045,000 shares of common stock were issued to the Company's founders in exchange for an aggregate of $5 in cash, the fair value of the shares at the date of issuance. The shares vested over a period of four years and were subject to the stockholders meeting certain minimum service requirements. Should these stockholders no longer meet the minimum service requirements, the Company had the right to repurchase the unvested shares of common stock at the original purchase prices, or $0.001 per share. The unvested shares of common stock were not considered outstanding shares for accounting purposes until the employee provided the requisite services and the shares vested. Accordingly, the cash received by the Company related to unvested shares of restricted common stock was considered a deposit or prepayment of the purchase price and was recorded as a liability in the Company's balance sheet until the vesting requirements were met and the repurchase right lapsed. When vesting occurred, the liability was reclassified to stockholders' equity. All shares of restricted common stock have fully vested as of December 31, 2014.

F-30



KALA PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share and per share amounts)

10. STOCK-BASED COMPENSATION (Continued)

        As of December 31, 2014 and June 30, 2015 (unaudited), the refundable purchase price related to these shares was $0. During the year ended December 31, 2014, the remaining 4,685 shares were fully vested and no longer subject to repurchase.

        A summary of activity of common stock subject to vesting for the year ended December 31, 2014 and six months ended June 30, 2015 is as follows:

 
  Shares   Weighted Average
Grant Date
Fair Value
 

Common stock subject to repurchase—January 1, 2014

    4,685   $ 0.01  

Vested

    (4,685 ) $ 0.01  

Common stock subject to repurchase—December 31, 2014

      $  

Common stock subject to repurchase—June 30, 2015 (unaudited)

      $  

        Certain founders are engaged as consultants and advisers and do not serve in the capacity of employees. As discussed in Note 2, the measurement date for nonemployee awards is generally the date the services are completed, which resulted in periodic adjustments to stock-based compensation during the vesting terms for changes in the fair value of the awards.

        The Company recorded aggregate stock-based compensation expense related to the issuance of restricted common stock of $234, $2, $2 (unaudited) and $0 (unaudited) during the years ended December 31, 2013 and 2014 and six months ended June 30, 2014 and 2015, respectively, which was equal to the fair value of the shares that vested during the respective years. As of December 31, 2014 and June 30, 2015 (unaudited), there was $0 of unrecognized compensation cost related to the unvested common stock.

11. INCOME TAXES

        The Company has had no income tax expense due to operating losses incurred for the years ended December 31, 2013 and 2014 and six months ended June 30, 2014 (unaudited) and 2015 (unaudited). The Company has also not recorded any income tax benefits for the net operating losses incurred in each period due to its uncertainty of realizing a benefit from those items. All of the Company's losses before income taxes were generated in the United States.

F-31



KALA PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share and per share amounts)

11. INCOME TAXES (Continued)

        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,
 
 
  2013   2014  

Federal statutory income tax rate

    35.0 %   35.0 %

Effect of:

             

Change in valuation allowance

    (46.5 )   (38.7 )

State income taxes, net of federal benefit

    6.2     4.8  

Research and development tax credits

    3.3     2.7  

Amortization of debt discount

        (2.4 )

Fair value of preferred stock forward contract

    2.2      

Other

    (0.2 )   (1.4 )

Effective income tax rate

    0.0 %   0.0 %

        Net deferred tax assets as of December 31, 2013 and 2014 consisted of the following:

 
  December 31,  
 
  2013   2014  

Net operating loss carryforwards

  $ 9,175   $ 16,684  

Research and development tax credit carryforwards

    776     1,270  

Start-up costs and other

    726     708  

Total deferred tax assets

    10,677     18,662  

Depreciation and amortization

        (9 )

Total deferred tax liabilities

        (9 )

Valuation allowance

    (10,677 )   (18,653 )

Net deferred tax assets

  $   $  

        The Company has evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax assets. Management has considered the Company's history of cumulative net losses incurred since inception and its lack of commercialization of any products or generation of any revenue from product sales since inception and has concluded that it is more likely than not that the Company will not realize the benefits of the deferred tax assets. Accordingly, a full valuation allowance has been established against the deferred tax assets as of December 31, 2013 and 2014 and June 30, 2015 (unaudited). The valuation allowance increased by $5,264 in 2013 and $7,976 in 2014 due to the increase in the net operating loss carryforwards and research and development tax credits. Management reevaluates the positive and negative evidence at each reporting period.

        At December 31, 2013 and 2014, the Company has federal net operating loss carryforwards of $21,478 and $39,092, respectively, which may be available to offset future federal tax liabilities and expire at various dates beginning in 2030 through 2034. At December 31, 2013 and 2014, the Company

F-32



KALA PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share and per share amounts)

11. INCOME TAXES (Continued)

has state net operating loss carryforwards of $20,724 and $37,646, respectively, which may be available to offset future state income tax liabilities and expire at various dates beginning in 2030 through 2034. As of December 31, 2013 and 2014, the Company also had federal and state research and development credit carryforwards of approximately $776 and $1,270, respectively, which are available to reduce future income taxes, if any, from 2030 through 2034 (federal) and 2025 through 2029 (state).

        Realization of the future tax benefits is dependent on many factors, including the Company's ability to generate taxable income within the net operating loss carryforward period. Under the provisions of Section 382 of the Internal Revenue Code of 1986, certain substantial changes in the Company's ownership, including a sale of the Company, or significant changes in ownership due to sales of equity, may have limited, or may limit in the future, the amount of net operating loss carryforwards, which could be used annually to offset future taxable income. The Company files its corporate income tax returns in the United States and Massachusetts, Kentucky, Pennsylvania, and New Hampshire. All tax years since the date of incorporation remain open to examination by the major taxing jurisdictions (state and federal) to which the Company is subject, as carryforward attributes generated in years past may still be adjusted upon examination by the Internal Revenue Service (IRS) or other authorities if they have or will be used in a future period. The Company is not currently under examination by the IRS or any other jurisdictions for any tax year.

        As of December 31, 2013 and 2014, the Company had uncertain tax positions of $93 and $0, respectively, which reduced deferred tax assets with a corresponding decrease to the valuation allowance. The Company's policy is to recognize interest and penalties related to income tax matters as a component of income tax expense, of which no interest or penalties were recorded for the years ended December 31, 2013 and 2014.

        Changes in the valuation allowance for deferred tax assets during the years ended December 31, 2013 and 2014 related primarily to the increases in net operating loss carryforwards and research and development tax credit carryforwards and were as follows:

 
  Year Ended
December 31,
 
 
  2013   2014  

Valuation allowance at beginning of year

  $ (5,417 ) $ (10,677 )

Decreases recorded at benefit to income tax provision

        308  

Increases recorded to income tax provision

    (5,260 )   (8,284 )

Valuation allowance at end of year

  $ (10,677 ) $ (18,653 )

F-33



KALA PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

(Amounts 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,   Six Months Ended June 30,  
 
  2013   2014   2014   2015  
 
   
   
  (unaudited)
 

Numerator:

                         

Net loss attributable to common stockholders

  $ (10,653 ) $ (19,361 ) $ (9,039 ) $ (7,095 )

Denominator:

                         

Weighted average shares outstanding—basic and diluted

    4,811,231     5,265,847     5,262,770     5,588,087  

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

  $ (2.21 ) $ (3.68 ) $ (1.72 ) $ (1.27 )

        The Company's potential dilutive securities, which include stock options, common stock subject to repurchase, warrants to purchase preferred stock and convertible preferred stock, have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share. Therefore, the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same. The Company excluded the following potential common shares, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect:

 
  December 31,   June 30,  
 
  2013   2014   2014   2015  
 
   
   
  (unaudited)
 

Convertible preferred stock (as converted to common stock)

    20,826,641     36,451,640     36,451,640     36,451,640  

Options to purchase common stock

    2,791,639     5,197,073     2,691,639     5,921,870  

Preferred stock warrants(1)

    913,333     913,333     774,444     913,333  

Common stock subject to repurchase

    4,685              

    24,536,298     42,562,046     39,917,723     43,286,843  

(1)
As of December 31, 2013, contingently exercisable preferred stock warrants for 833,333 shares of Series A preferred stock were issued in connection with the 2013 Notes (See Note 6) are included as anti-dilutive. Upon the closing of the Series B preferred stock, the warrants are no longer contingently issuable and became exercisable into 694,444 shares of Series B preferred stock.

        Given that the 2013 Notes were not convertible as of December 31, 2013, the 2013 Notes were excluded from the table above. The outstanding principal and interest of the 2013 Notes of $5,130 was converted on April 16, 2014 into 3,562,785 shares of Series B preferred stock pursuant to the terms of the 2013 Notes (See Note 6).

F-34



KALA PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share and per share amounts)

12. NET LOSS PER SHARE AND UNAUDITED PRO FORMA NET LOSS PER SHARE (Continued)

        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, 2014 and the six months ended June 30, 2015 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 gain or loss from revaluation of the preferred stock warrant liability because it assumes that the conversion of convertible preferred stock into common stock had occurred on the later of January 1, 2014 or the issuance date of the 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, 2014 and the six months ended June 30, 2015 give effect, upon a qualified initial public offering, to (i) the automatic conversion of all shares of convertible preferred stock outstanding as of December 31, 2014 and June 30, 2015 into 36,451,640 shares of common stock, and (ii) the outstanding warrants to purchase preferred stock becoming warrants to purchase shares of common stock, in each case as if the proposed initial public offering had occurred on the later of January 1, 2014 or the issuance date of the convertible preferred stock.

        Unaudited pro forma basic and diluted net loss per share attributable to common stockholders was calculated as follows:

 
  Year Ended
December 31, 2014
  Six Months Ended
June 30, 2015
 

Numerator:

             

Net loss

  $ (19,361 ) $ (7,095 )

Change in fair value of preferred stock warrant liability

    (87 )   155  

Pro forma net loss attributable to common stockholders

  $ (19,448 ) $ (6,940 )

Denominator:

             

Weighted average common shares outstanding—basic and diluted

    5,265,847     5,588,087  

Pro forma adjustment to reflect assumed automatic conversion of convertible preferred stock upon the closing of the proposed initial public offering

    31,913,969     36,451,640  

Pro forma weighted average common shares outstanding—basic and diluted

    37,179,816     42,039,727  

Pro forma net loss per share attributable to common stockholders—basic and diluted

  $ (0.52 ) $ (0.17 )

13. COMMITMENTS AND CONTINGENCIES

        Leases—In April 2010 the Company entered into a lease for its headquarters in Waltham, Massachusetts. The lease agreement expired in March 2014. In connection with this lease agreement, the Company issued a letter of credit to the landlord for $30. The Company has secured the letter of

F-35



KALA PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share and per share amounts)

13. COMMITMENTS AND CONTINGENCIES (Continued)

credit using restricted cash for the full amount of the letter. Following the termination of the lease in March 2014, the letter of credit was returned to the Company. The restricted cash as of December 31, 2013 was included in prepaid and other assets and other non-currents assets in the accompanying balance sheet.

        The Company entered into a three-year lease agreement for its new headquarters on September 30, 2013, with a commencement date of February 1, 2014. As part of the terms of the lease agreement, the landlord agreed to fund certain improvements to the Company's facility. The amount funded by the landlord was $78 and has been recorded as a liability which is being amortized as a reduction of rent expense over the term of the lease. In connection with the lease agreement, the Company issued a letter of credit to the landlord for $84. The Company secured the letter of credit using restricted cash for the full amount of the letter. The restricted cash as of December 31, 2013 and 2014 and June 30, 2015 (unaudited) is included in other noncurrent assets in the accompanying balance sheets.

        Total rent expense for the lease for the years ended December 31, 2013 and 2014 and six months ended June 30, 2014 and 2015, which is recorded on a straight-line basis, was $134, $315, $154 (unaudited) and $160 (unaudited), respectively.

        At December 31, 2014, future minimum commitments due under the lease are as follows:

Year Ending December 31,
   
 

2015

  $ 346  

2016

    357  

2017

    30  

2018

     

2019

     

Total minimum lease payments

  $ 733  

        License Agreement—In 2009, the Company entered into an exclusive license agreement with The Johns Hopkins University (JHU), as amended in November 2012, May 2014, August 2014 and October 2014, which licensed to the Company a portfolio of specified patent rights and remains in full force and effect. Pursuant to the terms of the agreement, as amended, the Company agreed to pay an initial license fee, minimum annual payments beginning again in 2017, certain development and commercial milestone payments, royalties on product sales and reimburse all or a portion of the costs associated with the preparation, filing, prosecution and maintenance of the agreed-upon patents and patent applications to JHU ("Prosecution Costs").

F-36



KALA PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share and per share amounts)

13. COMMITMENTS AND CONTINGENCIES (Continued)

        The Company's minimum obligations to JHU under this agreement as of December 31, 2014, are as follows:

Year Ending December 31,
   
 

2015

  $  

2016

     

2017

    38  

2018

    38  

2019

    38  

Total minimum license payments

  $ 114  

        After 2016 and until the first commercial sale of product, the minimum annual payment will be $38. If the Company achieves the first commercial sale of the product in the United States, European Union, or Japan, the annual minimum payment will increase to $113. The Company is obligated to pay JHU low single-digit running royalties based upon a percentage of net sales of the licensed products. The Company also has an obligation to pay JHU certain one-time development and commercial milestone payments.

        The Company recorded research and development expenses related to the JHU agreement of $130, $523, $113 (unaudited) and $47 (unaudited) for the years ended December 31, 2013 and 2014 and six months ended June 30, 2014 and 2015, respectively.

        Litigation—The Company is not currently subject to any material legal proceedings.

        Guarantees and Indemnifications—The Company's Certificate of Incorporation authorizes the Company to indemnify and advance expenses to its officers and directors and agents to the fullest extent permitted by law. The Company leases office space under a non-cancelable operating lease (See Note 13). Under the lease the Company is required to indemnify the landlord against claims, actions, or damages incurred in connection with, among other items, the Company's occupancy and use of the premises.

        The Company's equity agreements and certain other arrangements include standard indemnifications against claims, actions, or other matters that may arise in connection with these arrangements.

        As of December 31, 2013 and 2014 and June 30, 2015 (unaudited), the Company had not experienced any losses related to these indemnification obligations, and no claims with respect thereto were outstanding. The Company does not expect significant claims related to these indemnification obligations, and consequently concluded that the fair value of these obligations is negligible and no related reserves were established for any period presented through June 30, 2015 (unaudited).

14. DEFINED CONTRIBUTION PLAN

        The Company has a 401(k) defined contribution plan (the "401(k) Plan") for substantially all of its employees. Eligible employees may make pretax contributions to the 401(k) Plan up to statutory limits.

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KALA PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share and per share amounts)

14. DEFINED CONTRIBUTION PLAN (Continued)

At the election of its Board, the Company may elect to match employee contributions, but has not done so through June 30, 2015 (unaudited).

15. RELATED PARTIES

        The Company has engaged in the following related-party transactions:

        A founder, who is also a stockholder and director, serves as a consultant to the Company. The individual is employed by a university, which has no relationship to the Company. The Company paid the individual $60 in each of 2013 and 2014 and $30 (unaudited) in each of the six months ended June 30, 2014 and 2015 for the consulting services which are included in research and development expense in the accompanying statements of operations.

        An employee was granted a loan of up to $150 during 2012, as part of his offer letter agreement. The term of the loan was five years, maturing on December 28, 2017 and the interest rate was equal to the minimum applicable federal rate in effect at the date of the loan. Under the terms of the agreement, and provided that the employee remained employed with the Company, the initial aggregate principal amounts of the loan plus any accrued but unpaid interest would be forgiven in varying amounts upon each annual anniversary such that the entire loan would be forgiven on the fourth year anniversary of the issuance of the loan. In addition, in the event that the employee was terminated other than for cause or good reason as defined in the loan agreement, 100% of the unforgiven portion of the outstanding balance of the loan would be forgiven as of the date of such occurrence. In September 2014, the employee left the Company and the outstanding balance of the loan plus accrued interest was forgiven. As of the date of separation and as of December 31, 2013, the employee had drawn the full $150 at an annual interest rate of 1.09%. The Company recorded compensation expense of $117 during the year ended December 31, 2014 representing the remaining principal and accrued interest on the balance of the loan and $35 for the year ended December 31, 2013.

        In December 2013, the Company issued $5,000 in convertible promissory notes to certain preferred shareholders, which were converted into shares of Series B Preferred Stock in April 2014 (Note 6).

16. SUBSEQUENT EVENTS

        The Company evaluated subsequent events through September 18, 2015, the date on which these financial statements were issued.

    2014 Debt Facility

        In July 2015, the Company borrowed the remaining $5,000 available under the 2014 Debt Facility. In connection with the borrowing, the Company issued additional warrants to the lender to purchase 138,889 shares of Series B convertible preferred stock at an exercise price of $1.44 per share.

F-38



KALA PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share and per share amounts)

16. SUBSEQUENT EVENTS (Continued)

    Series B-1 Financing

        In August 2015, the Company amended its Certificate of Incorporation and the Board approved the designation of 4,629,629 shares of a new series of preferred stock, Series B-1 Preferred Stock ("Series B-1").

        On August 17, 2015, the Company issued 4,629,629 shares of Series B-1 convertible preferred stock, par value $0.001 per share, for gross proceeds of $7,000 or $1.51 per share, to a single investor.

        Series B-1 preferred stockholders are entitled to vote on all matters and are entitled to the number of votes equal to the number of shares of common stock into which each share of preferred stock is then convertible.

        Series B-1 stockholders are entitled to receive, when, as and if declared by the Board of any funds legally available, dividends at the rate of 8% of the original issue price per share.

        Upon any liquidation, dissolution, or winding-up of the Company, whether voluntary or involuntary, each holder of the Series B-1 and Series B preferred stock shall be entitled to receive, on a pari passu basis and in preference to the holders of Series A preferred stock, Series Seed preferred stock and common stock, an amount equal to the respective original purchase price per share of each such series, plus any declared but unpaid dividends.

        The holders of Series B-1 preferred stock shall have the right to convert the shares of Series B-1 preferred stock at the option of the holder, at any time, into shares of common stock at the then applicable conversion rate. One share of Series B-1 preferred stock is initially convertible into one share of common stock, and all shares of Series B-1 preferred stock will automatically convert to shares of common stock upon the closing of the Company's proposed IPO.

    2009 Plan and Certificate of Incorporation Amendment

        On September 16, 2015, the Company amended its Certificate of Incorporation to increase the number of authorized shares of common stock by 2,000,000 shares to 57,000,000. On September 11, 2015, the Board authorized the grant of options to purchase an aggregate of 2,005,136 shares under the 2009 Plan, subject to an increase in the shares available under the 2009 Plan. Also on September 11, 2015, the Board authorized, and on September 15, 2015, the stockholders of the Company approved, an increase in the shares available under the 2009 Plan to 9,181,163.

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Table of Contents


                    Shares

LOGO

Common Stock



Prospectus



J.P. Morgan

      BofA Merrill Lynch

BMO Capital Markets

Wedbush PacGrow

                    , 2015

        Until            , 2015 (25 days after the date of this prospectus), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

   


Table of Contents


PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13.    Other Expenses of Issuance and Distribution.

        The following table sets forth the expenses to be incurred in connection with the offering described in this Registration Statement, other than underwriting discounts and commissions, all of which will be paid by the Registrant. All amounts are estimates except the Securities and Exchange Commission, or SEC, registration fee, the Financial Industry Regulatory Authority, Inc., filing fee and the NASDAQ Global Market initial listing fee.

 
  Amount  

Securities and Exchange Commission registration fee

  $              *

Financial Industry Regulatory Authority, Inc. filing fee

                 *

NASDAQ Global Market initial listing fee

                 *

Accountant's fees and expenses

                 *

Legal fees and expenses

                 *

Blue Sky fees and expenses

                 *

Transfer agent's fees and expenses

      *

Printing and engraving expenses

      *

Miscellaneous

      *

Total expenses

  $              *

*
To be filed by amendment.

Item 14.    Indemnification of Directors and Officers.

        Section 102 of the Delaware General Corporation Law, or the DGCL, permits a corporation to eliminate the personal liability of its directors or its stockholders for monetary damages for a breach of fiduciary duty as a director, except where the director breached his or her duty of loyalty, failed to act in good faith, engaged in intentional misconduct or knowingly violated a law, authorized the payment of a dividend or approved a stock repurchase in violation of Delaware corporate law or obtained an improper personal benefit. Our certificate of incorporation that will be effective upon the closing of this offering provides that no director shall be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duty as a director, notwithstanding any provision of law imposing such liability, except to the extent that the DGCL prohibits the elimination or limitation of liability of directors for breaches of fiduciary duty.

        Section 145 of the DGCL provides that a corporation has the power to indemnify a director, officer, employee or agent of the corporation and certain other persons serving at the request of the corporation in related capacities against expenses (including attorneys' fees), judgments, fines and amounts paid in settlements actually and reasonably incurred by the person in connection with an action, suit or proceeding to which he or she is or is threatened to be made a party by reason of such position, if such person 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 corporation, and, in any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful, except that, in the case of actions brought by or in the right of the corporation, no indemnification shall be made with respect to any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or other adjudicating court determines that, despite the adjudication of liability but in view of all of the circumstances of the case, such person is fairly and

II-1


Table of Contents

reasonably entitled to indemnification for such expenses which the Court of Chancery or such other court shall deem proper.

        Our certificate of incorporation that will be effective upon the closing of the offering provides that we will indemnify each person who was or is a party or threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of us), by reason of the fact that he or she is or was, or has agreed to become, our director or officer, or is or was serving, or has agreed to serve, at our request as a director, officer, partner, employee or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust or other enterprise (all such persons being referred to as an Indemnitee), or by reason of any action alleged to have been taken or omitted in such capacity, against all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with such action, suit or proceeding and any appeal therefrom if such Indemnitee acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, our best interests, and, with respect to any criminal action or proceeding, he or she had no reasonable cause to believe his or her conduct was unlawful.

        Our certificate of incorporation that will be effective upon the closing of the offering also provides that we will indemnify any Indemnitee who was or is a party to an action or suit by or in the right of us to procure a judgment in our favor by reason of the fact that the Indemnitee is or was, or has agreed to become, our director or officer, or is or was serving, or has agreed to serve, at our request as a director, officer, partner, employee or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust or other enterprise, or by reason of any action alleged to have been taken or omitted in such capacity, against all expenses (including attorneys' fees) and, to the extent permitted by law, amounts paid in settlement actually and reasonably incurred in connection with such action, suit or proceeding, and any appeal therefrom, if the Indemnitee acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, our best interests, except that no indemnification shall be made with respect to any claim, issue or matter as to which such person shall have been adjudged to be liable to us, unless a court determines that, despite such adjudication but in view of all of the circumstances, he or she is entitled to indemnification of such expenses. Notwithstanding the foregoing, to the extent that any Indemnitee has been successful, on the merits or otherwise, he or she will be indemnified by us against all expenses (including attorneys' fees) actually and reasonably incurred by him or her or on his or her behalf in connection therewith. If we do not assume the defense, expenses must be advanced to an Indemnitee under certain circumstances.

        We have entered into indemnification agreements with certain of our directors and intend to enter into indemnification agreements with all of our directors prior to the completion of this offering. In general, these agreements provide that we will indemnify the director to the fullest extent permitted by law for claims arising in his or her capacity as a director of our company or in connection with their service at our request for another corporation or entity. The indemnification agreements also provide for procedures that will apply in the event that a director makes a claim for indemnification and establish certain presumptions that are favorable to the director.

        We maintain a general liability insurance policy that covers certain liabilities of our directors and officers arising out of claims based on acts or omissions in their capacities as directors or officers.

        The underwriting agreement we will enter into in connection with the offering of common stock being registered hereby provides that the underwriters will indemnify, under certain conditions, our directors and officers (as well as certain other persons) against certain liabilities arising in connection with such offering.

        Insofar as the foregoing provisions permit indemnification of directors, executive officers, or persons controlling us for liability arising under the Securities Act of 1933, as amended, or the

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Table of Contents

Securities Act, 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.

Item 15.    Recent Sales of Unregistered Securities.

        Set forth below is information regarding shares of our common stock, shares of our preferred stock, warrants to purchase shares of our preferred stock and stock options granted by us within the past three years that were not registered under the Securities Act. Also included is the consideration, if any, received by us for such shares and options and information relating to the section of the Securities Act, or rule of the SEC, under which exemption from registration was claimed.

    (a)    Issuances of Securities

        In February and July 2013, we issued and sold an aggregate of 9,583,432 shares of our Series A preferred stock to 10 investors at a price per share of $1.20 for an aggregate purchase price of $11.5 million.

        In April 2014, we issued and sold 15,624,999 shares of our Series B preferred stock to 17 investors at a price per share of $1.44 for an aggregate purchase price of $22.5 million.

        In August 2015, we issued and sold 4,629,629 shares of our Series B-1 preferred stock to one investor at a price per share of $1.512 for an aggregate purchase price of $7.0 million.

        No underwriters were involved in the foregoing issuances of securities. The securities described in this section (a) of Item 15 were issued to investors in reliance upon the exemption from the registration requirements of the Securities Act, as set forth in Section 4(a)(2) under the Securities Act and Regulation D thereunder relative to transactions by an issuer not involving any public offering, to the extent an exemption from such registration was required. All purchasers of shares of our preferred stock described above represented to us in connection with their purchase that they were accredited investors and were acquiring the securities for their own account for investment purposes only and not with a view to, or for sale in connection with, any distribution thereof and that they could bear the risks of the investment and could hold the securities for an indefinite period of time. 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.

    (b)    Stock Option Grants

        Between August 31, 2012 and August 31, 2015, we granted options to purchase an aggregate of 5,692,685 shares of common stock, with exercise prices ranging from $0.09 to $0.64 per share, to our employees, directors, advisors and consultants pursuant to our 2009 Stock Incentive Plan. As of August 31, 2015, 829,566 options to purchase shares of our common stock had been exercised for aggregate consideration of $88,951, options to purchase 960,697 shares had been forfeited and options to purchase 5,630,100 shares of our common stock remained outstanding at a weighted-average exercise price of $0.42.

        The stock options and the common stock issuable upon the exercise of such options as described in this section (b) of Item 15 were issued pursuant to written compensatory plans or arrangements with the Registrant's employees, directors and consultants, in reliance on the exemption provided by Rule 701 promulgated under the Securities Act, or pursuant to Section 4(a)(2) under the Securities Act, relative to transactions by an issuer not involving any public offering, to the extent an exemption from such registration was required. All recipients either received adequate information about the Registrant or had access, through employment or other relationships, to such information.

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    (c)    Issuance of Warrants

        In April and November 2014, we issued warrants to purchase an aggregate of 833,333 shares of our Series B preferred stock at a price of $1.44 per share to holders of our 2013 Notes and lenders under our 2014 Debt Facility.

        The issuance of these warrants was made in reliance on the exemption from the registration requirements of the Securities Act, as set forth in Section 4(a)(2) under the Securities Act relative to transactions by an issuer not involving any public offering, to the extent an exemption from such registration was required. The investor represented that it was an accredited investor and was acquiring the warrants for its own account for investment purposes only and not with a view to, or for sale in connection with, any distribution thereof and that they could bear the risks of the investment and could hold the warrants for an indefinite period of time and appropriate legends were affixed to the instruments representing such warrants issued in such transactions. Such recipients either received adequate information about us or had, through their relationships with us, access to such information.

        All of the foregoing securities described in sections (a), (b) and (c) of Item 15 are deemed restricted securities for purposes of the Securities Act. All certificates representing the issued shares of capital stock described in this Item 15 included appropriate legends setting forth that the securities had not been registered and the applicable restrictions on transfer.

Item 16.    Exhibits and Financial Statement Schedules.

        The exhibits to the registration statement are listed in the Exhibit Index attached hereto and incorporated by reference herein.

Item 17.    Undertakings.

        (a)   The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreements, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

        (b)   Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

        (c)   The undersigned registrant hereby undertakes that:

    (1)
    For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

    (2)
    For the purpose of determining any liability under the Securities Act of 1933, 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.

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SIGNATURES

        Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Waltham, Commonwealth of Massachusetts, on this    day of                  , 2015.

    KALA PHARMACEUTICALS, INC.

 

 

By:

 

  

Mark Iwicki
Chief Executive Officer


SIGNATURES AND POWER OF ATTORNEY

        We, the undersigned officers and directors of Kala Pharmaceuticals, Inc., hereby severally constitute and appoint Mark Iwicki, Charles McDermott and Mary Reumuth, and each of them singly (with full power to each of them to act alone), our true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution in each of them for her or him and in her or his name, place and stead, and in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and any other registration statement for the same offering pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as full to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

        Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities held on the dates indicated.

Signature
 
Title
 
Date

 

 

 

 

 
  

Mark Iwicki
  Chief Executive Officer and Chairman of Board of Directors (Principal Executive Officer)                       , 2015

 

Mary Reumuth

 

Vice President, Finance and Corporate Controller (Principal Financial and Accounting Officer)

 

                    , 2015

 

Kevin Bitterman, Ph.D.

 

Director

 

                    , 2015

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Signature
 
Title
 
Date

 

 

 

 

 
  

Robert Langer, Sc.D.
  Director                       , 2015

 

Robert Paull

 

Director

 

                    , 2015

  

Howard Rosen

 

Director

 

                    , 2015

  

Rajeev Shah

 

Director

 

                    , 2015

  

Robert Tepper, M.D.

 

Director

 

                    , 2015

  

Karen Wagner, Ph.D.

 

Director

 

                    , 2015

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EXHIBIT INDEX

Exhibit
Number
  Description of Exhibit
  1.1 * Form of Underwriting Agreement
        
  3.1   Amended and Restated Certificate of Incorporation of the Registrant, as amended
        
  3.2   Bylaws of the Registrant
        
  3.3 * Restated Certificate of Incorporation of the Registrant (to be effective upon the closing of this offering)
        
  3.4 * Amended and Restated By-laws of the Registrant (to be effective upon the closing of this offering)
        
  4.1 * Specimen Stock Certificate evidencing the shares of common stock
        
  4.2   Second Amended and Restated Registration Rights Agreement of the Registrant, as amended
        
  5.1 * Opinion of Wilmer Cutler Pickering Hale and Dorr LLP
        
  10.1   2009 Stock Incentive Plan
        
  10.2   Form of Incentive Stock Option Agreement under the 2009 Stock Incentive Plan
        
  10.4 * 2015 Stock Incentive Plan
        
  10.5 * Form of Incentive Stock Option Agreement under 2015 Stock Incentive Plan
        
  10.6 * Form of Non-statutory Stock Option Agreement under 2015 Stock Incentive Plan
        
  10.7 Exclusive License Agreement, dated November 10, 2009, between the Registrant and The Johns Hopkins University, as amended
        
  10.8 Settlement and License Agreement, dated October 24, 2014, between the Registrant and GrayBug, LLC
        
  10.9   Lease Agreement dated September 30, 2013, by and between the Registrant and ARE-MA Region No. 9 LLC
        
  10.10   Loan and Security Agreement, dated November 20, 2014, between the Registrant and Square 1 Bank
        
  10.11 * Amended and Restated Letter Agreement dated September 10, 2015 between the Registrant and Mark Iwicki
        
  10.12 * Letter Agreement dated September 22, 2014 between the Registrant and Charles McDermott
        
  10.13 * Letter Agreement dated August 19, 2014 between the Registrant and Hongming Chen
        
  10.14 * Letter Agreement dated September 25, 2014 between the Registrant and Kim Brazzell
        
  10.15 * Letter Agreement dated August 18, 2014 between the Registrant and Mary Reumuth
        
  23.1 * Consent of Deloitte & Touche LLP
        
  23.2 * Consent of Wilmer Cutler Pickering Hale and Dorr LLP (included in Exhibit 5.1)
        
  24.1 * Power of Attorney (included on signature page)

*
To be filed by amendment.

Confidential treatment requested as to portions of the exhibit. Confidential materials omitted and filed separately with the Securities and Exchange Commission.



Exhibit 3.1

 

AMENDED AND RESTATED

 

CERTIFICATE OF INCORPORATION

 

OF

 

KALA PHARMACEUTICALS, INC.

 

Kala Pharmaceuticals, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (the “Corporation”), hereby certifies as follows:

 

1)                                     The name of the Corporation is Kala Pharmaceuticals, Inc.  The Corporation’s original Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on July 7, 2009 under the name Hanes Newco, Inc.

 

2)                                     This Amended and Restated Certificate of Incorporation has been duly adopted in accordance with the provisions of Sections 141, 144, 228, 242 and 245 of the General Corporation Law of the State of Delaware and restates, integrates and further amends the provisions of the Corporation’s Amended and Restated Certificate of Incorporation, as amended to date.

 

3)                                     The text of the Amended and Restated Certificate of Incorporation, as amended to date, is hereby amended and restated in its entirety as set forth in Exhibit A attached hereto.

 

IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated Certificate of Incorporation to be signed by its Executive Chairman this 14th day of August, 2015.

 

 

 

KALA PHARMACEUTICALS, INC.

 

 

 

 

 

By:

/s/ Mark Iwicki

 

 

Mark Iwicki

 

 

Executive Chairman

 



 

Exhibit A

 

ARTICLE I

 

The name of the corporation is Kala Pharmaceuticals, Inc. (the “Corporation”).

 

ARTICLE II

 

The address of the Corporation’s registered office in the State of Delaware is 901 N. Market Street, Suite 705, in the City of Wilmington, County of New Castle, Delaware 19801.  The name of its registered agent at such address is Delaware Corporate Services Inc.

 

ARTICLE III

 

The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware.

 

ARTICLE IV

 

The total number of shares of capital stock which the Corporation shall have authority to issue is One Hundred Thirty-Nine Million Two Hundred Sixty-Six Thousand Nine Hundred Eighty-Two (139,266,982), of which (i) Eighty-Four Million Two Hundred Sixty-Six Thousand Nine Hundred Eighty-Two (84,266,982) shares shall be preferred stock, par value $0.001 per share (the “Preferred Stock”), and (ii) Fifty-Five Million (55,000,000) shares shall be common stock, par value $0.001 per share (the “Common Stock”).

 

The voting powers, designations, preferences, powers and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions of each class and series of capital stock of the Corporation, shall be as provided in this Article IV; provided that subject to any vote expressly required by this Amended and Restated Certificate of Incorporation and solely to the extent necessary to effect the provisions of Section A.5A of this Article IV, authority is hereby expressly granted to the Board of Directors of the Corporation from time to time to issue the Preferred Stock in one or more series, and in connection with the creation of any such series, by adopting a resolution or resolutions providing for the issue of the shares thereof and by filing a certificate of designations relating thereto in accordance with the General Corporation Law of the State of Delaware, to determine and fix the number of shares of such series and such voting powers, designations, preferences, powers and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, all to the full extent now or hereafter permitted by the General Corporation Law of the State of Delaware.  Without limiting the generality of the foregoing and subject to (i) the rights of any series of Preferred Stock then outstanding and (ii) Section A.5A.3 of this Article IV, the resolutions providing for issuance of any series of Preferred Stock may provide that such series shall be superior or rank equally or be junior to the Preferred Stock of any other series solely to the extent deemed necessary in good faith by the Board of Directors of the Corporation, including a majority of the Preferred Directors, to accomplish the intent of clauses (i) and (ii) of Section A.5A.1 and to the extent permitted by law.

 



 

A.                                                            CONVERTIBLE PREFERRED STOCK

 

1.                                      Designation.  A total of Eleven Million Three Hundred Twenty-Three Thousand Two Hundred Nine (11,323,209) shares of the Corporation’s Preferred Stock shall be designated as a series known as Seed Preferred Stock, par value $0.001 per share (the “Seed Preferred Stock”), a total of Nine Million Five Hundred and Eighty-Three Thousand Four Hundred and Thirty-Two (9,583,432) shares of the Corporation’s Preferred Stock shall be designated as a series known as Series A Preferred Stock, par value $0.001 per share (the “Series A Preferred Stock”), a total of Sixteen Million Five Hundred Ninety Seven Thousand Two Hundred Twenty-One (16,597,221) shares of the Corporation’s Preferred Stock shall be designated as a series known as Series B Preferred Stock, par value $0.001 per share (the “Series B Preferred Stock”) and a total of Four Million Six Hundred Twenty-Nine Thousand Six Hundred Twenty-Nine (4,629,629) shares of the Corporation’s Preferred Stock shall be designated as a series known as Series B-1 Preferred Stock, par value $0.001 per share (the “Series B-1 Preferred Stock”).

 

2.                                      Voting.

 

(a)                                                         Election of Directors.  The holders of outstanding shares of Preferred Stock, voting together as a single class, shall be entitled to elect five (5) Directors of the Corporation (the “Preferred Directors”).  Each Preferred Director shall be elected by the holders of a majority of the outstanding shares of Preferred Stock, voting together as a single class.  The election of the Preferred Directors shall occur (i) at the annual meeting of holders of capital stock, (ii) at any special meeting of holders of capital stock if such meeting is called for the purpose of electing directors, (iii) at any special meeting of holders of Preferred Stock called by holders of a majority of the outstanding shares of Preferred Stock or (iv) by the written consent of holders of a majority of the outstanding shares of Preferred Stock.  If at any time when any share of Preferred Stock is outstanding any Preferred Director should cease to be a Director for any reason, the vacancy shall only be filled by the vote or written consent of the holders of a majority of the outstanding shares of Preferred Stock, voting together as a single class, in the manner and on the basis specified above or as otherwise provided by law.  Subject to Section B.1 below, the holders of outstanding shares of Preferred Stock shall also be entitled to vote in the election of any other Directors of the Corporation, together with the holders of outstanding shares of Common Stock, voting together as a single class (the “Additional Directors”).  The Additional Directors shall be elected by the holders of a majority of the outstanding shares of Preferred Stock and Common Stock, voting together as a single class. The holders of outstanding shares of Preferred Stock may, in their sole discretion, determine not to elect one or more Preferred Directors as provided herein from time to time, and during any such period the Board of Directors of the Corporation shall not be deemed unduly constituted solely as a result of such vacancy.

 

(b)                                                         Voting Generally.  Each outstanding share of Preferred Stock shall be entitled to a number of votes equal to the number of shares of Common Stock into which such share of Preferred Stock is then convertible pursuant to Section A.5 hereof as of the record date for the vote or written consent of stockholders, if applicable.  Each holder of outstanding shares of Preferred Stock shall be entitled to notice of any stockholders’ meeting in accordance with the by-laws of the Corporation and shall vote with holders of

 

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the Common Stock, voting together as single class, upon all matters submitted to a vote of stockholders, excluding those matters required to be submitted to a class or series vote pursuant to the terms hereof (including, without limitation, Section A.7) or by law.

 

3.                                      Dividends.

 

(a)                                                         The holders of shares of Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors of the Corporation, out of funds legally available therefor, dividends on a pari passu basis and otherwise in the manner set forth herein.

 

(i)                                                             Each share of Seed Preferred Stock issued pursuant to that certain Seed Preferred Stock Purchase Agreement, dated as of December 11, 2009 (the “Seed Purchase Agreement”), by and among the Corporation and each of the investors listed on Schedule A thereto, shall accrue dividends at the rate of 8% of the Seed Original Issue Price (as defined below) per share of Seed Preferred Stock per annum (as adjusted for subsequent stock dividends, stock splits, combinations, recapitalizations or the like with respect to such share) from and after December 11, 2009, up to the maximum hereafter provided, prior and in preference to any declaration or payment of any cash dividend on the Common Stock of the Corporation.

 

(ii)                                                          Each share of Seed Preferred Stock issued pursuant to that certain Amendment No. 1 to the Seed Purchase Agreement, dated as of October 26, 2010, and any exchange agreement entered into on February 28, 2012 shall accrue dividends at the rate of 8% of the Seed Original Issue Price per share of Seed Preferred Stock per annum (as adjusted for subsequent stock dividends, stock splits, combinations, recapitalizations or the like with respect to such share) as if such share had actually been issued and began accruing dividends from and after October 26, 2010, up to the maximum hereafter provided, prior and in preference to any declaration or payment of any cash dividend on the Common Stock of the Corporation.

 

(iii)                                                       Each share of Seed Preferred Stock issued pursuant to that certain Amendment No. 2 to the Seed Purchase Agreement, dated on or about February 28, 2012, shall accrue dividends at the rate of 8% of the Seed Original Issue Price per share of Seed Preferred Stock per annum (as adjusted for subsequent stock dividends, stock splits, combinations, recapitalizations or the like with respect to such share) from and after the date of issuance of such share, up to the maximum hereafter provided, prior and in preference to any declaration or payment of any cash dividend on the Common Stock of the Corporation.

 

(iv)                                                      Each share of Series A Preferred Stock issued pursuant to that certain Series A Preferred Stock Purchase Agreement, dated on or about February 14, 2013, by and among the Corporation and the other parties thereto, shall accrue dividends at the rate of 8% of the Series A Original Issue Price (as defined below) per share of Series A Preferred Stock per annum (as adjusted for subsequent stock

 

3



 

dividends, stock splits, combinations, recapitalizations or the like with respect to such share) from and after the date of issuance of such share, up to the maximum hereafter provided, prior and in preference to any declaration or payment of any cash dividend on the Common Stock of the Corporation.

 

(v)                                                         Each share of Series B Preferred Stock issued pursuant to that certain Series B Preferred Stock Purchase Agreement, dated April 16, 2014, by and among the Corporation and the other parties thereto, shall accrue dividends at the rate of 8% of the Series B Original Issue Price (as defined below) per share of Series B Preferred Stock per annum (as adjusted for subsequent stock dividends, stock splits, combinations, recapitalizations or the like with respect to such share) from and after the date of issuance of such share, up to the maximum hereafter provided, prior and in preference to any declaration or payment of any cash dividend on the Common Stock of the Corporation.

 

(vi)                                                      Each share of Series B-1 Preferred Stock issued pursuant to that certain Series B-1 Preferred Stock Purchase Agreement, dated on or about the Filing Date (as defined below), by and among the Corporation and the other party thereto (as amended and/or restated from time to time, the “Series B-1 Purchase Agreement”), shall accrue dividends at the rate of 8% of the Series B-1 Original Issue Price (as defined below) per share of Series B-1 Preferred Stock per annum (as adjusted for subsequent stock dividends, stock splits, combinations, recapitalizations or the like with respect to such share) from and after the date of issuance of such share, up to the maximum hereafter provided, prior and in preference to any declaration or payment of any cash dividend on the Common Stock of the Corporation.

 

Notwithstanding anything to the contrary set forth herein, any such dividends shall be payable only when, as and if declared by the Board of Directors of the Corporation, and the Corporation shall be under no obligation to pay any such dividends. When, as and if declared by the Board of Directors of the Corporation, any such dividends shall not be cumulative and shall be distributed among the holders of Preferred Stock pro rata based on the number of shares of Common Stock held by each, determined on an as-if-converted basis (assuming full conversion of all such Preferred Stock).

 

(b)                                                         After the foregoing dividends on the Preferred Stock shall have been paid, then the Corporation may (when, as and if declared by the Board of Directors of the Corporation) declare and distribute in such year dividends among the holders of Preferred Stock and the holders of Common Stock pro rata based on the number of shares of Common Stock held by each, determined on an as-if-converted basis (assuming full conversion of all such Preferred Stock) as of the record date with respect to the declaration of such dividends.

 

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4.                                      Liquidation; Merger, etc.

 

(a)                                                         Preferred Liquidation Preference.  Upon any liquidation, dissolution or winding up of the Corporation and its subsidiaries, whether voluntary or involuntary (a “Liquidation Event”):

 

(i)                                                             Each holder of outstanding shares of Series B Preferred Stock and Series B-1 Preferred Stock shall be entitled to be paid in cash, on a pari passu basis and before any amount shall be paid or distributed to the holders of Series A Preferred Stock, Seed Preferred Stock or Common Stock or any other capital stock ranking on liquidation junior to the Series B Preferred Stock and Series B-1 Preferred Stock (the Common Stock and such other capital stock being referred to collectively as “Series B Junior Stock”), an amount per share of Preferred Stock equal to (i)(A) in the case of Series B Preferred Stock, $1.44 (the “Series B Original Issue Price”), and (B) in the case of Series B-1 Preferred Stock, $1.512 (the “Series B-1 Original Issue Price”), plus, in each case, (ii) an amount equal to all declared but unpaid dividends on such share of Preferred Stock (such amounts to be adjusted appropriately for stock splits, stock dividends, combinations, recapitalizations and the like) (such sum, the “Series B Preference Amount”).  If the amounts available for distribution by the Corporation to holders of Series B Preferred Stock and Series B-1 Preferred Stock upon a Liquidation Event are not sufficient to pay the aggregate Series B Preference Amount due to such holders, such holders of Series B Preferred Stock and Series B-1 Preferred Stock shall share ratably in any distribution in connection with such Liquidation Event in proportion to the full respective preferential amounts to which they are entitled.

 

(ii)                                                          After the prior payment in full of the Series B Preference Amount in connection with a Liquidation Event, each holder of outstanding shares of Seed Preferred Stock and Series A Preferred Stock shall be entitled to be paid in cash, on a pari passu basis and before any amount shall be paid or distributed to the holders of the Common Stock or any other capital stock ranking on liquidation junior to the Seed Preferred Stock and Series A Preferred Stock (the Common Stock and such other capital stock being referred to collectively as “Preferred Junior Stock”), an amount per share of Preferred Stock equal to (i) (A) in the case of the Seed Preferred Stock, $1.00 (the “Seed Original Issue Price”), and (B) in the case of the Series A Preferred Stock, $1.20 (the “Series A Original Issue Price”), plus, in each case, (ii) an amount equal to all declared but unpaid dividends on such share of Preferred Stock (such amounts to be adjusted appropriately for stock splits, stock dividends, combinations, recapitalizations and the like) (such sum, the “Preferred Preference Amount”).  If the amounts available for distribution by the Corporation to holders of Seed Preferred Stock and Series A Preferred Stock upon a Liquidation Event are not sufficient to pay the aggregate Preferred Preference Amount due to such holders, such holders of Seed Preferred Stock and Series A Preferred Stock shall share ratably in any distribution in connection with such Liquidation Event in proportion to the full respective preferential amounts to which they are entitled.

 

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(iii)                                                       After the prior payment in full of the Series B Preference Amount and the Preferred Preference Amount in connection with a Liquidation Event in accordance with Sections A.4(a)(i)-(ii) above, the remaining assets and funds of the Corporation available for distribution to its stockholders, if any, shall be distributed among the holders of shares of Preferred Junior Stock then outstanding.

 

(b)                                                         Amount Payable in Mergers, etc.  Each of the following events shall be deemed to be a Liquidation Event (each, a “Deemed Liquidation Event”): (i) any merger or consolidation of the Corporation into or with another corporation (except one in which the holders of capital stock of the Corporation immediately prior to such merger or consolidation continue to hold at least a majority of the voting power of the capital stock of the surviving or resulting corporation or 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), (ii) any sale of all or substantially all of the assets of the Corporation or (iii) any exclusive license of substantially all of the intellectual property of the Corporation (except in the case of clause (ii) or (iii), a sale or exclusive license to a wholly owned subsidiary of the Corporation).  Upon an occurrence of a Deemed Liquidation Event, all consideration payable to the stockholders of the Corporation in connection with such Deemed Liquidation Event that is a merger or a consolidation, or all consideration payable to the Corporation and distributable to its stockholders, together with all other available assets of the Corporation (net of obligations owed by the Corporation that are senior to the Preferred Stock) in connection with such Deemed Liquidation Event that is an asset sale or an exclusive license, shall be, as applicable, paid by the purchaser or the licensee, as applicable, to the holders of, or distributed by the Corporation in redemption (out of funds legally available therefor) of, any Series B-1 Preferred Stock, any Series B Preferred Stock, any Series B Junior Stock and any Preferred Junior Stock in accordance with the preferences and priorities set forth in Section A.4(a) above, with such preferences and priorities specifically intended to be applicable in any such merger, consolidation, asset sale or exclusive license, as if such transaction were a Liquidation Event.  In furtherance of the foregoing, the Corporation shall take such actions as are necessary to give effect to the provisions of this Section A.4(b), including, without limitation, (i) in the case of a merger or a consolidation, causing the definitive agreement relating to such merger or consolidation to provide for a rate at which the shares of Preferred Stock are converted into or exchanged for cash, new securities or other property which gives effect to the preferences and priorities set forth in Section A.4(a), or (ii) in the case of an asset sale or an exclusive license, redeeming the Preferred Stock.  The Corporation shall promptly provide to the holders of shares of Preferred Stock such information concerning the terms of such merger, consolidation or asset sale, and the value of the assets of the Corporation as may reasonably be requested by the holders of Preferred Stock.  The amount deemed distributed to the holders of Preferred Stock upon any such transaction shall be the cash or the value of the property, rights or securities distributed to such holders by the Corporation or the acquiring person, firm or other entity, as applicable.  Notwithstanding anything to the contrary contained herein, each holder of shares of Preferred Stock, pursuant to Section A.5(a)(i), (ii), (iii) or (iv), or the holders of a majority of the voting power of the outstanding shares of Preferred Stock (a

 

6



 

Majority Interest”), pursuant to Section A.5(a)(v), as applicable, shall have the right to elect to give effect to the conversion rights contained in Section A.5(a) instead of giving effect to the provisions contained in this Section A.4(b) with respect to the shares of Preferred Stock held by such holders.

 

(c)                                                          Valuation of Securities or Other Non-Cash Consideration.  For purposes of valuing any securities or other noncash consideration to be delivered to the holders of the Preferred Stock in connection with any transaction to which this Section A.4 is applicable, the following shall apply:

 

(i)                                                             If any such securities are traded on a nationally recognized securities exchange or inter-dealer quotation system, the value shall be deemed to be the average of the closing prices of such securities on such exchange or system over the 30-day period ending three (3) business days prior to the closing;

 

(ii)                                                          If any such securities are traded over-the-counter, the value shall be deemed to be the average of the closing bid prices of such securities over the 30-day period ending three (3) business days prior to the closing; and

 

(iii)                                                       If there is no active public market for such securities or other noncash consideration, the value shall be the fair market value thereof, as mutually determined in good faith by the Board of Directors of the Corporation, acting through a committee of the Board of Directors of the Corporation consisting of all of the Directors other than the Preferred Directors (an “Independent Committee”), and the holders of a Majority Interest, provided that if such Independent Committee and the holders of a Majority Interest are unable to reach agreement, then by independent appraisal by a mutually agreed to investment banker, the fees of which shall be paid by the Corporation.

 

5.                                      Conversion.  Shares of Preferred Stock shall be converted into Common Stock in accordance with the following:

 

(a)                                                         Voluntary Conversion.  The holders of shares of Preferred Stock may convert such shares into Common Stock at any time after the date of issuance of such shares of Preferred Stock as follows:

 

(i)                                                             Upon the written election of the holder thereof and without payment of any additional consideration, each outstanding share of Seed Preferred Stock held by such holder shall be converted into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing (A) the Seed Original Issue Price by (B) the Seed Conversion Price at the time in effect for such Seed Preferred Stock (such quotient, the “Seed Conversion Rate”).  The “Seed Conversion Price” per share for shares of Seed Preferred Stock is currently the Seed Original Issue Price, subject to adjustment as set forth in Section A.6.  Any election by a holder of Seed Preferred Stock pursuant to this Section A.5(a)(i) shall be made by written notice to the Corporation, and such

 

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notice may be given at any time and from time to time after the Filing Date (as defined below).

 

(ii)                                                          Upon the written election of the holder thereof and without payment of any additional consideration, each outstanding share of Series A Preferred Stock held by such holder shall be converted into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing (A) the Series A Original Issue Price by (B) the Series A Conversion Price at the time in effect for such Series A Preferred Stock (such quotient, the “Series A Conversion Rate”).  The initial “Series A Conversion Price” per share for shares of Series A Preferred Stock shall be the Series A Original Issue Price, subject to adjustment as set forth in Section A.6.  Any election by a holder of Series A Preferred Stock pursuant to this Section A.5(a)(ii) shall be made by written notice to the Corporation, and such notice may be given at any time and from time to time after the Filing Date.

 

(iii)                                                       Upon the written election of the holder thereof and without payment of any additional consideration, each outstanding share of Series B Preferred Stock held by such holder shall be converted into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing (A) the Series B Original Issue Price by (B) the Series B Conversion Price at the time in effect for such Series B Preferred Stock (such quotient, the “Series B Conversion Rate”).  The initial “Series B Conversion Price” per share for shares of Series B Preferred Stock shall be the Series B Original Issue Price, subject to adjustment as set forth in Section A.6.  Any election by a holder of Series B Preferred Stock pursuant to this Section A.5(a)(iii) shall be made by written notice to the Corporation, and such notice may be given at any time and from time to time after the Filing Date.

 

(iv)                                                      Upon the written election of the holder thereof and without payment of any additional consideration, each outstanding share of Series B-1 Preferred Stock held by such holder shall be converted into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing (A) the Series B-1 Original Issue Price by (B) the Series B-1 Conversion Price at the time in effect for such Series B-1 Preferred Stock (such quotient, the “Series B-1 Conversion Rate”).  The initial “Series B-1 Conversion Price” per share for shares of Series B-1 Preferred Stock shall be the Series B-1 Original Issue Price, subject to adjustment as set forth in Section A.6.  Any election by a holder of Series B-1 Preferred Stock pursuant to this Section A.5(a)(iv) shall be made by written notice to the Corporation, and such notice may be given at any time and from time to time after the Filing Date. The Seed Conversion Price, the Series A Conversion Price, the Series B Conversion Price and the Series B-1 Conversion Price are sometimes referred to herein as the applicable “Conversion Price.”

 

(v)                                                         Upon the written election of a Majority Interest and without the payment of any additional consideration, all (but not less than all) of the outstanding shares of Preferred Stock shall be converted into fully paid and

 

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nonassessable shares of Common Stock at the Seed Conversion Rate, Series A Conversion Rate, Series B Conversion Rate or Series B-1 Conversion Rate, as applicable.  Any election by a Majority Interest pursuant to this Section A.5(a)(v) shall be made by written notice to the Corporation and the other holders of Preferred Stock, and such notice may be given at any time after the Filing Date through and including the date which is five (5) days prior to the closing of any transaction contemplated by Section A.4(b).  Upon such election, all holders of the Preferred Stock shall be deemed to have elected to voluntarily convert all outstanding shares of Preferred Stock into shares of Common Stock pursuant to this Section A.5(a)(v) and such election shall bind all holders of Preferred Stock.

 

(b)                                                         Automatic Conversion.  Each share of Preferred Stock shall automatically be converted, without the payment of any additional consideration, into fully paid and nonassessable shares of Common Stock at the Seed Conversion Rate, Series A Conversion Rate, Series B Conversion Rate or Series B-1 Conversion Rate, as applicable, upon the earlier of (i) the closing of the Corporation’s first underwritten public offering on a firm commitment basis by a nationally recognized investment banking organization or organizations pursuant to an effective registration statement under the Securities Act of 1933, as amended (the “Securities Act”), covering the offer and sale of Common Stock (A) at a price per share of Common Stock of not less than $12.50 (appropriately adjusted for stock splits, stock dividends, combinations, recapitalizations, and the like), (B) in which the Corporation receives aggregate gross proceeds attributable to sales for the account of the Corporation of not less than $30,000,000, and (C) with respect to which such Common Stock is listed for trading on either the New York Stock Exchange or the NASDAQ Stock Market (a “QPO”), or (ii) a date specified by vote or written consent of the holders of a Majority Interest.  If a closing of a QPO occurs, all outstanding shares of Preferred Stock shall be deemed to have been converted into shares of Common Stock immediately prior to such closing.

 

(c)                                                          Procedure for Conversion.

 

(i)                                                             Voluntary Conversion.  Upon election to convert pursuant to Section A.5(a)(i), (ii), (iii), (iv) or (v), the relevant holder or holders of Preferred Stock shall surrender the certificate or certificates representing the Preferred Stock being converted to the Corporation, duly assigned or endorsed for transfer to the Corporation (or accompanied by duly executed stock powers relating thereto) or shall deliver 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 any loss, theft or destruction of such certificate, at its principal executive office or such other place as the Corporation may from time to time designate by notice to the holders of the Preferred Stock.  Upon surrender of such certificate(s) or delivery of a lost certificate affidavit, the Corporation shall (i) issue and send by hand delivery, by courier or by first class mail (postage prepaid) to the holder thereof or to such holder’s designee, at the address designated by such holder, certificates for the number of shares of Common Stock to which such holder shall be entitled upon conversion and a certificate for the number (if any) of the shares of Preferred

 

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Stock represented by the surrendered certificate that were not converted into Common Stock, (ii) pay in cash such amount as provided in Section A.5(f) 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. The issuance of certificates for Common Stock upon conversion of Preferred Stock shall be deemed effective as of the date of surrender of such Preferred Stock certificates or delivery of such lost certificate affidavit and will be made without charge to the holders of such shares for any issuance tax in respect thereof or other costs incurred by the Corporation in connection with such conversion and the related issuance of such stock.

 

(ii)                                                          Automatic Conversion.  Upon an automatic conversion pursuant to Section A.5(b)(i) or (ii) (the “Automatic Conversion Date”), all outstanding shares of Preferred Stock shall be converted into shares of Common Stock without any further action by the holders of such shares and whether or not the certificates representing such shares of Preferred Stock are surrendered to the Corporation.  On the Automatic Conversion Date, all rights with respect to the Preferred Stock so converted shall terminate, except any of the rights of the holders thereof upon surrender of their certificate or certificates therefor or delivery of a lost certificate affidavit thereof to receive certificates for the number of shares of Common Stock into which such shares of Preferred Stock have been converted, to receive payment in lieu of any fraction of a share otherwise issuable upon such conversion as provided in Section A.5(f) and to receive payment of any declared but unpaid dividends on the Preferred Stock converted.  If so required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by a written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or by his, her or its attorney duly authorized in writing.  Upon surrender of such certificates or lost certificate affidavits, the Corporation shall issue and deliver to such holder, promptly (and in any event in such time as is sufficient to enable such holder to participate in a QPO, if applicable) at such office and in its name as shown on such surrendered certificate or certificates, a certificate or certificates for the number of shares of Common Stock into which the shares of the Preferred Stock surrendered are convertible on the Automatic Conversion Date.

 

(d)                                                         Reservation of Stock Issuable Upon Conversion.  The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of 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 outstanding shares of Preferred Stock, the Corporation will take such corporate action as may be necessary to increase the number of its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose, and to reserve the appropriate number of shares of Common Stock for issuance upon such conversion.

 

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(e)                                                          No Closing of Transfer Books.  The Corporation shall not close its books against the transfer of shares of Preferred Stock in any manner that would interfere with the timely conversion of any shares of Preferred Stock.

 

(f)                                                           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.

 

5A. Special Mandatory Conversion.

 

5A.1                      Trigger Event.  In the event that any holder of at least 500,000 shares of Preferred Stock (a “Major Investor”) does not participate in a Qualified Financing (as defined below) by purchasing in the aggregate, in such Qualified Financing and within the time period specified by the Corporation (provided that the Corporation has sent to such Major Investor at least 10 days written notice (the “Financing Notice”) of, and the opportunity to purchase its Pro Rata Amount (as defined below) of, the Qualified Financing), such Major Investor’s Pro Rata Amount, the Applicable Portion (as defined below) held by such Major Investor shall automatically, and without any further action on the part of such Major Investor, be converted into shares of a newly created series of Preferred Stock (having such number of shares as is equal to the aggregate number of shares of Seed Preferred Stock, Series A Preferred Stock, Series B Preferred Stock and Series B-1 Preferred Stock, as applicable, being so converted pursuant to this Section A.5A) effective upon, subject to, and concurrently with, the consummation of the Qualified Financing, which each such newly created series shall be identical in all respects to the Seed Preferred Stock, Series A Preferred Stock, Series B Preferred Stock or Series B-1 Preferred Stock, as applicable, except that (i) the conversion price of such series shall be fixed at the applicable Conversion Price in effect immediately prior to the consummation of the Qualified Financing and shall not be subject to any further adjustment analogous to that set forth in Section A.6(a) (provided that such newly created series shall remain subject to Sections A.6(a)(v) through (viii)), (ii) such new series shall not include a provision analogous to this Section A.5A and (iii) subject to Section A.5A.3, the terms of such new series may vary from the terms of the Seed Preferred Stock, Series A Preferred Stock, Series B Preferred Stock or Series B-1 Preferred Stock, as applicable, solely to the extent deemed necessary in good faith by the Board of Directors of the Corporation, including a majority of the Preferred Directors, to accomplish the intent of clauses (i) and (ii) of this Section A.5A.1 (each such new series of Preferred Stock, the “New Preferred Stock”). The Board of Directors of the Corporation shall take all necessary actions to designate each such series of New Preferred Stock prior to the consummation of each Qualified Financing that would trigger a Special Major Investor Mandatory Conversion (as defined below).  For purposes of determining the number of Offered Securities (as defined below) a Major Investor has

 

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purchased in a Qualified Financing, all Offered Securities purchased by Affiliates of such Major Investor shall be aggregated with the Offered Securities purchased by such Major Investor (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 Major Investor Mandatory Conversion.

 

5A.2                      Procedural Requirements.  Upon a Special Major Investor Mandatory Conversion, each Major Investor holding shares of Preferred Stock converted pursuant to Section A.5A.1 shall be sent written notice of such Special Major Investor Mandatory Conversion and the place designated for mandatory conversion of all such shares of Preferred Stock pursuant to this Section A.5A.  Upon receipt of such notice, each such Major Investor shall surrender his, her or its certificate or certificates for all such shares (or, if such holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate) to the Corporation at the place designated in such notice. If so required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or by his, her or its attorney duly authorized in writing.  As soon as practicable after the Special Major Investor Mandatory Conversion and the surrender of the certificate or certificates (or lost certificate affidavit and agreement) for Preferred Stock so converted, the Corporation shall issue and deliver to such holder, or to his, her or its nominees, a certificate or certificates for the number of full shares of New Preferred Stock issuable on such conversion in accordance with the provisions hereof, together with cash as provided in Section A.5(f) in lieu of any fraction of a share of New Preferred Stock otherwise issuable upon such conversion and the payment of any declared but unpaid dividends on the shares of Preferred Stock converted and a new certificate for the number of shares, if any, of Preferred Stock represented by such surrendered certificate or certificates and not converted pursuant to Section A.5A.1.  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.3                      Class Voting Rights.  Notwithstanding any other provisions in this Amended and Restated Certificate of Incorporation to the contrary, in the event that one or more series of New Preferred Stock are established, any reference in the terms of the Preferred Stock (or any series thereof) or the New Preferred Stock (or any series thereof) to the rights of the holders thereof to consent, vote or otherwise take action separately as a class shall be deemed to refer to a consent, vote or other action by the holders of the specified percentage of all outstanding shares of the Preferred Stock (or any series thereof, as applicable) and the New Preferred Stock (or any series thereof, as applicable), considered together as a single class.

 

5A.4                      Definitions.  For purposes of this Section A.5A, the following definitions shall apply:

 

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5A.4.1                                                            Affiliate” shall mean, with respect to any Major Investor, any person, entity or firm which, directly or indirectly, controls, is controlled by or is under common control with such Major Investor, including, without limitation, any entity of which the Major Investor is a partner or member, any partner, limited partner, officer, director, member or employee of such Major Investor and any venture capital or other investment fund now or hereafter existing of which the Major Investor is a partner or member which is controlled by or under common control with one or more general partners of such Major Investor or shares the same management company or investment advisor with such Major Investor.

 

5A.4.2                                                            Applicable Portion” shall mean, with respect to any Major Investor, a number of shares of each series of Preferred Stock calculated by multiplying the aggregate number of shares of each series of Preferred Stock held by such Major Investor immediately prior to a Qualified Financing by a fraction, the numerator of which is equal to the amount, if positive, by which such Major Investor’s Pro Rata Amount exceeds the number of Offered Securities actually purchased by such Major Investor in such Qualified Financing, and the denominator of which is equal to such Major Investor’s Pro Rata Amount, with any resulting fraction of a share of any particular series being rounded down to the nearest whole share.

 

5A.4.3                                                            Offered Securities” shall mean the Additional Shares of Common Stock (as defined below) set aside by the Board of Directors of the Corporation for purchase by Major Investors in connection with a Qualified Financing, and offered to such Major Investors.

 

5A.4.4                                                            Pro Rata Amount” shall mean, with respect to any Major Investor, the lesser of (a) a number of Offered Securities calculated by multiplying the aggregate number of Offered Securities by a fraction, the numerator of which is equal to the number of shares of Common Stock issuable upon conversion of the Preferred Stock owned by such Major Investor, and the denominator of which is equal to the aggregate number of outstanding shares of Common Stock issuable upon conversion of the Preferred Stock held by all Major Investors, or (b) the maximum number of Offered Securities that such Major Investor is permitted by the Corporation to purchase in such Qualified Financing, after giving effect to any cutbacks or limitations established by the Board of Directors of the Corporation and applied on a pro rata basis to all Major Investors.

 

5A.4.5                                                            Qualified Financing” shall mean any transaction involving the issuance or sale of Additional Shares of Common Stock, except issuances and sales pursuant to the Series B-1 Purchase Agreement, if (A) the holders of a Majority Interest, and (B) to the extent required by applicable law or Section A.7(b)(ii), the holders of a majority of the outstanding shares of Series B Preferred Stock and Series B-1 Preferred Stock, voting together as a single class, elect, by written notice sent to the Corporation prior to the consummation of the Qualified Financing, that such transaction be treated as a Qualified Financing for purposes of this Section A.5A.

 

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6.                                      Adjustments.

 

(a)                                                         Adjustments to the Conversion Price.  Except as provided in Section A.6(b) and except in the case of an event described in Section A.6(c), if and whenever after the date this Amended and Restated Certificate of Incorporation is first filed with the Secretary of State of Delaware (the “Filing Date”) the Corporation shall issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued in accordance with this Section A.6(a)), without consideration or for a consideration per share less than the Seed Conversion Price, Series A Conversion Price, Series B Conversion Price or Series B-1 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 x (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 (as defined below) outstanding immediately prior to such issue or upon conversion or exchange of Convertible Securities (as defined below) (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

 

(e)                                                          C” shall mean the number of such Additional Shares of Common Stock issued in such transaction.

 

(f)                                                           Additional Shares of Common Stock” with respect to a series of Preferred Stock shall mean all shares of Common Stock issued (or deemed issued in accordance with this Section A.6(a)) by the Corporation after the Filing Date, other than shares of Common Stock issued in accordance with Section A.6(b).

 

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For purposes of this Section A.6(a), the following shall also be applicable:

 

(i)                                     Issuance of Rights or Options.  If the Corporation shall, at any time after the Filing Date, in any manner grant (whether directly or by assumption in a merger or otherwise) any warrants or other rights to subscribe for or to purchase, or any options for the purchase of, Common Stock or any stock or security convertible into or exchangeable for Common Stock (such warrants, rights or options being called “Options” and such convertible or exchangeable stock or securities being called “Convertible Securities”), in each case for consideration per share (determined as provided in this paragraph and in Section A.6(a)(vi)) less than the applicable Conversion Price then in effect, whether or not such Options or the right to convert or exchange any such Convertible Securities are immediately exercisable, then the total maximum number of shares of Common Stock issuable upon the exercise of such Options, or upon conversion or exchange of the total maximum amount of such Convertible Securities issuable upon exercise of such Options, shall be deemed to have been issued as of the date of granting of such Options at a price per share equal to the amount determined by dividing (A) the total amount, if any, received or receivable by the Corporation as consideration for the granting of such Options, plus the minimum aggregate amount of additional consideration payable to the Corporation upon the exercise of all such Options, plus, in the case of such Options which relate to Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable upon the issuance or sale of such Convertible Securities and upon the conversion or exchange thereof, by (B) the total maximum number of shares of Common Stock deemed to have been so issued.  Except as otherwise provided in Section A.6(a)(iii), no adjustment of the applicable Conversion Price shall be made upon the actual issuance of such Common Stock or of such Convertible Securities upon exercise of such Options or upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities.

 

(ii)                                  Issuance of Convertible Securities.  If the Corporation shall, at any time after the Filing Date, in any manner issue or sell any Convertible Securities for consideration per share (determined as provided in this paragraph and in Section A.6(a)(vi)) less than the applicable Conversion Price then in effect, whether or not the rights to exchange or convert any such Convertible Securities are immediately exercisable, then the total maximum number of shares of Common Stock issuable upon conversion or exchange of all such Convertible Securities shall be deemed to have been issued as of the date of the issuance or sale of such Convertible Securities at a price per share equal to the amount determined by dividing (A) the total amount, if any, received or receivable by the Corporation as consideration for the issuance or sale of such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the conversion or exchange thereof, by (B) the total maximum number of shares of Common Stock deemed to have been so issued; provided, that (1) except as otherwise provided in Section A.6(a)(iii), no adjustment of the applicable Conversion Price shall be made upon the actual issuance of such Common Stock upon conversion or exchange of such

 

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Convertible Securities and (2) if any such issuance or sale of such Convertible Securities is made upon exercise of any Options to purchase any such Convertible Securities, no further adjustment of the applicable Conversion Price shall be made by reason of such issuance or sale.

 

(iii)                               Change in Option Price or Conversion Rate.  If there shall occur a change in (A) the maximum number of shares of Common Stock issuable in connection with any Option referred to in Section A.6(a)(i) or any Convertible Securities referred to in Section A.6(a)(i) or (ii), (B) the purchase price provided for in any Option referred to in Section A.6(a)(i), (C) the additional consideration, if any, payable upon the conversion or exchange of any Convertible Securities referred to in Section A.6(a)(i) or (ii) or (D) the rate at which Convertible Securities referred to in Section A.6(a)(i) or (ii) are convertible into or exchangeable for Common Stock (in each case, other than in connection with an event described in Section A.6(b)), then the applicable Conversion Price in effect at the time of such event shall be adjusted to the applicable Conversion Price that would have been in effect at such time had such Options or Convertible Securities that are still outstanding provided for such changed maximum number of shares, purchase price, additional consideration or conversion rate, as the case may be, at the time initially granted, issued or sold, but only if as a result of such adjustment the applicable Conversion Price then in effect is thereby reduced; and on the termination of any such Option or any such right to convert or exchange such Convertible Securities, the applicable Conversion Price then in effect hereunder shall be increased to the applicable Conversion Price that would have been in effect at the time of such termination had such Option or Convertible Securities, to the extent outstanding immediately prior to such termination (i.e., to the extent that fewer than the number of shares of Common Stock deemed to have been issued in connection with such Option or Convertible Securities were actually issued), never been issued or been issued at such higher price, as the case may be.

 

(iv)                              Stock Dividends.  If the Corporation, at any time or from time to time after the Filing Date, shall declare or make, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or make any other distribution upon any stock of the Corporation payable in Common Stock, Options or Convertible Securities, any Common Stock, Options or Convertible Securities, as the case may be, issuable in payment of such dividend or distribution shall be deemed to have been issued or sold without consideration, and the applicable Conversion Price will be adjusted pursuant to this Section A.6(a); provided, that no adjustment shall be made to the applicable Conversion Price as a result of such dividend or distribution if the holders of the shares of Preferred Stock are entitled to, and do, receive such dividend or distribution in accordance with Section A.3; and, provided, further, that if any adjustment is made to the applicable Conversion Price as a result of the declaration of a dividend and such dividend is not effected, the applicable Conversion Price shall be appropriately readjusted to the applicable Conversion Price in effect had such dividend not been declared.

 

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(v)                                 Other Dividends and Distributions.  If the Corporation, at any time or from time to time after the Filing Date, shall declare or make, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities or other property of the Corporation other than shares of Common Stock, then and in each such event provision shall be made so that the holders of the outstanding shares of Preferred Stock shall receive upon conversion thereof, in addition to the number of shares of Common Stock receivable thereupon, the amount of such other securities of the Corporation or the value of such other property that they would have received had the Preferred Stock been converted into Common Stock on the date of such event and had such holders thereafter, during the period from the date of such event to and including the conversion date, retained such securities or other property receivable by them during such period giving application to all adjustments called for during such period under Section A.6 with respect to the rights of the holders of the outstanding shares of Preferred Stock; and, provided, further, however, that no such adjustment shall be made if the holders of Preferred Stock simultaneously receive 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.

 

(vi)                              Consideration for Stock.  If the Corporation, at any time or from time to time after the Filing Date, shall issue or sell, or is deemed to have issued or sold, any shares of Common Stock for cash, the consideration received therefor shall be the aggregate amount of cash received by the Corporation, excluding amounts paid or payable for accrued interest (determined with respect to deemed issuances and sales in connection with Options and Convertible Securities in accordance with clause (A) of Section A.6(a)(i) or Section A.6(a)(ii), as appropriate).  In case any shares of Common Stock shall be issued or sold, or deemed issued or sold, for a consideration other than cash, the amount of the consideration other than cash received by the Corporation shall be deemed to be the fair market value of such consideration received or to be received by the Corporation (determined with respect to deemed issuances and sales in connection with Options and Convertible Securities in accordance with clause (A) of Section A.6(a)(i) or Section A.6(a)(ii), as appropriate) as determined in good faith by the Board of Directors of the Corporation, including a majority of the Preferred Directors. In case any Options shall be issued in connection with the issuance and sale of other securities of the Corporation, together comprising one integral transaction in which no specific consideration is allocated to such Options by the parties thereto, such Options shall be deemed to have been issued for such consideration as determined in good faith by the Board of Directors of the Corporation, including a majority of the Preferred Directors.

 

(vii)                           Record Date.  In case the Corporation shall take a record of the holders of its Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in Common Stock, Options or Convertible Securities or (B) to subscribe for or purchase Common Stock, Options or

 

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Convertible Securities, then such record date shall be deemed to be the date of the issuance or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be.

 

(viii)                                                Treasury Shares.  The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Corporation; provided, that the disposition of any such shares shall be considered an issuance or sale of Common Stock for the purpose of this Section A.6.

 

(ix)                                                      Other Issuances or Sales.  In calculating any adjustment to the applicable Conversion Price pursuant to this Section A.6(a), any Options or Convertible Securities that provide, as of the effective date of such adjustment, for the issuance upon exercise or conversion thereof of an indeterminable number of shares of Common Stock shall (together with the shares of Common Stock issuable upon exercise or conversion thereof) be disregarded; provided, that at such time as the number of shares of Common Stock issuable upon exercise or conversion of such Options or Convertible Securities becomes determinable, the applicable Conversion Price shall be adjusted as provided in Section A.6(a)(iii) above.

 

(b)                                                         Certain Issues of Common Stock Excepted.  Anything herein to the contrary notwithstanding, the Corporation shall not be required to make any adjustment of the applicable Conversion Price in the case of the issuance from and after the Filing Date of (i) shares of Common Stock upon conversion of shares of Preferred Stock; (ii) up to a maximum of 7,208,027 shares (subject to an increase upon the approval of the Board of Directors of the Corporation including a majority of the Preferred Directors) of Common Stock or options therefor to directors, officers, employees or consultants of the Corporation in connection with their service as directors of the Corporation, their employment by the Corporation or their retention as consultants or officers by the Corporation, in each case authorized by the Board of Directors of the Corporation and issued pursuant to the Corporation’s 2009 Employee, Director and Consultant Equity Incentive Plan (as amended to the Filing Date, the “2009 Plan”), and any other equity incentive plan or amendment to such 2009 Plan from and after the Filing Date approved by a majority of the Board of Directors of the Corporation including a majority of the Preferred Directors; (iii) shares of Common Stock issued upon exercise of any Options or Convertible Securities outstanding as of Filing Date; (iv) shares of Common Stock issued as a dividend or distribution on Preferred Stock or pursuant to Section A.6(c); (v) shares of Common Stock issued or issuable to banks, equipment lessors, real estate lessors or other financial institutions pursuant to debt financing or commercial transactions approved by the majority of the Board of Directors of the Corporation including a majority of the Preferred Directors; (vi) shares of Common Stock issued or issuable in connection with technology licenses, strategic alliances, product development agreements or other similar arrangements approved by a majority of the Board of Directors of the Corporation including a majority of the Preferred Directors; (vii) shares of Common

 

18



 

Stock issued pursuant to Section A.5(b)(i) or (ii); (viii) shares of Common Stock issued or issuable pursuant to a merger, consolidation, acquisition or similar business combination approved by a majority of the Board of Directors of the Corporation including a majority of the Preferred Directors; (ix) shares of Series B-1 Preferred Stock issued or issuable pursuant to the Series B-1 Purchase Agreement; and (x) subject to Section A.8(c)(i), shares of Common Stock that are otherwise excluded by a written consent of holders of a Majority Interest (“Excluded Shares”).

 

(c)                                                          Subdivision or Combination of Common Stock.  In case the Corporation shall at any time after the Filing Date subdivide its outstanding shares of Common Stock into a greater number of shares (by any stock split, stock dividend or otherwise), the applicable Conversion Price in effect immediately prior to such subdivision shall be proportionately reduced, and, conversely, in case the Corporation shall at any time after the Filing Date combine its outstanding shares of Common Stock into a smaller number of shares (by any reverse stock split or otherwise), the applicable Conversion Price in effect immediately prior to such combination shall be proportionately increased.  In the case of any such subdivision, no further adjustment shall be made pursuant to Section A.6(a)(iv) by reason thereof.

 

(d)                                                         Reorganization or Reclassification.  If any capital reorganization or reclassification of the capital stock of the Corporation shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for Common Stock, then, as a condition of such reorganization or reclassification, lawful and adequate provisions shall be made whereby each holder of a share or shares of Preferred Stock shall thereupon have the right to receive, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore receivable upon the conversion of such share or shares of Preferred Stock, as the case may be, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of shares of such Common Stock immediately theretofore receivable upon such conversion had such reorganization or reclassification not taken place, and in any such case appropriate provisions shall be made with respect to the rights and interests of such holder to the end that the provisions hereof (including, without limitation, provisions for adjustments of the applicable Conversion Price) shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise of such conversion rights.

 

7.                                      Covenants.

 

(a)                                                         Preferred Stock Protective Provisions.  The Corporation shall not (by merger, consolidation, amendment or otherwise), without first having obtained the affirmative vote or written consent of the holders of a Majority Interest:

 

(i)                                                             declare or pay any dividends other than dividends on the Preferred Stock as provided in Section A.3 or make any distributions of cash, property or securities of the Corporation in respect of its capital stock, or apply

 

19


 

any of its assets to the redemption, retirement, purchase or other acquisition of its capital stock, directly or indirectly, through subsidiaries or otherwise (other than pursuant to employee or consultant agreements giving the Corporation the right to repurchase shares at the original cost thereof upon the termination of services and provided that such repurchase is approved by the Board of Directors of the Corporation);

 

(ii)                                                          reclassify any capital stock in a manner that adversely affects the designations, preferences, powers, or relative, participating, optional or other special rights of, or the restrictions provided for the benefit of, the Preferred Stock;

 

(iii)                                                       authorize or issue, or obligate itself to issue, any convertible debt or other debt with any equity participation, any securities convertible into or exercisable or exchangeable for any equity securities, or any other equity security, in any case ranking senior to or on parity with the Preferred Stock as to liquidation, sale or merger preferences, redemption, or dividend rights, or with any special voting rights, or permit any subsidiary of the Corporation to issue any capital stock, or securities convertible into or exercisable or exchangeable for capital stock or other securities, of such subsidiary, to any person or entity other than the Corporation;

 

(iv)                                                      except as set forth in the second paragraph of Article IV solely with respect to the creation of New Preferred Stock pursuant to, and in accordance with, Section A.5A, amend, alter or repeal any provision of, or add any provision to, this Amended and Restated Certificate of Incorporation (including, without limitation, increasing or decreasing the total number of shares of Preferred Stock or Common Stock that the Corporation shall have the authority to issue) or the by-laws of the Corporation as in effect on the Filing Date;

 

(v)                                                         effect any Liquidation Event or Deemed Liquidation Event;

 

(vi)                                                      effect the sale, transfer or license of any assets of the Corporation or any subsidiary to any person or entity other than the Corporation or a wholly-owned subsidiary of the Corporation, other than in the ordinary course of business;

 

(vii)                                                   incur indebtedness in excess of $250,000 in the aggregate;

 

(viii)                                                form any subsidiary;

 

(ix)                                                      adopt any new, or amend any existing, stock plan to increase the aggregate number of shares of Common Stock reserved under such plan or plans to more than 7,208,027 shares of Common Stock in the aggregate, except with the approval of the Board of Directors of the Corporation, including a majority of the Preferred Directors;

 

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(x)                                                         change the principal business of the Corporation, enter new lines of business, or exit any existing line of business;

 

(xi)                                                      take any other action not described in Section A.7(a)(i)-(x) if such action would adversely alter or change the preferences, rights, privileges or powers of, or the restrictions provided for the benefit of, the Preferred Stock; or

 

(xii)                                                   enter into any agreement to do any of the foregoing that is not expressly made conditional on obtaining the affirmative vote or written consent of a Majority Interest.

 

(b)                                                         Series B Preferred Stock and Series B-1 Preferred Stock Protective Provisions.  In addition to and not in limitation of Section A.7(a), the Corporation shall not (by merger, consolidation, amendment or otherwise), without first having obtained the affirmative vote or written consent of the holders of at least 50.0% of the voting power of the outstanding shares of Series B Preferred Stock and Series B-1 Preferred Stock, voting together as a single class (a “Series B Majority Interest”):

 

(i)                                                             amend (A) Section A.5A of this Amended and Restated Certificate of Incorporation or (B) this Amended and Restated Certificate of Incorporation to add any provision that imposes a similar special mandatory conversion on the Series B Preferred Stock and Series B-1 Preferred Stock (other than any special mandatory conversion imposed on the Series B Preferred Stock and Series B-1 Preferred Stock as of the Filing Date or consented to after the Filing Date in accordance with Section A.7(b)(i)(A)); or

 

(ii)                                                          take any other action if such action would adversely alter or adversely change the preferences, rights, privileges or powers of, or the restrictions provided for the benefit of, the Series B Preferred Stock and Series B-1 Preferred Stock in a manner that does not similarly affect any other class or series of the Corporation’s capital stock, provided that, for clarity, the authorization of a new class or series of the Corporation’s capital stock that is senior to or on parity with the Series B Preferred Stock or Series B-1 Preferred Stock shall not be deemed to adversely alter or adversely change the preferences, rights, privileges or powers of, or the restrictions provided for the benefit of, the Series B Preferred Stock or Series B-1 Preferred Stock in a manner that does not similarly affect any other class or series of the Corporation’s capital stock.

 

8.                                      Notice; Adjustments; Waivers.

 

(a)                                                         Liquidation Events, Etc.  In the event (i) the Corporation establishes a record date to determine the holders of any class of securities who are entitled to receive any dividend or other distribution or who are entitled to vote at a meeting (or by written consent) in connection with any of the transactions identified in clause (ii) hereof, or (ii) any Liquidation Event, Deemed Liquidation Event pursuant to Section A.4(b) hereof occurs, vote or written consent pursuant to Section A.5(b)(ii) occurs, or a QPO or any other public offering becomes reasonably likely to occur, the Corporation shall mail or

 

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cause to be mailed by first class mail (postage prepaid) to each holder of Preferred Stock at least ten (10) days prior to such record date specified therein or the expected effective date of any such transaction, as applicable, a notice specifying (A) the date of such record date for the purpose of such dividend or distribution or meeting or consent and a description of such dividend or distribution or the action to be taken at such meeting or by such consent, (B) the date on which any such Liquidation Event, Deemed Liquidation Event pursuant to Section A.4(b) hereof occurred, QPO or other public offering is expected to become effective, or the date on which a vote or written consent pursuant to Section A.5(b)(ii) occurred, and (C) the date on which the books of the Corporation shall close or a record shall be taken with respect to any such event.  Such notice shall be accompanied by a certificate prepared by the chief financial officer of the Corporation describing in detail (1) the facts of such transaction, (2) the amount(s) per share of Preferred Stock or Common Stock each holder of Preferred Stock would receive pursuant to the applicable provisions of this Amended and Restated Certificate of Incorporation, and (3) the facts upon which such amounts were determined.

 

(b)                                                         Adjustments; Calculations.  Upon the occurrence of each adjustment or readjustment of the applicable Conversion Price pursuant to Section A.6, the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of the applicable series of Preferred Stock a certificate setting forth in detail (i) such adjustment or readjustment, (ii) the applicable Conversion Price before and after such adjustment or readjustment, and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of such holder’s shares of Preferred Stock.  All such calculations shall be made to the nearest cent or to the nearest one hundredth (1/100) of a share, as the case may be.

 

(c)                                                          Waivers.

 

(i)                                                             Any of the rights of the holders of Seed Preferred Stock, Series A Preferred Stock, Series B Preferred Stock and Series B-1 Preferred Stock set forth herein may be waived by the affirmative consent or vote of a Majority Interest; provided such waiver by its terms is equally applicable to the holders of Seed Preferred Stock, Series A Preferred Stock, Series B Preferred Stock and Series B-1 Preferred Stock; provided further that Section A.6 cannot be waived (including, without limitation, by a Majority Interest pursuant to Section A.6(b)(x)) with respect to the Series B Preferred Stock and Series B-1 Preferred Stock without the affirmative consent or vote of a Series B Majority Interest.

 

(ii)                                                          Any of the rights of the holders of Seed Preferred Stock set forth herein may be waived (in a manner that does not apply to the holders of Series A Preferred Stock, Series B Preferred Stock and Series B-1 Preferred Stock) by the affirmative consent or vote of the holders of a majority of the shares of Seed Preferred Stock then outstanding.

 

(iii)                                                       Any of the rights of the holders of Series A Preferred Stock set forth herein may be waived (in a manner that does not apply to the holders of

 

22



 

Seed Preferred Stock, Series B Preferred Stock and Series B-1 Preferred Stock) by the affirmative consent or vote of the holders of a majority of the shares of Series A Preferred Stock then outstanding.

 

(iv)                                                      Subject to Section A.7(b)(ii), any of the rights of the holders of Series B Preferred Stock set forth herein may be waived (in a manner that does not apply to the holders of Seed Preferred Stock and Series A Preferred Stock) by the affirmative consent or vote of the holders of a majority of the shares of Series B Preferred Stock then outstanding.

 

(v)                                                         Subject to Section A.7(b)(ii) and Section A.8(c)(i), any of the rights of the holders of Series B-1 Preferred Stock set forth herein may be waived (in a manner that does not apply to the holders of Seed Preferred Stock, Series A Preferred Stock and Series B Preferred Stock) by the affirmative consent or vote of the holders of a majority of the shares of Series B-1 Preferred Stock then outstanding.

 

9.                                      No Reissuance of Preferred Stock.  No share or shares of Preferred Stock acquired by the Corporation by reason of redemption, purchase, conversion or otherwise shall be reissued, and all such shares shall be canceled, retired and eliminated from the shares which the Corporation shall be authorized to issue.

 

10.                               Contractual Rights of Holders.  The various provisions set forth herein for the benefit of the holders of the Preferred Stock shall be deemed contract rights enforceable by them, including, without limitation, one or more actions for specific performance.

 

B.                                                            COMMON STOCK

 

1.                                      Voting.

 

(a)                                                         Election of Directors.  The holders of outstanding shares of Common Stock, voting together as a single class, shall be entitled to elect one (1) Director of the Corporation (the “Common Stock Director”).  The Common Stock Director shall be elected by the holders of a majority of the outstanding shares of Common Stock.  The election of the Common Stock Director shall occur (i) at the annual meeting of holders of capital stock, (ii) at any special meeting of holders of capital stock if such meeting is called for the purpose of electing directors, (iii) at any special meeting of holders of Common Stock called by holders of a majority of the outstanding shares of Common Stock or (iv) by the written consent of holders of a majority of the outstanding shares of Common Stock.  If at any time when any share of Common Stock is outstanding the Common Stock Director should cease to be a Director for any reason, the vacancy shall only be filled by the vote or written consent of the holders of a majority of the outstanding shares of Common Stock, voting together as a single class, in the manner and on the basis specified above or as otherwise provided by law.  The holders of outstanding shares of Common Stock shall also be entitled to vote in the election of any Additional Director together with holders of outstanding shares of Preferred Stock pursuant to and in accordance with Section A.2(a) above.  The holders of outstanding shares of Common

 

23



 

Stock may, in their sole discretion, determine not to elect the Common Stock Director as provided herein from time to time, and during any such period the Board of Directors of the Corporation shall not be deemed unduly constituted solely as a result of such vacancy.

 

(b)                                                         Voting Generally.  Except as otherwise expressly provided herein or required by law, each holder of outstanding shares of Common Stock shall be entitled to one (1) vote in respect of each share of Common Stock held thereby of record on the books of the Corporation for the election of directors and on all matters submitted to a vote of stockholders of the Corporation.  Notwithstanding the provisions of Section 242(b)(2) of the Delaware General Corporation Law, the number of authorized shares of Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of a majority of the outstanding shares of Common Stock and Preferred Stock voting together as a single class.

 

2.                                      Dividends.  Subject to the payment in full of all preferential dividends to which the holders of the Preferred Stock are entitled hereunder, the holders of Common Stock shall be entitled to receive dividends out of funds legally available therefor at such times and in such amounts as the Board of Directors of the Corporation may determine in its sole discretion, with holders of Preferred Stock and Common Stock sharing pari passu in such dividends, as contemplated by Section A.3.

 

3.                                      Liquidation.  Upon any Liquidation Event, after the payment or provision for payment of all debts and liabilities of the Corporation and all preferential amounts to which the holders of Preferred Stock are entitled with respect to the distribution of assets in liquidation, the holders of Common Stock shall be entitled to share ratably in the remaining assets of the Corporation available for distribution, as contemplated by Section A.4.

 

4.                                      Waiver. Any of the rights of the holders of Common Stock set forth herein may be waived (in a manner that does not apply to the holders of Preferred Stock) by the affirmative consent or vote of the holders of a majority of the shares of Common Stock then outstanding.

 

ARTICLE V

 

In furtherance of and not in limitation of powers conferred by statute, it is further provided:

 

1.                                      Election of Directors need not be by written ballot unless the by-laws of the Corporation so provide.

 

2.                                      Except as provided in Article IV, Section A.7(a)(iv), a majority of the Board of Directors of the Corporation including a majority of the Preferred Directors is expressly authorized to adopt, amend or repeal the by-laws of the Corporation to the extent specified therein.

 

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ARTICLE VI

 

Meetings of stockholders may be held within or without the State of Delaware, as the by-laws may provide.

 

ARTICLE VII

 

To the extent permitted by law, the books of the Corporation may be kept outside the State of Delaware at such place or places as may be designated in the by-laws of the Corporation or from time to time by its Board of Directors of the Corporation.

 

ARTICLE VIII

 

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 of the Corporation, 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 Delaware General Corporation Law, or (d) for any transaction from which the Director derived an improper personal benefit.  If the Delaware General Corporation Law is amended after the effective date of this Amended and Restated Certificate of Incorporation to authorize corporate action further eliminating or limiting the personal liability of Directors, then the liability of a Director of the Corporation shall be eliminated or limited to the fullest extent permitted by the General Corporation Law of the State of Delaware.

 

Any repeal or modification of this Article VIII by the stockholders of the Corporation or by an amendment to the Delaware General Corporation Law shall not adversely affect any right or protection existing at the time of such repeal or modification with respect to any acts or omissions occurring before such repeal or modification of a person serving as a Director prior to or at the time of such repeal or modification.

 

ARTICLE IX

 

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 Delaware General Corporation Law permits the Corporation to provide indemnification) through by-law 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 Delaware General Corporation Law.

 

Any amendment, repeal or modification of the foregoing provisions of this Article IX 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.

 

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ARTICLE X

 

The Corporation renounces 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.

 

ARTICLE XI

 

Except as otherwise provided herein, the Corporation reserves the right to amend, alter, change or repeal any provision contained in this Amended and Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute and this Amended and Restated Certificate of Incorporation, and all rights conferred upon stockholders herein are granted subject to this reservation.

 

26



 

CERTIFICATE OF AMENDMENT

 

OF

 

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

 

OF

 

KALA PHARMACEUTICALS, INC.

 

Kala Pharmaceuticals, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the “Corporation”), DOES HEREBY CERTIFY:

 

FIRST:                                                        That, in a written action of the Board of Directors of the Corporation, resolutions were duly adopted recommending and declaring it advisable that the Amended and Restated Certificate of Incorporation of the Corporation be amended and that such amendments be submitted to the stockholders of the Corporation for their consideration, as follows:

 

RESOLVED:                That the first paragraph of Article IV of the amended and restated certificate of incorporation of the Corporation (the “Amended and Restated Charter”) be amended and restated in its entirety to read as follows:

 

“The total number of shares of capital stock which the Corporation shall have authority to issue is One Hundred Forty-One Million Two Hundred Sixty-Six Thousand Nine Hundred Eighty-Two (141,266,982), of which (i) Eighty-Four Million Two Hundred Sixty-Six Thousand Nine Hundred Eighty-Two (84,266,982) shares shall be preferred stock, par value $0.001 per share (the “Preferred Stock”), and (ii) Fifty-Seven Million (57,000,000) shares shall be common stock, par value $0.001 per share (the “Common Stock”).”

 

FURTHER

RESOLVED:                That Article IV, Section A.6(b)(ii) of the Amended and Restated Charter be amended and restated in its entirety to read as follows:

 

“(ii) up to a maximum of 9,181,163 shares (subject to an increase upon the approval of the Board of Directors of the Corporation including a majority of the Preferred Directors) of Common Stock or options therefor to directors, officers, employees or consultants of the Corporation in connection with their service as directors of the Corporation, their employment by the Corporation or their retention as consultants or officers by the Corporation, in each case authorized by the Board of Directors of the Corporation and issued pursuant to the Corporation’s 2009 Employee, Director and Consultant Equity

 



 

Incentive Plan (as amended to the Filing Date, the “2009 Plan”), and any other equity incentive plan or amendment to such 2009 Plan from and after the Filing Date approved by a majority of the Board of Directors of the Corporation including a majority of the Preferred Directors;”

 

FURTHER

RESOLVED:                That Article IV, Section A.7(a)(ix) of the Amended and Restated Charter be amended and restated in its entirety to read as follows:

 

“(ix) adopt any new, or amend any existing, stock plan to increase the aggregate number of shares of Common Stock reserved under such plan or plans to more than 9,181,163 shares of Common Stock in the aggregate, except with the approval of the Board of Directors of the Corporation, including a majority of the Preferred Directors;”

 

SECOND:              That in lieu of a meeting and vote of stockholders, the stockholders have given written consent to said amendments in accordance with the provisions of Section 228 of the General Corporation Law of the State of Delaware.

 

THIRD:                                                   That the aforesaid amendments were duly adopted in accordance with the applicable provisions of Sections 141(f), 228 and 242 of the General Corporation Law of the State of Delaware.

 

[Signature page follows.]

 

2



 

IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be signed by Charles McDermott, the President and Chief Business Officer of the Corporation, this 16th day of September, 2015.

 

 

 

KALA PHARMACEUTICALS, INC.

 

 

 

 

 

By:

/s/ Charles McDermott

 

Name:

Charles McDermott

 

Title:

President and Chief Business Officer

 

[Signature Page to Certificate of Amendment]

 




Exhibit 3.2

 

HANES NEWCO, INC.

 

BY-LAWS

 

ARTICLE I - STOCKHOLDERS

 

Section 1.                                          Annual Meeting.

 

An annual meeting of the stockholders, for the election of directors to succeed those whose terms expire and for the transaction of such other business as may properly come before the meeting, shall be held at ten o’clock a.m. or such other time as is determined by the Board of Directors, on such date (other than a Saturday, Sunday or legal holiday) as is determined by the Board of Directors, which date shall be within thirteen (13) months subsequent to the later of the date of incorporation or the last annual meeting of stockholders, and at such place as the Board of Directors shall each year fix.

 

Section 2.                                          Special Meetings.

 

Subject to the rights of the holders of any class or series of preferred stock of the Corporation, special meetings of stockholders of the Corporation may be called only by the Board of Directors pursuant to a resolution adopted by a majority of the total number of directors authorized.  Special meetings of the stockholders may be held at such place within or without the State of Delaware as may be stated in such resolution.

 

Section 3.                                          Notice of Meetings.

 

Written notice of the place, date, and time of all meetings of the stockholders shall be given, not less than ten (10) nor more than sixty (60) days before the date on which the meeting is to be held, to each stockholder entitled to vote at such meeting, except as otherwise provided herein or required by law (meaning, here and hereinafter, as required from time to time by the Delaware General Corporation Law or the Certificate of Incorporation of the Corporation).

 

When a meeting is adjourned to another place, date or time, written notice need not be given of the adjourned meeting if the place, date and time thereof are announced at the meeting at which the adjournment is taken; provided, however, that if the date of any adjourned meeting is more than thirty (30) days after the date for which the meeting was originally noticed, or if a new record date is fixed for the adjourned meeting, written notice of the place, date, and time of the adjourned meeting shall be given in conformity herewith.  At any adjourned meeting, any business may be transacted which might have been transacted at the original meeting.

 

Section 4.                                          Quorum.

 

At any meeting of the stockholders, the holders of a majority of all of the shares of the stock entitled to vote at the meeting, present in person or by proxy, shall constitute a quorum for all purposes, unless or except to the extent that the presence of a larger number may be required

 



 

by law.  Where a separate vote by a class or classes is required, a majority of the shares of such class or classes present in person or represented by proxy shall constitute a quorum entitled to take action with respect to that vote on that matter.

 

If a quorum shall fail to attend any meeting, the chairman of the meeting or the holders of a majority of the shares of stock entitled to vote who are present, in person or by proxy, may adjourn the meeting to another place, date, or time.

 

Section 5.                                          Organization.

 

The Chairman of the Board of Directors or, in his or her absence, such person as the Board of Directors may have designated or, in his or her absence, the chief executive officer of the Corporation or, in his or her absence, such person as may be chosen by the holders of a majority of the shares entitled to vote who are present, in person or by proxy, shall call to order any meeting of the stockholders and act as chairman of the meeting.  In the absence of the Secretary of the Corporation, the secretary of the meeting shall be such person as the chairman of the meeting appoints.

 

Section 6.                                          Conduct of Business.

 

The Chairman of the Board of Directors or his or her designee or, if neither the Chairman of the Board nor his or her designee is present at the meeting, then a person appointed by a majority of the Board of Directors, shall preside at, and act as chairman of, any meeting of the stockholders.  The chairman of any meeting of stockholders shall determine the order of business and the procedures at the meeting, including such regulation of the manner of voting and the conduct of discussion as he or she deems to be appropriate.

 

Section 7.                                          Proxies and Voting.

 

At any meeting of the stockholders, every stockholder entitled to vote may vote in person or by proxy authorized by an instrument in wilting filed in accordance with the procedure established for the meeting.

 

Each stockholder shall have one (1) vote for every share of stock entitled to vote which is registered in his or her name on the record date for the meeting, except as otherwise provided herein or required by law.

 

All voting, including on the election of directors but excepting where otherwise required by law, may be by a voice vote; provided, however, that upon demand therefor by a stockholder entitled to vote or his or her proxy, a vote by ballot shall be taken.

 

Except as otherwise provided in the terms of any class or series of preferred stock of the Corporation, all elections shall be determined by a plurality of the votes cast, and except as otherwise required by law, all other matters shall be determined by a majority of the votes cast.

 

2



 

Section 8.                                          Action Without Meeting.

 

Any action required to be taken at any annual or special meeting of stockholders, or any action which may be taken at any annual or special meeting of such 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 (1) signed and dated 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 (2) delivered to the Corporation within sixty (60) days of the earliest dated consent by delivery to its registered office in the State of Delaware (in which case delivery shall be by hand or by certified or registered mail, return receipt requested), its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded.  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.

 

Section 9.                                          Stock List.

 

A complete list of stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order for each class of stock and showing the address of each such stockholder and the number of shares registered in his or her name, shall be open to the examination of any such stockholder, for any purpose germane to the meeting, during ordinary business hours for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so specified, at the place where the meeting is to be held.

 

The stock list shall also be kept at the place of the meeting during the whole time thereof and shall be open to the examination of any such stockholder who is present.  Such list shall presumptively determine the identity of the stockholders entitled to vote at the meeting and the number of shares held by each of them.

 

ARTICLE II - BOARD OF DIRECTORS

 

Section 1.                                          Number, Election, Tenure and Qualification.

 

Except as otherwise specified in the Certificate of Incorporation of the Corporation, the number of directors which shall constitute the whole board shall be determined by resolution of the Board of Directors or by the stockholders at the annual meeting or at any special meeting of stockholders.  The directors shall be elected at the annual meeting or at any special meeting of the stockholders, except as provided in Section 2 of this Article, and each director elected shall hold office until his or her successor is elected and qualified, unless sooner displaced.  Directors need not be stockholders.

 

Section 2.                                          Vacancies and Newly Created Directorships.

 

Subject to the rights of the holders of any class or series of preferred stock of the Corporation to elect directors, newly created directorships resulting from any increase in the

 

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authorized number of directors or any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office or other cause may be filled only by a majority vote of the directors then in office, though less than a quorum, or the sole remaining director.  No decrease in the number of authorized directors constituting the Board of Directors shall shorten the term of any incumbent director.

 

Section 3.                                          Resignation and Removal.

 

Any director may resign at any time upon written notice to the Corporation at its principal place of business or to the chief executive officer or secretary.  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.  Any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors, unless otherwise specified by law or the Certificate of Incorporation.

 

Section 4.                                          Regular Meetings.

 

Regular meetings of the Board of Directors shall be held at such place or places, on such date or dates, and at such time or times as shall have been established by the Board of Directors and publicized among all directors.  A written notice of each regular meeting shall not be required.

 

Section 5.                                          Special Meetings.

 

Special meetings of the Board of Directors may be called by the Chairman of the Board of Directors, if any, the President, the Treasurer, the Secretary or one or more of the directors then in office and shall be held at such place, on such date, and at such time as they or he or she shall fix.  Notice of the place, date, and time of each such special meeting shall be given each director by whom it is not waived by mailing written notice not less than three (3) days before the meeting or orally, by telegraph, telex, cable or telecopy given not less than twenty-four (24) hours before the meeting.  Unless otherwise indicated in the notice thereof, any and all business may be transacted at a special meeting.

 

Section 6.                                          Quorum.

 

At any meeting of the Board of Directors, a majority of the total number of members of the Board of Directors shall constitute a quorum for all purposes.  If a quorum shall fail to attend any meeting, a majority of those present may adjourn the meeting to another place, date, or time, without further notice or waiver thereof.

 

Section 7.                                          Action by Consent.

 

Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all members of the board or committee, as the case may be, consent thereto in writing, or by electronic transmission and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the board, or committee.

 

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Section 8.                                          Participation in Meetings By Conference Telephone.

 

Members of the Board of Directors, or of any committee thereof, may participate in a meeting of such Board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other and such participation shall constitute presence in person at such meeting.

 

Section 9.                                          Conduct of Business.

 

At any meeting of the Board of Directors, business shall be transacted in such order and manner as the Board may from time to time determine, and all matters shall be determined by the vote of a majority of the directors present, except as otherwise provided herein or required by law.

 

Section 10.                                   Powers.

 

The Board of Directors may, except as otherwise required by law, exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, including, without limiting the generality of the foregoing, the unqualified power:

 

(1)                                 To declare dividends from time to time in accordance with law;

 

(2)                                 To purchase or otherwise acquire any property, rights or privileges on such terms as it shall determine;

 

(3)                                 To authorize the creation, making and issuance, in such form as it may determine, of written obligations of every kind, negotiable or non-negotiable, secured or unsecured, to borrow funds and guarantee obligations, and to do all things necessary in connection therewith;

 

(4)                                 To remove any officer of the Corporation with or without cause, and from time to time to devolve the powers and duties of any officer upon any other person for the time being;

 

(5)                                 To confer upon any officer of the Corporation the power to appoint, remove and suspend subordinate officers, employees and agents;

 

(6)                                 To adopt from time to time such stock, option, stock purchase, bonus or other compensation plans for directors, officers, employees and agents of the Corporation and its subsidiaries as it may determine;

 

(7)                                 To adopt from time to time such insurance, retirement, and other benefit plans for directors, officers, employees and agents of the Corporation and its subsidiaries as it may determine; and,

 

(8)                                 To adopt from time to time regulations, not inconsistent with these By-Laws, for the management of the Corporation’s business and affairs.

 

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Section 11.                                   Compensation of Directors.

 

Directors, as such, may receive, pursuant to a resolution of the Board of Directors, fixed fees and other compensation for their services as directors, including, without limitation, their services as members of committees of the Board of Directors.

 

ARTICLE III - COMMITTEES

 

Section 1.                                          Committees of the Board of Directors.

 

The Board of Directors, by a vote of a majority of the Board of Directors, may from time to time designate committees of the Board, with such lawfully delegable powers and duties as it thereby confers, to serve at the pleasure of the Board and shall, for those committees and any others provided for herein, elect a director or directors to serve as the member or members, designating, if it desires, other directors as alternate members who may replace any absent or disqualified member at any meeting of the committee.  Any such committee, 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 amending the Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation’s property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or amending the By-Laws of the Corporation.  Any committee so designated may exercise the power and authority of the Board of Directors to declare a dividend, to authorize the issuance of stock or to adopt a certificate of ownership and merger pursuant to Section 253 of the Delaware General Corporation Law if the resolution which designates the committee or a supplemental resolution of the Board of Directors shall so provide.  In the absence or disqualification of any member of any committee and any alternate member in his or her place, the member or members of the committee present at the meeting and not disqualified from voting, whether or not he or she or they constitute a quorum, may by unanimous vote appoint another member of the Board of Directors to act at the meeting in the place of the absent or disqualified member.

 

Section 2.                                          Conduct of Business.

 

Each committee may determine the procedural rules for meeting and conducting its business and shall act in accordance therewith, except as otherwise provided herein or required by law.  Adequate provision shall be made for notice to members of all meetings; one-third (1/3) of the members shall constitute a quorum; and all matters shall be determined by a majority vote of the members present.  Action may be taken by any committee without a meeting if all members thereof consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of such committee.

 

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ARTICLE IV - OFFICERS

 

Section 1.                                          Enumeration.

 

The officers of the Corporation shall be the President, the Treasurer, the Secretary and such other officers as the Board of Directors or the Chairman of the Board may determine, including, but not limited to, the Chairman of the Board of Directors, one or more Vice Presidents, Assistant Treasurers and Assistant Secretaries.

 

Section 2.                                          Election.

 

The Chairman of the Board, if any, the President, the Treasurer and the Secretary shall be elected annually by the Board of Directors at their first meeting following the annual meeting of the stockholders.  The Board of Directors or such officer of the Corporation as it may designate, if any, may, from time to time, elect or appoint such other officers as it or he or she may determine, including, but not limited to, one or more Vice Presidents, Assistant Treasurers and Assistant Secretaries.

 

Section 3.                                          Qualification.

 

No officer need be a stockholder.  The Chairman of the Board, if any, and any Vice Chairman appointed to act in the absence of the Chairman, if any, shall be elected by and from the Board of Directors, but no other officer need be a director.  Two or more offices may be held by any one person.  If required by vote of the Board of Directors, an officer shall give bond to the Corporation for the faithful performance of his or her duties, in such form and amount and with such sureties as the Board of Directors may determine.  The premiums for such bonds shall be paid by the Corporation.

 

Section 4.                                          Tenure and Removal.

 

Each officer elected or appointed by the Board of Directors shall hold office until the first meeting of the Board of Directors following the next annual meeting of the stockholders and until his or her successor is elected or appointed and qualified, or until he or she dies, resigns, is removed or becomes disqualified, unless a shorter term is specified in the vote electing or appointing said officer.  Each officer appointed by an officer designated by the Board of Directors to elect or appoint such officer, if any, shall hold office until his or her successor is elected or appointed and qualified, or until he or she dies, resigns, is removed or becomes disqualified, unless a shorter term is specified by any agreement or other instrument appointing such officer.  Any officer may resign by giving written notice of his or her resignation to the Chairman of the Board, if any, the President, or the Secretary, or to the Board of Directors at a meeting of the Board, and such resignation shall become effective at the time specified therein.  Any officer may be removed from office with or without cause by vote of a majority of the directors.  Any officer appointed by an officer designated by the Board of Directors to elect or appoint such officer, if any, may be removed with or without cause by such officer.

 

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Section 5.                                          Chairman of the Board.

 

The Chairman of the Board, if any, shall preside at all meetings of the Board of Directors and stockholders at which he or she is present and shall have such authority and perform such duties as may be prescribed by these By-Laws or from time to time be determined by the Board of Directors.

 

Section 6.                                          President.

 

The President shall, subject to the control and direction of the Board of Directors, have and perform such powers and duties as may be prescribed by these By-Laws or from time to time be determined by the Board of Directors.

 

Section 7.                                          Vice Presidents.

 

The Vice Presidents, if any, in the order of their election, or in such other order as the Board of Directors may determine, shall have and perform the powers and duties of the President (or such of the powers and duties as the Board of Directors may determine) whenever the President is absent or unable to act.  The Vice Presidents, if any, shall also have such other powers and duties as may from time to time be determined by the Board of Directors.

 

Section 8.                                          Treasurer and Assistant Treasurers.

 

The Treasurer shall, subject to the control and direction of the Board of Directors, have and perform such powers and duties as may be prescribed in these By-Laws or be determined from time to time by the Board of Directors.  All property of the Corporation in the custody of the Treasurer shall be subject at all times to the inspection and control of the Board of Directors.  Unless otherwise voted by the Board of Directors, each Assistant Treasurer, if any, shall have and perform the powers and duties of the Treasurer whenever the Treasurer is absent or unable to act, and may at any time exercise such of the powers of the Treasurer, and such other powers and duties, as may from time to time be determined by the Board of Directors.

 

Section 9.                                          Secretary and Assistant Secretaries.

 

The Board of Directors shall appoint a Secretary and, in his or her absence, an Assistant Secretary.  The Secretary or, in his or her absence, any Assistant Secretary, shall attend all meetings of the directors and shall record all votes of the Board of Directors and minutes of the proceedings at such meetings.  The Secretary or, in his or her absence, any Assistant Secretary, shall notify the directors of their meetings, and shall have and perform such other powers and duties as may from time to time be determined by the Board of Directors.  If the Secretary or an Assistant Secretary is elected but is absent from any meeting of directors, a temporary secretary may be appointed by the directors at the meeting.

 

Section 10.                                   Bond.

 

If required by the Board of Directors, any officer shall give the Corporation a bond in such sum and with such surety or sureties and upon such terms and conditions as shall be satisfactory to the Board of Directors, including without limitation a bond for the faithful

 

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performance of the duties of his office and for the restoration to the Corporation of all books, papers, vouchers, money and other property of whatever kind in his or her possession or under his control and belonging to the Corporation.

 

Section 11.                                   Action with Respect to Securities of Other Corporations.

 

Unless otherwise directed by the Board of Directors, the President, the Treasurer or any officer of the Corporation authorized by the President shall have power to vote and otherwise act on behalf of the Corporation, in person or by proxy, at any meeting of stockholders of or with respect to any action of stockholders of any other corporation in which this Corporation may hold securities and otherwise to exercise any and all rights and powers which this Corporation may possess by reason of its ownership of securities in such other corporation.

 

ARTICLE V - STOCK

 

Section 1.                                          Certificates of Stock.

 

Each stockholder shall be entitled to a certificate signed by, or in the name of the Corporation by the Chairman of the Board of Directors, or the President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, certifying the number of shares owned by him or her.  Any or all of the signatures on the certificate may be by facsimile.

 

Section 2.                                          Transfers of Stock.

 

Transfers of stock shall be made only upon the transfer books of the Corporation kept at an office of the Corporation or by transfer agents designated to transfer shares of the stock of the Corporation.  Except where a certificate is issued in accordance with Section 4 of this Article of these By-Laws, an outstanding certificate for the number of shares involved shall be surrendered for cancellation before a new certificate is issued therefor.

 

Section 3.                                          Record Date.

 

In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders, or to receive payment of any dividend or other distribution or allotment of any rights or 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 on which the resolution fixing the record date is adopted and which record date shall not be more than sixty (60) nor less than ten (10) days before the date of any meeting of stockholders, nor more than sixty (60) days prior to the time for such other action as hereinbefore described; provided, however, that if no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held, and, for determining stockholders entitled to receive payment of any dividend or other distribution or allotment of rights or to exercise any rights of change, conversion or exchange of stock or for any other purpose, the

 

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record date shall be at the close of business on the day on which the Board of Directors adopts a resolution relating thereto.

 

A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.

 

Section 4.                                          Lost, Stolen or Destroyed Certificates.

 

In the event of the loss, theft or destruction of any certificate of stock, another may be issued in its place pursuant to such regulations as the Board of Directors may establish concerning proof of such loss, theft or destruction and concerning the giving of a satisfactory bond or bonds of indemnity.

 

Section 5.                                          Regulations.

 

The issue, transfer, conversion and registration of certificates of stock shall be governed by such other regulations as the Board of Directors may establish.

 

Section 6.                                          Interpretation.

 

The Board of Directors shall have the power to interpret all of the terms and provisions of these By-Laws, which interpretation shall be conclusive.

 

ARTICLE VI - NOTICES

 

Section 1.                                          Notices.

 

Except as otherwise specifically provided herein or required by law, all notices required to be given to any stockholder, director, officer, employee or agent shall be in writing and may in every instance be effectively given by hand delivery to the recipient thereof, by depositing such notice in the mail, postage paid, or by sending such notice by courier service, prepaid telegram or mailgram, or telecopy, cable, or telex.  Any such notice shall be addressed to such stockholder, director, officer, employee or agent at his or her last known address as the same appears on the books of the Corporation.  The time when such notice is received, if hand delivered, or dispatched, if delivered through the mail or by courier, telegram, mailgram, telecopy, cable, or telex shall be the time of the giving of the notice.

 

Section 2.                                          Waiver of Notice.

 

A written waiver of any notice, signed by a stockholder, director, officer, employee or agent, whether 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 stockholder, director, officer, employee or agent.  Neither the business nor the purpose of any meeting need be specified in such a waiver.  Attendance of a director or stockholder at a meeting without protesting prior thereto or at its commencement the lack of notice shall also constitute a waiver of notice by such director or stockholder.

 

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ARTICLE VII - -INDEMNIFICATION

 

Section 1.                                          Actions other than by or in the Right of the Corporation.

 

The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he or she is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit or proceeding if he or she 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 Corporation, and, with respect to any criminal action or proceedings, had no reasonable cause to believe his or her conduct was unlawful.  The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person 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 Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful.

 

Section 2.                                          Actions by or in the Right of the Corporation.

 

The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he or she is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, or other enterprise against expenses (including attorneys’ fees) actually and reasonably incurred by him or her in connection with the defense or settlement of such action or suit if he 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 Corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery of the State of Delaware or such other court shall deem proper.

 

Section 3.                                          Success on the Merits.

 

To the extent that any person described in Section 1 or Section 2 of this Article has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in said Sections, or in defense of any claim, issue or matter therein, he or she shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by him or her in connection therewith.

 

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Section 4.                                          Specific Authorization.

 

Any indemnification under Section 1 or Section 2 of this Article (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of any person described in said Sections is proper in the circumstances because he or she has met the applicable standard of conduct set forth in said Sections.  Such determination shall be made (1) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (3) by the stockholders of the Corporation.

 

Section 5.                                          Advance Payment.

 

Expenses incurred in defending any civil, criminal, administrative, or investigative action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of any person described in said Section to repay such amount if it shall ultimately be determined that he or she is not entitled to indemnification by the Corporation as authorized in this Article.

 

Section 6.                                          Non-Exclusivity.

 

The indemnification and advancement of expenses provided by, or granted pursuant to, the other Sections of this Article shall not be deemed exclusive of any other rights to which those provided indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person’s official capacity and as to action in another capacity while holding such office.

 

Section 7.                                          Insurance.

 

The Board of Directors may authorize, by a vote of the majority of the full board, the Corporation to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the corporation would have the power to indemnify him or her against such liability under the provisions of this Article,

 

Section 8.                                          Continuation of Indemnification and Advancement of Expenses.

 

The indemnification and advancement of expenses provided by, or granted pursuant to, this Article shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.

 

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Section 9.                                          Severability.

 

If any word, clause or provision of this Article or any award made hereunder shall for any reason be determined to be invalid, the provisions hereof shall not otherwise be affected thereby but shall remain in full force and effect.

 

Section 10.                                   Intent of Article.

 

The intent of this Article is to provide for indemnification and advancement of expenses to the fullest extent permitted by Section 145 of the General Corporation Law of Delaware.  To the extent that such Section or any successor section may be amended or supplemented from time to time, this Article shall be amended automatically and construed so as to permit indemnification and advancement of expenses to the fullest extent from time to time permitted by law.

 

ARTICLE VIII - CERTAIN TRANSACTIONS

 

Section 1.                                          Transactions with Interested Parties.

 

No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board or committee thereof which authorizes the contract or transaction or solely because the votes of such director or officer are counted for such purpose, if:

 

(a)                                 The material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or

 

(b)                                 The material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or

 

(c)                                  The contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee thereof, or the stockholders.

 

Section 2.                                          Quorum.

 

Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction.

 

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ARTICLE IX - MISCELLANEOUS

 

Section 1.                                          Facsimile Signatures.

 

In addition to the provisions for use of facsimile signatures elsewhere specifically authorized in these By-Laws, facsimile signatures of any officer or officers of the Corporation may be used whenever and as authorized by the Board of Directors or a committee thereof.

 

Section 2.                                          Corporate Seal.

 

The Board of Directors may provide a suitable seal, containing the name of the Corporation, which seal shall be in the charge of the Secretary.  If and when so directed by the Board of Directors or a committee thereof, duplicates of the seal may be kept and used by the Treasurer or by an Assistant Secretary or Assistant Treasurer.

 

Section 3.                                          Reliance upon Books, Reports and Records.

 

Each director, each member of any committee designated by the Board of Directors, and each officer of the Corporation shall, in the performance of his or her duties, be fully protected in relying in good faith upon the books of account or other records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of its officers or employees, or committees of the Board of Directors so designated, or by any other person as to matters which such director or committee member reasonably believes are within such other person’s professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation.

 

Section 4.                                          Fiscal Year.

 

Except as otherwise determined by the Board of Directors from time to time, the fiscal year of the Corporation shall end on the last day of December of each year.

 

Section 5.                                          Time Periods.

 

In applying any provision of these By-Laws which requires that an act be done or not be done a specified number of days prior to an event or that an act be done during a period of a specified number of days prior to an event, calendar days shall be used, the day of the doing of the act shall be excluded, and the day of the event shall be included.

 

ARTICLE X - AMENDMENTS

 

These By-Laws may be amended, added to, rescinded or repealed by the stockholders or by the Board of Directors, when such power is conferred upon the Board of Directors by the Certificate of Incorporation, at any meeting of the stockholders or of the Board of Directors, provided notice of the proposed change was given in the notice of the meeting or, in the case of a meeting of the Board of Directors, in a notice given not less than two (2) days prior to the meeting.

 

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Exhibit 4.2

 

KALA PHARMACEUTICALS, INC.

 

SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT

 

April 16, 2014

 



 

TABLE OF CONTENTS

 

1.

Certain Definitions

1

 

 

 

2.

Demand Registration

2

 

 

 

3.

Form S-3

4

 

 

 

4.

Piggyback Registration

4

 

 

 

5.

Registration Procedures

5

 

 

 

6.

Expenses

7

 

 

 

7.

Indemnification

8

 

 

 

8.

Compliance with Rule 144

10

 

 

 

9.

Rule 144A Information

11

 

 

 

10.

Amendments and Waivers

11

 

 

 

11.

Postponement

11

 

 

 

12.

Market Stand-Off

11

 

 

 

13.

Transferability of Registration Rights

12

 

 

 

14.

Rights Which May Be Granted to Subsequent Investors

12

 

 

 

15.

Termination of Registration Rights

12

 

 

 

16.

Damages

12

 

 

 

17.

Miscellaneous

12

 



 

SECOND AMENDED AND RESTATED

REGISTRATION RIGHTS AGREEMENT

 

This Second Amended and Restated Registration Rights Agreement, dated as of April 16, 2014 (this “Agreement”), is entered into by and among Kala Pharmaceuticals, Inc., a Delaware corporation (the “Company”), and the individuals and entities listed on Exhibit A attached hereto (collectively, the “Investors” and each individually, an “Investor”).

 

RECITALS:

 

WHEREAS, the Company and certain of the Investors are parties to that certain Amended and Restated Registration Rights Agreement, dated as of February 14, 2013 (the “Existing Registration Rights Agreement”);

 

WHEREAS, the Company and certain of the Investors (the “Series B Purchasers”) are entering into a Series B Preferred Stock Purchase Agreement of even date herewith (as amended and/or restated from time to time, the “Series B Purchase Agreement”) in connection with the issuance and sale by the Company to such Series B Purchasers of shares of the Company’s Series B Preferred Stock, par value $0.001 per share (the “Series B Preferred Stock”);

 

WHEREAS, as a condition precedent to the sale and purchase of the Series B Preferred Stock pursuant to the Series B Purchase Agreement, the Series B Purchasers have required that the Existing Registration Rights Agreement be amended and restated to, among other things, make the Series B Purchasers parties thereto;

 

WHEREAS, pursuant to Section 10 of the Existing Registration Rights Agreement, the amendment and restatement of the Existing Registration Rights Agreements requires the written consent of the holders of at least fifty percent (50%) of the Registrable Securities (as defined in the Existing Registration Rights Agreement); and

 

WHEREAS, the signatories to this Agreement hold the requisite number of Registrable Securities to effect the amendment and restatement of the Existing Registration Rights Agreement and desire to amend and restate the Existing Registration Rights Agreement in its entirety in the manner set forth herein.

 

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements hereinafter set forth, the parties hereto agree as follows:

 

1.                                      Certain Definitions.  As used in this Agreement, the following terms shall have the following respective meanings:

 

Charter” shall mean the Company’s Amended and Restated Certificate of Incorporation, as amended and/or restated from time to time.

 

Commissionshall mean the United States Securities and Exchange Commission, or any other federal agency administering the Securities Act and the Exchange Act at the time.

 

Common Stockshall mean the Company’s common stock, par value $0.001 per share.

 



 

Damages” shall mean any loss, claim, damage, expense or liability, joint or several, to which a party hereto may become subject under the Securities Act, the Exchange Act or any other statute or at common law.

 

Exchange Actshall mean the Securities Exchange Act of 1934, as amended, or any similar successor federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time.

 

Indemnified Person” shall mean a Company Indemnified Person and/or an Investor Indemnified Person, as applicable.

 

Personshall mean an individual, a corporation, a partnership, a joint venture, a trust, an unincorporated organization, a limited liability company or partnership, a government and any agency or political subdivision thereof.

 

Preferred Stock” shall mean, collectively, the Seed Preferred Stock, the Series A Preferred Stock and the Series B Preferred Stock.

 

Registrable Securitiesshall mean (i) the shares of Common Stock issued or issuable upon conversion of the Preferred Stock held, or hereafter acquired, by the Investors, and (ii) any other shares of Common Stock issued or issuable in respect of such shares (because of stock splits, stock dividends, reclassifications, recapitalizations or similar events).

 

Securities Actshall mean the Securities Act of 1933, as amended, or any similar successor federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time.

 

Seed Preferred Stock” shall mean the Company’s Seed Preferred Stock, par value $0.001 per share.

 

Series A Preferred Stock” shall mean the Company’s Series A Preferred Stock, par value $0.001 per share.

 

Series B Preferred Stock” shall mean the Company’s Series B Preferred Stock, par value $0.001 per share.

 

2.                                      Demand Registration

 

(a)                                 At any time after the earlier of (i) five (5) years from the date of this Agreement and (ii) one hundred eighty (180) days after the initial public offering of the Company’s Common Stock pursuant to an effective registration under the Securities Act, the holders of at least fifty percent (50%) of the Registrable Securities then outstanding may notify the Company that they intend to offer or cause to be offered for public sale at least fifty percent (50%) of the Registrable Securities then outstanding (or any lesser number of Registrable Securities if the anticipated aggregate sale price, net of underwriting discounts and commissions, if any, would exceed $10,000,000).  Upon receipt of such request, the Company shall promptly deliver notice of such request to all Investors holding Registrable Securities who shall then have thirty (30) days to notify the Company in writing of their desire to be included in such registration.  If the request for

 

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registration contemplates an underwritten public offering, the Company shall state such in the written notice and in such event the right of any Person to participate in such registration shall be conditioned upon such Person’s participation in such underwritten public offering and the inclusion of such Person’s Registrable Securities in the underwritten public offering to the extent provided herein.  The Company will use its reasonable best efforts to expeditiously effect (but in any event no later than thirty (30) days after such request) the registration of all Registrable Securities whose holders request participation in such registration under the Securities Act, but only to the extent provided for in this Agreement; provided, however, that the Company shall not be required to effect registration pursuant to a request under this Section 2(a) more than two (2) times for the holders of the Registrable Securities as a group.  Notwithstanding anything to the contrary contained herein, no request may be made under this Section 2(a) within ninety (90) days after the effective date of a registration statement filed by the Company covering a firm commitment underwritten public offering in which the holders of Registrable Securities shall have been entitled to join pursuant to Section 4 and in which there shall have been effectively registered all Registrable Securities as to which registration shall have been requested.  A registration will not count as a requested registration under this Section 2(a) unless and until the registration statement relating to such registration has been declared effective by the Commission; provided, however, that a majority in interest of the participating holders of Registrable Securities may request, in writing, that the Company withdraw a registration statement which has been filed under this Section 2(a) but has not yet been declared effective, and a majority in interest of such holders may thereafter request the Company to reinstate such registration statement, if permitted under the Securities Act, or to file another registration statement, in accordance with the procedures set forth herein and without reduction in the number of demand registrations permitted under this Section 2(a).

 

(b)                                 If a requested registration involves an underwritten public offering and the managing underwriter of such offering determines in good faith that the number of securities sought to be offered should be limited due to market conditions, then the number of securities to be included in such underwritten public offering shall be reduced to a number deemed satisfactory by such managing underwriter; provided, that the securities to be excluded shall be determined in the following order of priority: (i) first, persons not having any contractual or other right to include such securities in the registration statement, (ii) second, securities held by any other Persons (other than the holders of Registrable Securities) having a contractual, incidental “piggy back” right to include such securities in the registration statement, (iii) third, securities to be registered by the Company pursuant to such registration statement, (iv) fourth, Registrable Securities of holders who did not make the original request for registration and, if necessary, (v) fifth, Registrable Securities of holders who requested such registration pursuant to Section 2(a).  If there is a reduction of the number of Registrable Securities pursuant to clauses (iv) or (v), such reduction shall be made on a pro rata basis (based upon the aggregate number of Registrable Securities held by such holders).

 

(c)                                  With respect to a request for registration pursuant to Section 2(a) which is for an underwritten public offering, the managing underwriter shall be chosen by the holders of a majority of the Registrable Securities to be sold in such offering, subject only to the consent of the Company, which consent shall not be unreasonably withheld.  The Company may not cause any other registration of securities for sale for its own account (other than a registration effected solely

 

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to implement an employee benefit plan) to become effective within one hundred twenty (120) days following the effective date of any registration required pursuant to this Section 2.

 

3.                                      Form S-3.  An Investor or Investors holding Registrable Securities anticipated to have an aggregate sale price (net of underwriting discounts and commissions, if any) in excess of $1,000,000 shall have the right to request any number of registrations on Form S-3 (or any successor form) for the Registrable Securities held by such requesting holder or holders; provided, however, that the Company (i) is then eligible to use such Form S-3 (or successor form) and (ii) shall not be required to file more than two (2) such registration statements on Form S-3 (or any successor form) in any twelve (12) month period. Such requests shall be in writing and shall state the number of shares of Registrable Securities to be disposed of and the intended method of disposition of such shares by such holder or holders.  The Company shall give notice to all other holders of the Registrable Securities of the receipt of a request for registration pursuant to this Section 3 and such holders of Registrable Securities shall then have thirty (30) days to notify the Company in writing of their desire to participate in the registration.  The Company shall use its reasonable best efforts to effect promptly the registration of all shares on Form S-3 (or any successor form) to the extent requested by such holders.  The Company shall use its reasonable best efforts to keep such registration statement effective until the earlier of ninety (90) days or until such holders have completed the distribution described in such registration statement.

 

4.                                      Piggyback Registration.  If the Company at any time proposes to register any of its securities under the Securities Act for sale to the public (except with respect to registration statements on Forms S-4, S-8 or another form not available for registering the Registrable Securities for sale to the public), each such time it will give written notice at the applicable address of record to each holder of Registrable Securities of its intention to do so.  Upon the written request of any of such holders of the Registrable Securities, given within twenty (20) days after receipt by such Person of such notice, the Company will, subject to the limits contained in this Section 4, use its reasonable best efforts to cause all such Registrable Securities of said requesting holders to be registered under the Securities Act and qualified for sale under any state blue sky law, all to the extent required to permit such sale or other disposition of said Registrable Securities; provided, however, that if the Company is advised in writing in good faith by any managing underwriter of the Company’s securities being offered in a public offering pursuant to such registration statement that the amount to be sold by persons other than the Company (collectively, “Selling Stockholders”) is greater than the amount which can be offered without adversely affecting the offering, the Company may reduce the amount offered for the accounts of Selling Stockholders (including such holders of shares of Registrable Securities) to a number deemed satisfactory by such managing underwriter; provided, further, that (a) in no event shall the amount of Registrable Securities of Selling Stockholders be reduced below twenty-five percent (25%) of the total amount of securities included in such offering, unless such offering is the initial public offering of the Company’s securities; and (b) any shares to be excluded shall be determined in the following order of priority: (i) securities held by any Persons not having any such contractual, incidental registration rights, (ii) securities held by any Persons having contractual, incidental registration rights pursuant to an agreement which is not this Agreement, and (iii) the Registrable Securities sought to be included by the holders thereof as determined on a pro rata basis (based upon the aggregate number of Registrable Securities held by such holders).

 

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5.                                      Registration Procedures.  If and whenever the Company is required by the provisions of this Agreement to use its reasonable best efforts to promptly effect the registration of any of its securities under the Securities Act, the Company will:

 

(a)                                 use its reasonable best efforts to diligently prepare and file with the Commission a registration statement on the appropriate form under the Securities Act with respect to such securities, which form shall comply as to form in all material respects with the requirements of the applicable form and include all financial statements required by the Commission to be filed therewith, and use its reasonable best efforts to cause such registration statement to become and remain effective for, except as specified in Section 3 above, a period of up to one hundred eighty (180) days or, if earlier, until completion of the proposed offering;

 

(b)                                 use its reasonable best efforts to diligently prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective until the selling Investor(s) have completed the distribution described in such registration statement, unless otherwise set forth herein, and to comply with the provisions of the Securities Act with respect to the sale or other disposition of all securities covered by such registration statement whenever the seller or sellers of such securities shall desire to sell or otherwise dispose of the same, but only to the extent provided in this Agreement;

 

(c)                                  furnish to each selling Investor and the underwriters, if any, such number of copies of such registration statement, any amendments thereto, any documents incorporated by reference therein, the prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as such selling Investor may reasonably request in order to facilitate the public sale or other disposition of the securities owned by such selling Investor;

 

(d)                                 use its reasonable best efforts to register or qualify the securities covered by such registration statement under such other securities or state blue sky laws of such jurisdictions as each selling Investor shall reasonably request, and do any and all other acts and things which may be necessary under such securities or blue sky laws to enable such selling Investor to consummate the public sale or other disposition in such jurisdictions of the securities owned by such selling Investor, except that the Company shall not for any such purpose be required to qualify to do business as a foreign corporation or to file a general consent to service of process in any such states or jurisdictions wherein it is not already so qualified;

 

(e)                                  within a reasonable time before each filing of the registration statement or prospectus or amendments or supplements thereto with the Commission, furnish to counsel selected by the selling Investors copies of such documents proposed to be filed, having considered in good faith any comments to such documents from such counsel;

 

(f)                                   immediately notify each selling Investor, such selling Investor’s counsel and any underwriter (and if requested by any such Person, confirm such notice in writing) of the happening of any event that makes any statement made in the registration statement or related prospectus untrue or which requires the making of any changes in such registration statement or prospectus so that they will not contain any untrue statement of a material fact or omit to state any

 

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material fact required to be stated therein or necessary to make the statements therein in the light of the circumstances under which they were made not misleading; and, as promptly as practicable thereafter, prepare and file with the Commission and furnish a supplement or amendment to such prospectus so that, as thereafter deliverable to the purchasers of such Registrable Securities, such prospectus will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading;

 

(g)                                  use its reasonable best efforts to prevent the issuance of any order suspending the effectiveness of a registration statement, and if one is issued, use its reasonable best efforts to obtain the withdrawal of any order suspending the effectiveness of a registration statement at the earliest possible moment;

 

(h)                                 if requested by the managing underwriter or underwriters (if any), any selling Investor, or such selling Investor’s counsel, promptly incorporate in a prospectus supplement or post-effective amendment such information as such Person reasonably and appropriately requests to be included therein and promptly make all required filings of such prospectus supplement or post-effective amendment;

 

(i)                                     make available to each selling Investor, any underwriter participating in any disposition pursuant to a registration statement, and any attorney, accountant or other agent or representative retained by any such selling Investor or underwriter (collectively, the “Inspectors”), all financial and other records, pertinent corporate documents and properties of the Company (collectively, the “Records”), as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause the Company’s officers, directors and employees to supply all information reasonably requested by any such Inspector in connection with such registration statement as necessary or advisable to verify the accuracy of the information in such registration statement and to conduct appropriate due diligence in connection therewith;

 

(j)                                    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 and use its reasonable best efforts to facilitate the public offering of the securities;

 

(k)                                 furnish to each prospective selling Investor a signed counterpart, addressed to the prospective selling Investor, of (A) an opinion of counsel for the Company, dated the effective date of the registration statement, and (B) a “comfort” letter signed by the independent public accountants who have certified the Company’s financial statements included in the registration statement, covering substantially the same matters with respect to the registration statement (and the prospectus included therein) and (in the case of the accountants’ letter) with respect to events subsequent to the date of the financial statements, as are customarily covered (at the time of such registration) in opinions of the Company’s counsel and in accountants’ letters delivered to the underwriters in underwritten public offerings of securities;

 

(l)                                     cause the securities covered by such registration statement to be listed on the securities exchange or quoted on the quotation system on which the Common Stock of the

 

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Company is then listed or quoted (or if the Common Stock is not yet listed or quoted, then on such exchange or quotation system as the Company shall determine);

 

(m)                             otherwise use its reasonable best efforts to comply with all applicable rules and regulations of the Commission and make generally available to its security holders, in each case as soon as practicable, but not later than thirty (30) days after the close of the period covered thereby, an earnings statement of the Company which will satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or any comparable successor provisions);

 

(n)                                 otherwise cooperate with the underwriter(s), the Commission and other regulatory agencies and take all actions and execute and deliver or cause to be executed and delivered all documents necessary to effect the registration of any securities under this Agreement; and

 

(o)                                 during the period when the prospectus is required to be delivered under the Securities Act, promptly file all documents required to be filed with the Commission pursuant to Sections 13(a), 13(c), 14, or 15(d) of the Exchange Act.

 

6.                                      Expenses.  All expenses incurred by the Company or the selling Investors in effecting the registrations provided for in Sections 2, 3 and 4 of this Agreement, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel for the Company, the reasonable fees and disbursements of one counsel (the “Selling Investor Counsel”) for the selling Investors (selected by at least fifty percent (50%) in interest of Registrable Securities being registered and held by the selling Investors participating in such registration), underwriting expenses (other than fees, commissions or discounts), expenses of any audits incident to or required by any such registration and expenses of complying with the securities or blue sky laws of any jurisdictions (all of such expenses referred to as “Registration Expenses”), shall be paid by the Company; provided, however, that the Company shall not be required to pay for any Registration Expenses of any registration proceeding begun pursuant to Section 2 if the registration request is subsequently withdrawn at the request of the selling Investors holding at least fifty percent (50%) in interest of the Registrable Securities requested to be registered pursuant to Section 2 (in which case, all such selling Investors shall bear such Registration Expenses pro rata based upon the number of Registrable Securities held by each such selling Investor that were to be included in the withdrawn registration), unless the selling Investors holding at least fifty percent (50%) in interest of the Registrable Securities requested to be registered pursuant to Section 2 forfeit their right to one registration pursuant to Section 2; provided that if, at the time of such withdrawal, the selling Investors shall have learned of a material adverse change in the condition, business, or prospects of the Company from that known to the selling Investors at the time of their request and have withdrawn the request with reasonable promptness after learning of such information, then the selling Investors shall not be required to pay any of such Registration Expenses and shall not forfeit their right to one registration pursuant to Section 2.  All Selling Expenses (as defined below) relating to Registrable Securities registered pursuant to this Agreement shall be borne and paid by the selling Investors pro rata on the basis of the number of Registrable Securities registered on their behalf. “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 selling Investor, except for

 

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the fees and disbursements of the Selling Investor Counsel borne and paid by the Company as provided in this Section 6.

 

7.                                      Indemnification.

 

(a)                                 The Company shall indemnify and hold harmless each selling Investor (including its partners (including partners of partners and shareholders of such partners)), the directors, officers, employees and agents of each such selling Investor, any underwriter (as defined in the Securities Act) of an offering of Registrable Securities of such Investor, and each Person, if any, who controls (within the meaning of the Securities Act) such selling Investor or underwriter (each, a “Company Indemnified Person”) against any Damages, insofar as such Damages (or action in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained, on the effective date thereof, in any registration statement of the Company under which securities held by such party were registered under the Securities Act, including any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereto, (ii) any omission or alleged omission by the Company to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or (iii) any violation by the Company of the Securities Act, the Exchange Act, any state securities or “blue sky” laws or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities or “blue sky” laws.  Except as otherwise provided in Section 7(d), the Company shall reimburse each such Company Indemnified Person in connection with investigating or defending any claim or proceeding from which Damages may result.  Notwithstanding the foregoing, the Company shall not be liable to any Company Indemnified Person in any such case to the extent that any such Damages arise out of or are based upon any untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, preliminary or final prospectus, or amendment or supplement thereto, in reliance upon and in conformity with information furnished in writing to the Company by such Company Indemnified Person specifically for use therein.  The Company shall not be required to indemnify any Company Indemnified Person against any liability arising from any untrue or misleading statement or omission contained in any preliminary prospectus if such deficiency is corrected in the final prospectus or for any liability which arises out of the failure of any Company Indemnified Person to deliver a prospectus as required by the Securities Act regardless of any investigation made by or on behalf of such Company Indemnified Person; and the provisions of this sentence shall survive any transfer of such securities by such selling Investor.

 

(b)                                 Each selling Investor shall indemnify and hold harmless each other selling Investor of any securities, the Company, its directors and officers, any underwriter (as defined in the Securities Act), legal counsel and accountants for the Company, and each other Person, if any, who controls (within the meaning of the Securities Act) the Company or such underwriter (each, an “Investor Indemnified Person”), against any Damages, insofar as such Damages (or action in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained, on the effective date thereof, in any registration statement of the Company under which securities held by such party were registered under the Securities Act, including any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereto or (ii) any omission or alleged omission by such selling Investor to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in the case of clauses (i) and (ii) of this sentence to the extent, but only to the extent,

 

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that such untrue statement or alleged untrue statement or omission or alleged omission was made in such registration statement, preliminary or final prospectus, amendment or supplement thereto in reliance upon and in conformity with information furnished in writing to the Company by such selling Investor specifically for use therein.  Such selling Investor shall reimburse any Investor Indemnified Person for any legal fees incurred in investigating or defending any claim or proceeding from which Damages may result.  Notwithstanding the foregoing, except in the case of fraud or willful misconduct by a selling Investor, in no event shall the liability of any selling Investor for indemnification under this Section 7 exceed the lesser of (i) that proportion of the total of such Damages equal to the proportion of the total Registrable Securities sold under such registration statement by such selling Investor compared to the total Registrable Securities sold under such registration statement by the Selling Investors, or (ii) the amount equal to the proceeds from the offering received by such selling Investor.  No selling Investor shall be required to indemnify any Investor Indemnified Person against any Damages arising from any untrue or misleading statement or omission contained in any preliminary prospectus if such deficiency is corrected in the final prospectus or for any Damages which arise out of the failure of any Investor Indemnified Person to deliver a prospectus as required by the Securities Act.

 

(c)                                  Indemnification similar to that specified in Sections 7(a) and (b) shall be given by the Company and each selling Investor (with such modifications as may be appropriate) with respect to any required registration or other qualification of their securities under any federal or state law or regulation of governmental authority other than the Securities Act.

 

(d)                                 In the event the Company, any selling Investor or other Person receives a complaint, claim or other notice of any liability or action, giving rise to a claim for indemnification under Section 7(a), (b) or (c) above, the Person claiming indemnification under such paragraphs shall promptly notify the Person against whom indemnification is sought of such complaint, notice, claim or action, and such indemnifying Person shall have the right to investigate and defend any such complaint, notice, claim or action.

 

(e)                                  If the indemnification provided for in this Section 7 for any reason is held by a court of competent jurisdiction to be unavailable to an Indemnified Person in respect of any Damages, then each indemnifying party under this Section 7, in lieu of indemnifying such Indemnified Person under this Section 7, shall contribute to the amount paid or payable by such Indemnified Person as a result of such Damages (i) in such proportion as is appropriate to reflect the relative benefits received by the Company, the selling Investor(s) and the underwriters from the offering of Registrable Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company, the selling Investor(s) and the underwriters in connection with the statements or omissions which resulted in such Damages, as well as any other relevant equitable considerations.  The relative benefits received by the Company, the selling Investor(s) and the underwriters shall be deemed to be in the same respective proportions that the net proceeds from the offering (before deducting expenses) received by the Company, the selling Investor(s), and the underwriting discount received by the underwriters, in each case, as set forth in the table on the cover page of the applicable prospectus, bear to the aggregate public offering price of the Registrable Securities.  The relative fault of the Company, the selling Investor(s) and the underwriters shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or

 

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alleged omission to state a material fact relates to information supplied by the Company, the selling Investor(s), or the underwriters and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.

 

The Company and the selling Investors agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata or per capita allocation or by any other method of allocation which does not take account the equitable considerations referred to in the immediately preceding paragraph.  Except in the case of fraud or willful misconduct by a selling Investor, in no event shall a selling Investor be required to contribute under this Section 7(e) in excess of the lesser of (i) that proportion of the total of such Damages equal to the proportion of the total Registrable Securities sold under such registration statement by such selling Investor compared to the total Registrable Securities sold under such registration statement by the Selling Investors, or (ii) the amount equal to the proceeds from the offering received by such selling Investor.  No Person found guilty of fraudulent representation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not found guilty of such fraudulent misrepresentation.

 

(f)                                   The amount paid by an indemnifying party or payable to an Indemnified Person as a result of any Damages referred to in this Section 7 shall be deemed to include, subject to limitations set forth above, any legal or other expenses reasonably incurred by such Indemnified Person in connection with investigating or defending any such action or claim, payable as the same are incurred.  The indemnification and contribution provided for in this Section 7 will remain in full force and effect regardless of any investigation made by or on behalf of the indemnified parties or any other officer, director, employee, agent or controlling person of the indemnified parties.

 

(g)                                  No indemnifying party, in the defense of any complaint, notice, claim or action, shall enter into a consent or entry of any judgment or enter into a settlement without the consent of the Indemnified Person, which consent shall not be unreasonably withheld or delayed.  Notwithstanding anything to the contrary set forth herein, (i) the indemnity agreement contained in Section 7(a) shall not apply to amounts paid in settlement of any complaint, notice, claim or action if such settlement is effected without the consent of the Company, which consent will not be unreasonably withheld or delayed, and (ii) the indemnity agreement contained in Section 7(b) shall not apply to amounts paid in settlement of any complaint, notice, claim or action if such settlement is effected without the consent of the selling Investors, which consent will not be unreasonably withheld or delayed.

 

8.                                      Compliance with Rule 144.  In the event that the Company (i) registers a class of securities under Section 12 of the Exchange Act or (ii) shall commence to file reports under Section 13 or 15(d) of the Exchange Act, the Company will use its reasonable best efforts thereafter to file with the Commission such information as is required under the Exchange Act for so long as there are holders of Registrable Securities; and in such event, the Company shall use its reasonable best efforts to take all action as may be required as a condition to the availability of Rule 144 under the Securities Act (or any comparable successor rules).  After the occurrence of the first underwritten public offering of Common Stock pursuant to an offering registered under the Securities Act on Form S-l (or any comparable successor forms), subject to the limitations on transfers imposed by this Agreement, the Company shall use its reasonable best efforts to facilitate and expedite transfers of Registrable Securities pursuant to Rule 144 under the Securities Act,

 

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which efforts shall include timely notice to its transfer agent to expedite such transfers of Registrable Securities.

 

9.                                      Rule 144A Information.  The Company shall, upon written request of any Investor, provide to such Investor and to any prospective institutional transferee of the Common Stock designated by such Investor, such financial and other information as is available to the Company or can be obtained by the Company without material expense and as such Investor may reasonably determine is required to permit such transfer to comply with the requirements of Rule 144A promulgated under the Securities Act.

 

10.                               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 the Company and the holders of at least fifty percent (50%) of the Registrable Securities then outstanding.  For the purposes of this Agreement, no course of dealing between or among any of the parties hereto and no delay on the part of any party hereto in exercising any rights hereunder shall operate as a waiver of the rights hereof.

 

11.                               Postponement.  The Company may postpone the filing of any registration statement required hereunder for a reasonable period of time, not to exceed ninety (90) days in the aggregate during any twelve-month period, if the Company has been advised by legal counsel that such filing would require a special audit or the disclosure of a material impending transaction or other matter and the Company’s Board of Directors determines reasonably and in good faith that such disclosure would have a material adverse effect on the Company (a “Black-Out Period”). Upon notice of the existence of a Black-Out Period from the Company to any Investor or Investors with respect to any registration statement already effective, such Investor or Investors shall refrain from selling their Registrable Securities under such registration statement until such Black-Out Period has ended; provided, however, that the Company shall not have the right to impose a Black-Out Period with respect to any registration statement that is already effective more than once during any period of twelve (12) consecutive months and in no event shall such Black-Out Period exceed sixty (60) days.

 

12.                               Market Stand-Off.  Each Investor agrees, that if requested by the Company and an underwriter in connection with any public offering of the Company of Common Stock or any other equity securities of the Company under the Securities Act on a registration statement on Form S-1 or Form S-3, not to directly or indirectly offer, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of or otherwise dispose of or transfer any securities of the Company held by it for such period, not to exceed one hundred eighty (180) days (plus any additional period of time as may be requested by the Company or such underwriter for the purpose of complying with FINRA Rule 2711(f)(4) or NYSE Rule 472(f)(4), or any successor provisions or amendments thereto) following the effective date of the relevant registration statement filed under the Securities Act in connection with the Company’s first underwritten public offering of Common Stock pursuant to an offering registered under the Securities Act on Form S-l (or any comparable successor forms) or any other public offering of equity securities of the Company registered under the Securities Act on Form S-1 or Form S-3, as such underwriter shall specify reasonably and in good faith; provided, however, that all officers and directors of the Company and all 1% or greater stockholders of the Company enter

 

11



 

into similar agreements; provided, further, however, that in the event the Company or such underwriter, as applicable, releases any securities of the Company from the restrictions set forth in this Section 12, such release shall be made on a pro rata basis (based upon the aggregate number of Registrable Securities held by the holders subject to the restrictions set forth in this Section 12).

 

13.                               Transferability of Registration Rights.  The registration rights set forth in this Agreement are transferable to each transferee of Registrable Securities. Each subsequent holder of Registrable Securities must consent in writing to be bound by the terms and conditions of this Agreement in order to acquire the rights granted pursuant to this Agreement.

 

14.                               Rights Which May Be Granted to Subsequent Investors.  Other than permitted transferees of Registrable Securities under Section 13, the Company shall not, without the prior written consent of holders of at least fifty percent (50%) in interest of the Registrable Securities then outstanding, (a) allow purchasers of the Company’s securities to become a party to this Agreement (except as permitted by Section 17(e) of this Agreement) or (b) grant any other registration rights, other than any incidental or so called piggyback registration rights to any third parties that are not inconsistent with the terms of this Agreement.

 

15.                               Termination of Registration Rights.  The right of any Investor to request registration or inclusion of Registrable Securities in any registration pursuant to Sections 2, 3, or 4 of this Agreement shall terminate on the seventh (7th) anniversary of the Company’s initial public offering.

 

16.                               Damages.  The Company recognizes and agrees that each holder of Registrable Securities may not have an adequate remedy if the Company fails to comply with the terms and provisions of this Agreement and that damages may not be readily ascertainable, and the Company expressly agrees that, in the event of such failure, the holder of Registrable Securities or any other Person entitled to the benefits of this Agreement shall be entitled to seek specific performance of any and all provisions hereof or to seek injunctive relief against the Company from continuing to commit any such breach of this Agreement.

 

17.                               Miscellaneous.

 

(a)                                 Notices.  All notices, requests, demands and other communications provided for herein shall be in writing and shall be deemed to have been duly given, delivered and received upon the earlier of actual receipt or: (a) personal delivery to the party to be notified, (b) when sent, if sent by electronic mail or facsimile during normal business hours of the recipient, and if not sent during normal business hours, then on the recipient’s next business day, (c) one (1) business day after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) deposit with a nationally recognized overnight courier, freight prepaid, specifying next business day delivery.  All notices, requests, demands and other communications provided for herein shall be given to the applicable party at the addresses indicated below:

 

12



 

To the Company:

 

Kala Pharmaceuticals, Inc.

100 Beaver Street

Suite 201

Waltham, MA 02453

Attention: Chief Executive Officer

Facsimile: 781-642-0399

Email: Guillaume.Pfefer@kalarx.com

 

With a copy to:

 

Wilmer Cutler Pickering Hale and Dorr LLP

60 State Street

Boston, MA 02109

Attention: Lia Der Marderosian, Esq.

Facsimile: 617-526-5000

Email: Lia.DerMarderosian@wilmerhale.com

 

If to the Investors, at their respective addresses as set forth on the signature pages or Exhibit A attached hereto, with a copy to Cooley LLP, One Freedom Square, Reston Town Center, 11951 Freedom Drive, Reston, Virginia 20190-5656, Attn: Christian Plaza, Esq., cplaza@cooley.com, Facsimile: 703-456-8100, and a copy to Jones Day, 1755 Embarcadero Road, Palo Alto, California 94303, Attn: Steve Gillette, Esq., segillette@jonesday.com, Facsimile: 650-739-3900.

 

If to any other holder of Registrable Securities:

 

At such Person’s address for notice as set forth in the books and records of the Company or, as to each of the foregoing, at such other address as shall be designated by such Person in a written notice to other parties complying as to delivery with the terms of this Section 17(a).

 

(b)                                 Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the state of Delaware, without giving effect to conflict of laws principles thereof.

 

(c)                                  Counterparts.  This Agreement 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 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.

 

(d)                                 Severability.  If any provision of this Agreement shall be held to be illegal, invalid or unenforceable, such illegality, invalidity or unenforceability shall attach only to such provision and shall not in any manner affect or render illegal, invalid or unenforceable any other provision of this Agreement, and this Agreement shall be carried out as if any such illegal, invalid or unenforceable provision were not contained herein.

 

13



 

(e)                                  Additional Investors.  Notwithstanding anything to the contrary contained herein, if the Company issues additional shares of the Company’s Preferred Stock after the date hereof, any purchaser of such shares of 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.

 

(f)                                   Entire Agreement.  This Agreement, including any schedules and exhibits hereto, constitutes the entire 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.  For the avoidance of doubt, upon the effectiveness of this Agreement, the Existing Registration Rights Agreement shall be deemed amended and restated and superseded and replaced in its entirety by this Agreement, and shall be of no further force or effect.

 

[Signature pages follow.]

 

14



 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first set forth above.

 

 

COMPANY:

 

 

 

KALA PHARMACEUTICALS, INC.

 

 

 

 

 

 

By:

/s/ Guillaume Pfefer

 

Name:

Guillaume Pfefer

 

Title:

President and Chief Executive Officer

 

[Signature Page to Second Amended and Restated Registration Rights Agreement]

 



 

 

INVESTORS:

 

 

 

LUX VENTURES II, L.P.

 

By:

Lux Venture Partners II, L.P., its General Partner

 

By:

Lux Venture Associates II, LLC, its General Partner

 

By:

Lux Capital Management, LLC, its Sole Member

 

 

 

 

 

 

 

By:

/s/ Robert Paull

 

Name:

Robert Paull

 

Title:

Managing Director

 

 

 

 

 

 

 

LUX VENTURES II SIDECAR, L.P.

 

By:

Lux Venture Partners II, L.P., its General Partner

 

By:

Lux Venture Associates II, LLC, its General Partner

 

By:

Lux Capital Management, LLC, its Sole Member

 

 

 

 

 

 

 

By:

/s/ Robert Paull

 

Name:

Robert Paull

 

Title:

Managing Director

 

 

 

 

 

 

 

LUX VENTURES II SIDECAR IV LLC

 

By:

Lux Venture Partners II, L.P., its Manager

 

By:

Lux Venture Associates II, LLC, its General Partner

 

By:

Lux Capital Management, LLC, its Sole Member

 

 

 

 

 

 

 

By:

/s/ Robert Paull

 

Name:

Robert Paull

 

Title:

Managing Director

 

[Signature Page to Second Amended and Restated Registration Rights Agreement]

 



 

 

INVESTORS (cont.):

 

 

 

THIRD ROCK VENTURES, L.P.

 

By:

Third Rock Ventures GP, L.P., its General Partner

 

By:

TRV GP, LLC, its General Partner

 

 

 

 

 

 

 

By:

/s/ Robert Tepper

 

Name:

Robert Tepper

 

Title:

Partner

 

[Signature Page to Second Amended and Restated Registration Rights Agreement]

 



 

 

INVESTORS (cont.):

 

 

 

POLARIS VENTURE PARTNERS V, L.P.

 

By:

Polaris Venture Management Co. V, L.L.C., its General Partner

 

 

 

 

 

 

 

By:

/s/ William E. Bilodeau

 

Name:

William E. Bilodeau

 

Title:

Attorney-in-fact

 

 

 

 

 

 

 

POLARIS VENTURE PARTNERS ENTREPRENEURS’ FUND V, L.P.

 

By:

Polaris Venture Management Co. V, L.L.C., its General Partner

 

 

 

 

 

 

 

By:

/s/ William E. Bilodeau

 

Name:

William E. Bilodeau

 

Title:

Attorney-in-fact

 

 

 

 

 

 

 

POLARIS VENTURE PARTNERS FOUNDERS’ FUND V, L.P.

 

By:

Polaris Venture Management Co. V, L.L.C., its General Partner

 

 

 

 

 

 

 

By:

/s/ William E. Bilodeau

 

Name:

William E. Bilodeau

 

Title:

Attorney-in-fact

 

[Signature Page to Second Amended and Restated Registration Rights Agreement]

 


 

 

INVESTORS (cont.):

 

 

 

POLARIS VENTURE PARTNERS SPECIAL FOUNDERS’ FUND V, L.P.

 

By:

Polaris Venture Management Co. V, L.L.C., its General Partner

 

 

 

 

 

 

 

By:

/s/ William E. Bilodeau

 

Name:

William E. Bilodeau

 

Title:

Attorney-in-fact

 

[Signature Page to Second Amended and Restated Registration Rights Agreement]

 



 

 

INVESTORS (cont.):

 

 

 

LIGHTHOUSE CAPITAL PARTNERS VI, L.P.

 

By:

Lighthouse Management Partners VI, L.L.C., its General Partner

 

 

 

 

 

 

 

By:

/s/ Ryan Turner

 

Name:

Ryan Turner

 

Title:

Managing Director

 

[Signature Page to Second Amended and Restated Registration Rights Agreement]

 



 

 

INVESTORS (cont.):

 

 

 

CVF, LLC

 

 

 

 

 

 

By:

/s/ Richard H. Robb

 

Name:

Richard H. Robb

 

Title:

Manager

 

[Signature Page to Second Amended and Restated Registration Rights Agreement]

 



 

 

INVESTORS (cont.):

 

 

 

BENON GROUP LTD.

 

 

 

 

 

 

By:

/s/ Pierre Valla

 

Name:

Pierre Valla

 

Title:

Director

 

[Signature Page to Second Amended and Restated Registration Rights Agreement]

 



 

 

INVESTORS (cont.):

 

 

 

YSIOS BIOFUND I FCR DE RÉGIMEN SIMPLIFICADO

 

By:

Ysios Capital Partners SGECR SA, its General Partner

 

 

 

 

 

 

 

By:

/s/ Josep Ll. Sanfeliu

 

Name:

Josep Ll. Sanfeliu

 

Title:

Managing Partner

 

[Signature Page to Second Amended and Restated Registration Rights Agreement]

 



 

 

INVESTORS (cont.):

 

 

 

ABBVIE, INC.

 

 

 

 

 

 

By:

/s/ David H. Donabedian

 

Name:

David H. Donabedian, Ph.D.

 

Title:

Vice President, Head of Ventures & Early Stage Collaborations

 

[Signature Page to Second Amended and Restated Registration Rights Agreement]

 



 

 

INVESTORS (cont.):

 

 

 

ALEXANDRIA EQUITIES, LLC,

 

a Delaware limited liability company

 

 

 

By:

Alexandria Real Estate Equities, Inc., a Maryland corporation, its managing member

 

 

 

 

 

 

 

By:

/s/ Dean A Shigenaga

 

Name:

Dean A. Shigenaga

 

Title:

Executive Vice President

 

 

Chief Financial Officer

 

[Signature Page to Second Amended and Restated Registration Rights Agreement]

 



 

 

INVESTORS (cont.):

 

 

 

 

 

/s/ William Wachtel

 

William Wachtel

 

 

 

 

 

/s/ Adam Kalish

 

Adam Kalish

 

 

 

 

 

Larry Fritz

 

[Signature Page to Second Amended and Restated Registration Rights Agreement]

 



 

Schedule A

 

Investors

 

Lux Ventures II, L.P.

Lux Ventures II Sidecar, L.P.

Lux Ventures II Sidecar IV LLC

c/o Lux Capital Management, LLC

295 Madison Avenue, 24th floor

New York, NY 10017

Tel:

Fax:

Attn: Robert Paull

Email:

 

Polaris Venture Partners V, L.P.

Polaris Venture Partners Entrepreneurs’ Fund V, L.P.

Polaris Venture Partners Founders’ Fund V, L.P.

Polaris Venture Partners Special Founders’ Fund V, L.P.

Polaris Venture Partners

1000 Winter Street, Suite 3350

Waltham, MA 02451

Tel:

Fax:

Attn: William E. Bilodeau

Email:

 

Third Rock Ventures, L.P.

Third Rock Ventures

29 Newbury Street #301

Boston, MA 02116

Tel:

Fax: 

Attn:  Robert I. Tepper, M.D.

Email:

 

William Wachtel

c/o  Wachtel Missry LLP

One Dag Hammarskjold Plaza

885 Second Avenue

New York, NY 10017

Attn: William Wachtel

Email:

 

A-1



 

Larry Fritz

P.O. Box 676150

Rancho Santa Fe, CA 92067

Email:

 

Adam Kalish

Lux Capital Management

295 Madison Avenue, 24th Floor

New York, NY 10017

Attn: Adam Kalish

Email:

 

Lighthouse Capital Partners VI, L.P.

3555 Alameda de las Pulgas, Suite 200

Menlo Park, California 94025

Telephone:

Facsimile:

Attn: Contracts Administration

 

CVF, LLC

222 N. La Salle St.

Suite 2000

Chicago, IL 60601

Telephone:

Facsimile:

Attn: Richard H. Robb

Email:

 

A-2


 

Benon Group Ltd.

Address For Notice:

Benon Group Ltd.

c/o Nathaniel de Rothschild Holdings, Ltd.

152 West 57th Street

37th Floor

New York, N.Y. 10019

Telephone:

Facsimile:

Email:

 

With a copy to:

 

Ellen S. Brody

Roberts & Holland LLP

825 8th Avenue, 37th Fl

New York, NY 10019

Telephone:

Facsimile:

Email:

 

Ysios BioFund I FCR de Régimen Simplificado

c/o Ysios Capital Partners SGECR SA

Avinguda Diagonal, 600 Entl. 2

08021 Barcelona, Spain

Telephone:

Attn:  Karen Wagner, General Partner

Email: 

 

With a copy to:

 

Jones Day

1755 Embarcadero Road

Palo Alto, California 94303

Attn: Steve Gillette

Email:

Facsimile:

 

A-3



 

AbbVie, Inc.

1 North Waukegan Road

North Chicago, IL 60064

Telephone:

Facsimile:

Attn:                    David H. Donabedian, Ph.D.

Vice President, Head of Ventures & Early Stage Collaborations

Email:           

 

With a copy to:

 

Jones Day

1755 Embarcadero Road

Palo Alto, California 94303

Attn: Steve Gillette

Email:           

Facsimile:

 

Alexandria Equities, LLC

385 E. Colorado Blvd., Suite 299

Pasadena, California 91101

Tel:

Fax:

Attn:                    Chief Financial Officer

Email:           

 

A-4



 

AMENDMENT NO. 1

 

to

 

SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT

 

This Amendment No. 1 to Second Amended and Restated Registration Rights Agreement, effective as of April 8, 2015 (this “Amendment”), amends that certain Second Amended and Restated Registration Rights Agreement, dated as of April 16, 2014 (the “Agreement”), by and among Kala Pharmaceuticals, Inc., a Delaware corporation (the “Company”), and the stockholders party thereto.  Capitalized terms used and not otherwise defined in this Amendment shall have the meanings set forth in the Agreement.

 

Recitals

 

WHEREAS, pursuant to Section 10 of the Agreement, the Agreement may only be amended with the written consent of the Company and the holders of at least fifty percent (50%) of the Registrable Securities;

 

WHEREAS, pursuant to Section 14 of the Agreement, the Company shall not, without the written consent of the holders of at least fifty percent (50%) of the Registrable Securities, allow purchasers of the Company’s securities to become a party to the Agreement;

 

WHEREAS, pursuant to the offer letter, dated April 6, 2015, between the Company and Mark Iwicki, the Company desires to make Mr. Iwicki a party to the Agreement in order to provide Mr. Iwicki with piggyback registration rights;

 

WHEREAS, the signatories hereto hold the requisite number of Registrable Securities to effect an amendment of the Agreement and desire to amend the Agreement as set forth herein;

 

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

 

1.                                      The following definitions are hereby deleted in their entirety and replaced with the following:

 

““Investorshall mean (i) the individuals and entities listed on Schedule A attached hereto and (ii) the Key Holder.”

 

““Registrable Securitiesshall mean (i) the shares of Common Stock issued or issuable upon conversion of the Preferred Stock held, or hereafter acquired, by the Investors (the “Investor Registrable Securities”), (ii) Key Holder Registrable Securities and (iii) any other shares of Common Stock issued or issuable in respect of such Investor Registrable Securities or Key Holder Registrable Securities (because of stock splits, stock dividends, reclassifications, recapitalizations or similar events).”

 



 

2.                                      The following definitions are hereby added to the Agreement:

 

““Key Holdershall mean the individual listed on Schedule B attached hereto.”

 

““Key Holder Registrable Securitiesshall mean the shares of Common Stock held, or hereafter acquired, by the Key Holder from the Company, including without limitation any shares of Common Stock issued to the Key Holder upon the exercise of stock options.”

 

““Joinder Agreement” means a joinder agreement in substantially the form attached hereto as Exhibit I.”

 

3.                                      The first sentence of Section 2(a) of the Agreement is hereby deleted in its entirety and replaced with the following:

 

“At any time after the earlier of (i) five (5) years from the date of this Agreement and (ii) one hundred eighty (180) days after the initial public offering of the Company’s Common Stock pursuant to an effective registration under the Securities Act, the holders (excluding the Key Holder) of at least fifty percent (50%) of the Registrable Securities then outstanding (excluding Key Holder Registrable Securities) may notify the Company that they intend to offer or cause to be offered for public sale at least fifty percent (50%) of the Registrable Securities then outstanding (excluding Key Holder Registrable Securities) or any lesser number of Registrable Securities (excluding Key Holder Registrable Securities) if the anticipated aggregate sale price, net of underwriting discounts and commissions, if any, would exceed $10,000,000).”

 

4.                                      The first sentence of Section 3 of the Agreement is hereby deleted in its entirety and replaced with the following:

 

“An Investor or Investors holding Registrable Securities (excluding the Key Holder and any Key Holder Registrable Securities) anticipated to have an aggregate sale price (net of underwriting discounts and commissions, if any) in excess of $1,000,000 shall have the right to request any number of registrations on Form S-3 (or any successor form) for the Registrable Securities held by such requesting holder or holders; provided, however, that the Company (i) is then eligible to use such Form S-3 (or successor form) and (ii) shall not be required to file more than two (2) such registration statements on Form S-3 (or any successor form) in any twelve (12) month period.”

 

5.                                      Section 17(e) of the Agreement is hereby deleted in its entirety and replaced with the following:

 

“(e)                            Additional Investors; Key Holder.

 

Notwithstanding anything to the contrary contained herein, if the Company issues additional shares of the Company’s Preferred Stock after the date hereof, any purchaser of such shares of Preferred Stock may become a party to this Agreement

 

2



 

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.

 

The individual listed on Schedule B attached hereto shall become a party to this Agreement by executing and delivering a Joinder Agreement, and thereafter shall be deemed a “Key Holder” for all purposes hereunder. Except as otherwise set forth herein, no action or consent by any other party hereto shall be required for such joinder to this Agreement by such Key Holder.

 

6.                                      Schedule B in the form attached to this Amendment is hereby added to the Agreement.

 

7.                                      Exhibit I in the form attached to this Amendment is hereby added to the Agreement.

 

8.                                      The Agreement, as supplemented and modified by this Amendment, constitutes the entire agreement and understanding of the parties thereto with respect to the subject matter thereof and supersedes all prior agreements and understandings relating to such subject matter.

 

9.                                      Upon the effectiveness of this Amendment, on and after the date hereof, each reference in the Agreement to “this Agreement,” “hereunder,” “hereof,” “herein” or words of like import, and each similar reference in the other documents entered into in connection with the Agreement, shall mean and be a reference to the Agreement, as amended hereby.  Except as specifically amended above, the Agreement shall remain in full force and effect and is hereby ratified and confirmed.

 

10.                               This Amendment may be executed in two or more counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which together shall be deemed to constitute one and the same agreement.  Counterparts may be delivered via facsimile, electronic mail 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.

 

11.                               This Amendment shall be construed and enforced in accordance with and governed by the laws of the State of Delaware (without giving effect to principles of conflicts of law).

 

[Remainder of page intentionally left blank.]

 

3



 

IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the date first set forth above.

 

 

COMPANY:

 

 

 

KALA PHARMACEUTICALS, INC.

 

 

 

 

 

 

By:

/s/ Charlie McDermott

 

Name:

Charlie McDermott

 

Title:

Interim President and Chief Business Officer

 

[Signature Page to Amendment No. 1 to

Second Amended and Restated Registration Rights Agreement]

 



 

 

INVESTORS:

 

 

 

LUX VENTURES II, L.P.

 

 

 

By:

Lux Venture Partners II, L.P., its General Partner

 

 

 

 

By:

Lux Venture Associates II, LLC, its General Partner

 

 

 

 

By:

Lux Capital Management, LLC, its Sole Member

 

 

 

 

 

 

 

By:

/s/ Peter Hébert

 

Name:

Peter Hébert

 

Title:

Managing Partner

 

 

 

 

 

 

 

LUX VENTURES II SIDECAR, L.P.

 

 

 

 

 

 

 

By:

Lux Venture Partners II, L.P., its General Partner

 

 

 

 

By:

Lux Venture Associates II, LLC, its General Partner

 

 

 

 

By:

Lux Capital Management, LLC, its Sole Member

 

 

 

 

 

 

 

By:

/s/ Peter Hébert

 

Name:

Peter Hébert

 

Title:

Managing Partner

 

[Signature Page to Amendment No. 1 to

Second Amended and Restated Registration Rights Agreement]

 



 

 

LUX VENTURES II SIDECAR IV LLC

 

 

 

 

 

By:

Lux Venture Partners II, L.P., its Manager

 

 

 

 

By:

Lux Venture Associates II, LLC, its General Partner

 

 

 

 

By:

Lux Capital Management, LLC, its Sole Member

 

 

 

 

 

 

 

By:

/s/ Peter Hébert

 

Name:

Peter Hébert

 

Title:

Managing Partner

 

[Signature Page to Amendment No. 1 to

Second Amended and Restated Registration Rights Agreement]

 



 

 

INVESTORS (cont.):

 

 

 

THIRD ROCK VENTURES, L.P.

 

 

 

By:

Third Rock Ventures GP, L.P., its General Partner

 

 

 

 

By:

TRV GP, LLC, its General Partner

 

 

 

 

 

 

 

By:

/s/ Kevin Gillis

 

Name:

Kevin Gillis

 

Title:

CFO

 

[Signature Page to Amendment No. 1 to

Second Amended and Restated Registration Rights Agreement]

 



 

 

INVESTORS (cont.):

 

 

 

POLARIS VENTURE PARTNERS V, L.P.

 

 

 

By:

Polaris Venture Management Co. V, L.L.C., its General Partner

 

 

 

 

 

 

 

By:

/s/ William E. Bioldeau

 

Name:

William E. Bilodeau

 

Title:

Attorney-in-fact

 

 

 

 

 

 

 

POLARIS VENTURE PARTNERS ENTREPRENEURS’ FUND V, L.P.

 

 

 

 

By:

Polaris Venture Management Co. V, L.L.C., its General Partner

 

 

 

 

 

 

 

By:

/s/ William E. Bioldeau

 

Name:

William E. Bilodeau

 

Title:

Attorney-in-fact

 

 

 

 

 

 

 

POLARIS VENTURE PARTNERS FOUNDERS’ FUND V, L.P.

 

 

 

 

By:

Polaris Venture Management Co. V, L.L.C., its General Partner

 

 

 

 

 

 

 

By:

/s/ William E. Bioldeau

 

Name:

William E. Bilodeau

 

Title:

Attorney-in-fact

 

[Signature Page to Amendment No. 1 to

Second Amended and Restated Registration Rights Agreement]

 



 

 

INVESTORS (cont.):

 

 

 

POLARIS VENTURE PARTNERS SPECIAL FOUNDERS’ FUND V, L.P.

 

 

 

 

By:

Polaris Venture Management Co. V, L.L.C., its General Partner

 

 

 

 

 

 

 

By:

/s/ William E. Bioldeau

 

Name:

William E. Bilodeau

 

Title:

Attorney-in-fact

 

[Signature Page to Amendment No. 1 to

Second Amended and Restated Registration Rights Agreement]

 


 

 

INVESTORS (cont.):

 

 

 

CVF, LLC

 

 

 

 

 

 

 

By:

/s/ Richard H. Robb

 

Name:

Richard H. Robb

 

Title:

Manager

 

[Signature Page to Amendment No. 1 to

Second Amended and Restated Registration Rights Agreement]

 



 

 

INVESTORS (cont.):

 

 

 

YSIOS BIOFUND I FCR DE RÉGIMEN SIMPLIFICADO

 

 

 

 

By:

Ysios Capital Partners SGECR SA, its General Partner

 

 

 

 

 

 

 

By:

/s/ Josep Lluis Sanfeliu

 

Name:

Josep Lluis Sanfeliu

 

Title:

Managing Partner

 

[Signature Page to Amendment No. 1 to

Second Amended and Restated Registration Rights Agreement]

 



 

Schedule B

 

Key Holder

 

Mark Iwicki

 

 

Tel:

Email:

 

B-1



 

Exhibit I

 

Joinder Agreement

 

The undersigned hereby agrees, effective as of the date hereof, to become a party to that certain Second Amended and Restated Registration Rights Agreement, dated as of April 16, 2014 (as amended and/or restated from time to time, the “Agreement”), by and among Kala Pharmaceuticals, Inc., a Delaware corporation, and the parties named therein, and for all purposes of the Agreement, the undersigned shall be included within the term “Key Holder” (as defined in the Agreement).

 

 

 

KEY HOLDER:

 

 

 

 

 

 

 

 

 

Date:

 

[Name]

 

 

 

 

 

 

 

 

Address For Notice:

 

 

 

 

 

 

 

 

[Address]

 

 

 

 

 

[Address]

 

 

 

 

 

 

Tel:

[                                 ]

 

 

 

 

 

 

Email:

[                                 ]

 



 

AMENDMENT NO. 2

 

to

 

SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT

 

This Amendment No. 2 to Second Amended and Restated Registration Rights Agreement, effective as of August 17, 2015 (this “Amendment”), amends that certain Second Amended and Restated Registration Rights Agreement, dated as of April 16, 2014, as amended by Amendment No.1 effective as of April 8, 2015 (the “Agreement”), by and among Kala Pharmaceuticals, Inc., a Delaware corporation (the “Company”), the persons identified on Schedule A thereto as Investors and the person identified on Schedule B thereto as a Key Holder.  Capitalized terms used and not otherwise defined in this Amendment shall have the meanings set forth in the Agreement.

 

Recitals

 

WHEREAS, the Company and Hadley Harbor Master Investors (Cayman) L.P. (“Hadley”) are entering into a Series B-1 Preferred Stock Purchase Agreement dated August 14, 2015 (as amended and/or restated from time to time, the “Series B-1 Purchase Agreement”) in connection with the issuance and sale by the Company to Hadley of the Company’s Series B-1 Preferred Stock, par value $0.001 per share (the “Series B-1 Preferred Stock”);

 

WHEREAS, as a condition precedent to the sale and purchase of the Series B-1 Preferred Stock pursuant to the Series B-1 Purchase Agreement, the parties have agreed to amend the Agreement as set forth herein, including to, among other things, make Hadley a party thereto;

 

WHEREAS, pursuant to Section 10 of the Agreement, the Agreement may only be amended with the written consent of the Company and the holders of at least fifty percent (50%) of the Registrable Securities;

 

WHEREAS, pursuant to Section 14 of the Agreement, the Company shall not, without the written consent of the holders of at least fifty percent (50%) of the Registrable Securities, allow purchasers of the Company’s securities to become a party to the Agreement;

 

WHEREAS, the signatories hereto hold the requisite number of Registrable Securities to effect an amendment of the Agreement and desire to amend the Agreement as set forth herein; and

 

WHEREAS, on the date hereof, Hadley has executed a joinder agreement in the form attached hereto as Exhibit I (the “Joinder Agreement”) in order to become a party to the Agreement and be included within the term “Investor” for all purposes of the Agreement.

 

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

 



 

1.                                      The following definition is hereby deleted in its entirety and replaced with the following:

 

““Preferred Stock” shall mean, collectively, the Seed Preferred Stock, the Series A Preferred Stock, the Series B Preferred Stock and the Series B-1 Preferred Stock.”

 

2.                                      The following definition is hereby added to the Agreement:

 

““Series B-1 Preferred Stock” shall mean the Company’s Series B-1 Preferred Stock, par value $0.001 per share.”

 

3.                                      Section 12 of the Agreement is hereby deleted in its entirety and replaced with the following:

 

“12.                         Market Stand-Off.  Each Investor agrees, that if requested by the Company and an underwriter in connection with the initial public offering of the Company of Common Stock under the Securities Act on a registration statement on Form S-1 (the “IPO”), not to directly or indirectly offer, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of or otherwise dispose of or transfer any securities of the Company held by it immediately prior to the effectiveness of the registration statement relating to the IPO for such period, not to exceed one hundred eighty (180) days (plus any additional period of time as may be requested by the Company or such underwriter for the purpose of complying with FINRA Rule 2711(f)(4) or NYSE Rule 472(f)(4), or any successor provisions or amendments thereto) following the effective date of the registration statement for the IPO, as such underwriter shall specify reasonably and in good faith; provided, however, that all officers and directors of the Company and all 1% or greater stockholders of the Company enter into similar agreements; provided, further, however, that in the event the Company or such underwriter, as applicable, releases any securities of the Company from the restrictions set forth in this Section 12 or similar restrictions (in any such case, the “Released Securities”), the foregoing provisions shall be waived or terminated, as applicable, to the same extent and with respect to the same percentage of securities of each Investor as the percentage of Released Securities represent with respect to the securities held by the holder of such Released Securities. For purposes of clarity, the restrictions set forth herein shall not apply to shares acquired in the IPO or in the open market following the IPO.  Notwithstanding anything to the contrary contained herein, any amendment to this Section 12 that would adversely effect the holders of the Series B-1 Preferred Stock shall require the written consent of the holders of at least a majority of the Series B-1 Preferred Stock then outstanding.”

 

4.                                      Section 17(a) of the Agreement is hereby deleted in its entirety and replaced with the following:

 

“(a)                           Notices.  All notices, requests, demands and other communications provided for herein shall be in writing and shall be deemed to have been duly given, delivered and received upon the earlier of actual receipt or: (a) personal delivery to the party to be notified, (b) when sent, if sent by electronic mail or facsimile during normal

 

2


 

business hours of the recipient, and if not sent during normal business hours, then on the recipient’s next business day, (c) one (1) business day after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) deposit with a nationally recognized overnight courier, freight prepaid, specifying next business day delivery.  All notices, requests, demands and other communications provided for herein shall be given to the applicable party at the addresses indicated below:

 

To the Company:

 

Kala Pharmaceuticals, Inc.

100 Beaver Street

Suite 201

Waltham, MA 02453

Attention: Executive Chairman

Facsimile: 781-642-0399

Email: mark.iwicki@kalarx.com

 

With a copy to:

 

Wilmer Cutler Pickering Hale and Dorr LLP

60 State Street

Boston, MA 02109

Attention: Lia Der Marderosian, Esq.

Facsimile: 617-526-5000

Email: Lia.DerMarderosian@wilmerhale.com

 

If to the Investors, only at their respective addresses as set forth on the signature pages or Schedule A attached hereto, with a copy to Cooley LLP, One Freedom Square, Reston Town Center, 11951 Freedom Drive, Reston, Virginia 20190-5656, Attn: Christian Plaza, Esq., cplaza@cooley.com, Facsimile: 703-456-8100, a copy to Jones Day, 1755 Embarcadero Road, Palo Alto, California 94303, Attn: Steve Gillette, Esq., segillette@jonesday.com, Facsimile: 650-739-3900, and a copy to Greenberg Traurig, LLP, One International Place, Boston, Massachusetts 02110, Attn: Bradley A. Jacobson, Esq., jacobsonb@gtlaw.com, Facsimile: 617-279-8402.

 

If to any other holder of Registrable Securities:

 

At such Person’s address for notice as set forth in the books and records of the Company or, as to each of the foregoing, at such other address as shall be designated by such Person in a written notice to other parties complying as to delivery with the terms of this Section 17(a).”

 

3



 

5.                                      The execution and delivery of the Joinder Agreement by Hadley shall be deemed the execution and delivery of a counterpart signature page to the Agreement pursuant to Section 17(e)(i) of the Agreement.  Accordingly, Hadley shall be deemed an “Investor” for all purposes of the Agreement.

 

6.                                      Schedule A of the Agreement is hereby deleted in its entirety and replaced with Schedule A in the form attached hereto.

 

7.                                      The Agreement, as supplemented and modified by this Amendment, constitutes the entire agreement and understanding of the parties thereto with respect to the subject matter thereof and supersedes all prior agreements and understandings relating to such subject matter.

 

8.                                      Upon the effectiveness of this Amendment, on and after the date hereof, each reference in the Agreement to “this Agreement,” “hereunder,” “hereof,” “herein” or words of like import, and each similar reference in the other documents entered into in connection with the Agreement, shall mean and be a reference to the Agreement, as amended hereby.  Except as specifically amended above, the Agreement shall remain in full force and effect and is hereby ratified and confirmed.

 

9.                                      This Amendment may be executed in two or more counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which together shall be deemed to constitute one and the same agreement.  Counterparts may be delivered via facsimile, electronic mail 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.

 

10.                               This Amendment shall be construed and enforced in accordance with and governed by the laws of the State of Delaware (without giving effect to principles of conflicts of law).

 

[Remainder of page intentionally left blank.]

 

4



 

IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the date first set forth above.

 

 

COMPANY:

 

 

 

KALA PHARMACEUTICALS, INC.

 

 

 

 

 

By:

/s/ Mark Iwicki

 

Name:

Mark Iwicki

 

Title:

Executive Chairman

 

[Signature Page to Amendment No. 2 to

Second Amended and Restated Registration Rights Agreement]

 



 

 

INVESTORS:

 

 

 

LUX VENTURES II, L.P.

 

 

 

By:

Lux Venture Partners II, L.P., its General
Partner

 

 

 

 

By:

Lux Venture Associates II, LLC, its General
Partner

 

 

 

 

By:

Lux Capital Management, LLC, its Sole
Member

 

 

 

 

 

By:

/s/ Peter Hébert

 

Name:

Peter Hébert

 

Title:

Managing Partner

 

 

 

 

 

LUX VENTURES II SIDECAR, L.P.

 

 

 

By:

Lux Venture Partners II, L.P., its General
Partner

 

 

 

 

By:

Lux Venture Associates II, LLC, its General
Partner

 

 

 

 

By:

Lux Capital Management, LLC, its Sole
Member

 

 

 

 

 

 

 

By:

/s/ Peter Hébert

 

Name:

Peter Hébert

 

Title:

Managing Partner

 

[Signature Page to Amendment No. 2 to

Second Amended and Restated Registration Rights Agreement]

 



 

 

LUX VENTURES II SIDECAR IV LLC

 

 

 

By:

Lux Venture Partners II, L.P., its Manager

 

 

 

 

By:

Lux Venture Associates II, LLC, its General
Partner

 

 

 

 

By:

Lux Capital Management, LLC, its Sole
Member

 

 

 

 

 

By:

/s/ Peter Hébert

 

Name:

Peter Hébert

 

Title:

Managing Partner

 

[Signature Page to Amendment No. 2 to

Second Amended and Restated Registration Rights Agreement]

 



 

 

INVESTORS (cont.):

 

 

 

THIRD ROCK VENTURES, L.P.

 

 

 

By:

Third Rock Ventures GP, L.P., its General
Partner

 

 

 

 

By:

TRV GP, LLC, its General Partner

 

 

 

 

 

By:

/s/ Kevin Gillis

 

Name:

Kevin Gillis

 

Title:

CFO

 

[Signature Page to Amendment No. 2 to

Second Amended and Restated Registration Rights Agreement]

 



 

 

INVESTORS (cont.):

 

 

 

POLARIS VENTURE PARTNERS V, L.P.

 

 

 

By:

Polaris Venture Management Co. V, L.L.C.,
its General Partner

 

 

 

 

 

By:

/s/ William E. Bilodeau

 

Name:

William E. Bilodeau

 

Title:

Attorney-in-fact

 

 

 

 

 

POLARIS VENTURE PARTNERS
ENTREPRENEURS’ FUND V, L.P.

 

 

 

By:

Polaris Venture Management Co. V, L.L.C.,
its General Partner

 

 

 

 

 

By:

/s/ William E. Bilodeau

 

Name:

William E. Bilodeau

 

Title:

Attorney-in-fact

 

 

 

 

 

POLARIS VENTURE PARTNERS
FOUNDERS’ FUND V, L.P.

 

 

 

By:

Polaris Venture Management Co. V, L.L.C.,
its General Partner

 

 

 

 

 

By:

/s/ William E. Bilodeau

 

Name:

William E. Bilodeau

 

Title:

Attorney-in-fact

 

[Signature Page to Amendment No. 2 to

Second Amended and Restated Registration Rights Agreement]

 



 

 

INVESTORS (cont.):

 

 

 

POLARIS VENTURE PARTNERS SPECIAL
FOUNDERS’ FUND V, L.P.

 

 

 

By:

Polaris Venture Management Co. V, L.L.C.,
its General Partner

 

 

 

 

 

 

By:

/s/ William E. Bilodeau

 

Name:

William E. Bilodeau

 

Title:

Attorney-in-fact

 

[Signature Page to Amendment No. 2 to

Second Amended and Restated Registration Rights Agreement]

 



 

 

INVESTORS (cont.):

 

 

 

CVF, LLC

 

 

 

 

 

By:

/s/ Richard H. Robb

 

Name:

Richard H. Robb

 

Title:

Manager

 

[Signature Page to Amendment No. 2 to

Second Amended and Restated Registration Rights Agreement]

 


 

 

INVESTORS (cont.):

 

 

 

RA CAPITAL HEALTHCARE FUND, L.P.

 

 

 

BY: RA CAPITAL MANAGEMENT, LLC

 

ITS: GENERAL PARTNER

 

 

 

 

 

By:

/s/ Rajeev Shah

 

Name:

Rajeev Shah

 

Title:

Authorized Signatory

 

[Signature Page to Amendment No. 2 to

Second Amended and Restated Registration Rights Agreement]

 



 

 

INVESTORS (cont.):

 

 

 

BLACKWELL PARTNERS LLC—SERIES A

 

 

 

 

 

By:

/s/ Jannine M. Lall

 

Name:

Jannine M. Lall

 

Title:

Assistant Treasurer

 

 

DUMAC, Inc.

 

 

Authorized Agent

 

 

 

 

 

By:

/s/ Eric. M. Koehrsen

 

Name:

Eric. M. Koehrsen

 

Title:

Investment Manager

 

 

DUMAC, Inc.

 

 

Authorized Agent

 

[Signature Page to Amendment No. 2 to

Second Amended and Restated Registration Rights Agreement]

 



 

 

INVESTORS (cont.):

 

 

 

YSIOS BIOFUND I FCR DE RÉGIMEN
SIMPLIFICADO

 

 

 

By:

Ysios Capital Partners SGECR SA, its
General Partner

 

 

 

By:

/s/ Josep Ll. Sanfeliu

 

Name:

Josep Ll. Sanfeliu

 

Title:

Managing Partner

 

[Signature Page to Amendment No. 2 to

Second Amended and Restated Registration Rights Agreement]

 



 

Schedule A

 

Investors

 

Lux Ventures II, L.P.

Lux Ventures II Sidecar, L.P.

Lux Ventures II Sidecar IV LLC

c/o Lux Capital Management, LLC

295 Madison Avenue, 24th floor

New York, NY 10017

Tel:

Fax:

Attn: Robert Paull

Email:

 

Polaris Venture Partners V, L.P.

Polaris Venture Partners Entrepreneurs’ Fund V, L.P.

Polaris Venture Partners Founders’ Fund V, L.P.

Polaris Venture Partners Special Founders’ Fund V, L.P.

Polaris Venture Partners

1000 Winter Street, Suite 3350

Waltham, MA 02451

Tel:

Fax:

Attn: William E. Bilodeau

Email:

 

Third Rock Ventures, L.P.

Third Rock Ventures

29 Newbury Street #301

Boston, MA 02116

Tel:

Fax: 

Attn:  Robert I. Tepper, M.D.

Email:

 

William Wachtel

c/o Wachtel Missry LLP

One Dag Hammarskjold Plaza

885 Second Avenue

New York, NY 10017

Attn: William Wachtel

Email:

 

A-1



 

Larry Fritz

 

Email:

 

Adam Kalish

Lux Capital Management

295 Madison Avenue, 24th Floor

New York, NY 10017

Attn: Adam Kalish

Email:

 

Lighthouse Capital Partners VI, L.P.

3555 Alameda de las Pulgas, Suite 200

Menlo Park, California 94025

Telephone:

Facsimile:

Attn: Contracts Administration

 

CVF, LLC

222 N. La Salle St.

Suite 2000

Chicago, IL 60601

Telephone:

Facsimile:

Attn: Richard H. Robb

Email:

 

A-2



 

Benon Group Ltd.

Address For Notice:

Benon Group Ltd.

c/o Nathaniel de Rothschild Holdings, Ltd.

152 West 57th Street

37th Floor

New York, N.Y. 10019

Telephone:

Facsimile:

Email:

 

With a copy to:

 

Ellen S. Brody

Roberts & Holland LLP

825 8th Avenue, 37th Fl

New York, NY 10019

Telephone:

Facsimile:

Email:

 

Ysios BioFund I FCR de Régimen Simplificado

c/o Ysios Capital Partners SGECR SA

Avinguda Diagonal, 600 Entl. 2

08021 Barcelona, Spain

Telephone:

Attn:  Karen Wagner, General Partner

Email: 

 

With a copy to:

 

Jones Day

1755 Embarcadero Road

Palo Alto, California 94303

Attn: Steve Gillette

Email: 

Facsimile:

 

A-3



 

Alexandria Equities, LLC

385 E. Colorado Blvd., Suite 299

Pasadena, California 91101

Tel:

Fax:

Attn:    Chief Financial Officer

Email: 

 

RA Capital Healthcare Fund, L.P.

Blackwell Partners LLC — Series A

20 Park Plaza

Suite 1200

Boston, Massachusetts 02116

Attn: Nicholas McGrath

Telephone:

Email:

 

Hadley Harbor Master Investors (Cayman) L.P.

c/o Wellington Management Company LLP

Attention:  Legal and Compliance Department

280 Congress Street

Boston, Massachusetts 02210

Facsimile Number:

Email address:

 

A-4



 

Form of Joinder Agreement

 

The undersigned hereby agrees, effective as of the date hereof, to become a party to that certain Second Amended and Restated Registration Rights Agreement, dated as of April 16, 2014 (as amended and/or restated from time to time, the “Agreement”), by and among Kala Pharmaceuticals, Inc., a Delaware corporation, and the parties named therein, and for all purposes of the Agreement, the undersigned shall be included within the term “Investor” (as defined in the Agreement).

 

 

INVESTOR:

 

 

 

HADLEY HARBOR MASTER INVESTORS
(CAYMAN) L.P.

 

 

 

By: Wellington Management Company LLP, as
investment adviser

 

 

Date:                  August   , 2015

By:

 

 

Name:

 

 

Title:

 

 

 

 

 

 

Address For Notice:

 

 

 

 

 

Hadley Harbor Master Investors (Cayman) L.P.

 

c/o Wellington Management Company LLP

 

Attention:  Legal and Compliance Department

 

280 Congress Street

 

Boston, Massachusetts 02210

 

Facsimile Number:

 

Email address:

 

A-5




Exhibit 10.1

 

HANES NEWCO, INC.

 

2009 EMPLOYEE, DIRECTOR AND CONSULTANT EQUITY INCENTIVE PLAN

 

1.                                      DEFINITIONS.

 

Unless otherwise specified or unless the context otherwise requires, the following terms, as used in this Hanes Newco, Inc. 2009 Employee, Director and Consultant Equity Incentive Plan, have the following meanings:

 

Administrator means the Board of Directors, unless it has delegated power to act on its behalf to the Committee, in which case the Administrator means the Committee.

 

Affiliate means a corporation which, for purposes of Section 424 of the Code, is a parent or subsidiary of the Company, direct or indirect.

 

Agreement means an agreement between the Company and a Participant delivered pursuant to the Plan and pertaining to a Stock Right, in such form as the Administrator shall approve.

 

Board of Directors means the Board of Directors of the Company.

 

Cause means, with respect to a Participant (a) dishonesty with respect to the Company or any Affiliate, (b) insubordination, substantial malfeasance or non-feasance of duty, (c) unauthorized disclosure of confidential information, (d) breach by a Participant of any provision of any employment, consulting, advisory, nondisclosure, non-competition or similar agreement between the Participant and the Company or any Affiliate, and (e) conduct substantially prejudicial to the business of the Company or any Affiliate; provided, however, that any provision in an agreement between a Participant and the Company or an Affiliate, which contains a conflicting definition of Cause for termination and which is in effect at the time of such termination, shall supersede this definition with respect to that Participant.  The determination of the Administrator as to the existence of Cause will be conclusive on the Participant and the Company.

 

Code means the United States Internal Revenue Code of 1986, as amended including any successor statute, regulation and guidance thereto.

 

Committee means the committee of the Board of Directors to which the Board of Directors has delegated power to act under or pursuant to the provisions of the Plan.

 

Common Stock means shares of the Company’s common stock, $0.001 par value per share.

 

Company means Hanes Newco, Inc., a Delaware corporation.

 

Consultant means any natural person who is an advisor or consultant that provides bona fide services to the Company or its Affiliates, provided that 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 or its Affiliates’ securities.

 

Disability or Disabled means permanent and total disability as defined in Section 22(e)(3) of the Code.

 

Employee means any employee of the Company or of an Affiliate (including, without limitation, an employee who is also serving as an officer or director of the Company or of an Affiliate), designated by the Administrator to be eligible to be granted one or more Stock Rights under the Plan.

 

Fair Market Value of a Share of Common Stock means:

 

(1)                                 If the Common Stock is listed on a national securities exchange or traded in the over-the-counter market and sales prices are regularly reported for the Common Stock, the closing or, if not applicable, the last price of the Common Stock on the composite tape or other comparable reporting system for the trading day on the applicable date and if such applicable date is not a trading day, the last market trading day prior to such date;

 

(2)                                 If the Common Stock is not traded on a national securities exchange but is traded on the over-the-counter market, if sales prices are not regularly reported for the Common Stock for the trading day referred to in clause (1), and if bid and asked prices for the Common Stock are regularly reported, the mean between the bid and the asked price for the Common Stock at the close of trading in the over-the-counter market for the trading day on which Common Stock was traded on the applicable date and if such applicable date is not a trading day, the last market trading day prior to such date; and

 

(3)                                 If the Common Stock is neither listed on a national securities exchange nor traded in the over-the-counter market, such value as the Administrator, in good faith, shall determine.

 

ISO means an option meant to qualify as an incentive stock option under Section 422 of the Code.

 

Non-Qualified Option means an option which is not intended to qualify as an ISO.

 

Option means an ISO or Non-Qualified Option granted under the Plan.

 

Participant means an Employee, director or Consultant of the Company or an Affiliate to whom one or more Stock Rights are granted under the Plan.  As used herein, “Participant” shall include “Participant’s Survivors” where the context requires.

 

2



 

Plan means this Hanes Newco, Inc. 2009 Employee, Director and Consultant Equity Incentive Plan.

 

Securities Act means the Securities Act of 1933, as amended.

 

Shares means shares of the Common Stock as to which Stock Rights have been or may be granted under the Plan or any shares of capital stock into which the Shares are changed or for which they are exchanged within the provisions of Paragraph 3 of the Plan.  The Shares issued under the Plan may be authorized and unissued shares or shares held by the Company in its treasury, or both.

 

Stock-Based Award means a grant by the Company under the Plan of an equity award or an equity based award which is not an Option or a Stock Grant.

 

Stock Grant means a grant by the Company of Shares under the Plan.

 

Stock Right means a right to Shares or the value of Shares of the Company granted pursuant to the Plan — an ISO, a Non-Qualified Option, a Stock Grant or a Stock-Based Award.

 

Survivor means a deceased Participant’s legal representatives and/or any person or persons who acquired the Participant’s rights to a Stock Right by will or by the laws of descent and distribution.

 

2.                                      PURPOSES OF THE PLAN.

 

The Plan is intended to encourage ownership of Shares by Employees and directors of and certain Consultants to the Company and its Affiliates in order to attract and retain such people, to induce them to work for the benefit of the Company or of an Affiliate and to provide additional incentive for them to promote the success of the Company or of an Affiliate.  The Plan provides for the granting of ISOs, Non-Qualified Options, Stock Grants and Stock-Based Awards.

 

3.                                      SHARES SUBJECT TO THE PLAN.

 

(a)                                 The number of Shares which may be issued from time to time pursuant to this Plan shall be 1,415,000, or the equivalent of such number of Shares after the Administrator, in its sole discretion, has interpreted the effect of any future stock split, stock dividend, combination, recapitalization or similar transaction in accordance with Paragraph 24 of the Plan.

 

(b)                                 If an Option ceases to be “outstanding”, in whole or in part (other than by exercise), or if the Company shall reacquire (at not more than its original issuance price) any Shares issued pursuant to a Stock Grant or Stock-Based Award, or if any Stock Right expires or is forfeited, cancelled, or otherwise terminated or results in any Shares not being issued, the unissued or reacquired Shares which were subject to such Stock Right shall again be available for issuance from time to time pursuant to this Plan.  Notwithstanding the foregoing, if a Stock Right is exercised, in whole or in part, by tender of Shares or if the Company or an Affiliate’s tax withholding obligation is satisfied by withholding Shares, the number of Shares deemed to have

 

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been issued under the Plan for purposes of the limitation set forth in Paragraph 3(a) above shall be the number of Shares that were subject to the Stock Right or portion thereof, and not the net number of Shares actually issued.  However, in the case of ISOs, the foregoing provisions shall be subject to any limitations under the Code.

 

4.                                      ADMINISTRATION OF THE PLAN.

 

The Administrator of the Plan will be the Board of Directors, except to the extent the Board of Directors delegates its authority to the Committee, in which case the Committee shall be the Administrator.  Subject to the provisions of the Plan, the Administrator is authorized to:

 

(a)                                 Interpret the provisions of the Plan and all Stock Rights and to make all rules and determinations which it deems necessary or advisable for the administration of the Plan;

 

(b)                                 Determine which Employees, directors and Consultants shall be granted Stock Rights;

 

(c)                                  Determine the number of Shares for which a Stock Right or Stock Rights shall be granted;

 

(d)                                 Specify the terms and conditions upon which a Stock Right or Stock Rights may be granted;

 

(e)                                  Make changes to any outstanding Stock Right, including, without limitation, to reduce or increase the exercise price or purchase price, accelerate the vesting schedule or extend the expiration date, provided that no such change shall impair the rights of a Participant under any grant previously made without such Participant’s consent;

 

(f)                                   Buy out for a payment in cash or Shares, a Stock Right previously granted and/or cancel any such Stock Right and grant in substitution therefor other Stock Rights, covering the same or a different number of Shares and having an exercise price or purchase price per share which may be lower or higher than the exercise price or purchase price of the cancelled Stock Right, based on such terms and conditions as the Administrator shall establish and the Participant shall accept; and

 

(g)                                  Adopt any sub-plans applicable to residents of any specified jurisdiction as it deems necessary or appropriate in order to comply with or take advantage of any tax or other laws applicable to the Company, any Affiliate or to Participants or to otherwise facilitate the administration of the Plan, which sub-plans may include additional restrictions or conditions applicable to Stock Rights or Shares issuable pursuant to a Stock Right;

 

provided, however, that all such interpretations, rules, determinations, terms and conditions shall be made and prescribed in the context of not causing any adverse tax consequences under Section 409A of the Code and preserving the tax status under Section 422 of the Code of those Options which are designated as ISOs.  Subject to the foregoing, the interpretation and construction by the Administrator of any provisions of the Plan or of any Stock Right granted under it shall be final, unless otherwise determined by the Board of Directors, if the Administrator is the Committee.  In

 

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addition, if the Administrator is the Committee, the Board of Directors may take any action under the Plan that would otherwise be the responsibility of the Committee.

 

To the extent permitted under applicable law, the Board of Directors or the Committee may allocate all or any portion of its responsibilities and powers to any one or more of its members and may delegate all or any portion of its responsibilities and powers to any other person selected by it.  The Board of Directors or the Committee may revoke any such allocation or delegation at any time.

 

5.                                      ELIGIBILITY FOR PARTICIPATION.

 

The Administrator will, in its sole discretion, name the Participants in the Plan; provided, however, that each Participant must be an Employee, director or Consultant of the Company or of an Affiliate at the time a Stock Right is granted.  Notwithstanding the foregoing, the Administrator may authorize the grant of a Stock Right to a person not then an Employee, director or Consultant of the Company or of an Affiliate; provided, however, that the actual grant of such Stock Right shall be conditioned upon such person becoming eligible to become a Participant at or prior to the time of the execution of the Agreement evidencing such Stock Right.  ISOs may be granted only to Employees who are deemed to be residents of the United States for tax purposes.  Non-Qualified Options, Stock Grants and Stock-Based Awards may be granted to any Employee, director or Consultant of the Company or an Affiliate.  The granting of any Stock Right to any individual shall neither entitle that individual to, nor disqualify him or her from, participation in any other grant of Stock Rights or any grant under any other benefit plan established by the Company or any Affiliate for Employees, directors or Consultants.

 

6.                                      TERMS AND CONDITIONS OF OPTIONS.

 

Each Option shall be set forth in writing in an Option Agreement, duly executed by the Company and, to the extent required by law or requested by the Company, by the Participant.  The Administrator may provide that Options be granted subject to such terms and conditions, consistent with the terms and conditions specifically required under this Plan, as the Administrator may deem appropriate including, without limitation, subsequent approval by the shareholders of the Company of this Plan or any amendments thereto.  The Option Agreements shall be subject to at least the following terms and conditions:

 

(a)                                 Non-Qualified Options: Each Option intended to be a Non-Qualified Option shall be subject to the terms and conditions which the Administrator determines to be appropriate and in the best interest of the Company, subject to the following minimum standards for any such Non-Qualified Option:

 

(i)                                     Exercise Price: Each Option Agreement shall state the exercise price (per share) of the Shares covered by each Option, which exercise price shall be determined by the Administrator and shall be at least equal to the Fair Market Value per share of Common Stock on the date of grant of the Option.

 

(ii)                                  Number of Shares: Each Option Agreement shall state the number of Shares to which it pertains.

 

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(iii)                               Option Periods: Each Option Agreement shall state the date or dates on which it first is exercisable and the date after which it may no longer be exercised, and may provide that the Option rights accrue or become exercisable in installments over a period of months or years, or upon the occurrence of certain conditions or the attainment of stated goals or events.

 

(iv)                              Option Conditions:  Exercise of any Option may be conditioned upon the Participant’s execution of a Share purchase agreement in form satisfactory to the Administrator providing for certain protections for the Company and its other shareholders, including requirements that:

 

A.                                    The Participant’s or the Participant’s Survivors’ right to sell or transfer the Shares may be restricted; and

 

B.                                    The Participant or the Participant’s Survivors may be required to execute letters of investment intent and must also acknowledge that the Shares will bear legends noting any applicable restrictions.

 

(b)                                 ISOs: Each Option intended to be an ISO shall be issued only to an Employee who is deemed to be a resident of the United States for tax purposes, and shall be subject to the following terms and conditions, with such additional restrictions or changes as the Administrator determines are appropriate but not in conflict with Section 422 of the Code and relevant regulations and rulings of the Internal Revenue Service:

 

(i)                                     Minimum standards: The ISO shall meet the minimum standards required of Non-Qualified Options, as described in Paragraph 6(a) above, except clause (i) thereunder.

 

(ii)                                  Exercise Price: Immediately before the ISO is granted, if the Participant owns, directly or by reason of the applicable attribution rules in Section 424(d) of the Code:

 

A.                                    10% or less of the total combined voting power of all classes of stock of the Company or an Affiliate, the exercise price per share of the Shares covered by each ISO shall not be less than 100% of the Fair Market Value per share of the Common Stock on the date of grant of the Option; or

 

B.                                    More than 10% of the total combined voting power of all classes of stock of the Company or an Affiliate, the exercise price per share of the Shares covered by each ISO shall not be less than 110% of the Fair Market Value per share of the Common Stock on the date of grant of the Option.

 

(iii)                               Term of Option: for Participants who own:

 

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A.                                    10% or less of the total combined voting power of all classes of stock of the Company or an Affiliate, each ISO shall terminate not more than ten years from the date of the grant or at such earlier time as the Option Agreement may provide; or

 

B.                                    More than 10% of the total combined voting power of all classes of stock of the Company or an Affiliate, each ISO shall terminate not more than five years from the date of the grant or at such earlier time as the Option Agreement may provide.

 

(iv)                              Limitation on Yearly Exercise: The Option Agreements shall restrict the amount of ISOs which may become exercisable in any calendar year (under this or any other ISO plan of the Company or an Affiliate) so that the aggregate Fair Market Value (determined on the date each ISO is granted) of the stock with respect to which ISOs are exercisable for the first time by the Participant in any calendar year does not exceed $100,000.

 

7.                                      TERMS AND CONDITIONS OF STOCK GRANTS.

 

Each Stock Grant to a Participant shall state the principal terms in an Agreement duly executed by the Company and, to the extent required by law or requested by the Company, by the Participant.  The Agreement shall be in a form approved by the Administrator and shall contain terms and conditions which the Administrator determines to be appropriate and in the best interest of the Company, subject to the following minimum standards:

 

(a)                                 Each Agreement shall state the purchase price per share, if any, of the Shares covered by each Stock Grant, which purchase price shall be determined by the Administrator but shall not be less than the minimum consideration required by the Delaware General Corporation Law, if any, on the date of the grant of the Stock Grant;

 

(b)                                 Each Agreement shall state the number of Shares to which the Stock Grant pertains; and

 

(c)                                  Each Agreement shall include the terms of any right of the Company to restrict or reacquire the Shares subject to the Stock Grant, including the time and events upon which such rights shall accrue and the purchase price therefor, if any.

 

8.                                      TERMS AND CONDITIONS OF OTHER STOCK-BASED AWARDS

 

The Administrator shall have the right to grant other Stock-Based Awards based upon the Common Stock having such terms and conditions as the Administrator may determine, including, without limitation, the grant of Shares based upon certain conditions, the grant of securities convertible into Shares and the grant of stock appreciation rights, phantom stock awards or stock units.  The principal terms of each Stock-Based Award shall be set forth in an Agreement, duly executed by the Company and, to the extent required by law or requested by the Company, by the Participant.  The Agreement shall be in a form approved by the Administrator and shall contain

 

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terms and conditions which the Administrator determines to be appropriate and in the best interest of the Company.

 

The Company intends that the Plan and any Stock-Based Awards granted hereunder be exempt from the application of Section 409A of the Code or meet the requirements of paragraphs (2), (3) and (4) of subsection (a) of Section 409A of the Code, to the extent applicable, and be operated in accordance with Section 409A so that any compensation deferred under any Stock-Based Award (and applicable investment earnings) shall not be included in income under Section 409A of the Code.  Any ambiguities in the Plan shall be construed to effect the intent as described in this Paragraph 8.

 

9.                                      EXERCISE OF OPTIONS AND ISSUE OF SHARES.

 

An Option (or any part or installment thereof) shall be exercised by giving written notice to the Company or its designee (in a form acceptable to the Administrator, which may include electronic notice), together with provision for payment of the aggregate exercise price in accordance with this Paragraph for the Shares as to which the Option is being exercised, and upon compliance with any other condition(s) set forth in the Option Agreement.  Such notice shall be signed by the person exercising the Option (which signature may be provided electronically in a form acceptable to the Administrator), shall state the number of Shares with respect to which the Option is being exercised and shall contain any representation required by the Plan or the Option Agreement.  Payment of the exercise price for the Shares as to which such Option is being exercised shall be made (a) in United States dollars in cash or by check, or (b) at the discretion of the Administrator, through delivery of shares of Common Stock held for at least six months having a Fair Market Value equal as of the date of the exercise to the aggregate cash exercise price for the number of Shares as to which the Option is being exercised, or (c) at the discretion of the Administrator, by having the Company retain from the Shares otherwise issuable upon exercise of the Option, a number of Shares having a Fair Market Value equal as of the date of exercise to the aggregate exercise price for the number of Shares as to which the Option is being exercised, or (d) at the discretion of the Administrator (after consideration of applicable securities, tax and accounting implications), by delivery of the grantee’s personal recourse note bearing interest payable not less than annually at no less than 100% of the applicable Federal rate, as defined in Section 1274(d) of the Code, or (e) at the discretion of the Administrator, in accordance with a cashless exercise program established with a securities brokerage firm, and approved by the Administrator, or (f) at the discretion of the Administrator, by any combination of (a), (b), (c), (d) and (e) above or (g) at the discretion of the Administrator, by payment of such other lawful consideration as the Administrator may determine.  Notwithstanding the foregoing, the Administrator shall accept only such payment on exercise of an ISO as is permitted by Section 422 of the Code.

 

The Company shall then reasonably promptly deliver the Shares as to which such Option was exercised to the Participant (or to the Participant’s Survivors, as the case may be).  In determining what constitutes “reasonably promptly,” it is expressly understood that the issuance and delivery of the Shares may be delayed by the Company in order to comply with any law or regulation (including, without limitation, state securities or “blue sky” laws) which requires the

 

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Company to take any action with respect to the Shares prior to their issuance.  The Shares shall, upon delivery, be fully paid, non-assessable Shares.

 

The Administrator shall have the right to accelerate the date of exercise of any installment of any Option; provided that the Administrator shall not accelerate the exercise date of any installment of any Option granted to an Employee as an ISO (and not previously converted into a Non-Qualified Option pursuant to Paragraph 27) without the prior approval of the Employee if such acceleration would violate the annual vesting limitation contained in Section 422(d) of the Code, as described in Paragraph 6(b)(iv).

 

The Administrator may, in its discretion, amend any term or condition of an outstanding Option provided (i) such term or condition as amended is permitted by the Plan, (ii) any such amendment shall be made only with the consent of the Participant to whom the Option was granted, or in the event of the death of the Participant, the Participant’s Survivors, if the amendment is adverse to the Participant, and (iii) any such amendment of any Option shall be made only after the Administrator determines whether such amendment would constitute a “modification” of any Option which is an ISO (as that term is defined in Section 424(h) of the Code) or would cause any adverse tax consequences for the holder of any Option including, but not limited to, pursuant to Section 409A of the Code.

 

10.                               ACCEPTANCE OF STOCK GRANTS AND STOCK-BASED AWARDS AND ISSUE OF SHARES.

 

A Stock Grant or Stock-Based Award (or any part or installment thereof) shall be accepted by executing the applicable Agreement and delivering it to the Company or its designee, together with provision for payment of the aggregate exercise price, if any, in accordance with this Paragraph for the Shares as to which such Stock Grant or Stock-Based Award is being accepted, and upon compliance with any other conditions set forth in the applicable Agreement.  Payment of the purchase price for the Shares as to which such Stock Grant or Stock-Based Award is being accepted shall be made (a) in United States dollars in cash or by check, or (b) at the discretion of the Administrator, through delivery of shares of Common Stock held for at least six months (if required to avoid negative accounting treatment) and having a Fair Market Value equal as of the date of acceptance of the Stock Grant or Stock Based-Award to the purchase price of the Stock Grant or Stock-Based Award, or (c) at the discretion of the Administrator (after consideration of applicable securities, tax and accounting implications), by delivery of the grantee’s personal recourse note bearing interest payable not less than annually at no less than 100% of the applicable Federal rate, as defined in Section 1274(d) of the Code, or (d) at the discretion of the Administrator, by any combination of (a), (b) and (c) above; or (e) at the discretion of the Administrator, by payment of such other lawful consideration as the Administrator may determine.

 

The Company shall then, if required by the applicable Agreement, reasonably promptly deliver the Shares as to which such Stock Grant or Stock-Based Award was accepted to the Participant (or to the Participant’s Survivors, as the case may be), subject to any escrow provision set forth in the applicable Agreement.  In determining what constitutes “reasonably promptly,” it is expressly understood that the issuance and delivery of the Shares may be delayed by the Company in order to comply with any law or regulation (including, without limitation, state securities or

 

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“blue sky” laws) which requires the Company to take any action with respect to the Shares prior to their issuance.

 

The Administrator may, in its discretion, amend any term or condition of an outstanding Stock Grant, Stock-Based Award or applicable Agreement provided (i) such term or condition as amended is permitted by the Plan, (ii) any such amendment shall be made only with the consent of the Participant to whom the Stock Grant or Stock-Based Award was made, if the amendment is adverse to the Participant, and (iii) any such amendment shall be made only after the Administrator determines whether such amendment would cause any adverse tax consequences to the Participant, including, but not limited to, pursuant to Section 409A of the Code.

 

11.                               RIGHTS AS A SHAREHOLDER.

 

No Participant to whom a Stock Right has been granted shall have rights as a shareholder with respect to any Shares covered by such Stock Right, except after due exercise of the Option or acceptance of the Stock Grant or as set forth in any Agreement, and tender of the aggregate exercise or purchase price, if any, for the Shares being purchased pursuant to such exercise or acceptance and registration of the Shares in the Company’s share register in the name of the Participant.

 

12.                               ASSIGNABILITY AND TRANSFERABILITY OF STOCK RIGHTS.

 

By its terms, a Stock Right granted to a Participant shall not be transferable by the Participant other than (i) by will or by the laws of descent and distribution, or (ii) as approved by the Administrator in its discretion and set forth in the applicable Agreement provided that no Stock Right may be transferred by a Participant for value.  Notwithstanding the foregoing, an ISO transferred except in compliance with clause (i) above shall no longer qualify as an ISO.  The designation of a beneficiary of a Stock Right by a Participant, with the prior approval of the Administrator and in such form as the Administrator shall prescribe, shall not be deemed a transfer prohibited by this Paragraph.  Except as provided above, a Stock Right shall only be exercisable or may only be accepted, during the Participant’s lifetime, by such Participant (or by his or her legal representative) and shall not be assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) and shall not be subject to execution, attachment or similar process.  Any attempted transfer, assignment, pledge, hypothecation or other disposition of any Stock Right or of any rights granted thereunder contrary to the provisions of this Plan, or the levy of any attachment or similar process upon a Stock Right, shall be null and void.

 

13.                               EFFECT ON OPTIONS OF TERMINATION OF SERVICE OTHER THAN FOR CAUSE OR DEATH OR DISABILITY.

 

Except as otherwise provided in a Participant’s Option Agreement, in the event of a termination of service (whether as an Employee, director or Consultant) with the Company or an Affiliate before the Participant has exercised an Option, the following rules apply:

 

(a)                                 A Participant who ceases to be an Employee, director or Consultant of the Company or of an Affiliate (for any reason other than termination for Cause, Disability, or death for which events there are special rules in Paragraphs 14, 15, and 16, respectively), may exercise any Option granted to him or her to the extent that the Option is exercisable on the date of such termination of

 

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service, but only within such term as the Administrator has designated in a Participant’s Option Agreement.

 

(b)                                 Except as provided in Subparagraph (c) below, or Paragraph 15 or 16, in no event may an Option intended to be an ISO, be exercised later than three months after the Participant’s termination of employment.

 

(c)                                  The provisions of this Paragraph, and not the provisions of Paragraph 15 or 16, shall apply to a Participant who subsequently becomes Disabled or dies after the termination of employment, director status or consultancy; provided, however, in the case of a Participant’s Disability or death within three months after the termination of employment, director status or consultancy, the Participant or the Participant’s Survivors may exercise the Option within one year after the date of the Participant’s termination of service, but in no event after the date of expiration of the term of the Option.

 

(d)                                 Notwithstanding anything herein to the contrary, if subsequent to a Participant’s termination of employment, termination of director status or termination of consultancy, but prior to the exercise of an Option, the Administrator determines that, either prior or subsequent to the Participant’s termination, the Participant engaged in conduct which would constitute Cause, then such Participant shall forthwith cease to have any right to exercise any Option.

 

(e)                                  A Participant to whom an Option has been granted under the Plan who is absent from the Company or an Affiliate because of temporary disability (any disability other than a Disability as defined in Paragraph 1 hereof), or who is on leave of absence for any purpose, shall not, during the period of any such absence, be deemed, by virtue of such absence alone, to have terminated such Participant’s employment, director status or consultancy with the Company or with an Affiliate, except as the Administrator may otherwise expressly provide; provided, however, that, for ISOs, any leave of absence granted by the Administrator of greater than ninety days, unless pursuant to a contract or statute that guarantees the right to reemployment, shall cause such ISO to become a Non-Qualified Option on the 181st day following such leave of absence.

 

(f)                                   Except as required by law or as set forth in a Participant’s Option Agreement, Options granted under the Plan shall not be affected by any change of a Participant’s status within or among the Company and any Affiliates, so long as the Participant continues to be an Employee, director or Consultant of the Company or any Affiliate.

 

14.                               EFFECT ON OPTIONS OF TERMINATION OF SERVICE FOR CAUSE.

 

Except as otherwise provided in a Participant’s Option Agreement, the following rules apply if the Participant’s service (whether as an Employee, director or Consultant) with the Company or an Affiliate is terminated for Cause prior to the time that all his or her outstanding Options have been exercised:

 

(a)                                 All outstanding and unexercised Options as of the time the Participant is notified his or her service is terminated for Cause will immediately be forfeited.

 

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(b)                                 Cause is not limited to events which have occurred prior to a Participant’s termination of service, nor is it necessary that the Administrator’s finding of Cause occur prior to termination.  If the Administrator determines, subsequent to a Participant’s termination of service but prior to the exercise of an Option, that either prior or subsequent to the Participant’s termination the Participant engaged in conduct which would constitute Cause, then the right to exercise any Option is forfeited.

 

15.                               EFFECT ON OPTIONS OF TERMINATION OF SERVICE FOR DISABILITY.

 

Except as otherwise provided in a Participant’s Option Agreement:

 

(a)                                 A Participant who ceases to be an Employee, director or Consultant of the Company or of an Affiliate by reason of Disability may exercise any Option granted to such Participant:

 

(i)                                     To the extent that the Option has become exercisable but has not been exercised on the date of Disability; and

 

(ii)                                  In the event rights to exercise the Option accrue periodically, to the extent of a pro rata portion through the date of Disability of any additional vesting rights that would have accrued on the next vesting date had the Participant not become Disabled.  The proration shall be based upon the number of days accrued in the current vesting period prior to the date of Disability.

 

(b)                                 A Disabled Participant may exercise the Option only within the period ending one year after the date of the Participant’s termination due to Disability, notwithstanding that the Participant might have been able to exercise the Option as to some or all of the Shares on a later date if the Participant had not become Disabled and had continued to be an Employee, director or Consultant or, if earlier, within the originally prescribed term of the Option.

 

(c)                                  The Administrator shall make the determination both of whether Disability has occurred and the date of its occurrence (unless a procedure for such determination is set forth in another agreement between the Company and such Participant, in which case such procedure shall be used for such determination).  If requested, the Participant shall be examined by a physician selected or approved by the Administrator, the cost of which examination shall be paid for by the Company.

 

16.                               EFFECT ON OPTIONS OF DEATH WHILE AN EMPLOYEE, DIRECTOR OR CONSULTANT.

 

Except as otherwise provided in a Participant’s Option Agreement:

 

(a)                                 In the event of the death of a Participant while the Participant is an Employee, director or Consultant of the Company or of an Affiliate, such Option may be exercised by the Participant’s Survivors:

 

(i)                                     To the extent that the Option has become exercisable but has not been exercised on the date of death; and

 

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(ii)                                  In the event rights to exercise the Option accrue periodically, to the extent of a pro rata portion through the date of death of any additional vesting rights that would have accrued on the next vesting date had the Participant not died.  The proration shall be based upon the number of days accrued in the current vesting period prior to the Participant’s date of death.

 

(b)                                 If the Participant’s Survivors wish to exercise the Option, they must take all necessary steps to exercise the Option within one year after the date of death of such Participant, notwithstanding that the decedent might have been able to exercise the Option as to some or all of the Shares on a later date if he or she had not died and had continued to be an Employee, director or Consultant or, if earlier, within the originally prescribed term of the Option.

 

17.                               EFFECT OF TERMINATION OF SERVICE ON UNACCEPTED STOCK GRANTS.

 

In the event of a termination of service (whether as an Employee, director or Consultant) with the Company or an Affiliate for any reason before the Participant has accepted a Stock Grant, such offer shall terminate.

 

For purposes of this Paragraph 17 and Paragraph 18 below, a Participant to whom a Stock Grant has been offered and accepted under the Plan who is absent from work with the Company or with an Affiliate because of temporary disability (any disability other than a Disability as defined in Paragraph 1 hereof), or who is on leave of absence for any purpose, shall not, during the period of any such absence, be deemed, by virtue of such absence alone, to have terminated such Participant’s employment, director status or consultancy with the Company or with an Affiliate, except as the Administrator may otherwise expressly provide.

 

In addition, for purposes of this Paragraph 17 and Paragraph 18 below, any change of employment or other service within or among the Company and any Affiliates shall not be treated as a termination of employment, director status or consultancy so long as the Participant continues to be an Employee, director or Consultant of the Company or any Affiliate.

 

18.                               EFFECT ON STOCK GRANTS OF TERMINATION OF SERVICE OTHER THAN FOR CAUSE OR DEATH OR DISABILITY.

 

Except as otherwise provided in a Participant’s Stock Grant Agreement, in the event of a termination of service (whether as an Employee, director or Consultant), other than termination for Cause, Disability, or death for which events there are special rules in Paragraphs 19, 20, and 21, respectively, before all forfeiture provisions or Company rights of repurchase shall have lapsed, then the Company shall have the right to cancel or repurchase that number of Shares subject to a Stock Grant as to which the Company’s forfeiture or repurchase rights have not lapsed.

 

19.                               EFFECT ON STOCK GRANTS OF TERMINATION OF SERVICE FOR CAUSE.

 

Except as otherwise provided in a Participant’s Stock Grant Agreement, the following rules apply if the Participant’s service (whether as an Employee, director or Consultant) with the Company or an Affiliate is terminated for Cause:

 

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(a)                                 All Shares subject to any Stock Grant whether or not then subject to forfeiture or repurchase shall be immediately subject to repurchase by the Company at the lesser of Fair Market Value or the purchase price, thereof.

 

(b)                                 Cause is not limited to events which have occurred prior to a Participant’s termination of service, nor is it necessary that the Administrator’s finding of Cause occur prior to termination.  If the Administrator determines, subsequent to a Participant’s termination of service, that either prior or subsequent to the Participant’s termination the Participant engaged in conduct which would constitute Cause, then all Shares subject to any Stock Grant that remained subject to forfeiture provisions or as to which the Company had a repurchase right on the date of termination shall be immediately forfeited to the Company.

 

20.                               EFFECT ON STOCK GRANTS OF TERMINATION OF SERVICE FOR DISABILITY.

 

Except as otherwise provided in a Participant’s Stock Grant Agreement, the following rules apply if a Participant ceases to be an Employee, director or Consultant of the Company or of an Affiliate by reason of Disability: to the extent the forfeiture provisions or the Company’s rights of repurchase have not lapsed on the date of Disability, they shall be exercisable; provided, however, that in the event such forfeiture provisions or rights of repurchase lapse periodically, such provisions or rights shall lapse to the extent of a pro rata portion of the Shares subject to such Stock Grant through the date of Disability as would have lapsed had the Participant not become Disabled.  The proration shall be based upon the number of days accrued prior to the date of Disability.

 

The Administrator shall make the determination both as to whether Disability has occurred and the date of its occurrence (unless a procedure for such determination is set forth in another agreement between the Company and such Participant, in which case such procedure shall be used for such determination).  If requested, the Participant shall be examined by a physician selected or approved by the Administrator, the cost of which examination shall be paid for by the Company.

 

21.                               EFFECT ON STOCK GRANTS OF DEATH WHILE AN EMPLOYEE, DIRECTOR OR CONSULTANT.

 

Except as otherwise provided in a Participant’s Stock Grant Agreement, the following rules apply in the event of the death of a Participant while the Participant is an Employee, director or Consultant of the Company or of an Affiliate: to the extent the forfeiture provisions or the Company’s rights of repurchase have not lapsed on the date of death, they shall be exercisable; provided, however, that in the event such forfeiture provisions or rights of repurchase lapse periodically, such provisions or rights shall lapse to the extent of a pro rata portion of the Shares subject to such Stock Grant through the date of death as would have lapsed had the Participant not died.  The proration shall be based upon the number of days accrued prior to the Participant’s death.

 

22.                               PURCHASE FOR INVESTMENT.

 

Unless the offering and sale of the Shares to be issued upon the particular exercise or acceptance of a Stock Right shall have been effectively registered under the Securities Act, the Company shall be under no obligation to issue the Shares covered by such exercise unless and until the following conditions have been fulfilled:

 

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(a)                                 The person who exercises or accepts such Stock Right shall warrant to the Company, prior to the receipt of such Shares, that such person is acquiring such Shares for his or her own account, for investment, and not with a view to, or for sale in connection with, the distribution of any such Shares, in which event the person acquiring such Shares shall be bound by the provisions of the following legend (or a legend in substantially similar form) which shall be endorsed upon the certificate evidencing the Shares issued pursuant to such exercise or such grant:

 

“The shares represented by this certificate have been taken for investment and they may not be sold or otherwise transferred by any person, including a pledgee, unless (1) either (a) a Registration Statement with respect to such shares shall be effective under the Securities Act of 1933, as amended, or (b) the Company shall have received an opinion of counsel satisfactory to it that an exemption from registration under such Act is then available, and (2) there shall have been compliance with all applicable state securities laws.”

 

(b)                                 At the discretion of the Administrator, the Company shall have received an opinion of its counsel that the Shares may be issued upon such particular exercise or acceptance in compliance with the Securities Act without registration thereunder.

 

23.                               DISSOLUTION OR LIQUIDATION OF THE COMPANY.

 

Upon the dissolution or liquidation of the Company, all Options granted under this Plan which as of such date shall not have been exercised and all Stock Grants and Stock-Based Awards which have not been accepted will terminate and become null and void; provided, however, that if the rights of a Participant or a Participant’s Survivors have not otherwise terminated and expired, the Participant or the Participant’s Survivors will have the right immediately prior to such dissolution or liquidation to exercise or accept any Stock Right to the extent that the Stock Right is exercisable or subject to acceptance as of the date immediately prior to such dissolution or liquidation.  Upon the dissolution or liquidation of the Company, any outstanding Stock-Based Awards shall immediately terminate unless otherwise determined by the Administrator or specifically provided in the applicable Agreement.

 

24.                               ADJUSTMENTS.

 

Upon the occurrence of any of the following events, a Participant’s rights with respect to any Stock Right granted to him or her hereunder shall be adjusted as hereinafter provided, unless otherwise specifically provided in a Participant’s Agreement:

 

(a)                                 Stock Dividends and Stock Splits.  If (i) the shares of Common Stock shall be subdivided or combined into a greater or smaller number of shares or if the Company shall issue any shares of Common Stock as a stock dividend on its outstanding Common Stock, or (ii) 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 Common Stock, the number of shares of Common Stock deliverable upon the exercise of an Option or acceptance of a Stock Grant shall be appropriately increased or decreased proportionately, and appropriate adjustments shall be made including, in the exercise or purchase price per share, to reflect such events.  The number of Shares

 

15



 

subject to the limitations in Paragraph 3(a) shall also be proportionately adjusted upon the occurrence of such events.

 

(b)                                 Corporate Transactions.  If the Company is to be consolidated with or acquired by another entity in a merger, consolidation, or sale of all or substantially all of the Company’s assets other than a transaction to merely change the state of incorporation (a “Corporate Transaction”), the Administrator or the board of directors of any entity assuming the obligations of the Company hereunder (the “Successor Board”), shall, as to outstanding Options, either (i) make appropriate provision for the continuation of such Options by substituting on an equitable basis for the Shares then subject to such Options either the consideration payable with respect to the outstanding shares of Common Stock in connection with the Corporate Transaction or securities of any successor or acquiring entity; or (ii) upon written notice to the Participants, provide that such Options must be exercised (either (A) to the extent then exercisable or, (B) at the discretion of the Administrator, any such Options being made partially or fully exercisable for purposes of this Subparagraph), within a specified number of days of the date of such notice, at the end of which period such Options which have not been exercised shall terminate; or (iii) terminate such Options in exchange for payment of an amount equal to the consideration payable upon consummation of such Corporate Transaction to a holder of the number of shares of Common Stock into which such Option would have been exercisable (either (A) to the extent then exercisable or, (B) at the discretion of the Administrator, any such Options being made partially or fully exercisable for purposes of this Subparagraph) less the aggregate exercise price thereof.  For purposes of determining the payments to be made pursuant to Subclause (iii) above, in the case of a Corporate Transaction the consideration for which, in whole or in part, is other than cash, the consideration other than cash shall be valued at the fair value thereof as determined in good faith by the Board of Directors.

 

With respect to outstanding Stock Grants, the Administrator or the Successor Board, shall make appropriate provision for the continuation of such Stock Grants on the same terms and conditions by substituting on an equitable basis for the Shares then subject to such Stock Grants either the consideration payable with respect to the outstanding Shares of Common Stock in connection with the Corporate Transaction or securities of any successor or acquiring entity.  In lieu of the foregoing, in connection with any Corporate Transaction, the Administrator may provide that, upon consummation of the Corporate Transaction, each outstanding Stock Grant shall be terminated in exchange for payment of an amount equal to the consideration payable upon consummation of such Corporate Transaction to a holder of the number of shares of Common Stock comprising such Stock Grant (to the extent such Stock Grant is no longer subject to any forfeiture or repurchase rights then in effect or, at the discretion of the Administrator, all forfeiture and repurchase rights being waived upon such Corporate Transaction).

 

In taking any of the actions permitted under this Paragraph 24(b), the Administrator shall not be obligated by the Plan to treat all Stock Rights, all Stock Rights held by a Participant, or all Stock Rights of the same type, identically.

 

(c)                                  Recapitalization or Reorganization.  In the event of a recapitalization or reorganization of the Company other than a Corporate Transaction pursuant to which securities of the Company or of another corporation are issued with respect to the outstanding shares of Common Stock, a Participant upon exercising an Option or accepting a Stock Grant after the

 

16



 

recapitalization or reorganization shall be entitled to receive for the price paid upon such exercise or acceptance if any, the number of replacement securities which would have been received if such Option had been exercised or Stock Grant accepted prior to such recapitalization or reorganization.

 

(d)                                 Adjustments to Stock-Based Awards.  Upon the happening of any of the events described in Subparagraphs (a), (b) or (c) above, any outstanding Stock-Based Award shall be appropriately adjusted to reflect the events described in such Subparagraphs.  The Administrator or the Successor Board shall determine the specific adjustments to be made under this Paragraph 24, including, but not limited to the effect of any, Corporate Transaction and, subject to Paragraph 4, its determination shall be conclusive.

 

(e)                                  Modification of Options.  Notwithstanding the foregoing, any adjustments made pursuant to Subparagraph (a), (b) or (c) above with respect to Options shall be made only after the Administrator determines whether such adjustments would constitute a “modification” of any ISOs (as that term is defined in Section 424(h) of the Code) or would cause any adverse tax consequences for the holders of Options, including, but not limited to, pursuant to Section 409A of the Code.  If the Administrator determines that such adjustments made with respect to Options would constitute a modification or other adverse tax consequence, it may refrain from making such adjustments, unless the holder of an Option specifically agrees in writing that such adjustment be made and such writing indicates that the holder has full knowledge of the consequences of such “modification” on his or her income tax treatment with respect to the Option.  This paragraph shall not apply to the acceleration of the vesting of any ISO that would cause any portion of the ISO to violate the annual vesting limitation contained in Section 422(d) of the Code, as described in Paragraph 6(b)(iv).

 

25.                               ISSUANCES OF SECURITIES.

 

Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares subject to Stock Rights.  Except as expressly provided herein, no adjustments shall be made for dividends paid in cash or in property (including without limitation, securities) of the Company prior to any issuance of Shares pursuant to a Stock Right.

 

26.                               FRACTIONAL SHARES.

 

No fractional shares shall be issued under the Plan and the person exercising a Stock Right shall receive from the Company cash in lieu of such fractional shares equal to the Fair Market Value thereof.

 

27.                               CONVERSION OF ISOS INTO NON-QUALIFIED OPTIONS; TERMINATION OF ISOS.

 

The Administrator, at the written request of any Participant, may in its discretion take such actions as may be necessary to convert such Participant’s ISOs (or any portions thereof) that have not been exercised on the date of conversion into Non-Qualified Options at any time prior to the expiration of such ISOs, regardless of whether the Participant is an Employee of the Company or an Affiliate at the time of such conversion.  At the time of such conversion, the Administrator (with the

 

17



 

consent of the Participant) may impose such conditions on the exercise of the resulting Non-Qualified Options as the Administrator in its discretion may determine, provided that such conditions shall not be inconsistent with this Plan.  Nothing in the Plan shall be deemed to give any Participant the right to have such Participant’s ISOs converted into Non-Qualified Options, and no such conversion shall occur until and unless the Administrator takes appropriate action.  The Administrator, with the consent of the Participant, may also terminate any portion of any ISO that has not been exercised at the time of such conversion.

 

28.                               WITHHOLDING.

 

In the event that any federal, state, or local income taxes, employment taxes, Federal Insurance Contributions Act (“F.I.C.A.”) withholdings or other amounts are required by applicable law or governmental regulation to be withheld from the Participant’s salary, wages or other remuneration in connection with the exercise or acceptance of a Stock Right or in connection with a Disqualifying Disposition (as defined in Paragraph 29) or upon the lapsing of any forfeiture provision or right of repurchase or for any other reason required by law, the Company may withhold from the Participant’s compensation, if any, or may require that the Participant advance in cash to the Company, or to any Affiliate of the Company which employs or employed the Participant, the statutory minimum amount of such withholdings unless a different withholding arrangement, including the use of shares of the Company’s Common Stock or a promissory note, is authorized by the Administrator (and permitted by law).  For purposes hereof, the fair market value of the shares withheld for purposes of payroll withholding shall be determined in the manner set forth under the definition of Fair Market Value provided in Paragraph 1 above, as of the most recent practicable date prior to the date of exercise.  If the Fair Market Value of the shares withheld is less than the amount of payroll withholdings required, the Participant may be required to advance the difference in cash to the Company or the Affiliate employer.  The Administrator in its discretion may condition the exercise of an Option for less than the then Fair Market Value on the Participant’s payment of such additional withholding.

 

29.                               NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION.

 

Each Employee who receives an ISO must agree to notify the Company in writing immediately after the Employee makes a Disqualifying Disposition of any Shares acquired pursuant to the exercise of an ISO.  A Disqualifying Disposition is defined in Section 424(c) of the Code and includes any disposition (including any sale or gift) of such Shares before the later of (a) two years after the date the Employee was granted the ISO, or (b) one year after the date the Employee acquired Shares by exercising the ISO, except as otherwise provided in Section 424(c) of the Code.  If the Employee has died before such Shares are sold, these holding period requirements do not apply and no Disqualifying Disposition can occur thereafter.

 

30.                               TERMINATION OF THE PLAN.

 

The Plan will terminate on December   , 2019, the date which is ten years from the earlier of the date of its adoption by the Board of Directors and the date of its approval by the shareholders of the Company.  The Plan may be terminated at an earlier date by vote of the shareholders or the Board of Directors of the Company; provided, however, that any such earlier termination shall not

 

18



 

affect any Agreements executed prior to the effective date of such termination.  Termination of the Plan shall not affect any Stock Rights theretofore granted.

 

31.                               AMENDMENT OF THE PLAN AND AGREEMENTS.

 

The Plan may be amended by the shareholders of the Company.  The Plan may also be amended by the Administrator, including, without limitation, to the extent necessary to qualify any or all outstanding Stock Rights granted under the Plan or Stock Rights to be granted under the Plan for favorable federal income tax treatment as may be afforded incentive stock options under Section 422 of the Code (including deferral of taxation upon exercise), and to the extent necessary to qualify the shares issuable upon exercise or acceptance of any outstanding Stock Rights granted, or Stock Rights to be granted, under the Plan for listing on any national securities exchange or quotation in any national automated quotation system of securities dealers.  Any amendment approved by the Administrator which the Administrator determines is of a scope that requires shareholder approval shall be subject to obtaining such shareholder approval.  Any modification or amendment of the Plan shall not, without the consent of a Participant, adversely affect his or her rights under a Stock Right previously granted to him or her.  With the consent of the Participant affected, the Administrator may amend outstanding Agreements in a manner which may be adverse to the Participant but which is not inconsistent with the Plan.  In the discretion of the Administrator, outstanding Agreements may be amended by the Administrator in a manner which is not adverse to the Participant.

 

32.                               EMPLOYMENT OR OTHER RELATIONSHIP.

 

Nothing in this Plan or any Agreement shall be deemed to prevent the Company or an Affiliate from terminating the employment, consultancy or director status of a Participant, nor to prevent a Participant from terminating his or her own employment, consultancy or director status or to give any Participant a right to be retained in employment or other service by the Company or any Affiliate for any period of time.

 

33.                               GOVERNING LAW.

 

This Plan shall be construed and enforced in accordance with the law of the State of Delaware.

 

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KALA PHARMACEUTICALS, INC.

 

AMENDMENT

TO

2009 EMPLOYEE, DIRECTOR AND CONSULTANT EQUITY INCENTIVE PLAN

 

Pursuant to Section 31 of the 2009 Employee, Director and Consultant Equity Incentive Plan (the “Plan”) of Kala Pharmaceuticals, Inc., a Delaware corporation (the “Corporation”), the 2009 Plan be, and hereby is, amended as set forth below.  Capitalized terms used and not defined herein shall have the meanings ascribed to them in the Plan.

 

1.                                      All references to “Hanes Newco, Inc.” within the Plan shall be replaced with “Kala Pharmaceuticals, Inc.”

 

2.                                      Section 3(a) of the Plan is hereby deleted in its entirety and replaced with the following:

 

“(a)                           The number of Shares which may be issued from time to time pursuant to this Plan shall be 2,250,000, or the equivalent of such number of Shares after the Administrator, in its sole discretion, has interpreted the effect of any future stock split, stock dividend, combination, recapitalization or similar transaction in accordance with Paragraph 24 of the Plan.”

 

Adopted by the Board of Directors on February 28, 2012

 

Approved by Stockholders on February 28, 2012

 


 

KALA PHARMACEUTICALS, INC.

 

AMENDMENT NO. 2

TO

2009 EMPLOYEE, DIRECTOR AND CONSULTANT EQUITY INCENTIVE PLAN

 

Pursuant to Section 31 of the 2009 Employee, Director and Consultant Equity Incentive Plan (as amended to date, the “2009 Plan”) of Kala Pharmaceuticals, Inc., a Delaware corporation (the “Corporation”), the 2009 Plan be, and hereby is, amended as set forth below.  Capitalized terms used and not defined herein shall have the meanings ascribed to them in the 2009 Plan.

 

1.                                      Section 3(a) of the Plan is hereby deleted in its entirety and replaced with the following:

 

“(a)                           The number of Shares which may be issued from time to time pursuant to this Plan shall be 3,210,205, or the equivalent of such number of Shares after the Administrator, in its sole discretion, has interpreted the effect of any future stock split, stock dividend, combination, recapitalization or similar transaction in accordance with Paragraph 24 of this Plan.”

 

Adopted by the Board of Directors on February 13, 2013

 

Approved by Stockholders on February 13, 2013

 



 

KALA PHARMACEUTICALS, INC.

 

AMENDMENT

TO

2009 EMPLOYEE, DIRECTOR AND CONSULTANT EQUITY INCENTIVE PLAN

 

Pursuant to Section 31 of the 2009 Employee, Director and Consultant Equity Incentive Plan (as amended to date, the “2009 Plan”) of Kala Pharmaceuticals, Inc., a Delaware corporation (the “Corporation”), the 2009 Plan be, and hereby is, amended as set forth below.  Capitalized terms used and not defined herein shall have the meanings ascribed to them in the 2009 Plan.

 

1.                                      Section 3(a) of the Plan is hereby deleted in its entirety and replaced with the following:

 

“(a)                           The number of Shares which may be issued from time to time pursuant to this Plan shall be 5,788,784, or the equivalent of such number of Shares after the Administrator, in its sole discretion, has interpreted the effect of any future stock split, stock dividend, combination, recapitalization or similar transaction in accordance with Paragraph 24 of this Plan.”

 

Adopted by the Board of Directors on April 14, 2014

 

Approved by Stockholders on April 15, 2014

 



 

KALA PHARMACEUTICALS, INC.

 

AMENDMENT

TO

2009 EMPLOYEE, DIRECTOR AND CONSULTANT EQUITY INCENTIVE PLAN

 

Pursuant to Section 31 of the 2009 Employee, Director and Consultant Equity Incentive Plan (as amended to date, the “2009 Plan”) of Kala Pharmaceuticals, Inc., a Delaware corporation (the “Corporation”), the 2009 Plan be, and hereby is, amended as set forth below.  Capitalized terms used and not defined herein shall have the meanings ascribed to them in the 2009 Plan.

 

1.                                      Section 3(a) of the 2009 Plan is hereby deleted in its entirety and replaced with the following:

 

“(a)                           The number of Shares which may be issued from time to time pursuant to this Plan shall be 7,208,027, or the equivalent of such number of Shares after the Administrator, in its sole discretion, has interpreted the effect of any future stock split, stock dividend, combination, recapitalization or similar transaction in accordance with Paragraph 24 of this Plan.”

 

Adopted by the Board of Directors on March 24, 2015

 

Approved by Stockholders on May 8, 2015

 



 

KALA PHARMACEUTICALS, INC.

 

AMENDMENT

TO

2009 EMPLOYEE, DIRECTOR AND CONSULTANT EQUITY INCENTIVE PLAN

 

Pursuant to Section 31 of the 2009 Employee, Director and Consultant Equity Incentive Plan (as amended to date, the “2009 Plan”) of Kala Pharmaceuticals, Inc., a Delaware corporation (the “Corporation”), the 2009 Plan be, and hereby is, amended as set forth below.  Capitalized terms used and not defined herein shall have the meanings ascribed to them in the 2009 Plan.

 

1.                                      Section 3(a) of the 2009 Plan is hereby deleted in its entirety and replaced with the following:

 

“(a)                           The number of Shares which may be issued from time to time pursuant to this Plan shall be 9,181,163, or the equivalent of such number of Shares after the Administrator, in its sole discretion, has interpreted the effect of any future stock split, stock dividend, combination, recapitalization or similar transaction in accordance with Paragraph 24 of this Plan.”

 

Adopted by the Board of Directors on September 11, 2015

 

Approved by Stockholders on September 15, 2015

 




Exhibit 10.2

 

Option No.             

 

KALA PHARMACEUTICALS, INC.

 

Stock Option Grant Notice

Stock Option Grant under the Company’s

2009 Employee, Director and Consultant Equity Incentive Plan

 

1.

Name and Address of Participant:

 

 

 

 

 

 

 

 

 

 

2.

Date of Option Grant:

 

 

 

 

3.

Type of Grant:

 

 

 

 

4.

Maximum Number of Shares for

 

 

which this Option is exercisable:

 

 

 

 

 

 

 

5.

Exercise (purchase) price per share:

 

 

 

 

6.

Option Expiration Date:

 

 

 

 

7.

Vesting Start Date:

 

 

 

8.

Vesting Schedule: This Option shall become exercisable (and the Shares issued upon exercise shall be vested) as follows provided the Participant is an employee, director or Consultant of the Company or of an Affiliate on the applicable vesting date:

 

The foregoing rights are cumulative and are subject to the other terms and conditions of this Agreement and the Plan.

 

[On the first anniversary of the Vesting Start Date

up to              Shares

On the second anniversary of the Vesting Start Date

an additional            Shares

On the third anniversary of the Vesting Start Date

an additional            Shares]

 

 

The Company and the Participant acknowledge receipt of this Stock Option Grant Notice and agree to the terms of the Stock Option Agreement attached hereto and incorporated by reference herein, the Company’s 2009 Employee, Director and Consultant Equity Incentive Plan and the terms of this Option Grant as set forth above.

 



 

 

KALA PHARMACEUTICALS, INC.

 

 

 

By:

 

 

 

Name:

 

 

 

Title:

 

 

 

 

 

 

PARTICIPANT

 

 

 

 

 

 

 

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KALA PHARMACEUTICALS, INC.

 

STOCK OPTION AGREEMENT - INCORPORATED TERMS AND CONDITIONS

 

AGREEMENT made as of the date of grant set forth in the Stock Option Grant Notice by and between Kala Pharmaceuticals, Inc. (the “Company”), a Delaware corporation, and the individual whose name appears on the Stock Option Grant Notice (the “Participant”).

 

WHEREAS, the Company desires to grant to the Participant an Option to purchase shares of its common stock, $0.001 par value per share (the “Shares”), under and for the purposes set forth in the Company’s 2009 Employee, Director and Consultant Equity Incentive Plan (the “Plan”);

 

WHEREAS, the Company and the Participant understand and agree that any terms used and not defined herein have the same meanings as in the Plan; and

 

WHEREAS, the Company and the Participant each intend that the Option granted herein shall be of the type set forth in the Stock Option Grant Notice.

 

NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth and for other good and valuable consideration, the parties hereto agree as follows:

 

1.                                      GRANT OF OPTION.

 

The Company hereby grants to the Participant the right and option to purchase all or any part of an aggregate of the number of Shares set forth in the Stock Option Grant Notice, on the terms and conditions and subject to all the limitations set forth herein, under United States securities and tax laws, and in the Plan, which is incorporated herein by reference.  The Participant acknowledges receipt of a copy of the Plan.

 

2.                                      EXERCISE PRICE.

 

The exercise price of the Shares covered by the Option shall be the amount per Share set forth in the Stock Option Grant Notice, subject to adjustment, as provided in the Plan, in the event of a stock split, reverse stock split or other events affecting the holders of Shares after the date hereof (the “Exercise Price”).  Payment shall be made in accordance with Paragraph 9 of the Plan.

 

3.                                      EXERCISABILITY OF OPTION.

 

Subject to the terms and conditions set forth in this Agreement and the Plan, the Option granted hereby shall become vested and exercisable as set forth in the Stock Option Grant Notice and is subject to the other terms and conditions of this Agreement and the Plan.

 



 

4.                                      TERM OF OPTION.

 

This Option shall terminate on the Option Expiration Date as specified in the Stock Option Grant Notice and, if this Option is designated in the Stock Option Grant Notice as an ISO and the Participant owns as of the date hereof more than 10% of the total combined voting power of all classes of capital stock of the Company or an Affiliate, such date may not be more than five years from the date of this Agreement, but shall be subject to earlier termination as provided herein or in the Plan.

 

If the Participant ceases to be an employee, director or Consultant of the Company or of an Affiliate for any reason other than the death or Disability of the Participant, or termination of the Participant for Cause (the “Termination Date”), the Option to the extent then vested and exercisable pursuant to Section 3 hereof as of the Termination Date, and not previously terminated in accordance with this Agreement, may be exercised within three months after the Termination Date, or on or prior to the Option Expiration Date as specified in the Stock Option Grant Notice, whichever is earlier, but may not be exercised thereafter except as set forth below.  In such event, the unvested portion of the Option shall not be exercisable and shall expire and be cancelled on the Termination Date.

 

If this Option is designated in the Stock Option Grant Notice as an ISO and the Participant ceases to be an employee of the Company or of an Affiliate but continues after termination of employment to provide service to the Company or an Affiliate as a director or Consultant, this Option shall continue to vest in accordance with Section 3 above as if this Option had not terminated until the Participant is no longer providing services to the Company.  In such case, this Option shall automatically convert and be deemed a Non-Qualified Option as of the date that is three months from termination of the Participant’s employment and this Option shall continue on the same terms and conditions set forth herein until such Participant is no longer providing service to the Company or an Affiliate.

 

Notwithstanding the foregoing, in the event of the Participant’s Disability or death within three months after the Termination Date, the Participant or the Participant’s Survivors may exercise the Option within one year after the Termination Date, but in no event after the Option Expiration Date as specified in the Stock Option Grant Notice.

 

In the event the Participant’s service is terminated by the Company or an Affiliate for Cause, the Participant’s right to exercise any unexercised portion of this Option even if vested shall cease immediately as of the time the Participant is notified his or her service is terminated for Cause, and this Option shall thereupon terminate.  Notwithstanding anything herein to the contrary, if subsequent to the Participant’s termination, but prior to the exercise of the Option, the Administrator determines that, either prior or subsequent to the Participant’s termination, the Participant engaged in conduct which would constitute Cause, then the Participant shall immediately cease to have any right to exercise the Option and this Option shall thereupon terminate.

 

In the event of the Disability of the Participant, as determined in accordance with the Plan, the Option shall be exercisable within one year after the Participant’s termination of

 

2



 

service due to Disability or, if earlier, on or prior to the Option Expiration Date as specified in the Stock Option Grant Notice.  In such event, the Option shall be exercisable:

 

(a)                                 to the extent that the Option has become exercisable but has not been exercised as of the date of the Participant’s termination of service due to Disability; and

 

(b)                                 in the event rights to exercise the Option accrue periodically, to the extent of a pro rata portion through the date of the Participant’s termination of service due to Disability of any additional vesting rights that would have accrued on the next vesting date had the Participant not become Disabled.  The proration shall be based upon the number of days accrued in the current vesting period prior to the date of the Participant’s termination of service due to Disability.

 

In the event of the death of the Participant while an employee, director or Consultant of the Company or of an Affiliate, the Option shall be exercisable by the Participant’s Survivors within one year after the date of death of the Participant or, if earlier, on or prior to the Option Expiration Date as specified in the Stock Option Grant Notice.  In such event, the Option shall be exercisable:

 

(x)                                 to the extent that the Option has become exercisable but has not been exercised as of the date of death; and

 

(y)                                 in the event rights to exercise the Option accrue periodically, to the extent of a pro rata portion through the date of death of any additional vesting rights that would have accrued on the next vesting date had the Participant not died.  The proration shall be based upon the number of days accrued in the current vesting period prior to the Participant’s date of death.

 

5.                                      METHOD OF EXERCISING OPTION.

 

Subject to the terms and conditions of this Agreement, the Option may be exercised by written notice to the Company or its designee, in substantially the form of Exhibit A attached hereto (or in such other form acceptable to the Company, which may include electronic notice).  Such notice shall state the number of Shares with respect to which the Option is being exercised and shall be signed by the person exercising the Option (which signature may be provided electronically in a form acceptable to the Company).  Payment of the Exercise Price for such Shares shall be made in accordance with Paragraph 9 of the Plan.  The Company shall deliver such Shares as soon as practicable after the notice shall be received, provided, however, that the Company may delay issuance of such Shares until completion of any action or obtaining of any consent, which the Company deems necessary under any applicable law (including, without limitation, state securities or “blue sky” laws).  The Shares as to which the Option shall have been so exercised shall be registered in the Company’s share register in the name of the person so exercising the Option (or, if the Option shall be exercised by the Participant and if the Participant shall so request in the notice exercising the Option, shall be registered in the

 

3



 

Company’s share register in the name of the Participant and another person jointly, with right of survivorship) and shall be delivered as provided above to or upon the written order of the person exercising the Option.  In the event the Option shall be exercised, pursuant to Section 4 hereof, by any person other than the Participant, such notice shall be accompanied by appropriate proof of the right of such person to exercise the Option.  All Shares that shall be purchased upon the exercise of the Option as provided herein shall be fully paid and nonassessable.

 

6.                                      PARTIAL EXERCISE.

 

Exercise of this Option to the extent above stated may be made in part at any time and from time to time within the above limits, except that no fractional share shall be issued pursuant to this Option.

 

7.                                      NON-ASSIGNABILITY.

 

The Option shall not be transferable by the Participant otherwise than by will or by the laws of descent and distribution. If this Option is a Non-Qualified Option then it may also be transferred pursuant to a qualified domestic relations order as defined by the Code or Title I of the Employee Retirement Income Security Act or the rules thereunder.  Except as provided above in this paragraph, the Option shall be exercisable, during the Participant’s lifetime, only by the Participant (or, in the event of legal incapacity or incompetency, by the Participant’s guardian or representative) and shall not be assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) and shall not be subject to execution, attachment or similar process.  Any attempted transfer, assignment, pledge, hypothecation or other disposition of the Option or of any rights granted hereunder contrary to the provisions of this Section 7, or the levy of any attachment or similar process upon the Option shall be null and void.

 

8.                                      NO RIGHTS AS STOCKHOLDER UNTIL EXERCISE.

 

The Participant shall have no rights as a stockholder with respect to Shares subject to this Agreement until registration of the Shares in the Company’s share register in the name of the Participant.  Except as is expressly provided in the Plan with respect to certain changes in the capitalization of the Company, no adjustment shall be made for dividends or similar rights for which the record date is prior to the date of such registration.

 

9.                                      ADJUSTMENTS.

 

The Plan contains provisions covering the treatment of Options in a number of contingencies such as stock splits and mergers.  Provisions in the Plan for adjustment with respect to stock subject to Options and the related provisions with respect to successors to the business of the Company are hereby made applicable hereunder and are incorporated herein by reference.

 

4



 

10.                               TAXES.

 

The Participant acknowledges and agrees that (i) any income or other taxes due from the Participant with respect to this Option or the Shares issuable upon exercise of this Option shall be the Participant’s responsibility; (ii) the Participant was free to use professional advisors of his or her choice in connection with this Agreement, has received advice from his or her professional advisors in connection with this Agreement, understands its meaning and import, and is entering into this Agreement freely and without coercion or duress; (iii) the Participant has not received and is not relying upon any advice, representations or assurances made by or on behalf of the Company or any Affiliate or any employee of or counsel to the Company or any Affiliate regarding any tax or other effects or implications of the Option, the Shares or other matters contemplated by this Agreement and (iv) neither the Administrator, the Company, its Affiliates, nor any of its officers or directors, shall be held liable for any applicable costs, taxes, or penalties associated with the Option if, in fact, the Internal Revenue Service were to determine that the Option constitutes deferred compensation under Section 409A of the Code.

 

If this Option is designated in the Stock Option Grant Notice as an ISO and there is a Disqualifying Disposition (as defined in Section 15 below) or if the Option is converted into a Non-Qualified Option and such Non-Qualified Option is exercised, the Participant agrees that the Company may withhold from the Participant’s remuneration, if any, the minimum statutory amount of federal, state and local withholding taxes attributable to such amount that is considered compensation includable in such person’s gross income.  At the Company’s discretion, the amount required to be withheld may be withheld in cash from such remuneration, or in kind from the Shares otherwise deliverable to the Participant on exercise of the Option.  The Participant further agrees that, if the Company does not withhold an amount from the Participant’s remuneration sufficient to satisfy the Company’s income tax withholding obligation, the Participant will reimburse the Company on demand, in cash, for the amount under-withheld.

 

11.                               PURCHASE FOR INVESTMENT.

 

Unless the offering and sale of the Shares to be issued upon the particular exercise of the Option shall have been effectively registered under the Securities Act of 1933, as now in force or hereafter amended (the “1933 Act”), the Company shall be under no obligation to issue the Shares covered by such exercise unless the Company has determined that such exercise and issuance would be exempt from the registration requirements of the 1933 Act and until the following conditions have been fulfilled:

 

(a)                                 The person(s) who exercise the Option shall warrant to the Company, at the time of such exercise, that such person(s) are acquiring such Shares for their own respective accounts, for investment, and not with a view to, or for sale in connection with, the distribution of any such Shares, in which event the person(s) acquiring such Shares shall be bound by the provisions of the following legend which shall be endorsed upon any certificate(s) evidencing the Shares issued pursuant to such exercise:

 

5



 

“The shares represented by this certificate have been taken for investment and they may not be sold or otherwise transferred by any person, including a pledgee, unless (1) either (a) a Registration Statement with respect to such shares shall be effective under the Securities Act of 1933, as amended, or (b) the Company shall have received an opinion of counsel satisfactory to it that an exemption from registration under such Act is then available, and (2) there shall have been compliance with all applicable state securities laws;” and

 

(b)                                 If the Company so requires, the Company shall have received an opinion of its counsel that the Shares may be issued upon such particular exercise in compliance with the 1933 Act without registration thereunder.  Without limiting the generality of the foregoing, the Company may delay issuance of the Shares until completion of any action or obtaining of any consent, which the Company deems necessary under any applicable law (including without limitation state securities or “blue sky” laws).

 

12.                               RESTRICTIONS ON TRANSFER OF SHARES.

 

12.1                        The Shares acquired by the Participant pursuant to the exercise of the Option granted hereby shall not be transferred by the Participant except as permitted herein.

 

12.2                        It shall be a condition precedent to the validity of any sale or other transfer of any Shares by the Participant that the following restrictions be complied with (except as hereinafter otherwise provided):

 

(i)                                     No Shares owned by the Participant may be sold, pledged or otherwise transferred (including by gift or devise) to any person or entity, voluntarily, or by operation of law, except in accordance with the terms and conditions hereinafter set forth.

 

(ii)                                  Before selling or otherwise transferring all or part of the Shares, the Participant shall give written notice of such intention to the Company, which notice shall include the name of the proposed transferee, the proposed purchase price per share, the terms of payment of such purchase price and all other matters relating to such sale or transfer and shall be accompanied by a copy of the binding written agreement of the proposed transferee to purchase the Shares of the Participant.  Such notice shall constitute a binding offer by the Participant to sell to the Company such number of the Shares then held by the Participant as are proposed to be sold in the notice at the monetary price per share designated in such notice, payable on the terms offered to the Participant by the proposed transferee (provided, however, that the Company shall not be required to meet any non-monetary terms of the proposed transfer, including, without limitation, delivery of other securities in exchange for the Shares proposed to be sold).  The Company shall give written notice to the Participant as to whether such offer has been accepted in whole by the Company within 60 days after its receipt of written notice from the Participant.  The Company may only accept such offer in whole

 

6



 

and may not accept such offer in part.  Such acceptance notice shall fix a time, location and date for the Closing on such purchase (“Closing Date”) which shall not be less than ten nor more than sixty days after the giving of the acceptance notice, provided, however, if any of the Shares to be sold pursuant to this Section 12.2 have been held by the Participant for less than six months, then the Closing Date may be extended by the Company until no more than ten days after such Shares have been held by the Participant for six months if required under applicable accounting rules in effect at the time..  The place for such Closing shall be at the Company’s principal office.  At such Closing, the Participant shall accept payment as set forth herein and shall deliver to the Company in exchange therefor certificates for the number of Shares stated in the notice accompanied by duly executed instruments of transfer.

 

(iii)                               If the Company shall fail to accept any such offer, the Participant shall be free to sell all, but not less than all, of the Shares set forth in his or her notice to the designated transferee at the price and terms designated in the Participant’s notice, provided that (i) such sale is consummated within six months after the giving of notice by the Participant to the Company as aforesaid, and (ii) the transferee first agrees in writing to be bound by the provisions of this Section 12 so that such transferee (and all subsequent transferees) shall thereafter only be permitted to sell or transfer the Shares in accordance with the terms hereof.  After the expiration of such six months, the provisions of this Section 12.2 shall again apply with respect to any proposed voluntary transfer of the Participant’s Shares.

 

(iv)                              The restrictions on transfer contained in this Section 12.2 shall not apply to (a) transfers by the Participant to his or her spouse or children or to a trust for the benefit of his or her spouse or children, (b) transfers by the Participant to his or her guardian or conservator, and (c) transfers by the Participant, in the event of his or her death, to his or her executor(s) or administrator(s) or to trustee(s) under his or her will (collectively, “Permitted Transferees”); provided however, that in any such event the Shares so transferred in the hands of each such Permitted Transferee shall remain subject to this Agreement, and each such Permitted Transferee shall so acknowledge in writing as a condition precedent to the effectiveness of such transfer.

 

(v)                                 The provisions of this Section 12.2 may be waived by the Company.  Any such waiver may be unconditional or based upon such conditions as the Company may impose.

 

12.3                        In the event that the Participant or his or her successor in interest fails to deliver the Shares to be repurchased by the Company under this Agreement, the Company may elect (a) to establish a segregated account in the amount of the repurchase price, such account to be turned over to the Participant or his or her successor in interest upon delivery of such Shares, and (b) immediately to take such action as is appropriate to transfer record title of such Shares from the Participant to the Company and to treat the Participant and such Shares in all respects as if delivery of such Shares had been made as required by this Agreement.  The Participant hereby

 

7



 

irrevocably grants the Company a power of attorney which shall be coupled with an interest for the purpose of effectuating the preceding sentence.

 

12.4                        If the Company shall pay a stock dividend or declare a stock split on or with respect to any of its Common Stock, or otherwise distribute securities of the Company to the holders of its Common Stock, the number of shares of stock or other securities of the Company issued with respect to the shares then subject to the restrictions contained in this Agreement shall be added to the Shares subject to the Company’s rights to repurchase pursuant to this Agreement.  If the Company shall distribute to its stockholders shares of stock of another corporation, the shares of stock of such other corporation, distributed with respect to the Shares then subject to the restrictions contained in this Agreement, shall be added to the Shares subject to the Company’s rights to repurchase pursuant to this Agreement.

 

12.5                        If the outstanding shares of Common Stock of the Company shall be subdivided into a greater number of shares or combined into a smaller number of shares, or in the event of a reclassification of the outstanding shares of Common Stock of the Company, or if the Company shall be a party to a merger, consolidation or capital reorganization, there shall be substituted for the Shares then subject to the restrictions contained in this Agreement such amount and kind of securities as are issued in such subdivision, combination, reclassification, merger, consolidation or capital reorganization in respect of the Shares subject immediately prior thereto to the Company’s rights to repurchase pursuant to this Agreement.

 

12.6                        The Company shall not be required to transfer any Shares on its books which shall have been sold, assigned or otherwise transferred in violation of this Agreement, or to treat as owner of such Shares, or to accord the right to vote as such owner or to pay dividends to, any person or organization to which any such Shares shall have been so sold, assigned or otherwise transferred, in violation of this Agreement.

 

12.7                        The provisions of Sections 12.1 and 12.2 shall terminate upon the effective date of the registration of the Shares pursuant to the Securities Exchange Act of 1934.

 

12.8                        The Participant agrees that in the event the Company proposes to offer for sale to the public any of its equity securities and such Participant is requested by the Company and any underwriter engaged by the Company in connection with such offering to sign an agreement restricting the sale or other transfer of Shares, then it will promptly sign such agreement and will not transfer, whether in privately negotiated transactions or to the public in open market transactions or otherwise, any Shares or other securities of the Company held by him or her during such period as is determined by the Company and the underwriters, not to exceed 180 days following the closing of the offering, plus such additional period of time as may be required to comply with Marketplace Rule 2711 of the National Association of Securities Dealers, Inc. or similar rules thereto (such period, the “Lock-Up Period”).  Such agreement shall be in writing and in form and substance reasonably satisfactory to the Company and such underwriter and pursuant to customary and prevailing terms and conditions.  Notwithstanding whether the Participant has signed such an agreement, the Company may impose stop-transfer instructions with respect to the Shares or other securities of the Company subject to the foregoing restrictions until the end of the Lock-Up Period.

 

8


 

12.9                        The Participant acknowledges and agrees that neither the Company, its shareholders nor its directors and officers, has any duty or obligation to disclose to the Participant any material information regarding the business of the Company or affecting the value of the Shares before, at the time of, or following a termination of the service of the Participant by the Company, including, without limitation, any information concerning plans for the Company to make a public offering of its securities or to be acquired by or merged with or into another firm or entity.

 

12.10                 All certificates representing the Shares to be issued to the Participant pursuant to this Agreement shall have endorsed thereon a legend substantially as follows:  “The shares represented by this certificate are subject to restrictions set forth in a Stock Option Agreement dated         , 200   with this Company, a copy of which Agreement is available for inspection at the offices of the Company or will be made available upon request.”

 

13.                               NO OBLIGATION TO MAINTAIN RELATIONSHIP.

 

The Participant acknowledges that: (i) the Company is not by the Plan or this Option obligated to continue the Participant as an employee, director or Consultant of the Company or an Affiliate; (ii) the Plan is discretionary in nature and may be suspended or terminated by the Company at any time; (iii) the grant of the Option is a one-time benefit which does not create any contractual or other right to receive future grants of options, or benefits in lieu of options; (iv) all determinations with respect to any such future grants, including, but not limited to, the times when options shall be granted, the number of shares subject to each option, the option price, and the time or times when each option shall be exercisable, will be at the sole discretion of the Company; (v) the Participant’s participation in the Plan is voluntary; (vi) the value of the Option is an extraordinary item of compensation which is outside the scope of the Participant’s employment or consulting contract, if any; and (vii) the Option is not part of normal or expected compensation for purposes of calculating any severance, resignation, redundancy, end of service payments, bonuses, long-service awards, pension or retirement benefits or similar payments.

 

14.                               IF OPTION IS INTENDED TO BE AN ISO.

 

If this Option is designated in the Stock Option Grant Notice as an ISO so that the Participant (or the Participant’s Survivors) may qualify for the favorable tax treatment provided to holders of Options that meet the standards of Section 422 of the Code then any provision of this Agreement or the Plan which conflicts with the Code so that this Option would not be deemed an ISO is null and void and any ambiguities shall be resolved so that the Option qualifies as an ISO.  The Participant should consult with the Participant’s own tax advisors regarding the tax effects of the Option and the requirements necessary to obtain favorable tax treatment under Section 422 of the Code, including, but not limited to, holding period requirements.

 

Notwithstanding the foregoing, to the extent that the Option is designated in the Stock Option Grant Notice as an ISO and is not deemed to be an ISO pursuant to Section 422(d) of the Code because the aggregate Fair Market Value (determined as of the Date of Option

 

9



 

Grant) of any of the Shares with respect to which this ISO is granted becomes exercisable for the first time during any calendar year in excess of $100,000, the portion of the Option representing such excess value shall be treated as a Non-Qualified Option and the Participant shall be deemed to have taxable income measured by the difference between the then Fair Market Value of the Shares received upon exercise and the price paid for such Shares pursuant to this Agreement.

 

Neither the Company nor any Affiliate shall have any liability to the Participant, or any other party, if the Option (or any part thereof) that is intended to be an ISO is not an ISO or for any action taken by the Administrator, including without limitation the conversion of an ISO to a Non-Qualified Option.

 

15.                               NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION OF AN ISO.

 

If this Option is designated in the Stock Option Grant Notice as an ISO then the Participant agrees to notify the Company in writing immediately after the Participant makes a Disqualifying Disposition of any of the Shares acquired pursuant to the exercise of the ISO.  A Disqualifying Disposition is defined in Section 424(c) of the Code and includes any disposition (including any sale) of such Shares before the later of (a) two years after the date the Participant was granted the ISO or (b) one year after the date the Participant acquired Shares by exercising the ISO, except as otherwise provided in Section 424(c) of the Code.  If the Participant has died before the Shares are sold, these holding period requirements do not apply and no Disqualifying Disposition can occur thereafter.

 

16.                               NOTICES.

 

Any notices required or permitted by the terms of this Agreement or the Plan shall be given by recognized courier service, facsimile, registered or certified mail, return receipt requested, addressed as follows:

 

If to the Company:

 

Kala Pharmaceuticals, Inc.

135 Beaver Street, Suite 309

Waltham, MA 02452

Attention:  Kathy Rizzo

 

If to the Participant at the address set forth on the Stock Option Grant Notice or to such other address or addresses of which notice in the same manner has previously been given.  Any such notice shall be deemed to have been given upon the earlier of receipt, one business day following delivery to a recognized courier service or three business days following mailing by registered or certified mail.

 

10



 

17.                               GOVERNING LAW.

 

This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to the conflict of law principles thereof.  For the purpose of litigating any dispute that arises under this Agreement, the parties hereby consent to exclusive jurisdiction in Massachusetts and agree that such litigation shall be conducted in the state courts of Suffolk County, Massachusetts or the federal courts of the United States for the District of Massachusetts.

 

18.                               BENEFIT OF AGREEMENT.

 

Subject to the provisions of the Plan and the other provisions hereof, this Agreement shall be for the benefit of and shall be binding upon the heirs, executors, administrators, successors and assigns of the parties hereto.

 

19.                               ENTIRE AGREEMENT.

 

This Agreement, together with the Plan, embodies the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior oral or written agreements and understandings relating to the subject matter hereof.  No statement, representation, warranty, covenant or agreement not expressly set forth in this Agreement shall affect or be used to interpret, change or restrict, the express terms and provisions of this Agreement, provided, however, in any event, this Agreement shall be subject to and governed by the Plan.

 

20.                               MODIFICATIONS AND AMENDMENTS.

 

The terms and provisions of this Agreement may be modified or amended as provided in the Plan.

 

21.                               WAIVERS AND CONSENTS.

 

Except as provided in the Plan, the terms and provisions of this Agreement may be waived, or consent for the departure therefrom granted, only by written document executed by the party entitled to the benefits of such terms or provisions.  No such waiver or consent shall be deemed to be or shall constitute a waiver or consent with respect to any other terms or provisions of this Agreement, whether or not similar.  Each such waiver or consent shall be effective only in the specific instance and for the purpose for which it was given, and shall not constitute a continuing waiver or consent.

 

22.                               DATA PRIVACY.

 

By entering into this Agreement, the Participant:  (i) authorizes the Company and each Affiliate, and any agent of the Company or any Affiliate administering the Plan or providing Plan recordkeeping services, to disclose to the Company or any of its Affiliates such information and data as the Company or any such Affiliate shall request in order to facilitate the

 

11



 

grant of options and the administration of the Plan; (ii) waives any data privacy rights he or she may have with respect to such information; and (iii) authorizes the Company and each Affiliate to store and transmit such information in electronic form.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

12



 

Exhibit A

 

NOTICE OF EXERCISE OF STOCK OPTION

 

To:                             Kala Pharmaceuticals, Inc.

 

Ladies and Gentlemen:

 

I hereby exercise my Stock Option to purchase            shares (the “Shares”) of the common stock, $0.001 par value, of Kala Pharmaceuticals, Inc. (the “Company”), at the exercise price of $      per share, pursuant to and subject to the terms of that certain Stock Option Agreement between the undersigned and the Company dated         , 200 .

 

I am aware that the Shares have not been registered under the Securities Act of 1933, as amended (the “1933 Act”), or any state securities laws.  I understand that the reliance by the Company on exemptions under the 1933 Act is predicated in part upon the truth and accuracy of the statements by me in this Notice of Exercise.

 

I hereby represent and warrant that (1) I have been furnished with all information which I deem necessary to evaluate the merits and risks of the purchase of the Shares; (2) I have had the opportunity to ask questions concerning the Shares and the Company and all questions posed have been answered to my satisfaction; (3) I have been given the opportunity to obtain any additional information I deem necessary to verify the accuracy of any information obtained concerning the Shares and the Company; and (4) I have such knowledge and experience in financial and business matters that I am able to evaluate the merits and risks of purchasing the Shares and to make an informed investment decision relating thereto.

 

I hereby represent and warrant that I am purchasing the Shares for my own personal account for investment and not with a view to the sale or distribution of all or any part of the Shares.

 

I understand that because the Shares have not been registered under the 1933 Act, I must continue to bear the economic risk of the investment for an indefinite time and the Shares cannot be sold unless the Shares are subsequently registered under applicable federal and state securities laws or an exemption from such registration requirements is available.

 

I agree that I will in no event sell or distribute or otherwise dispose of all or any part of the Shares unless (1) there is an effective registration statement under the 1933 Act and applicable state securities laws covering any such transaction involving the Shares or (2) the Company receives an opinion of my legal counsel (concurred in by legal counsel for the Company) stating that such transaction is exempt from registration or the Company otherwise satisfies itself that such transaction is exempt from registration.

 

Exhibit A-1



 

I consent to the placing of a legend on my certificate for the Shares stating that the Shares have not been registered and setting forth the restriction on transfer contemplated hereby and to the placing of a stop transfer order on the books of the Company and with any transfer agents against the Shares until the Shares may be legally resold or distributed without restriction.

 

I understand that at the present time Rule 144 of the Securities and Exchange Commission (the “SEC”) may not be relied on for the resale or distribution of the Shares by me.  I understand that the Company has no obligation to me to register the sale of the Shares with the SEC and has not represented to me that it will register the sale of the Shares.

 

I understand the terms and restrictions on the right to dispose of the Shares set forth in the 2009 Employee, Director and Consultant Equity Incentive Plan and the Stock Option Agreement, both of which I have carefully reviewed.  I consent to the placing of a legend on my certificate for the Shares referring to such restriction and the placing of stop transfer orders until the Shares may be transferred in accordance with the terms of such restrictions.

 

I have considered the Federal, state and local income tax implications of the exercise of my Option and the purchase and subsequent sale of the Shares.

 

I am paying the option exercise price for the Shares as follows:

 

 

 

 

 

 

Please issue the Shares (check one):

 

o to me; or

 

o to me and                 , as joint tenants with right of survivorship

 

and mail the certificate to me at the following address:

 

 

 

 

 

 

 

 

Exhibit A-2



 

My mailing address for shareholder communications, if different from the address listed above is:

 

 

 

 

 

 

 

 

 

Very truly yours,

 

 

 

 

 

Participant (signature)

 

 

 

 

 

Print Name

 

 

 

 

 

Date

 

 

 

 

 

Social Security Number

 

Exhibit A-3




Exhibit 10.7

 

Confidential Materials omitted and filed separately with the

Securities and Exchange Commission. Double asterisks denote omissions.

 

EXCLUSIVE LICENSE AGREEMENT

 

BETWEEN

 

THE JOHNS HOPKINS UNIVERSITY

 

&

 

HANES NEWCO, INC.

 

JHU Agreement:  [**]

 



 

LICENSE AGREEMENT

 

THIS LICENSE AGREEMENT (the “Agreement”) is entered into by and between THE JOHNS HOPKINS UNIVERSITY, a Maryland corporation having an address at 3400 N. Charles Street, Baltimore, Maryland, 21218-2695 (“JHU”) and Hanes NewCo, Inc., a Delaware corporation having an address at c/o Jeff Wiesen, Mintz Levin Cohn Ferris Glovsky and Popeo PC, One Financial Center, Boston, MA 02111 (“Company”), with respect to the following:

 

RECITALS

 

WHEREAS, as a center for research and education, JHU is interested in licensing PATENT RIGHTS (hereinafter defined) in a manner that will benefit the public by facilitating the distribution of useful products and the utilization of new processes, but is without capacity to commercially develop, manufacture, and distribute any such products or processes; and

 

WHEREAS, a valuable invention entitled [**] was developed during the course of research conducted by [**], and a valuable invention entitled [**] was developed during the course of research conducted by [**], and a valuable invention entitled [**] was developed during the course of research conducted by [**], and a valuable invention entitled [**] was developed during the course of research conducted by [**], and a valuable invention entitled [**] was developed during the course of research conducted by [**] (all hereinafter, “Inventors”); and

 

WHEREAS, JHU has acquired through assignment all rights, title and interest, with the exception of certain retained rights by the United States Government, in its interest in said valuable inventions; and

 

WHEREAS, Company desires obtain certain rights in such inventions as herein provided, and to commercially develop, manufacture, use and distribute products and processes based upon or embodying said valuable inventions throughout the world;

 

NOW THEREFORE, in consideration of the premises and the mutual promises and covenants contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

 

ARTICLE 1
DEFINITIONS

 

All references to particular Exhibits, Articles or Paragraphs shall mean the Exhibits to, and Paragraphs and Articles of, this Agreement, unless otherwise specified.  For the purposes of this Agreement and the Exhibits hereto, the following words and phrases shall have the following meanings:

 

1.1                               “AFFILIATED COMPANY” as used herein in either singular or plural shall mean any corporation, company, partnership, joint venture or other entity, which controls, is controlled by or is under common control with Company.  For purposes of this Paragraph 1.1, control shall mean the direct or indirect ownership of at least fifty- percent (50%).

 

1



 

1.2                               “EFFECTIVE DATE” of this License Agreement shall mean the date the last party hereto has executed this Agreement.

 

1.3                               “EXCLUSIVE LICENSE” shall mean a grant by JHU to Company of its entire right and interest in the PATENT RIGHTS subject to rights retained by the United States Government, if any, in accordance with the Bayh-Dole Act of 1980 (established by P.L. 96-517 and amended by P.L. 98-620, codified at 35 USC § 200 et. seq. and implemented according to 37 CFR Part 401), and subject to the retained right of JHU to make, have made, provide and use for its and The Johns Hopkins Health Systems’ non-commercial academic research and teaching purposes LICENSED PRODUCT(S) and LICENSED SERVICE(S), including the ability to distribute any biological material disclosed and/or claimed in PATENT RIGHTS for nonprofit non-commercial academic research use to non-commercial entities as is customary in the scientific community.

 

1.4                               “KNOW-HOW AND MATERIALS” shall mean JHU’s interest in proprietary materials, information, records, and data developed by [**] (including incidental information developed in his laboratory) and at his direction by his laboratory personnel, fellows, and students and that are directly related to the use of and practice of the PATENT RIGHTS, and are (a) subject to the Johns Hopkins Intellectual Property Policy and (b) owned by JHU as of the EFFECTIVE DATE or developed within [**] years from the EFFECTIVE DATE and not subject to any third party rights, including without limitation the materials listed on Exhibit C.  Know-How specifically excludes patentable inventions.

 

1.5                               “LICENSED FIELD” shall mean all fields of use.

 

1.6                               “LICENSED PRODUCT(S)” as used herein in either singular or plural shall mean any process or method, material, compositions, drug, or other product, the manufacture, use or sale of which would constitute, but for the license granted to Company pursuant to this Agreement, an infringement of a VALID CLAIM of PATENT RIGHTS (infringement shall include, but is not limited to, direct, contributory, or inducement to infringe) in the country of sale.

 

1.7                               “LICENSED SERVICE(S)” as used herein in either singular or plural shall mean the performance on behalf of a third party of any method or the manufacture of any product or the use of any product or composition which would constitute, but for the license granted to Company pursuant to this Agreement, an infringement of a VALID CLAIM of the PATENT RIGHTS, (infringement shall include, but not be limited to, direct, contributory or inducement to infringe) in the country of performance of the services.

 

1.8                               “NET SALES” shall mean gross sales revenues and fees billed by Company and AFFILIATED COMPANY from the sale of LICENSED PRODUCT(S) less (i) trade, quantity or cash discounts allowed, (ii) refunds, credits or allowances for returns, rejections and recalls; (iii) rebates and chargebacks, (iv) sales, use or other taxes and tariffs, duties or other charges levied by a governmental entity on the production, sale, delivery or use of LICENSED PRODUCT(S), and (iv) packing, freight, shipping and insurance charges.

 

In the event that Company or AFFILIATED  COMPANY sells a LICENSED PRODUCT(S) as part of a combination, then:

 

2



 

(i)                                     in the event that Company or AFFILIATED COMPANY sells in a particular country during a particular year a LICENSED PRODUCT(S) together with other non-therapeutic ingredients or substances or as part of a kit, and Company or AFFILIATED COMPANY also sells such LICENSED PRODUCT(S) in such country in such year separately the NET SALES for purposes of royalty payments shall be based on the sales revenues and fees that would be received from the separate sale of the same quantity of LICENSED PRODUCT as is contained in the combination.

 

(ii)                                  in the event that Company or an AFFILIATED COMPANY sells, in a particular country during a particular year, a LICENSED PRODUCT for therapeutic purposes in combination with a therapeutically active ingredient which is not a LICENSED PRODUCT (“Other Items”), the NET SALES for purposes of royalty payments shall be calculated as follows:

 

(a)                                 If all LICENSED PRODUCTS and Other Items contained in the combination are available separately in the particular country during such year, the NET SALES for purposes of royalty payments will be calculated by multiplying the NET SALES of the combination by the fraction A/A+B, where A is the separately available price of all LICENSED PRODUCTS in the combination in the particular country during such year, and B is the separately available price for all Other Items in the combination in the particular country during such year.

 

(b)                                 If the combination includes Other Items which are not sold separately in the particular country during such year (but all LICENSED PRODUCTS contained in the combination are available separately in the particular country during such year), the NET SALES for purposes of royalty payments will be calculated by multiplying the NET SALES of the combination by A/C, where A is as defined above and C is the invoiced price of the combination.

 

(c)                                  If the LICENSED PRODUCTS contained in the combination are not sold separately, the parties agree to negotiate a reduction in the royalty rate to reflect the fair value that the LICENSED PRODUCT attributed to the overall product sold.

 

The term “Other Items” does not include solvents, diluents, carriers, excipients, buffers or the like used in formulating a product.

 

(iii)                               In no event shall:  (1) Company apply the credit in both paragraphs (i) and (ii) above to the same sale of a LICENSED PRODUCT, and (2) the royalty rates be reduced by greater than [**] percent ([**]%) when collectively applying the credits of paragraphs (i) above, (ii) above, and the offset of Paragraph 3 in EXHIBIT A.

 

1.9                               “NET SERVICE REVENUES” shall mean gross service revenues and fees billed by Company and AFFILIATED COMPANY for the performance of LICENSED SERVICE(S) less (i) trade, quantity or cash discounts allowed, (ii) refunds, rebates, and chargebacks, (iii) sales or other taxes or charges levied by a governmental entity upon and with specific reference to the LICENSED SERVICE(S).  In the event that Company or AFFILIATED COMPANY sells a LICENSED SERVICE(S) that is also sold separately in combination with other services, the NET SERVICE REVENUES for purposes of royalty payments shall be based on the sales revenues that

 

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would be received from the separate sale of the same quantity of LICENSED SERVICE(S) as is contained in the combination.

 

1.10                        “PATENT RIGHTS” shall mean the patents and applications listed in EXHIBIT D for JHU Ref #[**] and JHU Ref # [**], any patent applications hereafter filed for JHU Ref # [**] and JHU Ref # [**] (all such patent applications for JHU Ref # [**], JHU Ref # [**], JHU Ref # [**] and JHU Ref # [**] hereinafter referred to as “Patent Applications”) and all continuations, divisions, claims of continuations-in-part applications directed to subject matter specifically described in the Patent Applications, continued prosecution applications and reissues, reexaminations, extensions and supplemental protection certificates thereof, and any corresponding foreign patent applications, and any patents, or other equivalent foreign patent rights issuing, granted or registered thereon.  “OPTION PATENT RIGHTS” shall mean the patents and applications listed in EXHIBIT D for JHU Ref # [**] (hereinafter referred to as “Option Patent Applications”) and all continuations, divisions, claims of continuations-in-part applications directed to subject matter specifically described in the Option Patent Applications, continued prosecution applications and reissues, reexaminations, extensions and supplemental protection certificates thereof, and any corresponding foreign patent applications, and any patents, or other equivalent foreign patent rights issuing, granted or registered thereon.  In the event of the exercise by Company of the option set forth in Section 2.5, the OPTION PATENT RIGHTS shall become PATENT RIGHTS for all purposes of this Agreement, except as set forth in Section 2.4.

 

1.11                        “SUBLICENSE CONSIDERATION” shall mean consideration of any kind received by the Company or AFFILIATED COMPANIES from a SUBLICENSEE(S) for the grant of a sublicense under this Agreement, including upfront fees, running royalties on LICENSED PRODUCT(S) and LICENSED SERVICE(S), milestone fees based on SUBLICENSEE achievements, and any premium paid by the SUBLICENSEE(S) over Fair Market Value for stock of the Company or an AFFILIATED COMPANY in consideration for such sublicense; provided that SUBLICENSE CONSIDERATION shall not include amounts paid to the Company or an AFFILIATED COMPANY by the SUBLICENSEE(S) for milestone payments based on Company achievements (but only if (i) Company owes a milestone payment to JHU for that same achievement or (ii) the Company did not receive payments (other than the milestone payment) from the SUBLICENSEE for product development, research work, clinical studies or regulatory approvals performed by or for the Company or AFFILIATED COMPANIES to achieve the event resulting in the milestone payment), loans, equity investments at Fair Market Value, payments for product development, research work, clinical studies and regulatory approvals performed by or for the Company or AFFILIATED COMPANIES (including third parties on their behalf), each pursuant to a specific agreement providing for a work plan and reasonable budget.  The term “Fair Market Value” shall mean (i) if the stock is publicly traded, the average price that the stock in question is publicly trading at for [**] days prior to the announcement of its purchase by the SUBLICENSEE(S), (ii) if the stock is not publicly traded, and the Company or AFFILIATED COMPANY has had a private equity financing (including a financing with debt securities convertible to equity) within [**], the value of such stock as determined by the most recent such private financing through a financial investor (an entity whose sole interest in the Company or AFFILIATED COMPANY is financial, including an investment entity owned or controlled by a pharmaceutical company or other operating company that makes an investment separate from a sublicense granted to its parent company) of the Company or AFFILIATED COMPANY that issued the shares, or (iii) if the stock is not publicly traded, and the

 

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Company or AFFILIATED COMPANY has not had a private equity financing (including a financing with debt securities convertible to equity) through a financial investor (as defined above) within [**], a value to be agreed upon by the Company and JHU, or if they fail to agree within [**] days after the sale of the stock to the SUBLICENSEE, by an independent appraisal firm selected by the Company.

 

1.12                        “SUBLICENSEE(S)” as used herein in either singular or plural shall mean any person or entity other than an AFFILIATED COMPANY to which Company or an AFFILIATED COMPANY has granted a sublicense under this Agreement.

 

1.13                        “VALID CLAIM” shall mean either:  (a) a claim of an issued and unexpired patent included within the PATENT RIGHTS which has not been revoked or held unenforceable, unpatentable or invalid by a decision of a court or other governmental agency of competent jurisdiction, unappealable or unappealed within the time allowed for appeal, and which has not been disclaimed, denied or admitted to be invalid or unenforceable through reexamination, reissue, disclaimer or otherwise; or (b) a claim of a pending patent application included within the PATENT RIGHTS, which claim has not been abandoned or finally disallowed without the possibility of appeal or refiling of such application, and has been pending for less than [**] years from the date such claim was filed in a first national filing non-provisional patent application in the country of interest and has not been (i) canceled, (ii) withdrawn from consideration, (iii) finally determined to be unallowable by the applicable governmental authority (and from which no appeal is or can be taken), or (iv) abandoned.

 

ARTICLE 2
LICENSE GRANT

 

2.1                               Grant.  Subject to the terms and conditions of this Agreement, JHU hereby grants to Company

 

(i)                                     a world-wide EXCLUSIVE LICENSE to research, develop, make, have made, use, have used, import, have imported, offer for sale, have offered for sale, sell and have sold the LICENSED PRODUCT(S) and to provide and have provided the LICENSED SERVICE(S) in the United States and worldwide under the PATENT RIGHTS in the LICENSED FIELD, and

 

(ii)                                  a world-wide nonexclusive license to use the KNOW HOW AND MATERIALS in the LICENSED FIELD, provided that JHU will not grant a license to KNOW HOW AND MATERIALS to any other commercial entity.

 

This Grant shall apply to the Company and any AFFILIATED COMPANY.  If any AFFILIATED COMPANY exercises rights under this Agreement, such AFFILIATED COMPANY shall be bound by all terms and conditions of this Agreement, including but not limited to indemnity and insurance provisions and royalty payments, which shall apply to the exercise of the rights, to the same extent as would apply had this Agreement been directly between JHU and the AFFILIATED COMPANY.  In addition, Company shall remain fully liable to JHU for all acts and obligations of AFFILIATED COMPANY such that acts of the AFFILIATED COMPANY shall be considered acts of the Company.

 

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KNOW HOW AND MATERIALS will be transferred from time-to-time by JHU’s Inventor, [**], at his discretion, and shall not be sold, invoiced, provided, or otherwise transferred, separately from PATENT RIGHTS.

 

2.2                               Sublicense.  Company may sublicense to others under this Agreement, subject to the terms and conditions of this Paragraph 2.2.  As a condition to its validity and enforceability, each sublicense agreement shall:  (a) incorporate by reference the terms and conditions of this Agreement, (b) be consistent with the terms, conditions and limitations of this Agreement, (c) name JHU as an intended third party beneficiary of the obligations of SUBLICENSEE without imposition of obligation or liability on the part of JHU or its Inventors to the SUBLICENSEE, and (d) specifically incorporate Paragraphs 6.2 “Representations by JHU”, 7.1 “Indemnification”, 10.1 “Use of Name”, 10.4 “Product Liability” into the body of the sublicense agreement, and cause the terms used in therein to have the same meaning as in this Agreement..  Company shall provide to JHU a copy of each fully executed sublicense agreement, within [**] days of execution by both Company and proposed SUBLICENSEE.  To the extent that any terms, conditions or limitations of any sublicense agreement are inconsistent with this Agreement, those terms, conditions and limitations are null and void against JHU.

 

2.3                               Government Rights.  The United States Government may have acquired a nonexclusive, nontransferable, irrevocable, paid-up license to practice or have practiced for or on behalf of the United States the inventions described in PATENT RIGHTS throughout the world.  To the extent that the inventions claimed in the PATENT RIGHTS were funded by grants, awards or contracts with the United States government, the rights granted herein are additionally subject to:  (i) the requirement that any LICENSED PRODUCT(S) produced for use or sale within the United States shall be substantially manufactured in the United States (unless a waiver under 35 USC § 204 or equivalent is granted by the appropriate United States government agency), (ii) the right of the United States government to require JHU, or its licensees, including Company, to grant sublicenses to responsible applicants on reasonable terms when necessary to fulfill health or safety needs, and, (iii) other rights acquired by the United States government under the laws and regulations applicable to the grant/contract award under which the inventions were made.

 

2.4                               Improvements.  Subject to any third party, including U.S. Government, obligations of JHU under any agreement under which any Improvement is made, JHU will notify Company in writing of any Improvement within [**] days of disclosure to the JHU technology transfer office.  Company will have a right of first negotiation for [**] days to amend this Agreement to add the Improvement and related patent rights, know how and materials to this Agreement.  JHU and Company will negotiate in good faith on reasonable terms for adding the Improvement to this Agreement.  For purposes hereof, “Improvement” shall mean an invention (i) made in the laboratory of [**], (ii) that would infringe the PATENT RIGHTS if made used, imported or sold without a license to PATENT RIGHTS, (iii) pertaining to mucosal delivery using mucus penetrating nanoparticles or microparticles, and (iv) reported to the JHU technology transfer office within [**] from the EFFECTIVE DATE; provided, however, that if the OPTION PATENT RIGHTS become PATENT RIGHTS upon exercise of the option set forth in Section 2.5, the OPTION PATENT RIGHTS shall not be included in PATENT RIGHTS for purposes of this Section 2.4.

 

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2.5                               Option for OPTION PATENT RIGHTS.  JHU hereby grants to Company an exclusive option for a period of [**] months from the EFFECTIVE DATE to add the OPTION PATENT RIGHTS to the definition of PATENT RIGHTS hereunder.  Such option may be exercised by written notice to JHU at any time during such [**] month period, and upon the giving of such written notice, the OPTION PATENT RIGHTS shall become PATENT RIGHTS for all purposes of this Agreement, except as set forth in Section 2.4.

 

ARTICLE 3
FEES, ROYALTIES, & PAYMENTS

 

3.1                               License Fee.  Company shall pay to JHU within [**] days of the EFFECTIVE DATE of this Agreement a license fee as set forth in Exhibit A.  JHU will not submit an invoice for the license fee, which is nonrefundable and shall not be credited against royalties or other fees.

 

3.2                               Minimum Annual Royalties.  Company shall pay to JHU minimum annual royalties as set forth in Exhibit A.  These minimum annual royalties shall be due, without invoice from JHU, within [**] days of [**] of each year, commencing with [**] Running royalties accrued under Paragraph 3.3 and percentage of SUBLICENSE CONSIDERATION accrued under Paragraph 3.4 and paid to JHU during the one year period preceding [**] of each year, commencing with [**] shall be credited against the minimum annual royalties due on that anniversary date.

 

3.3                               Running Royalties.  Company shall pay to JHU a running royalty as set forth in Exhibit A, for each LICENSED PRODUCT(S) sold, and for each LICENSED SERVICE(S) provided, by Company, AFFILIATED COMPANIES, based on NET SALES and NET SERVICE REVENUES for the term of this Agreement.  Such payments shall be made quarterly, as set forth in Section 5.1(a).  All non-US taxes related to LICENSED PRODUCT(S) or LICENSED SERVICE(S) sold under this Agreement shall be paid by Company and shall not be deducted from royalty or other payments due to JHU, but shall be deducted from gross sales revenues and fees and gross service revenues and fees in the calculation of NET SALES and NET SERVICE REVENUES to the extent such taxes have been included in gross sales revenues and fees and gross service revenues and fees.  JHU shall be responsible for paying any and all taxes (other than withholding taxes or deduction of tax at source required by applicable law to be paid by Company) levied on it by account of its receipt of any payments it receives under this Agreement.  If applicable laws require that taxes be withheld or deducted at source from any amounts due to JHU under this Agreement, the Company shall (a) deduct these taxes from the remittable amount, (b) pay the taxes to the proper taxing authority, and (c) deliver to JHU a statement including the amount of tax withheld and justification therefor, and such other information as may be necessary for tax credit purposes.  Company shall cooperate with JHU in any action by JHU for a refund of such taxes withheld.

 

In order to insure JHU the full royalty payments contemplated hereunder, Company agrees that in the event any LICENSED PRODUCT(S) shall be sold by the Company to an AFFILIATED COMPANY, by an AFFILIATED COMPANY to the Company, or among AFFILIATED COMPANIES the royalties to be paid hereunder for such LICENSED PRODUCT(S) shall be based upon the greater of:  1) the NET SALES at which the purchaser of LICENSED PRODUCT(S) resells such product to the end user, 2) the NET SERVICE REVENUES received

 

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from using the LICENSED PRODUCT(S) in providing a service, or 3) the NET SALES of LICENSED PRODUCT(S) paid by the purchaser.

 

In the event that consideration in lieu of money is received by Company or an AFFILIATED COMPANY from the sale of LICENSED PRODUCT(S), the fair market value of such consideration shall be included in the determination of NET SALES for such sale.  Such fair market value shall be determined by the Company or AFFLILIATED COMPANY, as applicable, in good faith.

 

3.4                               Sublicense Consideration.  In addition to the running royalty as set forth under Paragraph 3.3, Company shall pay to JHU a percentage of SUBLICENSE CONSIDERATION as set forth in Exhibit A.  This percentage of SUBLICENSE CONSIDERATION shall be due, without the need for invoice from JHU, within [**] days after the end of each calendar quarter in which sublicense consideration is received.

 

3.5                               Milestones.  Company shall pay to JHU milestones as set forth in Exhibit A.  These milestones shall be due, without invoice from JHU, within [**] days of achievement of such milestone.

 

3.6                               Patent Reimbursement.  Company will reimburse JHU for the costs of preparing, filing, maintaining and prosecuting PATENT RIGHTS incurred prior to the EFFECTIVE DATE (“PRIOR PATENT COSTS”) (currently estimated at about $ [**]).  In the event the OPTION PATENT RIGHTS become PATENT RIGHTS upon exercise of the option set forth in Section 2.5, the sum of $[**] shall be added to the PRIOR PATENT COSTS.  Company shall pay without invoice from JHU $[**] per month until the sooner of (i) all PRIOR PATENT COSTS have been paid or (ii) Company has raised a total of $[**], at which time the balance of unpaid PRIOR PATENT COSTS shall be due within [**] days.

 

In accordance with Paragraph 4.1 below, Company will reimburse JHU, within [**] days of the receipt of an invoice from JHU, for all costs associated with the preparation, filing, maintenance, and prosecution of PATENT RIGHTS and the OPTION PATENT RIGHTS incurred by JHU subsequent to the EFFECTIVE DATE of this Agreement.

 

3.7                               Form of Payment.  All payments under this Agreement shall be made in U.S. Dollars by either check or wire transfer.

 

3.8                               Payment Information.  All check payments from Company to JHU shall be sent to:

 

Director

Johns Hopkins Technology Transfer

The Johns Hopkins University

100 N. Charles Street, 5th Floor

Baltimore, MD 21201

 

Attn:  JHU Agrmt# [**]

 

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or such other addresses which JHU may designate in writing from time to time.  Checks are to be made payable to “The Johns Hopkins University”.  Wire transfers may be made through:

 

[**]

 

[**]

Transit/Routing/ABA number:  [**]

SWIFT code:  [**]

CHIPS ABA number:  [**]

Account Number: [**]

Type of Account:  Depository

Reference:  [**]

(JHU Agrmt. # [**]

Attn:  Financial Manager

 

Company shall be responsible for any and all costs associated with wire transfers.

 

Via ACH

[**]

Transit/routing/ABA number:  [**]

Account number:  [**]

Type of account:  depository

CTX format is preferred; CCD+ is also accepted

 

3.9                               Late Payments.  In the event that any payment due hereunder is not made when due, the payment shall accrue interest beginning on the tenth day following the due date thereof, calculated at the annual rate of the sum of (a) [**] percent ([**]%) plus (b) the prime interest rate quoted by The Wall Street Journal on the date said payment is due, the interest being compounded on the last day of each calendar quarter, provided however, that in no event shall said annual interest rate exceed the maximum legal interest rate for corporations.  Each such payment when made shall be accompanied by all interest so accrued.  Said interest and the payment and acceptance thereof shall not negate or waive the right of JHU to seek any other remedy, legal or equitable, to which it may be entitled because of the delinquency of any payment including, but not limited to termination of this Agreement as set forth in Paragraph 9.2, subject to the cure provisions set forth therein.

 

ARTICLE 4
PATENT PROSECUTION, MAINTENANCE, & INFRINGEMENT

 

4.1                               Prosecution & Maintenance.  JHU, at Company’s expense, shall file, prosecute and maintain all patents and patent applications specified under PATENT RIGHTS and, subject to the terms and conditions of this Agreement, Company shall be licensed thereunder.  Title to all such patents and patent applications shall reside in JHU.  JHU shall have full and complete control over all patent matters in connection therewith under the PATENT RIGHTS, provided however, that JHU shall (a) cause its patent counsel to timely copy Company on all official actions and written correspondence with any patent office, and (b) allow Company an opportunity to comment and advise JHU.  JHU shall consider and reasonably incorporate all comments and advice unless

 

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detrimental to JHU’s intellectual property rights.  By concurrent written notification to JHU and its patent counsel at least [**] days in advance (or later at JHU’s discretion) of any filing or response deadline, or fee due date, Company may elect not to have a patent application filed in any particular country or not to pay expenses associated with prosecuting or maintaining any patent application or patent, provided that Company pays for all costs incurred up to JHU’s receipt of such notification.  Failure to provide such notification can be considered by JHU to be Company’s authorization to proceed at Company’s expense.  Upon such notification, JHU may file, prosecute, and/or maintain such patent applications or patent at its own expense and for its own benefit, and any rights or license granted hereunder held by Company, AFFILIATED COMPANIES or SUBLICENSEE(S) relating to the PATENT RIGHTS which comprise such patent applications or patent and/or apply to the particular country, shall terminate.

 

4.2                               Notification.  Each party will notify the other promptly in writing when any infringement by another is uncovered or suspected.

 

4.3                               Infringement.  Company shall have the first right to enforce any patent within PATENT RIGHTS against any infringement or alleged infringement thereof, and shall at all times keep JHU informed as to the status thereof.  Before Company commences an action with respect to any infringement of such patents, Company shall give careful consideration to the views of JHU and to potential effects on the public interest in making its decision whether or not to sue.  Thereafter, Company may, at its own expense, institute suit against any such infringer or alleged infringer and control and defend such suit in a manner consistent with the terms and provisions hereof and recover any damages, awards or settlements resulting therefrom, subject to Paragraph 4.5.  If required by law, JHU shall permit action under this Section to be brought in its name, including being joined as party-plaintiff.  However, no settlement, consent judgment or other voluntary final disposition of the suit that concedes the invalidity or unenforceability of any patent within PATENT RIGHTS may be entered into without the prior written consent of JHU, which consent shall not be unreasonably withheld.  This right to sue for infringement shall not be used in an arbitrary or capricious manner.  JHU shall reasonably cooperate in any such litigation at Company’s expense.

 

If Company elects not to enforce any patent within the PATENT RIGHTS, then it shall so notify JHU in writing within [**] days of receiving notice that an infringement exists, and JHU may, in its sole judgment and at its own expense, take steps to enforce any patent and control, settle, and defend such suit in a manner consistent with the terms and provisions hereof, and recover, for its own account, any damages, awards or settlements resulting therefrom.  However, no settlement, consent judgment or other voluntary final disposition of the suit that concedes the invalidity or unenforceability of any patent within PATENT RIGHTS may be entered into without the prior written consent of Company, which consent shall not be unreasonably withheld.

 

4.4                               Patent Invalidity Suit.  If a declaratory judgment action is brought naming Company as a defendant and alleging invalidity of any of the PATENT RIGHTS, JHU may elect to take over the sole defense of the action at its own expense.  Company shall cooperate fully with JHU in connection with any such action.

 

4.5                               Recovery.  Any recovery by Company under Paragraph 4.3 shall be deemed to reflect loss of commercial sales, and Company shall pay to JHU [**] percent ([**]%) of the

 

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recovery, net of all reasonable costs and expenses associated with each suit or settlement.  If the cost and expenses exceed the recovery, then [**] of the excess shall be credited against royalties payable by Company to JHU hereunder in connection with sales of LICENSED PRODUCT covered in the PATENT RIGHTS which are the subject of the infringement suit, in the country of such legal proceedings, provided, however, that any such credit under this Paragraph shall not exceed [**] percent ([**]%) of the royalties otherwise payable to JHU with regard to sales in the country of such action in any one calendar year, with any excess credit being carried forward to future calendar years.

 

4.6                               Cooperation.  Each party agrees to cooperate in any action under this Article which is controlled by the other party, provided that the controlling party reimburses the cooperating party promptly for any costs and expenses incurred by the cooperating party in connection with providing such assistance.

 

ARTICLE 5
OBLIGATIONS OF THE PARTIES

 

5.1                               Reports.  Company shall provide to JHU the following written reports according to the following schedules.

 

(a)                                 Company shall provide quarterly Royalty Reports, substantially in the format of Exhibit B and due within [**] days of the end of each calendar quarter following the first commercial sale of a LICENSED PRODUCT or LICENSED SERVICE by Company, an AFFILIATED COMPANY or a SUBLICENSEE(S).  Royalty Reports shall disclose (i) the amount of LICENSED PRODUCT(S) and LICENSED SERVICE(S) sold, the total NET SALES and NET SERVICE REVENUES of such LICENSED PRODUCT(S) and LICENSED SERVICE(S), and the running royalties due to JHU as a result of NET SALES and NET SERVICE REVENUES by Company and AFFILIATED COMPANIES thereof and (ii) the amount of SUBLICENSE CONSIDERATION received and the percentage thereof payable to JHU pursuant to Section 3.4.  Payment of any such royalties and percentage of SUBLICENSE CONSIDERATION due shall accompany such Royalty Reports.

 

(b)                                 Until Company, an AFFILIATED COMPANY or a SUBLICENSEE(S) has achieved a first commercial sale of a LICENSED PRODUCT or LICENSED SERVICE, or received FDA market approval, Company shall provide [**] Diligence Reports, due within [**] days of the end of [**] following the EFFECTIVE DATE of this Agreement.  These Diligence Reports shall describe Company’s, AFFILIATED COMPANIES or any SUBLICENSEE(S)’s technical efforts towards meeting its obligations under the terms of this Agreement.

 

(c)                                  Company shall provide [**] Reports within [**] days of the end of [**] following the EFFECTIVE DATE of this Agreement.  [**] Reports shall include:

 

(i)                                     evidence of insurance as required under Paragraph 10.4, or, a statement of why such insurance is not currently required, and

 

(ii)                                  identification of all AFFILIATED COMPANIES which have exercised rights pursuant to Paragraph 2.1, or, a statement that no AFFILIATED COMPANY has exercised such rights, and

 

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(iii)                               notice of all FDA approvals of any LICENSED PRODUCT(S) or LICENSED SERVICE(S)  obtained by COMPANY,  AFFILIATED  COMPANY or SUBLICENSEE, the patent(s) or patent application(s) licensed under this Agreement upon which such product or service is based, and the commercial name of such product or service, or, in the alternative, a statement that no FDA approvals have been obtained.

 

5.2                               Records.  Company shall make and retain, for a period of [**] years following the period of each report required by Paragraph 5.1, true and accurate records, files and books of account containing all the data reasonably required for the full computation and verification of sales and other information required in Paragraph 5.1.  Such books and records shall be in accordance with generally accepted accounting principles consistently applied.  Company shall permit the inspection of such records, files and books of account by an independent certified public accountant selected by JHU and acceptable to Company in its reasonable judgment during regular business hours upon [**] business days’ written notice to Company.  Such inspection shall not be made more than [**].  All costs of such inspection shall be paid by JHU, provided that if any such inspection shall reveal that an error has been made in the amount of payments hereunder for any calendar year equal to [**] percent ([**]%) or more of such payments, such costs shall be borne by Company.  As a condition to entering into any such agreement, Company shall include in any agreement with its AFFILIATED COMPANIES which permits such party to make, use, sell or import the LICENSED PRODUCT(S) or provide LICENSED SERVICE(S), a provision requiring such party to retain records of sales of LICENSED PRODUCT(S) and records of LICENSED SERVICE(S) and other information as required in Paragraph 5.1 and permit an independent certified public accountant selected by JHU and acceptable to Company in its reasonable judgment to inspect such records as required by this Paragraph.

 

5.3                               Commercially Reasonable Efforts.  Company shall exercise commercially reasonable efforts to develop and to introduce the LICENSED PRODUCT(S) and LICENSED SERVICE(S) into the commercial market, through itself, its AFFILIATED COMPANIES and/or its SUBLICENSEE(S), consistent with sound and reasonable business practice and judgment.  Beginning on the EFFECTIVE DATE Company shall spend, at a minimum, a total of $[**] USD over a [**] year period on research and development activities related to potential LICENSED PRODUCTS.  In addition, Company shall have [**] of a LICENSED PRODUCT prior to the [**] of the EFFECTIVE DATE.  Following the introduction of a LICENSED PRODUCT or LICENSED SERVICE into the commercial market, and until the expiration or termination of this Agreement, Company shall endeavor to keep LICENSED PRODUCT(S) and LICENSED SERVICE(S) reasonably available to the public consistent with sound and reasonable business practice and judgment.  Company shall also exercise commercially reasonable efforts to develop LICENSED PRODUCT(S) suitable for different indications within the LICENSED FIELD, consistent with sound and reasonable business practice and judgment.

 

5.4                               Patent Acknowledgement.  Company agrees that all packaging containing individual LICENSED PRODUCT(S) sold by Company, AFFILIATED COMPANIES and SUBLICENSEE(S) of Company will be marked with the number of the applicable patent(s) licensed hereunder in accordance with each country’s patent laws to the extent reasonably practical.

 

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ARTICLE 6
REPRESENTATIONS

 

6.1                               Duties of the Parties.  JHU is not a commercial organization.  It is an institute of research and education.  Therefore, JHU has no ability to evaluate the commercial potential of any PATENT RIGHTS or LICENSED PRODUCT or other license or rights granted in this Agreement.  It is therefore incumbent upon Company to evaluate the rights and products in question, to examine the materials and information provided by JHU, and to determine for itself the validity of any PATENT RIGHTS, its freedom to operate, and the value of any LICENSED PRODUCTS or LICENSED SERVICES or other rights granted.

 

6.2                               Representations by JHU.  JHU warrants that it has good and marketable title to its interest in the inventions claimed under PATENT RIGHTS with the exception of certain retained rights of the United States Government, which may apply if any part of the JHU research was funded in whole or in part by the United States Government.  JHU does not warrant the validity of any patents or that practice under such patents shall be free of infringement.  EXCEPT AS EXPRESSLY SET FORTH IN THIS PARAGRAPH 6.2, COMPANY, AFFILIATED COMPANIES AND SUBLICENSEE(S) AGREE THAT THE PATENT RIGHTS ARE PROVIDED “AS IS”, AND THAT JHU MAKES NO REPRESENTATION OR WARRANTY WITH RESPECT TO THE PERFORMANCE OF LICENSED PRODUCT(S) AND LICENSED SERVICE(S) INCLUDING THEIR SAFETY, EFFECTIVENESS, OR COMMERCIAL VIABILITY.  JHU DISCLAIMS ALL WARRANTIES WITH REGARD TO PRODUCT(S) AND SERVICE(S) LICENSED UNDER THIS AGREEMENT, INCLUDING, BUT NOT LIMITED TO, ALL WARRANTIES, EXPRESSED OR IMPLIED, OF MERCHANTABILITY AND FITNESS FOR ANY PARTICULAR PURPOSE.  NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT, JHU ADDITIONALLY DISCLAIMS ALL OBLIGATIONS AND LIABILITIES ON THE PART OF JHU AND INVENTORS, FOR DAMAGES, INCLUDING, BUT NOT LIMITED TO, DIRECT, INDIRECT,   SPECIAL,   AND   CONSEQUENTIAL   DAMAGES,   ATTORNEYS’ AND EXPERTS’ FEES, AND COURT COSTS (EVEN IF JHU HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, FEES OR COSTS), ARISING OUT OF OR IN CONNECTION WITH THE MANUFACTURE, USE, OR SALE OF THE PRODUCT(S) AND SERVICE(S) LICENSED UNDER THIS AGREEMENT.  COMPANY, AFFILIATED COMPANIES AND SUBLICENSEE(S) ASSUME ALL RESPONSIBILITY AND LIABILITY FOR LOSS OR DAMAGE CAUSED BY A PRODUCT AND/OR SERVICE MANUFACTURED, USED, OR SOLD BY COMPANY, ITS SUBLICENSEE(S) AND AFFILIATED COMPANIES WHICH IS A LICENSED PRODUCT(S) OR LICENSED SERVICE(S) AS DEFINED IN THIS AGREEMENT.

 

6.3                               Prior Assignment of Rights.  The Parties acknowledge the Assignment of Rights Agreement dated December 8, 2005 among JHU, [**] (the “Assignment Agreement”).  JHU agrees (i) that as between JHU on the one hand and [**] on the other hand, [**] are the absolute owners of the patent rights that are the subject of the Assignment Agreement, and JHU will not exercise any right it may have to terminate said Assignment Agreement, (ii) JHU is not entitled to receive any part of any stock in the Company issued to [**], and (iii) the Company will not be obligated to make any payment (including without limitation, royalties and milestones) to JHU with respect to the patent assigned under the Assignment Agreement.

 

13



 

ARTICLE 7
INDEMNIFICATION

 

7.1                               Indemnification.  JHU and the Inventors would have no legal liability exposure to third parties if JHU did not license the LICENSED PRODUCT(S) and LICENSED SERVICE(S), and any royalties JHU and the Inventors may receive is not adequate compensation for such legal liability exposure.  Therefore, JHU requires Company to protect JHU and Inventors from such exposure to the same manner and extent to which insurance, if available, would protect JHU and Inventors.  Furthermore, JHU and the Inventors will not, under the provisions of this Agreement or otherwise, have control over the manner in which Company or its AFFILIATED COMPANIES or its SUBLICENSEE(S) or those operating for its account or third parties who purchase LICENSED PRODUCT(S) or LICENSED SERVICE(S) from any of the foregoing entities, develop, manufacture, market or practice the inventions of LICENSED PRODUCT(S) and LICENSED SERVICE(S).  Therefore, Company, AFFILIATED COMPANY and SUBLICENSEE, each solely with respect to its own practice of such inventions, shall indemnify, defend with counsel reasonably acceptable to JHU, and hold JHU, The Johns Hopkins Health Systems, their present and former trustees, officers, Inventors of PATENT RIGHTS, agents, faculty, employees and students harmless as against any judgments, fees, expenses, or other costs arising from or incidental to any product liability or other lawsuit, claim, demand or other action brought as a consequence of its own practice of said inventions, whether or not JHU or said Inventors, either jointly or severally, is named as a party defendant in any such lawsuit and whether or not JHU or the Inventors are alleged to be negligent or otherwise responsible for any injuries to persons or property.  Practice of the inventions covered by LICENSED PRODUCT(S) and LICENSED SERVICE(S), by an AFFILIATED COMPANY, SUBLICENSEE, or an agent or a third party on behalf of or for the account of Company or by a third party who purchases LICENSED PRODUCT(S) and LICENSED SERVICE(S) from Company, shall be considered Company’s practice of said inventions for purposes of this Paragraph.  The obligation of Company to defend and indemnify as set out in this Paragraph shall survive the termination of this Agreement, shall continue even after assignment of rights and responsibilities to an affiliate or sublicensee, and shall not be limited by any other limitation of liability elsewhere in this Agreement.

 

ARTICLE 8
CONFIDENTIALITY

 

8.1                               Confidentiality.  If necessary, the parties will exchange information, which they consider to be confidential.  The recipient of such information agrees to accept the disclosure of said information which is marked as confidential at the time it is sent to the recipient, and to employ all reasonable efforts to maintain the information secret and confidential, such efforts to be no less than the degree of care employed by the recipient to preserve and safeguard its own confidential information, and in any event no less than a reasonable degree of care.  The information shall not be disclosed or revealed to anyone except employees, consultants, collaborators, investors and prospective investors of the recipient who have a need to know the information and who have entered into a secrecy agreement with the recipient under which such employees are required to maintain confidential the proprietary information of the recipient and such employees shall be advised by the recipient of the confidential nature of the information and that the information shall be treated accordingly.

 

14



 

The obligations of this Paragraph 8.1 shall also apply to AFFILIATED COMPANIES and/or SUBLICENSEE(S) provided such information of JHU by Company.  JHU’s, Company’s, AFFILIATED COMPANIES, and SUBLICENSEES’ obligations under this Paragraph 8.1 shall extend until [**] years after the termination of this Agreement.

 

8.2                               Exceptions.  The recipient’s obligations under Paragraph 8.1 shall not extend to any part of the information:

 

a.                                      that can be demonstrated to have been in the public domain or publicly known and readily available to the trade or the public prior to the date of the disclosure; or

 

b.                                      that can be demonstrated, from written records to have been in the recipient’s possession or readily available to the recipient from another source not under obligation of secrecy to the disclosing party prior to the disclosure; or

 

c.                                       that becomes part of the public domain or publicly known by publication or otherwise, not due to any unauthorized act by the recipient; or

 

d.                                      that is demonstrated from written records to have been developed by or for the receiving party without reference to confidential information disclosed by the disclosing party.

 

e.                                       that is required to be disclosed by law, government regulation or court order.

 

8.3                               Right to Publish.  JHU may publish manuscripts, abstracts or the like describing the PATENT RIGHTS and inventions contained therein provided confidential information of Company as defined in Paragraph 8.1, is not included or without first obtaining approval from Company to include such confidential information.  Otherwise, JHU and the Inventors shall be free to publish manuscripts and abstracts or the like directed to the work done at JHU related to the licensed technology without prior approval.

 

ARTICLE 9
TERM & TERMINATION

 

9.1                               Term.  The term of this Agreement shall commence on the EFFECTIVE DATE and shall continue, in each country, until the date of expiration of the last to expire patent included within PATENT RIGHTS in that country or if no patents issue then for a term of twenty (20) years from the EFFECTIVE DATE of this Agreement.

 

9.2                               Termination By Either Party.  This Agreement may be terminated by either party, in the event that the other party (a) files or has filed against it a petition under the Bankruptcy Act that is not dismissed within [**] days, makes an assignment for the benefit of creditors, has a receiver appointed for it or a substantial part of its assets and such receivership is not terminated within [**] days, or otherwise takes advantage of any statute or law designed for relief of debtors or (b) fails to perform or otherwise breaches any of its obligations hereunder, if, following the giving of notice by the terminating party of its intent to terminate and stating the grounds therefor, the party receiving such notice shall not have cured the failure or breach within [**] days; provided, however, that, except where the alleged breach is for failure to pay a fixed amount due

 

15



 

under this agreement (such as the License Fee, Minimum Annual Royalty or the $[**] monthly patent cost reimbursement payment set forth in Section 3.6), in the event the party receiving the notice disputes the alleged failure to perform or breach in good faith, such [**] day cure period shall commence upon determination by a court of competent jurisdiction (or arbitrator if the parties agree to arbitrate the matter) that the alleged failure to perform or breach exists.  In no event, however, shall such notice or intention to terminate be deemed to waive any rights to damages or any other remedy which the party giving notice of breach may have as a consequence of such failure or breach.

 

9.3                               Termination by Company.  Company may terminate this Agreement and the license granted herein, for any reason, upon giving JHU ninety (90) days written notice.  Company may terminate its license with respect to any particular patent or patent application with 60 days’ notice to JHU and Exhibit D shall be considered amended accordingly.  Company will not be required to reimburse JHU for patent costs incurred after the 60-day notice period for such patents or patent applications.

 

9.4                               Obligations and Duties upon Termination.  If this Agreement is terminated, both parties shall be released from all obligations and duties imposed or assumed hereunder to the extent so terminated, except as expressly provided to the contrary in this Agreement.  Upon termination, both parties shall cease any further use of the confidential information disclosed to the receiving party by the other party.  Termination of this Agreement, for whatever reason, shall not affect the obligation of either party to make any payments for which it is liable prior to or upon such termination.  Termination shall not affect JHU’s right to recover unpaid royalties, fees, reimbursement for patent expenses, or other forms of financial compensation incurred prior to termination.  Upon termination Company shall submit a final royalty report to JHU and any royalty payments, fees, unreimbursed patent expenses and other financial compensation due JHU shall become immediately payable.  Furthermore, upon termination of this Agreement, all rights in and to the licensed technology shall revert immediately to JHU at no cost to JHU.  Upon termination of this Agreement, any SUBLICENSEE(S) shall become a direct licensee of JHU, provided that JHU’s obligations to SUBLICENSEE(S) are no greater than JHU’s obligations to Company under this Agreement.  Company shall provide written notice of such to each SUBLICENSEE(S) with a copy of such notice provided to JHU.

 

ARTICLE 10
MISCELLANEOUS

 

10.1                        Use of Name.  Except as required by applicable law or regulations, Company, AFFILIATED COMPANIES and SUBLICENSEE(S) shall not use the name of The Johns Hopkins University or The Johns Hopkins Health System or any of its constituent parts, such as the Johns Hopkins Hospital or any contraction thereof or the name of Inventors in any advertising, promotional, sales literature or fundraising documents without prior written consent from an authorized representative of JHU, or, in the case of the name of an Inventor, from such Inventor; provided that the Company may disclose the existence of this Agreement and the terms hereof and the fact that [**] is a founder of the Company and a faculty member of JHU without such consent.  Company, AFFILIATED COMPANIES and SUBLICENSEE(S) shall allow at least [**] days notice of any proposed public disclosure for JHU’s review and comment or to provide written consent.

 

16



 

10.2                        No Partnership.  Nothing in this Agreement shall be construed to create any agency, employment, partnership, joint venture or similar relationship between the parties other than that of a licensor/licensee.  Neither party shall have any right or authority whatsoever to incur any liability or obligation (express or implied) or otherwise act in any manner in the name or on the behalf of the other, or to make any promise, warranty or representation binding on the other.

 

10.3                        Notice of Claim.  Each party shall give the other or its representative immediate notice of any suit or action filed, or prompt notice of any claim made, against them arising out of the performance of this Agreement or arising out of the practice of the inventions licensed hereunder.

 

10.4                        Product Liability.  Prior to initial human testing or first commercial sale of any LICENSED PRODUCT(S) or LICENSED SERVICE(S) as the case may be in any particular country, Company shall establish and maintain, covering the Company’s liability in each country in which Company, an AFFILIATED COMPANY or SUBLICENSEE(S) shall test or sell LICENSED PRODUCT(S) and LICENSED SERVICE(S), product liability or other appropriate insurance coverage in the minimum amount of [**] dollars ($[**]) per claim and will annually present evidence to JHU that such coverage is being maintained.  Upon JHU’s request, Company will furnish JHU with a Certificate of Insurance of each product liability insurance policy obtained.  JHU shall be listed as an additional insured in Company’s said insurance policies.  If such Product Liability insurance is underwritten on a ‘claims made’ basis, Company agrees that any change in underwriters during the term of this Agreement will require the purchase of ‘prior acts’ coverage to ensure that coverage will be continuous throughout the term of this Agreement.

 

10.5                        Governing Law.  This Agreement shall be construed, and legal relations between the parties hereto shall be determined, in accordance with the laws of the State of Maryland applicable to contracts solely executed and wholly to be performed within the State of Maryland without giving effect to the principles of conflicts of laws.  Any disputes between the parties to this Agreement shall be brought in the state or federal courts of Maryland.  Both parties agree to waive their right to a jury trial.

 

10.6                        Notice.  All notices or communication required or permitted to be given by either party hereunder shall be deemed sufficiently given if mailed by registered mail or certified mail, return receipt requested, or sent by overnight courier providing evidence of delivery, such as Federal Express, to the other party at its respective address set forth below or to such other address as one party shall give notice of to the other from time to time hereunder.  Mailed notices shall be deemed to be received on the third business day following the date of mailing.  Notices sent by overnight courier shall be deemed received the following business day.

 

If to Company:

 

Mintz, Levin, Cohn, Ferris,
Glovsky and Popeo, P.C.

One Financial Center

Boston, MA 02111

Attn:  Jeffrey M. Wiesen, Esq.

 

17



 

With a Copy to:

Mintz, Levin, Cohn, Ferris,

 

Glovsky and Popeo, P.C.

 

One Financial Center

 

Boston, MA 02111

 

Attn: Jeffrey M. Wiesen, Esq.

 

 

If to JHU:

Director

 

Technology Transfer

 

Johns Hopkins University

 

100 N. Charles Street

 

5th Floor

 

Baltimore, MD 21201

 

Attn: Agrmt [**]

 

10.7                        Compliance with All Laws.  In all activities undertaken pursuant to this Agreement, both JHU and Company covenant and agree that each will in all material respects comply with such Federal, state and local laws and statutes, as may be in effect at the time of performance and all valid rules, regulations and orders thereof regulating such activities.

 

10.8                        Successors and Assigns.  Neither this Agreement nor any of the rights or obligations created herein, except for the right to receive any remuneration hereunder, may be assigned by either party, in whole or in part, without the prior written consent of the other party, except that either party shall be free to assign this Agreement in connection with its merger or consolidation or any sale of substantially all of its assets without the consent of the other.  This Agreement shall bind and inure to the benefit of the successors and permitted assigns of the parties hereto.

 

10.9                        No Waivers; Severability.  No waiver of any breach of this Agreement shall constitute a waiver of any other breach of the same or other provision of this Agreement, and no waiver shall be effective unless made in writing.  Any provision hereof prohibited by or unenforceable under any applicable law of any jurisdiction shall as to such jurisdiction be deemed ineffective and deleted herefrom without affecting any other provision of this Agreement.  It is the desire of the parties hereto that this Agreement be enforced to the maximum extent permitted by law, and should any provision contained herein be held by any governmental agency or court of competent jurisdiction to be void, illegal and unenforceable, the parties shall negotiate in good faith for a substitute term or provision which carries out the original intent of the parties.

 

10.10                 Entire Agreement; Amendment.  Company and JHU acknowledge that they have read this entire Agreement and that this Agreement, including the attached Exhibits constitutes the entire understanding and contract between the parties hereto and supersedes any and all prior or contemporaneous oral or written communications with respect to the subject matter hereof, all of which communications are merged herein.  It is expressly understood and agreed that (i) there being no expectations to the contrary between the parties hereto, no usage of trade, verbal agreement or another regular practice or method dealing within any industry or between the parties hereto shall be used to modify, interpret, supplement or alter in any manner the express terms of this Agreement; and (ii) this Agreement shall not be modified, amended or in any way altered except by an instrument in writing signed by both of the parties hereto.

 

18



 

10.11                 Delays or Omissions.  Except as expressly provided herein, no delay or omission to exercise any right, power or remedy accruing to any party hereto, shall impair any such right, power or remedy to such party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or in any similar breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring.  Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing.  All remedies either under this Agreement or by law or otherwise afforded to any party, shall be cumulative and not alternative.

 

10.12                 Force Majeure.  If either party fails to fulfill its obligations hereunder (other than an obligation for the payment of money), when such failure is due to an act of God, or other circumstances beyond its reasonable control, including but not limited to fire, flood, civil commotion, riot, war (declared and undeclared), revolution, or embargoes, then said failure shall be excused for the duration of such event and for such a time thereafter as is reasonable to enable the parties to resume performance under this Agreement, provided however, that in no event shall such time extend for a period of more than [**] days.

 

10.13                 Further Assurances.  Each party shall, at any time, and from time to time, prior to or after the EFFECTIVE DATE of this Agreement, at reasonable request of the other party, execute and deliver to the other such instruments and documents and shall take such actions as may be required to more effectively carry out the terms of this Agreement.

 

10.14                 Survival.  All representations, warranties, covenants and agreements made herein and which by their express terms or by implication are to be performed after the execution and/or termination hereof, or are prospective in nature, shall survive such execution and/or termination, as the case may be.  This shall include Paragraphs 3.7 (Late Payments), 5.2 (Records), and Articles 6, 7, 8, 9, and 10.

 

10.15                 No Third Party Beneficiaries.  Nothing in this Agreement shall be construed as giving any person, firm, corporation or other entity, other than the parties hereto and their successors and permitted assigns, any right, remedy or claim under or in respect of this Agreement or any provision hereof.

 

10.16                 Headings.  Article headings are for convenient reference and not a part of this Agreement.  All Exhibits are incorporated herein by this reference.

 

10.17                 Counterparts.  This Agreement may be executed in counterparts, each of which shall be deemed an original and all of which when taken together shall be deemed but one instrument.

 

IN WITNESS WHEREOF, this Agreement shall take effect as of the EFFECTIVE DATE when it has been executed below by the duly authorized representatives of the parties.

 

19



 

THE JOHNS HOPKINS UNIVERSITY

HANES NEWCO, INC.

 

 

/s/ Wesley D. Blakeslee

 

/s/ Robert Paull

Wesley D . Blakeslee, J.D.

Name:

Robert Paull

Executive Director

Title:

CEO

Johns Hopkins Technology Transfer

 

10 Nov. 2009

 

November 9th, 2009

(Date)

(Date)

 

 

I have read and agree to abide by the terms of this Agreement:

 

 

/s/ [**]

 

11/11/09

 

[**]

Date

 

20



 

EXHIBIT A.                           LICENSE FEE & ROYALITIES.

EXHIBIT B.                           SALES & ROYALTY REPORT FORM.

EXHIBIT C.                           MATERIALS.

EXHIBIT D.                           PATENT APPLICATIONS.

 

21


 

EXHIBIT A

 

LICENSE FEE & ROYALTIES

 

1.                                      License Fee:  The license fee due under Paragraph 3.1 is

 

(i)                                     [**] dollars ($[**]), and

 

(ii)                                  shares of Company stock in such amounts that after issuance of those shares JHU shall own [**] percent ([**]%) of the total pre-financing outstanding shares of Company.  After that, the JHU equity interest shall be diluted at the same rate as the founders’ shares through subsequent rounds of equity financing.  JHU will become a party to Company’s Investor Rights Agreement on the same basis as Company’s founders.

 

2.                                      Minimum Annual Royalties:  The minimum annual royalties pursuant to Paragraph 3.2 are:

 

[**] year:

 

[**] dollars ($[**]).

 

 

 

[**] year:

 

[**] dollars ($[**]).

 

 

 

[**] year and each year thereafter until Launch Year:

 

Fifty thousand dollars ($50,000).

 

 

 

Launch Year and each year thereafter:

 

One hundred thousand dollars ($100,000).

 

“Launch Year” shall mean the year of the first commercial sale of a LICENSED PRODUCT in the U.S., EU or Japan.

 

3.                                      Royalties:  The running royalty rate payable under Paragraph 3.3 is:

 

Portion of Annual Sales

 

Royalty Rate

 

0-$[**]

 

[**]

%

$[**]-$[**]

 

[**]

%

>$[**]

 

[**]

%

 

For those annual sales exceeding $[**]:  In the event that Company is required to pay running royalties on any patent rights not licensed hereunder (“Other Payments”) in order to commercialize a LICENSED PRODUCT or LICENSED SERVICE, Company may offset [**]% of such Other Payments actually paid against royalty payments owed to JHU, provided that that the royalty payment to JHU shall not fall below [**]% of that which would otherwise be due JHU for that LICENSED PRODUCT or LICENSED SERVICE.

 

4.                                      Sublicense consideration:  The percent of SUBLICENSE CONSIDERATION payable under Paragraph 3.4 is:

 

22



 

[**]% for any sublicense executed prior to [**] months after the EFFECTIVE DATE;

 

[**]% for any sublicense executed between [**] months after the EFFECTIVE DATE and [**] months after the EFFECTIVE DATE; and

 

[**]% for any sublicense executed more than [**] months after the EFFECTIVE DATE.

 

In the event that (i) Company sublicenses PATENT RIGHTS together with patent rights owned by Company and necessary to commercialize a LICENSED PRODUCT, the above percentages will be reduced by [**]% and (ii) Company pays a portion of sublicensing revenue to a third party under a third-party license for patent rights necessary to commercialize a LICENSED PRODUCT, Company may offset [**]% of such amounts actually paid against percentage of SUBLICENSE CONSIDERATION payments owed to JHU; provided that the percentage of SUBLICENSE CONSIDERATION payments to JHU shall not fall below [**]%.

 

5.                                      Milestones:  The milestones payable under Paragraph 3.5 are:

 

(i)                                     [**] upon [**]

 

(ii)                                  $[**] upon [**]

 

(iii)                               $[**] upon [**]

 

(iv)                              $[**] upon [**]

 

(v)                                 $[**] upon [**]

 

Each milestone payment shall be paid for the first three LICENSED PRODUCTS to achieve such milestone and no milestone payments shall be required for subsequent LICENSED PRODUCTS.  Milestone payments for the second and third LICENSED PRODUCTS shall be reduced by [**]%.

 

23



 

EXHIBIT B

 

QUARTERLY SALES & ROYALTY AND SUBLICENSE CONSIDERATION REPORT

 

FOR LICENSE AGREEMENT BETWEEN                   AND

 

THE JOHNS HOPKINS UNIVERSITY DATED

 

FOR PERIOD OF               TO                

 

TOTAL ROYALTIES DUE FOR THIS PERIOD $                     

 

PRODUCT
ID

 

PRODUCT NAME

 

*JHU
REFERENCE

 

1st COMMERCIAL
SALE DATE

 

TOTAL NET
SALES/SERVICES

 

ROYALTY
RATE

 

AMOUNT
DUE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Report of Sublicense Consideration:

 

Name of Sublicensee:

Date of Sublicense:

Sublicense Consideration Received:

Applicable percentage payable to JHU:

Amount due:

 


* Please provide the JHU Reference Number or Patent Reference

 

This report format is to be used to report quarterly royalty statements to JHU.  It should be placed on Company letterhead and accompany any royalty payments due for the reporting period.  This report shall be submitted even if no sales are reported.

 

24



 

EXHIBIT C - MATERIALS

 

Solvents:

Acetone

THF

Dichloromethane

 

Chemicals:

 

[**]

 

25



 

EXHIBIT D - PATENT APPLICATIONS

 

[**]

Institution
Number

 

Application
Number

 

Type of
Patent
Filing

 

Application
Date

 

Patent
Issued
Number

 

Patent
Issued
Date

 

Filing
Country

[**]

 

[**]

 

[**]

 

[**]

 

 

 

 

 

[**]

[**]

 

[**]

 

[**]

 

[**]

 

[**]

 

[**]

 

[**]

[**]

 

[**]

 

[**]

 

[**]

 

[**]

 

 

 

 

[**]

 

[**]

 

[**]

 

[**]

 

 

 

 

 

[**]

[**]

 

[**]

 

[**]

 

[**]

 

 

 

 

 

[**]

 

Confidential Materials omitted and filed separately with the Securities and Exchange Commission. A total of two pages were omitted. [**]

 

1



 

FIRST AMENDMENT
TO EXCLUSIVE LICENSE AGREEMENT

 

This First Amendment to Exclusive License Agreement is entered into by and between The Johns Hopkins University (“JHU”) and Kala Pharmaceuticals, Inc., formerly known as Hanes NewCo, Inc, a Delaware corporation (“Kala” or “Company”).

 

WHEREAS, Hanes NewCo, Inc. and JHU entered into an Exclusive License Agreement dated November 10, 2009 (“Agreement”) pursuant to which JHU licensed certain patent rights and know-how to Hanes NewCo, Inc.

 

WHEREAS, Hanes NewCo, Inc. changed its name to Kala Pharmaceuticals, Inc. on December 11, 2009.

 

WHEREAS, the parties wish to amend the Agreement on the terms set forth herein;

 

NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth below, the parties agree as follows:

 

1.                                      Capitalized terms used herein and not defined herein shall have the respective meanings ascribed to such terms in the Agreement.

 

2.                                      Each of the parties hereby agrees to amend the agreement to substitute Kala Pharmaceuticals, Inc. in place of Hanes NewCo, Inc. every place such name appears in the Agreement.

 

3.                                      As of the First Amendment Date, Section 2.4 of the Agreement shall be superseded in its entirety by the following:

 

“Commencing on the First Amendment Date, Company may, within [**] days following the end of a calendar quarter, by email to Director, Technology Licensing [email: [**] or [**]]. request information about any Improvements that were disclosed to the JHU technology transfer office during the previous calendar quarter.  Within [**] days after receipt of such email, JHU shall notify Company in writing of any such Improvements; provided, however, that if an invention disclosure describing an Improvement also contains disclosure for one or more additional inventions which are not Improvements (“Other Inventions”), then JHU may redact information on such Other Inventions.  Subject to any third party, including U.S. Government, obligations of JHU under any agreement under which any Improvement is made, Company will have a right of first negotiation to amend this Agreement to add the Improvement and related patent rights, know how and materials to this Agreement; provided, that Company notifies JHU of Company’s interest in exercising such right of first negotiation within [**] days after receipt of written notice from JHU of such Improvement.  JHU and Company will negotiate in good faith on reasonable terms for adding the Improvement to this Agreement.  For purposes hereof, “Improvement” shall mean an invention:  (i) made in the laboratory of [**]; (ii) that would infringe the PATENT RIGHTS if made, used, imported or sold without a license to PATENT RIGHTS; (iii) pertaining to mucosal

 



 

delivery using mucus penetrating nanoparticles or microparticles; and (iv) reported to the JHU technology transfer office within [**] years from the First Amendment Date.”

 

4.                                      In Section 10.6, change the addresses for notices to the Company to the following:

“If to Company:

Kala Pharmaceuticals, Inc.

 

135 Beaver Street #309

 

Waltham, MA 02453

 

Attn: Chief Executive Officer

 

With a Copy to: General Counsel”

 

5.                                      In all other respects the Agreement shall remain in full force and effect.

 

6.                                      This First Amendment shall be effective as of the date the last party hereto has executed this First Amendment (the “First Amendment Date”).

 

7.                                      For the convenience of the parties hereto, this Amendment may be executed in two counterparts, each of which shall be deemed to be an original, but both of which together shall constitute one and the same instrument, without necessity of production of the others.  Signatures may be exchanged by facsimile or electronic transmission and each of the parties to this Amendment agrees that it will be bound by its own facsimile signature and that it accepts the facsimile signature of the other party.

 

8.                                      Amendment Fee.  Company shall pay to JHU within [**] days of the First Amendment Date [**] dollars ($[**]) as an amendment fee.  JHU will not submit an invoice for the amendment fee, which is nonrefundable and shall not be credited against royalties or other fees.

 

This Agreement may be executed in one or more counterparts each of which shall be deemed an original but all of which together shall constitute one and the same instrument.

 

KALA PHARMAEUTICALS, INC.    

THE JOHNS HOPKINS UNIVERSITY     

 

 

 

 

By:

/s/ Guillaume Pfefer

 

By:

/s/ Wesley D. Blakeslee

 

duly authorized

 

duly authorized

 

 

 

 

Guillaume Pfefer

Wesley D. Blakeslee, J.D.

 

 

CEO

Executive Director

 

 

Date:

Johns Hopkins Technology Transfer

 

 

 

Date: 11/19/2012

 

2



 

SECOND AMENDMENT
TO EXCLUSIVE LICENSE AGREEMENT

 

This Second Amendment to Exclusive License Agreement (“Second Amendment”) is entered into by and between The Johns Hopkins University, a Maryland corporation having an address at 3400 N. Charles Street, Baltimore, MD 21218-2695 (“JHU”), and Kala Pharmaceuticals, Inc., formerly known as Hanes NewCo, Inc, a Delaware corporation having an address at 100 Beaver Street, Suite 201, Waltham, MA 02453 (“Kala” or “Company”).

 

WHEREAS, Kala and JHU entered into an Exclusive License Agreement dated November 10, 2009, as amended by a First Amendment (the “First Amendment”) dated November 19, 2012 (as so amended, the “Agreement”), pursuant to which JHU licensed certain patent rights and know-how to Kala;

 

WHEREAS, the Exclusive License Agreement provides for milestone payments to JHU upon the achievement by Company of certain clinical trial milestones with respect to Licensed Products;

 

WHEREAS, JHU, Company, and GrayBug LLC are discussing, as of the Second Amendment Date (as defined below), the proposed terms of a draft Settlement and License Agreement between JHU.  Company, and GrayBug LLC (as may be modified by JHU, Company, and GrayBug, the “Proposed Settlement Terms”).  (GrayBug LLC is hereinafter referred to as “GrayBug”).

 

WHEREAS, Company and JHU wish to amend the Agreement on the terms set forth herein;

 

NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth below, the Company and JHU agree as follows:

 

1.                                      As of the Second Amendment Dale, Section 3.5 of the Agreement shall be superseded in its entirety by the following:

 

“Company shall pay to JHU milestones as set forth in Exhibit A.  These milestones shall be due, without invoice from JHU, within [**] days of achievement of such milestone; provided however, if any of the milestones set forth in Exhibit A are achieved prior to [**], the milestone payment for such milestone shall not be due until the earlier of (i) [**] days after execution by JHU, Company, and GrayBug of the Proposed Settlement Terms and (ii) [**].  Notwithstanding anything to the contrary in this Agreement or its exhibits, upon execution of the Proposed Settlement Terms by JHU, Company, and GrayBug, each milestone achieved prior to the execution of the Proposed Settlement Terms shall be subject to any payment reductions set forth in the executed Proposed Settlement Terms as if such milestones were achieved by Company after the execution of the Proposed Settlement Terms.”

 

2.                                      This Second Amendment shall be effective as of May 22, 2014 (the “Second Amendment Date”).

 



 

3.                                      In all other respects the Agreement shall remain in full force and effect.

 

4.                                      Neither Company nor JHU is required to pay an amendment fee in connection with the execution of this Second Amendment.

 

This Agreement may be executed in one or more counterparts each of which shall be deemed an original but all of which together shall constitute one and the same instrument.

 

KALA PHARMACEUTICALS, INC.    

THE JOHNS HOPKINS UNIVERSITY      

 

 

 

 

By:

/s/ Guillaume Pfefer

 

By:

/s/ Steven L. Kousouris

 

duly authorized

 

duly authorized

 

 

[Guillaume Pfefer]

[Wesley D. Blakeslee, J.D.] Steven L. Kousouris

 

 

President &CEO

[Executive Director] Sr. Director

 

 

Date: 5/23/2014

Johns Hopkins Technology Transfer

 

 

 

Date: 5/23/2014

 

2


 

THIRD AMENDMENT
TO EXCLUSIVE LICENSE AGREEMENT

 

This Third Amendment to Exclusive License Agreement (“Third Amendment”) is entered into by and between The Johns Hopkins University, a Maryland corporation having an address at 3400 N. Charles Street, Baltimore, MD 21218-2695 (“JHU”), and Kala Pharmaceuticals, Inc., formerly known as Hanes NewCo, Inc., a Delaware corporation having an address at 100 Beaver Street, Suite 201, Waltham, MA 02453 (“Kala” or “Company”).

 

WHEREAS, Kala and JHU entered into an Exclusive License Agreement dated November 10, 2009, as amended by a First Amendment (the “First Amendment”) dated November 19, 2012 and a Second Amendment (the “Second Amendment”) effective as of May 22, 2014 (as so amended, the “Agreement”), pursuant to which JHU licensed certain patent rights and know-how to Kala and modified certain milestones, respectively;

 

WHEREAS, Paragraph 2.5 and certain other provisions of the Exclusive License Agreement reference “OPTION PATENT RIGHTS” and Company declined in 2010 to license such rights;

 

WHEREAS, the parties are joint owners of the patent rights relating to the invention entitled [**] and the parties wish to amend the Agreement to add such jointly owned patent rights, and to amend the terms of the Agreement as set forth herein regarding each party’s rights with respect to the patent rights for such invention;

 

WHEREAS, JHU, Company, and GrayBug LLC (“GrayBug”) are discussing proposed terms for a Settlement and License Agreement between JHU, Company and GrayBug (as may be modified by JHU, Company and GrayBug, the “Settlement Agreement”);

 

WHEREAS, the parties wish to amend the Agreement on the terms set forth herein;

 

NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth below, the parties agree as follows:

 

1.                                      Capitalized terms used herein and not defined herein shall have the respective meanings ascribed to such terms in the Agreement.

 

2.                                      The parties agree that notwithstanding that no date is associated with Kala’s signature to the First Amendment, the parties agree that the “First Amendment Date” as defined in the First Amendment is November 19, 2012.

 

3.                                      As of the Third Amendment Date, the second “Whereas” recital of the Agreement shall be superseded in its entirety by the following:

 

“WHEREAS, a valuable invention entitled [**] was developed during the course of research conducted by [**], and a valuable invention entitled [**] was developed during the course of research conducted by [**], and a valuable invention entitled [**] was developed during the course of research conducted by [**], and a valuable invention entitled [**] was developed during the course of research conducted for

 

1



 

Company by [**], and conducted for JHU by [**] (all of the individuals in this paragraph who are officially affiliated with JHU, “Inventors”); and”

 

4.                                      As of the Third Amendment Date, the third “Whereas” recital of the Agreement shall be superseded in its entirety by the following

 

“WHEREAS, JHU has acquired through assignment all rights, title and interest, with the exception of Kala’s ownership interest in connection with JHU Ref. #[**] and certain retained rights by the United States Government, in its interest in said valuable inventions; and”

 

5.                                      As of the Third Amendment Date, a new Section 1.14 shall be added to the Agreement as follows:

 

‘“KALA/JHU JOINTLY OWNED PATENT RIGHTS’ shall mean the issued patents and patent applications listed in EXHIBIT D for JHU Ref # [**] (all such patent applications for JHU Ref # [**] hereinafter referred to as “JOINT PATENT APPLICATIONS”) and all continuations, divisions, claims of continuations-in-part applications directed to subject matter specifically described in the Joint Patent Applications, continued prosecution applications and reissues, reexaminations, extensions and supplemental protection certificates thereof, and any corresponding foreign patent applications, and any patents, or other equivalent foreign patent rights issuing, granted or registered thereon.”

 

6.                                      As of the Third Amendment Date, the definitions “LICENSED PRODUCTS” in Section 1.6 of the Agreement and “LICENSED SERVICES” in Section 1.7 of the Agreement are amended such that the phrase “the license granted to Company pursuant to this Agreement” in each definition shall include the addition of “or the Company’s ownership interest” as follows:

 

“but for the license granted to Company pursuant to this Agreement or the Company’s ownership interest,”

 

7.                                      As of the Third Amendment Date, Section 1.10 of the Agreement shall be superseded in its entirety by the following:

 

““PATENT RIGHTS” shall mean the issued patents and patent applications listed in EXHIBIT D for JHU Ref # [**] (including, without limitation, JHU Ref. # [**]), JHU Ref # [**], JHU Ref # [**], JHU Ref # [**], and KALA/JHU JOINTLY OWNED PATENT RIGHTS (all such patent applications for JHU Ref # [**] (including, without limitation, JHU Ref. # [**]), JHU Ref # [**], JHU Ref # [**], JHU Ref # [**] and JOINT PATENT APPLICATIONS hereinafter referred to as “Patent Applications”) and all continuations, divisions, claims of continuations-in-part applications directed to subject matter specifically described in the Patent Applications, continued prosecution applications and reissues, reexaminations, extensions and supplemental protection certificates thereof, and any corresponding foreign patent applications, and any patents, or other equivalent foreign patent rights issuing, granted or registered thereon.”

 

2



 

8.                                      As of the Third Amendment Date, the following sentence shall be added to the end of Section 2.2 of the Agreement:

 

“The sublicensing restrictions set forth in this Section 2.2 shall not apply to Company’s right to sublicense Company’s interest in KALA/JHU JOINTLY OWNED PATENT RIGHTS.”

 

9.                                      Section 4.1 of the Agreement shall not apply to KALA/JHU JOINTLY OWNED PATENT RIGHTS.  Notwithstanding anything to the contrary in Section 4.1 of the Agreement, Company and JHU jointly own the KALA/JHU JOINTLY OWNED PATENT RIGHTS.

 

10.                               As of the Third Amendment Date, the following sentence shall be added to the end of Section 4.4 of the Agreement:

 

“Notwithstanding anything to the contrary in this Section 4.4, if a declaratory judgment action is brought naming Company as a defendant and alleging invalidity of any of the KALA/JHU JOINTLY OWNED PATENT RIGHTS, Company shall have the first right to defend such action; provided that Company elects to take over the sole defense of the action at its own expense.  JHU shall cooperate fully with Company in connection with any such action.”

 

11.                               As of the Third Amendment Date, the first sentence of Section 4.5 of the Agreement shall be amended to read:

 

“Any recovery by Company under Paragraph 4.3 shall be deemed to reflect loss of commercial sales, and Company shall pay to JHU [**] percent ([**]%) of the recovery, net of all reasonable costs and expenses associated with each suit or settlement; provided, however, that, with respect to any recovery by Company under Paragraph 4.3 for infringement of KALA/JHU JOINTLY OWNED PATENT RIGHTS, but no PATENT RIGHTS other than KALA/JHU JOINTLY OWNED PATENT RIGHTS, Company shall pay to JHU [**] percent ([**]%) of the recovery, net of all reasonable costs and expenses associated with each suit or settlement.”

 

12.                               As of the Third Amendment Date, a new Section 4.7 shall be added to the Agreement as follows:

 

Prosecution and Maintenance of Kala/JHU Jointly Owned Patent Rights.  Notwithstanding anything to the contrary in this Agreement, except as provided below, Company, at Company’s expense, shall file, prosecute and maintain all patents and patent applications specified under the KALA/JHU JOINTLY OWNED PATENT RIGHTS.  Title to all such patents and patent applications shall reside in Company and JHU.  Company shall have control over all patent matters in connection therewith under the KALA/JHU JOINTLY OWNED PATENT RIGHTS, provided however, that COMPANY shall (a) cause its patent counsel to timely copy JHU on all official actions and written correspondence with any patent office, and (b) allow JHU an opportunity to comment and advise Company.

 

3



 

Company shall consider and reasonably incorporate all comments and advice unless detrimental to Company’s intellectual property rights.  Upon signed written notification by Company to JHU that it will not file, prosecute, and/or maintain such patent applications or patent in a particular country, JHU shall have the first right to file, prosecute and/or maintain such patent applications or patent in such country at JHU’s expense and JHU’s interest in such patent applications or patent shall no longer be licensed to Company.”

 

13.                               As of the Third Amendment Date, Section 9.4 of the Agreement is hereby amended, such that to the extent that any PATENT RIGHTS are jointly owned between the parties, such PATENT RIGHTS to the extent owned by Kala, including Kala’s ownership interest in KALA/JHU JOINTLY OWNED PATENT RIGHTS, shall remain with Kala upon termination of the Agreement, and shall not transfer to JHU, and any licensee(s) under Kala’s ownership interest of such PATENT RIGHTS shall remain a licensee(s) of Kala; provided that to the extent that a SUBLICENSEE was granted a license by Kala under JHU’s ownership interest in such jointly owned PATENT RIGHTS, such SUBLICENSEE shall automatically become a direct licensee of JHU solely with respect to JHU’s ownership interest in such jointly owned PATENT RIGHTS upon such termination, provided that JHU’s obligations to such SUBLICENSEE(S) are no greater than JHU’s obligations to Company under this Agreement.

 

14.                               As of the Third Amendment Date, the following sentence shall be added to the end of Section 10.1 of the Agreement:

 

“Notwithstanding anything to the contrary in this Section 10.1, Kala shall have the right to disclose the name of The Johns Hopkins University or The Johns Hopkins Health System or any of its constituent parts or any Inventors to exercise Kala’s rights under Section 4.7 to file, prosecute and/or maintain the KALA/JHU JOINTLY OWNED PATENT RIGHTS.”

 

15.                               As of the Third Amendment Date, the address for notices to Company in Section 10.6 shall be changed to the following:

 

“If to Company:

Kala Pharmaceuticals, Inc.

 

100 Beaver Street, Suite 201

 

Waltham, MA 02453

 

Attn: Chief Executive Officer

 

With a Copy to: General Counsel”

 

16.                               As of the Third Amendment Dale, Section 2 in Exhibit A of the Agreement shall be amended as follows:

 

“Launch Year and each year thereafter:  One hundred thousand dollars ($100,000),” shall be omitted and replaced with “Launch Year and each year thereafter:  One hundred fifty thousand dollars ($150,000).”

 

17.                               As of the Third Amendment Date, the following paragraph shall be added to the end of Section 3 of Exhibit A of the Agreement:

 

4



 

“Notwithstanding anything to the contrary in this Agreement or its exhibits, if the only VALID CLAIMS of PATENT RIGHTS that cover the LICENSED PRODUCT or LICENSED SERVICE are VALID CLAIMS of KALA/JHU JOINTLY OWNED PATENT RIGHTS, then only [**]% of the NET SALES or the NET SERVICE REVENUES of such LICENSED PRODUCT or LICENSED SERVICE shall apply for purposes of the royalty calculation as set forth in this Section 3.3 of the Agreement and Section 3 of this Exhibit A.”

 

18.                               As of the Third Amendment Date, the following paragraph shall be added to the end of Section 4 of Exhibit A of the Agreement:

 

“Notwithstanding anything to the contrary in this Agreement or its exhibits, the SUBLICENSE CONSIDERATION for any sublicense of only KALA/JHU JOINTLY OWNED PATENT RIGHTS, shall be reduced by [**]% as applied to any obligations of Company under this Agreement.  For clarity, the preceding paragraph regarding offsets for a third-party license shall apply after the reduction of SUBLICENSE CONSIDERATION set forth in this paragraph.”

 

19.                               As of the Third Amendment Date, the following paragraph shall be added to the end of Section 5 of Exhibit A of the Agreement:

 

“Notwithstanding anything to the contrary in this Agreement or its exhibits, each milestone payment in this Section 5 shall be reduced by [**]% if the only VALID CLAIMS of PATENT RIGHTS that cover the LICENSED PRODUCT are VALID CLAIMS of KALA/JHU JOINTLY OWNED PATENT RIGHTS; such [**]% reduction is in addition to any reductions that already apply to the second and third LICENSED PRODUCTS that achieve the applicable milestone.”

 

20.                               As of the Third Amendment Date, Exhibit D of the Agreement shall be superseded in its entirety by the updated Exhibit D (“Amended Exhibit D”) attached hereto.

 

21.                               As of the Third Amendment Date, (a) Paragraph 2.5 shall be deleted in its entirety, (b) the clause “provided, however, that if the OPTION PATENT RIGHTS become PATENT RIGHTS upon exercise of the option set forth in Section 2.5, the OPTION PATENT RIGHTS shall not be included in PATENT RIGHTS for purposes of this Section 2.4” in the last sentence of Section 2.4 of the Agreement shall be deleted in its entirety, (c) the second sentence of Section 3.6 of the Agreement shall be deleted in its entirety, and (d) the second paragraph of Section 3.6 of the Agreement shall be amended to read as follows:

 

“In accordance with Paragraph 4.1 below, Company will reimburse JHU, within [**] days of the receipt of an invoice from JHU for all costs associated with the preparation, filing, maintenance, and prosecution of PATENT RIGHTS incurred by JHU subsequent to the EFFECTIVE DATE of this Agreement.”

 

22.                               In all other respects the Agreement shall remain in full force and effect.

 

23.                               This Third Amendment shall be effective as of the date the last party hereto has executed this Third Amendment (the “Third Amendment Date”).

 

5



 

24.                               For the convenience of the parties hereto, this Amendment may be executed in two counterparts, each of which shall be deemed to be an original, but both of which together shall constitute one and the same instrument, without necessity of production of the others.  Signatures may be exchanged by facsimile or electronic transmission and each of the parties to this Amendment agrees that it will be bound by its own facsimile signature and that it accepts the facsimile signature of the other party.

 

25.                               Amendment Fee.  Company shall pay to JHU within [**] days of the Third Amendment Date [**] dollars ($[**]) as an amendment fee (the “Third Amendment Fee”).  JHU will not submit an invoice for the Third Amendment Fee, which shall not be credited against royalties or other fees.  The Third Amendment Fee shall be refunded to Company in full if this Third Amendment is terminated according to Section 26.

 

26.                               Termination due to no Settlement.  In the event the Settlement Agreement is not executed by JHU, Company, GrayBug, and any other required parties, on or before January I, 2015, each section of this Third Amendment, except for the last sentence of Section 25, shall terminate and the applicable sections in the Agreement shall revert to the language as of immediately prior to the Third Amendment Date; provided that (A) Exhibit D of the Agreement shall be superseded in its entirety by the Amended Exhibit D (but excluding JHU Ref [**]) attached hereto, and (B) each party shall retain its rights as a co-owner in any patent rights jointly owned by Kala and JHU relating to JHU Ref [**].

 

6



 

This Third Amendment may be executed in one or more counterparts each of which shall be deemed an original but all of which together shall constitute one and the same instrument.

 

KALA PHARMAEUTICALS, INC.     

THE JOHNS HOPKINS UNIVERSITY      

 

 

 

 

By:

/s/ Charles McDermott

 

By:

/s/ Steven L. Kousouris

 

duly authorized

 

duly authorized

 

 

Charles McDermott

Director

Steve Kousouris 

 

 

Sr. Director, Administration

Chief Business Officer and Interim President

 

Johns Hopkins Technology Transfer

 

 

Date:

Johns Hopkins Technology Transfer

 

 

August 26, 2014

Date: 8/26/2014

 

7



 

EXHIBIT D - PATENT APPLICATIONS

 

[**]

Institution
Number

 

Application
Number

 

Type of
Patent
Filing

 

Application
Date

 

Publication
or
Patent
Number

 

Publication
or Grant
Date

 

Filing
Country

[**]

 

[**]

 

[**]

 

[**]

 

[**]

 

[**]

 

[**]

[**]

 

[**]

 

[**]

 

[**]

 

[**]

 

[**]

 

[**]

[**]

 

[**]

 

[**]

 

[**]

 

[**]

 

[**]

 

[**]

[**]

 

[**]

 

[**]

 

[**]

 

 

 

 

 

[**]

[**]

 

[**]

 

[**]

 

[**]

 

 

 

 

 

[**]

 

Confidential Materials omitted and filed separately with the Securities and Exchange Commission. A total of three pages were omitted. [**]

 

8




Exhibit 10.8

 

Confidential Materials omitted and filed separately with the

Securities and Exchange Commission. Double asterisks denote omissions.

 

SUBJECT TO FED. R. EVID. 408

CONFIDENTIAL

 

Settlement and License Agreement

This Settlement and License Agreement (including its attachments, this “Agreement”) is entered into as of October 24, 2014 (“Settlement Agreement Effective Date”), by and between GrayBug, LLC, a limited liability company organized and existing under the laws of the State of Maryland and having an address of P.O. Box 13043, Baltimore, MD 21203, on behalf of itself and its Affiliates (as defined below) (collectively, “GrayBug”), and Kala Pharmaceuticals, Inc., a corporation organized and existing under the laws of State of Delaware and having a place of business at 100 Beaver Street, Suite 201, Waltham, MA 02453, on behalf of itself and its Affiliates (collectively, “Kala”).

 

WHEREAS, there is a dispute over the rights licensed to each Party under certain Patent Rights (as defined below) owned by JHU (as defined below);

 

WHEREAS, the Parties and JHU now wish to settle such dispute in an amicable manner which is intended to settle and clarify rights granted by JHU to each Party and to permit each Party to have the freedom to effectively develop pharmaceutical products that will benefit patients;

 

NOW, THEREFORE, in consideration of the mutual covenants contained herein, and other good and valuable consideration, the receipt of which is hereby acknowledged, upon approval of these terms by JHU (including acknowledgement by [**]), GrayBug and Kala agree as follows:

 

1.              Construction; Definitions.

 

1.A     Construction.  Each Party acknowledges that it has been advised by counsel during the course of negotiation of this Agreement, and, therefore, that this Agreement shall be interpreted without regard to any presumption or rule requiring construction against the Party causing this Agreement to be drafted.  Any reference in this Agreement to a Section, subsection, paragraph or clause shall be deemed to be a reference to a Section, subsection, paragraph or clause of this Agreement.  Except where the context otherwise requires, (a) wherever used, the use of any gender will be applicable to all genders; (b) the word “or” is used in the inclusive sense (and/or); (c) any definition of or reference to any agreement, instrument or other document refers to such agreement, instrument other document as from time to time amended, supplemented or otherwise modified (subject to any restriction on such amendments, supplements or modifications set forth herein or therein); (d) any reference to any law refers to such law as from time to time enacted, repealed or amended and includes any regulations under such law; (e) the words “herein”, “hereof” and hereunder”, and words of similar import, refer to this Agreement in its entirety and not to any particular provision hereof; and (f) the words “include”, “includes” and “including” shall be deemed to be followed by the phrase “but not limited to”, “without limitation” or words of similar import.

 

1.B     Definitions.  Unless specifically set forth to the contrary herein, the following terms, whether used in the singular or plural, shall have the respective meanings set forth below:

 

1



 

Affiliate” means, with respect to a first Person, any second Person that directly or indirectly, through one or more intermediaries, is Controlled by, Controls, or is under Common Control with, such first Person, but only for so long as such Control shall continue.  For purposes of this definition, “Controlling” (including, with correlative meanings, “Controlled by” and “under Common Control with”) means, with respect to a Person, possession, direct or indirect, of (a) at least fifty percent (50%) of the voting securities (whether directly or pursuant to any option, warrant, or other similar arrangement) or other comparable equity interests of such Person, or (b) the power to elect or appoint at least fifty percent (50%) of the Board of Directors of such Person or otherwise to direct or cause direction of the management and policies of such Person (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise).

 

Business Day” means a day that is not a Saturday, a Sunday, nor a day on which banking institutions in Boston, Massachusetts and Baltimore, Maryland  are authorized by law to remain closed.

 

Confidential Information” means any proprietary information which is disclosed by one Party or JHU to the other Party in connection with this Agreement, and including any “Confidential Information” as defined in the Prior CDA.  In addition, the terms of this Agreement and the Prior CDA shall be considered Confidential Information of each Party.  Notwithstanding the foregoing, Confidential Information excludes information that, in each case as demonstrated by competent written documentation:

 

i.                       is in the public domain or publicly known prior to the disclosure to the receiving Party;

 

ii.                    is lawfully in the receiving Party’s possession prior to the disclosure;

 

iii.                 becomes part of the public domain or publicly known by publication or otherwise through no unauthorized act or omission on the part of the receiving Party;

 

iv.                is provided to a receiving Party by a Third Party who has a lawful right to disclose it; or

 

v.                   is independently discovered by a receiving Party without use of the disclosing Party’s Confidential Information.

 

Counterpart” means, with respect to a patent application, (a) any patent applications (including provisional applications) from  which such patent application claims priority, (b) all continuations, continuations-in-part, continued prosecution applications and divisionals of such patent application or any application described in clause (a), (c) any issued and unexpired letters patents issuing on such patent application or any application described in clauses (a) or (b), (d) any patent extensions, pediatric extensions, supplementary protection certificates, registrations, confirmations, reissues,

 

2



 

re-examinations, validations, revalidations, and renewals of any patent described in clause (c), and (e) with respect to clauses (a) through (d), any foreign counterparts thereof.

 

Current Patent Rights” means (a) with respect to GrayBug as the licensing party or Kala as the sublicensed party, the GrayBug Current Patent Rights and (b) with respect to Kala as the licensing party or GrayBug as the sublicensed party, the Kala Current Patent Rights.

 

Exclusive Field” means (a) with respect to GrayBug, the GrayBug Field of Use, and (b) with respect to Kala, the Kala Field of Use.

 

Existing JHU License Agreement” means (a) with respect to GrayBug, the GrayBug/JHU Agreement, and (b) with respect to Kala, the Kala/JHU Agreement.

 

Future Co-Licensed Patent Rights” means any Future Patent Right that is licensed to GrayBug and Kala pursuant to Section 2(c)(iii), until such time (if any) as such license has expired or been terminated with respect to either Party.

 

Future Patent Rights” means (a) any Patent Right (other than GrayBug Current Patent Rights, Kala Current Patent Rights, Kala/JHU Jointly Owned Patent Rights, Other JHU Patent Rights, Transferred Patent Rights, and Jointly Owned Transferred Patent Rights) that, (i) is in whole owned by JHU, (ii) names solely [**] as inventor, or, as co-inventors, limited to the following: [**] and, subject to Section 2(c)(ix):  [**] (each of the foregoing, a “Co-Inventor”), or any other person (including laboratory personnel, fellows, and students) working, as of the relevant time, in the laboratory of [**] who has authorized JHU in writing to license the relevant invention under this Settlement Agreement, (iii) is not subject to pre-existing Third Party rights granted by JHU or obligations of JHU to Third Parties (provided, however, that, to the extent such Third Party rights and obligations terminate during the Second Notice period of Section 2(c)(i), the relevant Patent Rights shall be considered Future Patent Rights), and (iv) relates to the GrayBug Field of Use or Kala Field of Use, and (b) any Counterparts of the foregoing.

 

GrayBug Current Patent Rights” means [**]; and any Counterparts of the foregoing.

 

GrayBug Field of Use” means the use of a Particle for delivery of a biologically active material to the eye via injection, excluding such use of any Particle comprising or consisting of loteprednol etabonate.  For the avoidance of doubt, GrayBug Field of Use includes without limitation injections to the eye that are intravitreal, intrastromal, intracameral, sub-tenon (including posterior and anterior), sub-retinal, retro-bulbar, peri-bulbar, suprachorodial, conjunctival, subconjunctival, episcleral, posterior juxtascleral, scleral, circumcorneal, and tear duct injections, in each case, wherein a Particle does not go through mucus, mucin, or a mucosal barrier of the eye, but the injection means can pass through mucus, mucin, or a mucosal barrier of the eye to inject the Particle to a point of delivery that is not mucus, mucin, or a mucosal barrier of the eye.

 

3



 

GrayBug/JHU Agreement” means the Exclusive License Agreement between GrayBug and JHU dated [**], as amended on or before the Settlement Agreement Effective Date and as may be amended after the Settlement Agreement Effective Date in accordance with this Agreement.

 

HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

 

JHU” means The Johns Hopkins University.

 

JHU Patent Rights” means the GrayBug Current Patent Rights, the Kala Current Patent Rights, the Co-Licensed Other JHU Patent Rights, and the Future Co-Licensed Patent Rights.

 

Jointly Owned Transferred Patent Rights” means JHU’s ownership interest in the Kala/JHU Jointly Owned Patent Rights transferred to GrayBug pursuant to Section 2(d)(iv).

 

Kala/JHU Agreement” means the Exclusive License Agreement between Kala and JHU dated November 10, 2009, as amended on or before the Settlement Agreement Effective Date and as may be amended after the Settlement Agreement Effective Date in accordance with this Agreement.

 

Kala/JHU Jointly Owned Patent Rights” means [**], and any Counterparts thereof.

 

Kala Current Patent Rights” means [**]; and any Counterparts of the foregoing.

 

Kala Field of Use” means the use of a Particle for delivery of a biologically active material through mucus, mucin, or a mucosal barrier; provided, however, that such delivery does not involve administration via injection to the eye.  For the avoidance of doubt, Kala Field of Use includes without limitation topical administration to the eye.

 

Licensed Product” means any process or method, material, compositions, drug, or other product, the manufacture, use or sale of which would constitute, but for the license granted to the relevant Party pursuant to this Agreement, an infringement of a Valid Claim of the relevant Patent Rights (where infringement includes direct, contributory, or inducement to infringe) in the country of sale.

 

Licensed Service” means the performance on behalf of a Third Party of any method or the manufacture of any product or the use of any product or composition which would constitute, but for the license granted to the relevant Party pursuant to this Agreement, an infringement of a Valid Claim of the relevant Patent Rights (where infringement includes direct, contributory, or inducement to infringe) in the country of performance of the services.

 

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Losses” means claims, actions, causes of action, suits, defenses, judgments, debts, offsets, accounts, covenants, contracts, agreements, torts, damages, and any and all demands and liabilities whatsoever, including costs, expenses, and attorneys’ fees.

 

Other JHU Patent Rights” means the Patent Rights listed in Schedule 1.24 and any Counterparts thereof, which shall be designated as (a) “Co-Licensed Other JHU Patent Rights” while both Parties retain licenses thereunder, pursuant to Section 2(b), (b) “GrayBug-Licensed Other JHU Patent Rights” while only GrayBug retains a license thereunder, pursuant to Section 2(b), and (c) “Kala-Licensed Other JHU Patent Rights” while only Kala retains a license thereunder, pursuant to Section 2(b).

 

Particle” means a particle for delivery of a biologically active material, which particle has a [**] or a [**] (which may include a [**] particle).

 

Party” means each of GrayBug and Kala individually, and “Parties” means GrayBug and Kala collectively.

 

Patent Rights” means patents, patent applications or provisional patent applications, utility models and utility model applications, petty patents, innovation patents, patents of addition, divisionals, continuations, continuation-in-part applications, continued prosecution applications, requests for continued examinations, reissues, renewals, registrations, confirmation, validations, revalidations, reexaminations, and extensions, pediatric extensions and supplementary protection certificates granted in relation thereto, in any country of the world.

 

Person” means any natural person, corporation, general partnership, limited partnership, joint venture, proprietorship, or other business organization or a governmental agency or a political subdivision thereto.

 

Potential Future Patent Right” means an invention (other than an invention covered by GrayBug Current Patent Rights, Kala Current Patent Rights, Other JHU Patent Rights, Kala/JHU Jointly-Owned Patent Rights or Future Patent Rights, as such Patent Rights exist as of the Settlement Agreement Effective Date), that (a) [**] is an inventor of and (b) relates to the GrayBug Field of Use or the Kala Field of Use.

 

Prior CDA” means the Confidentiality Agreement between Kala Pharmaceuticals, Inc. and GrayBug, LLC, made and entered into as of June 28, 2013.

 

Prosecution and Maintenance” means, with regard to a Patent Right, the preparation, filing, and prosecution of the applicable patent application(s), the maintenance of applicable patent application(s) and patent(s), and the preparation, filing, prosecution, and control of appeals, post-grant reviews, defense of inter partes reexaminations, the prosecution of ex parte reexaminations, initiation or defense of interferences, derivation proceedings, requests for patent term adjustments, the defense of oppositions, and other similar proceedings with respect to such Patent Right, and any appeals therefrom.  For clarity, “Prosecution and Maintenance” shall not include any other enforcement actions taken with respect to a Patent Right.

 

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Remaining Field” means any field outside the GrayBug Field of Use and the Kala Field of Use.

 

Third Party” means a Person other than GrayBug, Kala, JHU and their respective Affiliates.

 

Transferred Patent Rights” means (a) with respect to GrayBug, Kala Current Patent Rights transferred to GrayBug pursuant to Section 2(a)(v), and (b) with respect to Kala, GrayBug Current Patent Rights transferred to Kala pursuant to Section 2(a)(v).

 

Valid Claim” means either:  (a) a claim of an issued and unexpired patent included within the relevant Patent Rights which has not been revoked or held unenforceable, unpatentable or invalid by a decision of a court or other governmental agency of competent jurisdiction, unappealable or unappealed within the time allowed for appeal, and which has not been disclaimed, denied or admitted to be invalid or unenforceable through reexamination, reissue, disclaimer or otherwise; or (b) a claim of a pending patent application included within the relevant Patent Rights, which claim has not been abandoned or finally disallowed without the possibility of appeal or refiling of such application, and has been pending for less than [**] years from the date such claim was filed in a first national filing non-provisional patent application in the country of interest and has not been (i) canceled, (ii) withdrawn from consideration, (iii) finally determined to be unallowable by the applicable governmental authority (and from which no appeal is or can be taken), or (iv) abandoned.

 

2.                                      License Grants.

 

a.              Current Patent Rights.

 

i.                       GrayBug Current Patent Rights.  GrayBug hereby grants to Kala a worldwide, royalty-free, exclusive, sublicenseable (in accordance with Section 2(a)(iii)) sublicense, under the GrayBug Current Patent Rights, to research, develop, make, have made, use, have used, import, have imported, offer to sell, have offered for sale, sell and have sold Licensed Products in the Kala Field of Use, and to provide and have provided Licensed Services in the Kala Field of Use, in the United States and worldwide.

 

ii.                    Kala Current Patent Rights.  Kala hereby grants to GrayBug a worldwide, royalty-free, exclusive, sublicenseable (in accordance with Section 2(a)(iii)) sublicense, under the Kala Current Patent Rights, to research, develop, make, have made, use, have used, import, have imported, offer to sell, have offered for sale, sell and have sold Licensed Products in the GrayBug Field of Use, and to provide and have provided the Licensed Services in the GrayBug Field of Use, in the United States and worldwide.

 

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iii.                 Sublicensing.  Each Party may sublicense the rights granted to it under the other Party’s Current Patent Rights, including the right to further sublicense; provided that (A) any such sublicense must involve some aspect of collaboration, joint research, development, manufacture, partnership, or the like, and in any event, the grant of sublicenses beyond [**] more tiers is not permitted without the original sublicensing Party’s written consent, (B) all sublicensees (whether direct or through any tier) are bound by the applicable terms of this Agreement, and (C) the Party granting such sublicense (directly or through its sublicensees) provides the other Party notice of such sublicensee (1) within [**] Business Days after the execution of such sublicense agreement for a direct sublicense or (2) within [**] Business Days after execution of such sublicense agreement for a further sublicense granted through its sublicensee, and in any event of (C)(1) or (C)(2) of this Section 2(a)(iii), in each case to the extent permissible by law (including securities laws), prior to any public disclosure or press release for any such sublicense agreement.

 

iv.                Separation of Obligations.  Neither Party granted a sublicense under the other Party’s Current Patent Rights pursuant to Section 2(a)(i) or 2(a)(ii), or any Party’s sublicensees under Section 2(a)(iii), shall be responsible for complying with the diligence, reporting, audit or other obligations under such other Party’s Existing JHU License Agreement, except to the extent incorporated into this Agreement, and, except to the extent provided herein, such Party shall comply with the diligence, reporting, audit or other obligations to JHU under its own Existing JHU License Agreement with respect to such other Party’s Current Patent Rights to the same extent as if such other Party’s Current Patent Rights were “PATENT RIGHTS” under such Party’s own Existing JHU License Agreement.

 

v.                   Termination of Direct Licensee.  Upon a termination, on a Current Patent Right-by-Current Patent Right and country-by-country basis, of the Existing JHU License Agreement with respect to a Party, which termination is not then being disputed by such Party, such terminated Current Patent Right shall be automatically licensed to the other Party under such other Party’s Existing JHU License Agreement on a royalty-free, sublicenseable, exclusive basis (the “Transferred Patent Rights”) with no rights thereunder retained by such terminated(ing) Party; provided that such license will be subject to any Third Party sublicenses that had been granted by such terminated(ing) Party that JHU continues to honor as a direct license.  JHU shall provide the other Party written notice of the termination of a Party’s rights with respect to such Current Patent Right under its Existing JHU License Agreement, and the other Party shall have [**] Business Days from its receipt of the notice to send JHU a written notice that the Party declines to accept the automatic license described in this section.

 

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The other Party shall not be obligated to pay any costs or fees related to the terminated(ing) Party’s Current Patent Right unless and until such Party accepts the automatic license by not providing a notice to JHU declining such automatic license within the time period specified in the preceding sentence.

 

vi.                Termination of Sublicensee.  If, pursuant to Section 9(c) or in accordance with the terms of its Existing JHU License Agreement, a Party sublicensed under any of the other Party’s Current Patent Rights terminates (or JHU terminates, which termination is not then being disputed by the sublicensed Party) the sublicense to such sublicensed Party with respect to any of such directly licensed Party’s Current Patent Rights, any Third Party sub-sublicenses, if any, that were granted by such terminated(ing) sublicensed Party under such directly licensed Party’s Current Patent Rights shall be deemed direct sublicenses (each such Third Party, a “New Sublicensee”) of such directly licensed Party under such Current Patent Rights, provided that such Third Party’s sub-sublicense will automatically terminate if, at such time, the Third Party is not in good standing or in breach of any term of its sub-sublicense agreement.  Such New Sublicensee shall remain subject to the terms of such New Sublicensee’s agreement with the terminated(ing) sublicensed Party, a copy of which shall be promptly provided to the directly licensed Party; provided, however, that such directly licensed Party shall have no obligations to such New Sublicensee beyond respecting the sublicense.

 

b.              Other JHU Patent Rights.

 

i.                       License Grant. JHU hereby grants (A) to GrayBug a worldwide, royalty-bearing (in accordance with the terms and conditions of the GrayBug/JHU Agreement, as amended herein, and specifically as amended by Section 4), sublicenseable (in accordance with Section 2(b)(ii)), exclusive license, under Other JHU Patent Rights, to research, develop, make, have made, use, have used, import, have imported, offer to sell, have offered for sale, sell and have sold Licensed Products in the GrayBug Field of Use, and to provide and have provided Licensed Services in the GrayBug Field of Use, in the United States and worldwide, and (B) to Kala a worldwide, royalty-bearing (in accordance with the terms and conditions of the Kala/JHU Agreement, as amended herein, and specifically as amended by Section 4), sublicenseable (in accordance with Section 2(b)(ii)), exclusive license, under Other JHU Patent Rights, to research, develop, make, have made, use, have used, import, have imported, offer to sell, have offered for sale, sell and have sold Licensed Products in the Kala Field of Use, and to provide and have provided Licensed Services in the Kala Field of Use, in the United States and worldwide.  If, pursuant to Section 9(c) or in

 

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accordance with the terms of its Existing JHU Agreement, a Party terminates (or JHU terminates, which termination is not then being disputed by such Party) the license to such Party in such Party’s Exclusive Field under this Section 2(b)(i) with respect to an Other JHU Patent Right, such Exclusive Field with respect to such Other JHU Patent Right shall be automatically licensed to the other Party under such other Party’s Existing JHU License Agreement with no rights thereunder retained by such terminated(ing) Party, and all sublicensees receiving sublicenses granted by such terminating Party in such Exclusive Field under such Other JHU Patent Right shall be deemed sublicensees of JHU. JHU shall provide the other Party written notice of the termination of a Party’s license in its Exclusive Field with respect to an Other JHU Patent Right, and the other Party shall have [**] Business Days from its receipt of the notice to send JHU a written notice that the Party declines to accept the automatic license described in this section. The other Party shall not be obligated to pay the portion of any costs or fees attributable to or to be paid by the terminated(ing) Party for such Other JHU Patent Rights incurred after the termination unless and until such Party accepts the automatic license by not providing a notice to JHU declining such automatic license within the time period specified in the preceding sentence.

 

ii.                    Sublicensing.  Each Party may sublicense the exclusive rights granted to it under the Other JHU Patent Rights, including the right to further sublicense; provided that (A ) such further sublicense must involve some aspect of collaboration, joint research, development, manufacture, partnership, or the like, and in any event, the grant of sublicenses beyond [**] more tiers is not permitted without the original sublicensing Party’s written consent, (B) all sublicensees (whether direct or through any tier) are bound by the applicable terms of this Agreement, and (C) the Party granting such sublicense (directly or through its sublicensees) provides the other Party notice of such sublicensee (1) within [**] Business Days after the execution of such sublicense agreement for a direct sublicense or (2) within [**] Business Days after execution of such sublicense agreement for a further sublicense granted through its sublicensee, and in any event of (C)(1) or (C)(2) of this Section 2(b)(ii), in each case to the extent permissible by law (including securities laws), prior to any public disclosure or press release for any such sublicense agreement.

 

c.               Future Patent Rights.

 

i.                       Notice.  Promptly after each of the following, JHU shall provide written notice concurrently to each of GrayBug and Kala, attaching a copy of the relevant invention disclosure, report, or patent application, as applicable:  (1) JHU

 

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Technology Transfer’s receipt, within [**] after the Settlement Agreement Effective Date, of an invention disclosure or other similar official report for an invention which, if patented, would be a Future Patent Right or the filing, within [**] after the Settlement Agreement Effective Date, of the first patent application in a family for any Future Patent Right (a “First Notice”), and (2) the filing, within [**] after the Settlement Agreement Effective Date, of the first non-provisional application (in any country or under the Patent Cooperation Treaty) in a family for any Future Patent Right or the filing, even if after the [**] of the Settlement Agreement Effective Date, of the first non-provisional application (in any country or under the Patent Cooperation Treaty) in a family for any Future Patent Right which was, in whole or in part, the subject of an invention disclosure, report or patent application for which JHU provided, or was obligated to provide, a First Notice (a “Second Notice”).  Except as provided in this Agreement, until such time as all notices under this paragraph and under Section 2(c)(vi) have been given to the Parties and the periods for the Parties to respond to such notices have expired, JHU shall not offer to license or license to any other Person any Future Patent Right or the subject matter of any invention disclosure or other similar report for an invention which, if patented, would be a Future Patent Right.

 

ii.                    Exercise of Right.  Subject to Section 2(c)(ii)(3), below, upon receiving a notice from JHU pursuant to Section 2(c)(i), each Party shall have [**] Business Days thereafter to send written notice to JHU and to the other Party, to exercise its right to non-exclusively license such Future Patent Rights in its Exclusive Field in accordance with the provisions of Sections 2(c)(iii)-(v) below, as applicable.

 

1.              If, after receipt of the First Notice under Section 2(c)(i)(1) with respect to Patent Rights, only one Party exercises its right to license such Future Patent Rights (the “First Requesting Party”), then during the period between such exercise and the expiration of the period for the Parties’ written notices in response to the Second Notice under Section 2(c)(i)(2) with respect to such Future Patent Rights, such Future Patent Rights shall be subject to either Section 2(c)(iv) or (v), as applicable, but the First Requesting Party may only grant sublicenses in the other Party’s Exclusive Field if such sublicenses are subject to termination in such Exclusive Field if such other Party obtains an exclusive license in such other Party’s Exclusive Field pursuant to Section 2(c)(vi).  Thereafter, (A) if the other Party does not exercise its right to license such Future Patent Rights pursuant to the Second Notice, such Future Patent Rights shall remain subject to Section 2(c)(iv) or (v), as applicable, or (B) if the other Party, within [**] Business Days after receipt of such Second

 

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Notice, sends a written notice to JHU and the First Requesting Party requesting a license to such Future Patent Rights, then such Future Patent Rights will be subject to Section 2(c)(iii), and, per Section 2(c)(iv) or 2(c)(v), as applicable,  such other Party shall reimburse the First Requesting Party for the pro rata portion of all patent costs the First Requesting Party has paid to JHU in connection with such Future Patent Rights up to that time, subject to the provision of an invoice with respect thereto and, to the extent requested by such other Party, any relevant supporting documentation.

 

2.              If, after receipt of the First Notice under Section 2(c)(i)(1) with respect to Patent Rights, both Parties exercise their right to license such Future Patent Rights, then during the period between such exercise and the expiration of the period for the Parties’ written notices in response to the Second Notice under Section 2(c)(i)(2) with respect to such Future Patent Rights, such Future Patent Rights shall be subject to Section 2(c)(iii).  Thereafter, (A) if both Parties exercise their right to license such Future Patent Rights pursuant to the Second Notice, such Future Patent Rights shall remain subject to Section 2(c)(iii), or (B) if only one Party, within [**] Business Days after receipt of such Second Notice, sends a written notice to JHU and the other Party requesting a license to such Future Patent Rights, then such Future Patent Rights will be subject to Section 2(c)(iv) or (v), as applicable, and the formerly-licensed Party shall not be entitled to any refund of any amounts it paid to JHU in connection with such Future Patent Rights up to that time and shall remain bound to pay the relevant amounts incurred by JHU in connection with such Future Patent Rights pursuant to Section 2(c)(iii) up to that time.

 

3.              Notwithstanding Sections 2(c)(ii)(1) and 2(c)(ii)(2), if JHU establishes that a Future Patent Right is (A) based on research funded by a Party or (B) specifically designed for the use of one Party, then at the request of such Party, such Future Patent Right can be licensed non-exclusively to such Party in all fields and such Future Patent Right shall be added to such Party’s Current Patent Rights but on a non-exclusive (but subject to Section 2(c)(iv)), sublicenseable basis, and shall otherwise be subject to the sublicenses granted by such Party under its Current Patent Rights to the other Party pursuant to this Agreement and, for the sake of clarity, shall be subject to Sections 3(a)(viii) and 4.

 

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iii.                 Co-Licensed.  This Section 2(c)(iii) is subject to Sections 2(c)(ii)(1) and (2) and Section 2(c)(vi).

 

1.              If both GrayBug and Kala, within [**] Business Days after receipt of a notice for Future Patent Rights from JHU pursuant to Section 2(c)(i) above, send a written notice to JHU and the other Party requesting a license under such Future Patent Rights, then JHU shall be deemed to have granted (A) to GrayBug a worldwide, royalty-bearing (in accordance with the terms of the GrayBug/JHU Agreement, as amended herein, and specifically as amended by Section 4), sublicenseable (in accordance with Section 2(c)(iii)(2)), non-exclusive license, under such Future Patent Rights, to research, develop, make, have made, use, have used, import, have imported, offer to sell, have offered for sale, sell and have sold Licensed Products in the GrayBug Field of Use, and to provide and have provided Licensed Services in the GrayBug Field of Use, in the United States and worldwide, and (B) to Kala a worldwide, royalty-bearing (in accordance with the terms of the Kala/JHU Agreement, as amended herein, and specifically as amended by Section 4), sublicenseable (in accordance with Section 2(c)(iii)(2)), non-exclusive license, under such Future Patent Rights, to research, develop, make, have made, use, have used, import, have imported, offer to sell, have offered for sale, sell and have sold Licensed Products in the Kala Field of Use, and to provide and have provided Licensed Services in the Kala Field of Use, in the United States and worldwide.  If, pursuant to Section 9(c) or in accordance with the terms of its Existing JHU License Agreement, a Party terminates (or JHU terminates, which termination is not then being disputed by such Party) the license to such Party in its Exclusive Field under this Section 2(c)(iii)(1) with respect to a Future Patent Right, such Exclusive Field with respect to such Future Patent Right shall be automatically licensed to the other Party under such other Party’s Existing JHU License Agreement with no rights thereunder retained by such terminated(ing) Party, and all sublicensees receiving sublicenses granted by such terminated(ing) Party in such Exclusive Field under such Future Patent Right shall be deemed sublicensees of JHU.  JHU shall provide the other Party written notice of the termination of a Party’s license in its Exclusive Field with respect to a Future Patent Right, and the other Party shall have [**] Business Days from its receipt of the notice to send JHU a written notice that the Party declines to accept the automatic license described in this section. The other Party shall not be obligated to pay the portion of any costs or fees attributable to or to be paid by the terminated(ing) Party for such

 

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Future Patent Rights incurred after the termination unless and until such Party accepts the automatic license by not providing a notice to JHU declining such automatic license within the time period specified in the preceding sentence.

 

2.              Sublicensing.  Each Party may sublicense the rights granted to it under the Future Co-Licensed Patent Rights, including the right to further sublicense; provided that (A) such further sublicense must involve some aspect of collaboration, joint research, development, manufacture, partnership, or the like, and in any event, the grant of sublicenses beyond [**] more tiers is not permitted without the original sublicensing Party’s written consent, (B) all sublicensees (whether direct or through any tier) are bound by the applicable terms of this Agreement, and (C) the Party granting such sublicense (directly or through its sublicensees) provides the other Party notice of such sublicensee (1) within [**] Business Days after the execution of such sublicense agreement for a direct sublicense or (2) within [**] Business Days after execution of such sublicense agreement for a further sublicense granted through its sublicensee, and in any event of (C)(1) or (C)(2) of this Section 2(c)(iii)(2), in each case to the extent permissible by law (including securities laws), prior to any public disclosure or press release for any such sublicense agreement.

 

iv.                GrayBug Only. Subject to Sections 2(c)(ii)(1) and (2) and Section 2(c)(vi), if GrayBug, but not Kala, within [**] Business Days after receipt of a notice for Future Patent Rights from JHU pursuant to Section 2(c)(i) above, sends a written notice to JHU and Kala requesting a license under such Future Patent Rights, then such Future Patent Rights (“GrayBug-Licensed Future Patent Rights”) shall be deemed licensed by JHU to GrayBug as if they were “PATENT RIGHTS” as defined in the GrayBug/JHU Agreement (as amended herein, and specifically as amended by Section 4), with the exception that (1) such license is non-exclusive and sublicenseable, (2) for clarity, no license, sublicense or other rights shall be deemed to have been granted to Kala in any field with respect to such Future Patent Rights pursuant to this Agreement, and (3) if JHU grants Kala or a Third Party a license under such GrayBug-Licensed Future Patent Rights, all patent costs incurred by JHU with respect to such GrayBug-Licensed Future Patent Rights, whether prior to or after the granting of such license to Kala or such Third Party(ies), shall be borne pro rata among GrayBug and all such licensees (based on the number of JHU-licensed licensees under such GrayBug-Licensed Future Patent Rights) and, with respect to any such patent costs with respect to such GrayBug-Licensed Future Patent Rights paid by GrayBug prior to JHU

 

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granting such a license to Kala or any such Third Party, JHU shall ensure that Kala or such Third Party reimburses such prior patent costs to GrayBug so that GrayBug will only have borne its pro rata amount of such prior patent costs.

 

v.                   Kala Only. Subject to Sections 2(c)(ii)(1) and (2) and Section 2(c)(vi), if Kala, but not GrayBug, within [**] Business Days after receipt of a notice for Future Patent Rights from JHU pursuant to Section 2(c)(i) above, sends a written notice to JHU and GrayBug requesting a license under such Future Patent Rights, then such Future Patent Rights (“Kala-Licensed Future Patent Rights”) shall be deemed licensed by JHU to Kala as if they were “PATENT RIGHTS” as defined in the Kala/JHU Agreement (as amended herein, and specifically as amended by Section 4), with the exception that (1) such license is non-exclusive and sublicenseable, (2) for clarity, no license, sublicense or other rights shall be deemed to have been granted to GrayBug in any field with respect to such Future Patent Rights pursuant to this Agreement, and (3) if JHU grants GrayBug or a Third Party a license under such Kala-Licensed Future Patent Rights, all patent costs incurred by JHU with respect to such Kala-Licensed Future Patent Rights, whether prior to or after the granting of such license to Kala or such Third Party(ies), shall be borne pro rata among Kala and all such licensees (based on the number of JHU-licensed licensees under such Kala-Licensed Future Patent Rights) and, with respect to any such patent costs with respect to such Kala-Licensed Future Patent Rights paid by Kala prior to JHU granting such a license to GrayBug or any such Third Party, JHU shall ensure that GrayBug or such Third Party reimburses such prior patent costs to Kala so that Kala will only have borne its pro rata amount of such prior patent costs.

 

vi.                Right of First Negotiation.  Upon a Party’s exercise of its right, pursuant to this Section 2(c), to obtain a non-exclusive license in its Exclusive Field with respect to Future Patent Rights, JHU shall automatically grant to such Party an exclusive right to negotiate an exclusive license under such Future Patent Rights in its Exclusive Field, which right such Party may exercise by providing written notice to JHU within [**] days after such Party exercised its right pursuant to this Section 2(c) to obtain a non-exclusive license.  If such Party exercises such right of negotiation, JHU and such Party shall negotiate in good faith (for a period not to exceed [**] days after notice of exercise, extendable upon mutual agreement) on reasonable terms to make the license to such Party under such Future Patent Rights exclusive in such Party’s Exclusive Field.  In the event a particular Licensed Product or Licensed Service is covered by both such Party’s Existing JHU License Agreement and any other agreement or amendment between such Party and JHU for the Future Patent Right(s), [**] for a particular milestone payment will be due to JHU and JHU will apportion such revenue

 

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amongst the relevant agreements according to JHU’s internal policies.  The failure of such Party to exercise such right to negotiate, or the failure of such Party and JHU to reach agreement on the terms on which the license to such Party under such Future Patent Rights shall be made exclusive in its Exclusive Field, shall not affect such Party’s non-exclusive license under such Future Patent Rights in its Exclusive Field.

 

vii.             Hart Scott Rodino Compliance. If required, each Party receiving a license under Future Patent Rights shall use commercially diligent efforts to satisfy any applicable requirements under the HSR Act, and the regulations promulgated thereunder or other applicable Federal Trade Commission or Department of Justice regulations, including by making an initial HSR Act filing as soon as practicable after the exercise of the option to obtain such a license pursuant to this Section 2(c).  The licenses granted under this Section 2(c) with respect to such Future Patent Rights shall not be effective until the date of either (A) satisfaction of any such requirements and the expiration or termination of all applicable HSR Act waiting periods (including any extensions thereof) or (B) the mutual written agreement of JHU and each Party receiving a license under such Future Patent Rights that no HSR Act filings are required.

 

viii.          Potential Future Patent Rights.

 

1.              JHU hereby represents to each Party that (A) to JHU’s knowledge as of the Settlement Agreement Effective Date, JHU Technology Transfer has not received an invention disclosure or other similar official report for a Potential Future Patent Right and no provisional or non-provisional patent application has been filed in any country or under the Patent Cooperation Treaty for any Potential Future Patent Right, other than those disclosed in writing by JHU Technology Transfer to GrayBug and Kala, (B)  all the GrayBug Current Patent Rights existing on the Settlement Agreement Effective Date are listed in Schedule 1.21, (C) all the Kala/JHU Jointly Owned Patent Rights existing on the Settlement Agreement Effective Date are listed in Schedule 1.22, and (D) all the Kala Current Patent Rights existing on the Settlement Agreement Effective Date are listed in Schedule 1.23.

 

2.              JHU shall provide written notice concurrently to each of GrayBug and Kala, promptly after JHU’s receipt of an invention disclosure or other similar report, or JHU’s knowledge of the filing of a provisional or non-provisional patent application, for a Potential Future Patent Right, if such receipt occurs or such knowledge is gained at any time prior to the [**] of the Settlement Agreement Effective Date or thereafter with

 

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respect to the filing of the first non-provisional application.  Such notice from JHU shall initially be a non-confidential disclosure.  If either GrayBug or Kala requests confidential information regarding the Potential Future Patent Right, JHU shall use reasonable efforts to comply with the request by seeking permission from any necessary Third Parties and providing such information if necessary under an appropriately tailored confidentiality agreement.

 

ix.                JHU represents that Schedule 2(c)(ix) lists each Co-Inventor from which JHU had not, as of the Settlement Agreement Effective Date, received authorization in writing to license the relevant invention under this Settlement Agreement (each such individual, a “Pending Co-Inventor”).  JHU shall use reasonable efforts to obtain authorization in writing from each such Pending Co-Inventor to license the relevant invention under this Settlement Agreement as soon as possible after the Settlement Agreement Effective Date and shall notify each Party as it obtains such authorization from a Pending Co-Inventor.   Authorization shall be at each Pending Co-inventor’s personal discretion.  In the event JHU does not secure an individual Pending Co-inventor’s authorization after using reasonable efforts to obtain such by January 1, 2015, the individual will no longer be a Co-inventor under this Agreement and be deleted from the definition of “Future Patent Rights”.

 

d.              Kala/JHU Jointly Owned Patent Rights.

 

i.                       Kala/JHU Jointly Owned Patent Rights.  Kala hereby grants to GrayBug a worldwide, royalty-free, exclusive, sublicenseable (in accordance with Section 2(d)(ii)) (A) license, under Kala’s ownership interest in the Kala/JHU Jointly Owned Patent Rights, and (B) sublicense, under JHU’s ownership interest in the Kala/JHU Jointly Owned Patent Rights, in each case of (A) and (B) to research, develop, make, have made, use, have used, import, have imported, offer to sell, have offered for sale, sell and have sold Licensed Products in the GrayBug Field of Use, and to provide and have provided the Licensed Services in the GrayBug Field of Use, in the United States and worldwide.

 

ii.                    Sublicensing.  GrayBug may sublicense the rights granted to it under the Kala/JHU Jointly Owned Patent Rights, including the right to further sublicense; provided that (A) any such sublicense  must involve some aspect of collaboration, joint research, development, manufacture, partnership, or the like, and in any event, the grant of sublicenses beyond [**] more tiers is not permitted without Kala’s written consent, (B)  all sublicensees (whether direct or through any tier) are bound by the applicable terms of this Agreement, and (C) GrayBug (directly or through its sublicensees) provides Kala notice of such

 

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sublicensee (1) within [**] Business Days after the execution of such sublicense agreement for a direct sublicense or (2) within [**] Business Days after execution of such sublicense agreement for a further sublicense granted through its sublicensee, and in any event of (C)(1) or (C)(2) of this Section 2(d)(ii), in each case to the extent permissible by law (including securities laws), prior to any public disclosure or press release for any such sublicense agreement.

 

iii.                 Separation of Obligations.  GrayBug shall not be responsible for complying with the diligence, reporting, audit or other obligations under the Kala/JHU Agreement, except to the extent incorporated into this Agreement, and Kala shall not be required to make GrayBug comply with such obligations, and, except to the extent provided herein, GrayBug shall comply with the diligence, reporting, audit or other obligations to JHU under the GrayBug/JHU Agreement with respect to the Kala/JHU Jointly Owned Patent Rights to the same extent as if such Kala/JHU Jointly Owned Patent Rights were “PATENT RIGHTS” under the GrayBug/JHU Agreement.

 

iv.                Termination of Direct Licensee.  Upon a termination, in accordance with the terms of the Kala/JHU Agreement, of Kala’s rights under JHU’s ownership interest in any Kala/JHU Jointly Owned Patent Rights (which termination is not then being disputed by Kala), (A) the license granted by Kala to GrayBug under Kala’s ownership interest in such Kala/JHU Jointly Owned Patent Rights shall terminate, and (B) JHU’s ownership interest in such Kala/JHU Jointly Owned Patent Rights shall be automatically licensed to GrayBug under the GrayBug/JHU Agreement on a royalty-free, sublicenseable, exclusive basis (the “Jointly Owned Transferred Patent Rights”); provided that such license will be subject to any Third Party sublicenses that had been granted by Kala under JHU’s ownership interest in such Kala/JHU Jointly Owned Patent Rights that JHU or Kala continues to honor as a direct license.  JHU shall provide GrayBug written notice of the termination of Kala’s rights under JHU’s ownership interest in such Kala/JHU Jointly Owned Patent Rights, and GrayBug shall have [**] Business Days from its receipt of the notice to send JHU a written notice that GrayBug declines to accept the automatic license described in this section.  GrayBug shall not be obligated to pay any costs or fees related to the Kala/JHU Jointly Owned Patent Rights incurred after the termination unless and until GrayBug accepts the automatic license by not providing a notice to JHU declining such automatic license within the time period specified in the preceding sentence.

 

v.                   Termination of Sublicensee.  If, pursuant to Section 9(c), GrayBug terminates the license to GrayBug under Kala’s ownership interest in any Kala/JHU Jointly

 

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Owned Patent Rights, the license granted by Kala to GrayBug under Kala’s ownership interest in such Kala/JHU Jointly Owned Patent Rights shall terminate, and any Third Party sublicenses, if any, that were granted by GrayBug under Kala’s ownership interest in such Kala/JHU Jointly Owned Patent Rights shall terminate.  If, pursuant to Section 9(c) or in accordance with the terms of its Existing JHU License Agreement, GrayBug terminates (or JHU terminates, which termination is not then being disputed by GrayBug) the sublicense to GrayBug with respect to any Kala/JHU Jointly Owned Patent Rights, (A) the license granted by Kala to GrayBug under Kala’s ownership interest in such Kala/JHU Jointly Owned Patent Rights shall terminate, and any Third Party sublicenses, if any, that were granted by GrayBug under Kala’s ownership interest in such Kala/JHU Jointly Owned Patent Rights shall terminate, and (B) any Third Party sub-sublicenses, if any, that were granted by GrayBug under JHU’s ownership interest in such Kala/JHU Jointly Owned Patent Rights shall be deemed direct sublicenses (each such Third Party, a “New Direct Sublicensee”) of Kala under such Kala/JHU Jointly Owned Patent Rights; provided that a Third Party sub-sublicense will automatically terminate if the Third Party is not in good standing or in breach of any term of its sub-sublicense agreement.  Each New Direct Sublicensee shall remain subject to the terms of such New Direct Sublicensee’s agreement with GrayBug, a copy of which shall be promptly provided to Kala; provided, however, that Kala shall have no obligations to such New Direct Sublicensee beyond respecting the sublicense.

 

vi.                Kala’s Ownership Interest.  For the avoidance of doubt, the terms of this Agreement do not in any way affect Kala’s ownership interest in each of the Kala/JHU Jointly Owned Patent Rights.

 

e.               Government Rights.  All exclusive rights granted to a Party hereunder are subject to rights retained by the United States Government, if any, in accordance with the Bayh-Dole Act of 1980 (established by P.L. 96-517 and amended by P.L. 98-620, codified at 35 USC § 200 et. seq. and implemented according to 37 CFR Part 401) (the “Bayh-Dole Act”), and subject to the retained right of JHU to make, have made, provide and use for its and The Johns Hopkins Health Systems’ non-commercial academic research and teaching purposes Licensed Products and Licensed Services, including the ability to distribute any biological material disclosed and/or claimed in any of the JHU Patent Rights and Kala/JHU Jointly Owned Patent Rights licensed or sublicensed hereunder for nonprofit non-commercial academic research use to non-commercial entities as is customary in the scientific community.

 

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f.                Amendment to Know-how Grants.

 

i.                       The GrayBug/JHU Agreement shall be amended by revising Paragraph 2.1(ii) by revising “provided that JHU will not grant a license to KNOW HOW AND MATERIALS to any other commercial entity” to read “provided that JHU will not grant a license to KNOW HOW AND MATERIALS to any commercial entity, other than Kala Pharmaceuticals, Inc. (its successors and assigns) (“Kala”) and any entity which controls, is controlled by or is under common control with Kala (where “control” means the direct or indirect ownership of at least fifty percent (50%)), without Company’s prior written approval; provided, however, that(i) JHU shall be free to transfer KNOW HOW AND MATERIALS to commercial entities for such entities’ non-commercial research purposes, and, (ii) nothing in this Paragraph shall prevent JHU from performing sponsored research using KNOW HOW AND MATERIALS for a commercial entity”.  For the purpose of clarification, KNOW HOW AND MATERIALS is limited to materials, information, records and data licensed to GrayBug under the GrayBug/JHU 
Agreement prior to the Settlement Agreement Effective Date.

 

ii.                    The Kala/JHU Agreement shall be amended by revising Paragraph 2.1(ii) by revising “provided that JHU will not grant a license to KNOW HOW AND MATERIALS to any other commercial entity” to read “provided that JHU will not grant a license to KNOW HOW AND MATERIALS to any commercial entity, other than GrayBug, LLC (its successors and assigns) (“GrayBug”) and any entity which controls, is controlled by or is under common control with GrayBug (where “control” means the direct or indirect ownership of at least fifty percent (50%)), without Company’s prior written approval; provided, however(i) JHU shall be free to transfer KNOW HOW AND MATERIALS to commercial entities for such entities’ non-commercial research purposes, and, (ii) nothing in this Paragraph shall prevent JHU from performing sponsored research using KNOW HOW AND MATERIALS for a commercial entity”.  For the purpose of clarification, KNOW HOW AND MATERIALS is limited to materials, information, records and data licensed to Kala under the Kala/JHU  Agreement prior to the Settlement Agreement Effective Date.

 

g.               Covenant.  On a Patent Right-by-Patent Right and country-by-country basis, Kala agrees that (i) it shall not exercise the applicable license or sublicense granted to it in the Kala Field of Use under JHU’s interest in the GrayBug Current Patent Rights, Kala Current Patent Rights, Other JHU Patent Rights, Kala/JHU Jointly Owned Patent Rights or Future Patent Rights where the use involves a Particle comprising or consisting of [**], and (ii) with respect to any Kala/JHU Jointly Owned Patent Right, Kala shall not, prior to the termination of the license granted to Kala under JHU’s interest in such Kala/JHU Jointly

 

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Owned Patent Right, exploit its rights under its ownership interest in such Kala/JHU Jointly Owned Patent Right to develop and commercialize a product in the Kala Field of Use where the Particle therein comprises or consists of [**].

 

3.                                      Prosecution and Enforcement.

 

a.              Prosecution and Maintenance

 

i.                       Except as set forth in this Section 3, (i) Co-Licensed Other JHU Patent Rights and Future Co-Licensed Patent Rights shall be treated as if they were “PATENT RIGHTS” as defined in each Existing JHU License Agreement for purposes of determining JHU’s and each Party’s respective rights and obligations with respect to the Prosecution and Maintenance thereof, and, following the termination of one Party’s rights in its Exclusive Field with respect to any Co-Licensed Other JHU Patent Rights or Future Co-Licensed Patent Rights, such Patent Rights shall be treated as if they were “PATENT RIGHTS” as defined in the other Party’s Existing JHU License Agreement for purposes of determining JHU’s and such other Party’s respective rights and obligations with respect to the Prosecution and Maintenance thereof, (ii), for clarity, JHU shall continue to have the primary responsibility for Prosecution and Maintenance of, (A) in accordance with the GrayBug/JHU Agreement, the GrayBug Current Patent Rights, the GrayBug-Licensed Other Patent Rights, any Transferred Patent Rights that are transferred to GrayBug and any GrayBug-Licensed Future Patent Rights, and (B) in accordance with the Kala/JHU Agreement, the Kala Current Patent Rights, the Kala-Licensed Other Patent Rights, any Transferred Patent Rights that are transferred to Kala and any Kala-Licensed Future Patent Rights, and (iii) Kala shall continue to have the primary responsibility for Prosecution and Maintenance of the Kala/JHU Jointly Owned Patent Rights in accordance with the Kala/JHU Agreement; provided, however, that:

 

1.              GrayBug shall have the primary interactions with JHU (as defined below) regarding Prosecution and Maintenance of the GrayBug Current Patent Rights in accordance with the GrayBug/JHU Agreement; provided, however, that JHU or GrayBug, as applicable, shall timely copy Kala on all correspondence that JHU or GrayBug, respectively, receives from or files with any patent office regarding the GrayBug Current Patent Rights and Kala may provide comments for consideration by JHU and GrayBug with respect thereto.

 

2.              Kala shall have the primary interactions with JHU (as defined below) regarding Prosecution and Maintenance of the Kala Current Patent Rights in accordance with the Kala/JHU Agreement; provided, however,

 

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that JHU or Kala, as applicable, shall timely copy GrayBug on all correspondence that JHU or Kala, respectively, receives from or files with any patent office regarding the Kala Current Patent Rights and GrayBug may provide comments for consideration by JHU and Kala with respect thereto.

 

3.              With regard to Prosecution and Maintenance of the Kala/JHU Jointly Owned Patent Rights, Kala shall timely copy JHU and GrayBug on all correspondence that Kala receives from or files with any patent office regarding the Kala/JHU Jointly Owned Patent Rights, and GrayBug and JHU may provide comments for consideration by Kala with respect thereto.

 

4.              As used in this Section 3(a), “primary interaction with JHU” means that, to the extent that JHU receives conflicting input from each Party with respect to the relevant Current Patent Rights, JHU shall notify both Parties of such conflicting input but, unless the Parties subsequently agree with respect to their input to JHU, JHU shall weigh more heavily the input of the Party directly licensed by JHU under such Current Patent Rights.

 

5.              JHU will select patent counsel (the “JHU Patent Counsel”) responsible for the Prosecution and Maintenance of the JHU Patent Rights that is acceptable to JHU and both Parties.  Kala will select patent counsel (the “Other Patent Counsel”) responsible for Prosecution and Maintenance of the Kala/JHU Jointly Owned Patent Rights that is acceptable to JHU and both Parties.  For the avoidance of doubt, this Agreement does not require JHU or Kala, respectively, to change any current JHU Patent Counsel or Other Patent Counsel.

 

6.              If JHU or GrayBug elects not to have a patent application filed in any particular country or not to Prosecute and Maintain (or pay expenses associated with Prosecuting or Maintaining) any GrayBug Current Patent Right or claims therein and the other such party (GrayBug or JHU) does not, pursuant to its rights under the GrayBug/JHU Agreement, require such patent application to be filed, Prosecuted and Maintained or such expenses to be paid, then (A) JHU or GrayBug, respectively, shall within [**] Business Days provide written notice thereof to GrayBug or JHU, as the case may be, and to Kala, (B) such Patent Right shall thereafter no longer be licensed by JHU to GrayBug and shall thereafter no longer be considered a GrayBug Current Patent Right hereunder, (C) Kala may elect (by written notice sent to JHU within [**] Business Days after

 

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receipt of the notice in clause (A)) to include such Patent Right as a “PATENT RIGHT” under the Kala/JHU Agreement, to be exclusively licensed to Kala in all fields, in which case such Patent Right shall not be licensed or sublicensed to GrayBug, with any sublicenses granted by GrayBug subject to Section 2(a)(v).

 

7.              If JHU or Kala elects not to have a patent application filed in any particular country or not to Prosecute and Maintain (or pay expenses associated with Prosecuting and Maintaining) any Kala Current Patent Right or claims therein and the other such party (Kala or JHU) does not, pursuant to its rights under the Kala/JHU Agreement, require such patent application to be filed, Prosecuted and Maintained or such expenses to be paid, then (A) JHU or Kala, respectively, shall within [**] Business Days provide notice thereof to Kala or JHU, as the case may be, and to GrayBug, (B) such Patent Right shall thereafter no longer be licensed by JHU to Kala and shall thereafter no longer be considered a Kala Current Patent Right hereunder, (C) GrayBug may elect (by written notice sent to JHU within [**] Business Days after receipt of the notice in clause (A)) to include such Patent Right as a “PATENT RIGHT” under the GrayBug /JHU Agreement, to be exclusively licensed to GrayBug in all fields, in which case such Patent Right shall not be licensed or sublicensed to Kala, with any sublicenses granted by Kala subject to Section 2(a)(v).

 

ii.                    At least [**], one representative from each Party and JHU shall meet (in person or by tele-conference or video-conference) along with the JHU Patent Counsel to discuss the status, strategy, and any other relevant matters with respect to the Prosecution and Maintenance of the JHU Patent Rights in which both Parties retain a license or sublicense, provided that at least [**] shall be in person.  Each Party and JHU may replace its representative at any time upon written notice to the other Party(ies) and JHU, as applicable.

 

iii.                 To the extent possible and legally permissible during Prosecution and Maintenance of JHU Patent Rights, at the request of either GrayBug or Kala, patent claims shall be split out in separate applications to facilitate each Party’s separate commercial purposes.

 

iv.                JHU shall give reasonable consideration to any comment, suggestion, recommendation or other request (a “Request”) of each Party regarding the Prosecution and Maintenance of the Co-Licensed Other JHU Patent Rights and Future Co-Licensed Patent Rights; provided that such Request is received by JHU in a reasonably sufficient time before the applicable filing date to consider such

 

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Request.  For Requests under this subsection, Kala and GrayBug shall work together to coordinate and compile their respective Requests into a joint Request (each a “Joint Request”), and for each Co-Licensed Other JHU Patent Right and Future Co-Licensed Patent Right, will designate which Party shall take the lead on conveying the Parties’ Joint Request to JHU.  If the Parties are unable to agree on a Joint Request for a matter, then the Parties shall jointly contact JHU to discuss their respective positions and JHU will in its sole discretion decide what to advise the JHU Patent Counsel with regard to that matter.  For administrative purposes only, a “lead” Party will be nominated to coordinate the Parties’ Joint Request for each Co-Licensed Other JHU Patent Right and Future Co-Licensed Patent Right, with the initial nominations decided at the first Prosecution and Maintenance meeting between the Parties after the Settlement Agreement Effective Date, and revised as necessary or appropriate at future meetings.

 

v.                   With respect to Co-Licensed Other JHU Patent Right and the Future Co-Licensed Patent Rights, each Party (i.e., Kala and GrayBug) shall be responsible for [**]percent ([**]%) of JHU’s costs (subject to clause (viii) below) incurred in the Prosecution and Maintenance thereof, and each Party shall reimburse JHU for such amount in accordance with the timelines and processes set forth in the Party’s Existing JHU License Agreement, including for such patent costs with respect to such Patent Rights incurred prior to execution of this Agreement.  From the point in time at which Other JHU Patent Rights or Future Co-Licensed Patent Rights are exclusively licensed to only one Party hereunder, such Party alone shall be solely responsible for JHU’s costs incurred thereafter in the Prosecution and Maintenance of such Other JHU Patent Rights and Future Co-Licensed Patent Rights, in accordance with such Party’s Existing JHU License Agreement.  In the event a Party or a Third Party(ies) licenses from JHU any rights in the Remaining Field under the Co-Licensed Other JHU Patent Right, the patent costs incurred by JHU with respect to the Prosecution and Maintenance of such Patent Right, whether prior to or after the granting of such license to such Third Party(ies), shall be prorated amongst Kala, GrayBug, and such Third Party(ies), and the relevant Party ((the “Remaining Field Party”) if one Party, but not both Parties, have been granted a license by JHU in the Remaining Field), based on the total number of licensees (counting such Remaining Field Party twice (once for its right in its Exclusive Field and once for its right in the Remaining Field) under such Patent Right and JHU shall refund to Kala and GrayBug the relevant amount received from such Third Party(ies) or such Remaining Field Party, as applicable.

 

vi.                The Parties and JHU each acknowledge the duties set forth in 37 C.F.R. § 1.56.

 

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vii.             The Parties and JHU each acknowledge that patents falling within Patent Rights sublicensed or co-licensed under this Agreement may be eligible for patent term extension under 35 U.S.C. § 156, applications for which must be submitted by the owner of record or their agent.  If a Party obtains approval of a New Drug Application (“NDA”) from the U.S. Food and Drug Administration (“FDA”) for a product and believes a patent falling within Patent Rights hereunder may be eligible for patent term extension, it shall notify JHU and the other Party, and JHU and the NDA-holding Party shall cooperate in connection with preparing and timely filing an application for patent term extension.

 

viii.          Notwithstanding anything to the contrary herein, a Party which has received, directly or indirectly, only non-exclusive rights in such Party’s Exclusive Field under a Future Patent Right in a country shall be responsible for [**]  percent ([**]%) of the Prosecution and Maintenance costs such Party would otherwise be responsible for with respect to such Future Patent Right in such country; provided, however, that, in the event a Party or a Third Party(ies) licenses from JHU any rights in such Future Patent Right, the patent costs incurred by JHU with respect to the Prosecution and Maintenance of such Patent Right, whether prior to or after the granting of such license to such Party or Third Party(ies), shall be prorated amongst each Party with a license from JHU under such Future Patent Right and such Third Party(ies).

 

b.              Enforcement.

 

i.                       Orange Book Listings & Hatch Waxman Litigation.

 

1.              The Parties acknowledge that the owner of an NDA has a non-delegable duty to determine which patents should be listed in the U.S. FDA “Approved Drug Products with Therapeutic Equivalence Evaluations” (sometimes referred to as the “Orange Book”) and any foreign counterparts which require such, including the so-called “Patent Register” listings required in Canada.  Prior to such listings and acts, the Parties will meet to evaluate and identify whether any patents falling within Patent Rights sublicensed or co-licensed to the non-NDA holding Party under this Agreement should be included, and the NDA-holding Party shall reach its own decision regarding which patents within such Patent Rights to list in the Orange Book or any foreign counterpart.

 

2.              If an NDA-holding Party lists in the Orange Book or foreign counterpart a patent also licensed to the non-NDA holding Party, it shall give the non-NDA holding Party written notice within [**] Business Days.

 

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3.              If the NDA-holding Party receives written notice from a generic company under 21 U.S.C. 355(j)(2)(A)(vii)(IV) (a “Paragraph IV Certification”) that it has filed an Abbreviated New Drug Application to sell a product covered by the NDA, and has certified that a patent listed in the Orange Book that falls within Patent Rights sublicensed or co-licensed to the non-NDA holding Party under this Agreement is either not infringed, invalid, or not enforceable, the NDA-holding Party shall give written notice to the non-NDA holding Party within [**] Business Days, with a copy of the Paragraph IV Certification. The Parties acknowledge that time is of the essence in such matter given the statutory requirement that an NDA-holding Party bring a lawsuit within [**] days of receiving the Paragraph IV Certification.

 

4.              The NDA-holding Party shall promptly discuss with JHU and the non-NDA-holding Party the advisability of filing a lawsuit against the generic company under 21 U.S.C. § 355 (the “Hatch Waxman Act”). If GrayBug is the NDA-holding Party and the Patent Right challenged is a GrayBug Current Patent Right, then GrayBug shall control the litigation, and if it chooses not to litigate, then JHU shall have the secondary right of litigation. If Kala is the NDA-holding Party and the Patent Right challenged is a Kala Current Patent Right or a Kala/JHU Joint Patent Right, then Kala shall control the litigation, and if it chooses not to litigate, then JHU shall have the secondary right of litigation. If GrayBug or Kala is the NDA-holding Party and the Patent Right challenged is a Co-Licensed Other JHU Patent Right or a Future Co-Licensed Patent Right, then GrayBug and Kala shall meet to discuss terms under which the litigation shall take place, which terms shall include that the NDA-holding Party shall pay the cost of the litigation, the Non-NDA holding Party shall have the right of close communication and review of filed litigation documents (except to the extent marked highly business confidential), participation in (but not control over) litigation strategy, and if the NDA-holding Party receives an adverse judgment of invalidity from a court of final jurisdiction, the NDA-holding Party shall compensate the non-NDA-holding Party for all fees and costs it has invested in the litigated patent historically as well as its litigation attorney’s fees.

 

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ii.                    Current Patent Rights (Other Than Hatch Waxman).

 

1.              Each Party and JHU will notify the other Party(ies) and JHU, as applicable, promptly in writing when any infringement of any Current Patent Right by a Third Party is uncovered or suspected.

 

2.              Except as otherwise provided in Section 3(b)(i), with respect to an actual or suspected infringement of a Current Patent Right in the Exclusive Field of the Party directly licensed by JHU under such Current Patent Right, the Party directly licensed by JHU under such Current Patent Right shall have the sole right, at its own expense, to institute and control suit against any Third Party with respect to such infringement and recover any damages, awards or settlements resulting therefrom (subject to any obligations to JHU with respect to such amounts pursuant to the applicable Existing JHU License Agreement).  Such Party (or JHU, as applicable) shall keep the other Party and JHU reasonably informed of the status of any such enforcement action.   Such other Party and JHU shall reasonably cooperate in any such litigation at the enforcing Party’s request and expense.  If required by applicable law, the other Party and JHU shall permit action under this Section 3(b)(ii) to be brought in its name, including being joined as party-plaintiff.  To the extent permitted by applicable law, the other Party or JHU may join such suit at its own expense.  No settlement, consent judgment or other voluntary final disposition of such suit that concedes the invalidity or unenforceability of any patent within Current Patent Rights may be entered into without the prior written consent of JHU, which consent shall not be unreasonably withheld.

 

3.              With respect to an actual or suspected infringement of a Current Patent Right in the Exclusive Field of the Party sublicensed under such Current Patent Right, if such sublicensed Party desires to enforce such Current Patent Right against such infringement, such sublicensed Party shall send a written request for such enforcement right to the other Party and the Parties shall discuss in good faith the terms under which such sublicensed Party may enforce such Current Patent Right, including the allocation between the Parties of any damages, awards or settlements resulting therefrom (subject to any obligations to JHU with respect to such amounts pursuant to the applicable Existing JHU License Agreement).  If the Parties agree on such enforcement terms, such terms shall be documented in writing and the Parties and JHU shall be bound thereby.  If the Parties do not, within a reasonable period of time, agree on such enforcement terms, the Parties shall discuss such enforcement with JHU and any such enforcement action shall be

 

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determined in the sole discretion of JHU, such determination to include a fair and reasonable allocation between the Parties of any damages, awards or settlements resulting therefrom, after taking into consideration litigation expenses and costs.

 

iii.                 Kala/JHU Joint Patent Rights (Other Than Hatch Waxman).

 

1.              Each Party and JHU will notify the other Party(ies) and JHU, as applicable, promptly in writing when any infringement of any Kala/JHU Jointly Owned Patent Right by a Third Party is uncovered or suspected.

 

2.              Except as otherwise provided in Section 3(b)(i), with respect to any actual or suspected infringement of a Kala/JHU Jointly Owned Patent Right, Kala shall have the sole right, at its own expense, to institute and control suit against any Third Party with respect to such infringement and recover any damages, awards or settlements resulting therefrom (subject to any obligations to JHU with respect to such amounts pursuant to the applicable Existing JHU License Agreement).  Kala shall keep GrayBug and JHU reasonably informed of the status of any such enforcement action.   GrayBug and JHU shall reasonably cooperate in any such litigation at Kala’s request and expense.  If required by applicable law, GrayBug and JHU shall permit action under this Section 3(b)(iii)(2) to be brought in its name, including being joined as party-plaintiff.  To the extent permitted by applicable law, GrayBug or JHU may join such suit at its own expense.  No settlement, consent judgment or other voluntary final disposition of such suit that concedes the invalidity or unenforceability of any patent within Kala/JHU Jointly Owned Patent Rights may be entered into without the prior written consent of JHU, which consent shall not be unreasonably withheld.

 

3.              With respect to an actual or suspected infringement of a Kala/JHU Jointly Owned Patent Right in the GrayBug Field of Use, if GrayBug desires to enforce such Kala/JHU Jointly Owned Patent Right against such infringement, GrayBug shall send a written request for such enforcement right to Kala and the Parties shall discuss in good faith the terms under which GrayBug may enforce such Kala/JHU Jointly Owned Patent Right, including the allocation between the Parties of any damages, awards or settlements resulting therefrom (subject to any obligations to JHU with respect to such amounts pursuant to Kala’s Existing JHU License Agreement).  If the Parties agree on such enforcement terms, such terms shall be documented in writing and the Parties and JHU shall be bound thereby.  If the Parties do not, within a

 

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reasonable period of time, agree on such enforcement terms, the Parties shall discuss such enforcement with JHU and any such enforcement action shall be determined by Kala and JHU, such determination to include a fair and reasonable allocation between the Parties of any damages, awards or settlements resulting therefrom, after taking into consideration litigation expenses and costs.

 

iv.                Co-Licensed Patent Rights (Other Than Hatch Waxman).

 

1.              Each Party and JHU will notify the other Party(ies) and JHU, as applicable, promptly in writing when any infringement of any Co-Licensed Other JHU Patent Right or Future Co-Licensed Patent Right (each, a “Co-Licensed Patent Right”) by a Third Party is uncovered or suspected.

 

2.              Except as otherwise provided in Section 3(b)(i), with respect to an actual or suspected infringement of a Co-Licensed Patent Right, the Parties shall discuss in good faith whether enforcement of such Co-Licensed Patent Right is appropriate and the terms under which a Party(ies) may enforce such Co-Licensed Patent Right, including the allocation between the Parties of any damages, awards or settlements resulting therefrom (subject to any obligations to JHU with respect to such amounts pursuant to the applicable Existing JHU License Agreement).  If the Parties agree on such enforcement terms, such terms shall be documented in writing and the Parties and JHU shall be bound thereby.  If the Parties do not, within a reasonable period of time, agree on such enforcement terms, the Parties shall discuss such enforcement with JHU and any such enforcement action shall be determined in the sole discretion of JHU, such determination to include a fair and reasonable allocation between the Parties of any damages, awards or settlements resulting therefrom, after taking into consideration litigation expenses and costs.

 

c.               Parallel Imports.  For so long as a Party retains a license or sublicense to a Patent Right in one country but no longer has a license or sublicense of a related Patent Right in another country, the other Party covenants not to assert against the Party related Patent Rights in other countries for parallel imports into such other countries of otherwise infringing products sold by or on behalf of the Party in the Party’s Exclusive Field.

 

d.              Declaratory Judgment.  If a declaratory judgment action is brought naming a Party or JHU as a defendant and alleging invalidity of any of the JHU Patent Rights, the provisions

 

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of the relevant Existing JHU License Agreement(s) shall apply, unless the action or claim arises in connection with a litigation under 21 U.S.C. § 355, the Hatch Waxman Act, or similar United States or foreign statutory provisions, in which case, Section 3(b)(i) shall apply.

 

4.                                      Financial Terms.

 

a.              Kala and GrayBug acknowledge that the cross-licenses and releases provided in this Agreement constitute full consideration for the Agreement.  Neither Kala nor GrayBug shall owe the other any royalties, milestone payments, or other payments with respect to the sublicenses granted to the other Party hereunder.

 

b.              JHU agrees that neither Party shall be responsible for paying to JHU any sublicense fees or other payments on Exhibit A of such Party’s Existing JHU License Agreement (including milestone payments and royalties) that may otherwise have arisen under such Existing JHU License Agreement as a result of such Party’s granting to the other Party any sublicenses under this Agreement (or such sublicensed Party granting any further sublicenses), or, with respect to any of the Kala/JHU Jointly Owned Patent Rights, Kala’s granting to GrayBug any licenses under this Agreement under Kala’s ownership interest in such Kala/JHU Jointly Owned Patent Rights (or GrayBug granting any sublicenses).  For the avoidance of doubt, Kala and GrayBug shall each remain responsible to JHU for sublicense fees and other payments for any other sublicenses it grants under its Existing JHU License Agreements.

 

c.               Each Party acknowledges that, except as otherwise expressly set forth in this Agreement, any JHU Patent Rights sublicensed to such Party by the other Party pursuant to this Agreement shall be treated as if they were “PATENT RIGHTS” (as defined in the sublicensed Party’s Existing JHU License Agreement) for purposes of payment obligations, including patent payments, and the royalty, sublicense income and milestone payments owed by such sublicensed Party to JHU under items 3, 4 and 5 of Exhibit A of such sublicensed Party’s Existing JHU License Agreement; however, all such payments shall be subject to Section 4(d), below.

 

d.              JHU agrees that the milestones and minimum annual royalties (items 2 and 5 of Exhibit A) of each Existing JHU License Agreement are hereby amended such that all payments due to JHU thereunder during the term of this Agreement are reduced by twenty-five percent (25%).  Furthermore, the following additional changes to the financial terms in each Existing JHU License Agreement shall apply (all other financial terms, such as running royalty, sublicensing consideration, and patent costs, shall be unaffected except as otherwise expressly provided herein):

 

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i.                       minimum annual royalties which would otherwise be due to JHU at any time between the Settlement Agreement Effective Date and the [**] anniversary of the Settlement Agreement Effective Date are hereby eliminated, and, thereafter, if, at the time the minimum annual royalties are due to JHU, the only Patent Rights owned (in whole or in part) by JHU licensed to the paying Party are those with respect to which JHU’s rights in such Patent Right are only non-exclusively licensed to such Party in its Exclusive Field or those which are jointly owned by such Party and JHU, then such minimum annual royalty payment shall be reduced by [**] percent ([**]%);

 

ii.                    the development milestones in Section 5 of Exhibit A (e.g., those milestones which do not relate to first commercial sale) under such agreement shall not apply to the second and third  “LICENSED PRODUCT(S)” (as defined in such agreement) to achieve such milestone, but the payments (after the application of the [**] percent ([**]%) reduction described above) applicable to the first “LICENSED PRODUCT” to achieve any such milestone shall apply, and the due date of payment for such milestone is extended [**] months from the due date set forth in the applicable Existing JHU License Agreement as of the Settlement Agreement Effective Date; provided, however, that, if, during such [**] month period, the relevant Party terminates the development of such first “LICENSED PRODUCT” which achieved such milestone, such milestone payment shall not be due unless such terminated development is reinitiated after the extended twelve months, under which circumstance the payment shall be reduced by [**]%) percent and due [**] months after reinitiation;

 

iii.                 with respect to each “LICENSED PRODUCT”, the milestone payments with respect to first commercial sale of such “LICENSED PRODUCT” in the United States shall be reduced by an additional [**] percent ([**]%), for a total reduction of [**] percent ([**]%) from the rates set forth in the applicable Existing JHU License Agreement prior to the Settlement Agreement Effective Date;

 

iv.                if the only “VALID CLAIMS” (as defined in such agreement) owned (in whole or in part) by JHU that cover the relevant “LICENSED PRODUCT” or “LICENSED SERVICE” (as defined in such agreement) are those with respect to which JHU’s rights are only non-exclusively licensed to such Party or those which are jointly owned by such Party and JHU, then the milestone payments (including any development and first commercial sale milestone payments) and royalties due to JHU with respect to such “LICENSED PRODUCT” or “LICENSED SERVICE” shall be further reduced by [**] percent ([**]%), provided that by no operation(s)

 

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(except Section 4(d)(ii) above) shall the payments to JHU be reduced by more than [**] percent ([**]%);

 

v.                   if a payment of “SUBLICENSE CONSIDERATION” (as defined in such agreement) is received by a Party only as a result of a Patent Right owned (in whole or in part) by JHU with respect to which JHU’s rights are only non-exclusively licensed to such Party or which Patent Right is jointly owned by such Party and JHU, then the percentage of such “SUBLICENSE CONSIDERATION” due to JHU shall be further reduced by [**] percent ([**]%), provided that by no operation(s) shall such payments to JHU fall below [**] percent ([**]%);

 

vi.                the following sales-based milestones shall be added to Exhibit A, as a new Section 6, of each Existing JHU License Agreement, with the terms which are included but not defined below having the meaning set forth in such Existing JHU License Agreement:

 

“6.                             Sales-Based Milestones:  In addition to the milestones payable under item 5 of this Exhibit A, Company shall pay the following sales-based milestones:

 

i.                                          with respect to the second LICENSED PRODUCT (other than the first LICENSED PRODUCT for which (y) the Company achieves NET SALES of at least [**] dollars ($[**]) in a calendar year or (y) a SUBLICENSEE achieves royalty income from sales of such LICENSED PRODUCT and Company has received some form of consideration from such SUBLICENSEE (the “First Sold Licensed Product”)) for which (A) the Company achieves NET SALES of at least [**] dollars ($[**]) in a calendar year or (B) a SUBLICENSEE achieves royalty income from sales of such LICENSED PRODUCT and Company has received some form of consideration from such SUBLICENSEE (the “Second Sold Licensed Product”), Company shall pay JHU as follows:

 

1.                                      if the event in clause (A) occurs before the event in clause (B):  JHU shall be owed an amount equal to the sum of [**] dollars ($[**]), plus the amount by which, pursuant to  Section 4(d)(ii) of the Settlement and License Agreement entered into as of October 24, 2014, by and between GrayBug, LLC, Kala Pharmaceuticals, Inc. and The Johns Hopkins University (the “Settlement Agreement”), each of the development milestones in Section 5 of this Exhibit A for the second “LICENSED PRODUCT” to achieve such milestone was reduced, plus the amount by which, pursuant to Section 4(d)(iii) of the Settlement Agreement, the milestone payment with respect to first commercial sale of the second “LICENSED PRODUCT” in the United States was reduced (such sum, the “First Deferral Reimbursement Amount”); [**]

 

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of such amount to be paid to JHU by [**] after which the Company obtained such NET SALES, and the remainder due by [**]; or

 

2.                                      if the event in clause (B) occurs before the event in clause (A):  JHU shall be owed an amount equal to the First Deferral Reimbursement Amount, which shall be paid by increasing the applicable sublicensee royalty rates set forth in Section 4 of Exhibit A (as modified by the Settlement Agreement)  due to JHU with respect to sales of the Second Sold Licensed Product by [**]%, until the full amount of such First Deferral Reimbursement Amount has been paid to JHU.

 

ii.                                       with respect to the third LICENSED PRODUCT (other than the First Sold Licensed Product and the Second Sold Licensed Product) for which (A) the Company achieves NET SALES of at least [**] dollars ($[**]) in a calendar year or (B) a SUBLICENSEE achieves royalty income from sales of such LICENSED PRODUCT and Company has received some form of consideration from such SUBLICENSEE (the “Third Sold Licensed Product”), Company shall pay JHU as follows:

 

1.                                      if the event in clause (A) occurs before the event in clause (B):  JHU shall be owed an amount equal to [**] dollars ($[**]), plus the amount by which, pursuant to  Section 4(d)(ii) of the Settlement Agreement, each of the development milestones in Section 5 of this Exhibit A for the third “LICENSED PRODUCT” to achieve such milestone was reduced, plus the amount by which, pursuant to Section 4(d)(iii) of the Settlement Agreement, the milestone payment with respect to first commercial sale of the third “LICENSED PRODUCT” in the United States was reduced (such sum, the “Second Deferral Reimbursement Amount”); [**] of such amount to be paid to JHU by [**] after which the Company obtained such NET SALES, and the remainder due by [**]; or

 

2.                                      if the event in clause (B) occurs before the event in clause (A):  JHU shall be owed an amount equal to the Second Deferral Reimbursement Amount, which shall be paid by increasing the applicable sublicensee royalty rates set forth in Section 4 of Exhibit A of (as modified by the Settlement Agreement) due to JHU with respect to sales of the Third Sold Licensed Product by [**]%, until the full amount of such Second Deferral Reimbursement Amount has been paid to JHU.

 

iii.                                    The parties agree and acknowledge that (i) the Second Sold Licensed Product may be a different LICENSED PRODUCT than the LICENSED PRODUCT to

 

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be second to achieve one or more of the milestones described in Section 4(d)(ii) or 4(d)(iii) of the Settlement Agreement, and (ii) the Third Sold Licensed Product may be a different LICENSED PRODUCT than the LICENSED PRODUCT to be third to achieve one or more of the milestones described in Section 4(d)(ii) or 4(d)(iii) of the Settlement Agreement, and (iii) the First Sold Licensed Product may be a different LICENSED PRODUCT than the LICENSED PRODUCT to be first to achieve one or more of the milestones described in Section 4(d)(ii) or 4(d)(iii) of the Settlement Agreement.

 

5.                                      Releases.

 

a.              Each Party, on behalf of itself and its predecessors, successors, assigns, employees, officers and directors (each, a, “Releasor”), fully, finally and forever releases, relinquishes, acquits and discharges the other Party and each of its predecessors, successors, assigns, employees, officers and directors (each, a “Releasee”), of and from, and covenants not to sue, not to assign to any other Person a right to sue and not to authorize any other Person to sue any Releasee for, any and all Losses of every name and nature, both at law and in equity, accrued or unaccrued, that (i) any of such Party’s Releasors is aware of as of the Settlement Agreement Effective Date, (ii) arise out of the actions of the Parties or JHU leading to the execution of this Agreement and (iii) relate to the subject matter hereof.  This Section 5(a) shall not prevent or impair the right of a Releasor to bring a proceeding in court or any other forum to enforce its rights under this Agreement or its Existing JHU License Agreement (except as explicitly or implicitly amended by this Agreement).

 

b.              Each Party (on behalf of itself and its other Releasors) fully, finally and forever releases, relinquishes, acquits and discharges JHU, The Johns Hopkins Hospital, The Johns Hopkins Health System Corporation, and their affiliated entities, their present and former trustees, officers, INVENTORS (as defined in such Party’s Existing JHU License Agreement), agents, faculty, employees and students (each, a “JHU Releasee”) of and from, and covenants not to sue, not to assign to any other Person a right to sue and not to authorize any other Person to sue any JHU Releasee for, any and all Losses of every name and nature, both at law and in equity, accrued or unaccrued, that (i) any of such Releasors is aware of as of the Settlement Agreement Effective Date, (ii) arise out of the actions of the Parties or JHU Releasees leading to the execution of this Agreement and (iii) relate to the subject matter hereof.  This Section 5(b) shall not prevent or impair the right of a Releasor to bring a proceeding in court or any other forum to enforce its rights under this Agreement or its Existing JHU License Agreement (except as explicitly or implicitly amended by this Agreement).

 

c.               Each Party and JHU acknowledges that the releases and other terms of this Agreement settle all known disputes as of the Settlement Agreement Effective Date relating to

 

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subject matter licensed to a Party from JHU, and after the Settlement Agreement Effective Date, neither Party nor JHU may assert a claim that the other Party or JHU, or their respective predecessors, successors, assigns, directors, officers, employees, trustees, INVENTORS (as defined in each Party’s Existing JHU License Agreement), faculty, students or agents released hereunder is in violation of any Existing JHU License Agreement in connection with such acts or omissions prior to the Settlement Agreement Effective Date.

 

6.                                      Representations and Warranties.

 

a.              Each Party represents, warrants and covenants to the other Party that:

 

i.                       as of the Settlement Agreement Effective Date, it has the authority and right to enter into and perform this Agreement and grant the rights and licenses herein, and it is not aware of any legal impediment that could inhibit its ability to perform its obligations under this Agreement;

 

ii.                    as of the Settlement Agreement Effective Date, its execution, delivery and performance of this Agreement does not conflict with, or constitute a breach of, any order, judgment, agreement or instrument to which it is a party or is otherwise bound;

 

iii.                 as of the Settlement Agreement Effective Date, no consent of any third party (other than JHU) is required for such Party to grant the licenses and rights granted to the other Party under this Agreement or to perform its obligations hereunder; and

 

iv.                it will not, after the Settlement Agreement Effective Date, enter into any written or oral contractual obligation with any third party (including JHU) that would be inconsistent with the obligations that arise on its part out of this Agreement or that would deprive the other Party of the benefits of or rights granted under this Agreement.

 

b.              GrayBug represents, warrants and covenants to Kala that the GrayBug Current Patent Rights are all the Patent Rights licensed to GrayBug by JHU as of the Settlement Agreement Effective Date.  Kala represents, warrants and covenants to GrayBug that the Kala Current Patent Rights and the Kala/JHU Jointly Owned Patent Rights are all the Patent Rights licensed to Kala by JHU as of the Settlement Agreement Effective Date.

 

C.            EXCEPT AS EXPRESSLY SET FORTH IN THIS SECTION 6 OR AS EXPRESSLY PROVIDED BY JHU TO THE APPLICABLE PARTY UNDER AN EXISTING JHU LICENSE AGREEMENT, EACH PARTY AGREES THAT THE PATENT RIGHTS LICENSED HEREUNDER ARE PROVIDED “AS IS”, AND THAT NEITHER JHU NOR THE OTHER PARTY MAKES ANY REPRESENTATION OR

 

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WARRANTY WITH RESPECT TO THE PERFORMANCE OF LICENSED PRODUCTS AND LICENSED SERVICES, INCLUDING THEIR SAFETY, EFFECTIVENESS, OR COMMERCIAL VIABILITY.  EACH PARTY AND JHU DISCLAIM ALL WARRANTIES WITH REGARD TO PRODUCTS AND SERVICES LICENSED UNDER THIS AGREEMENT, INCLUDING ALL WARRANTIES, EXPRESSED OR IMPLIED, OF MERCHANTABILITY AND FITNESS FOR ANY PARTICULAR PURPOSE.

 

7.                                      Confidentiality.

 

a.              The Parties agree that during the term of this Agreement, and for a period of [**] years thereafter, each Party shall (i) maintain in confidence the Confidential Information of the other Party to the same extent such Party maintains its own confidential information, (ii) not disclose such Confidential Information to any Third Party without the prior written consent of the other Party, and (iii) not use such Confidential Information for any purpose except those permitted by this Agreement.

 

b.              Authorized Disclosure.  Notwithstanding Section 7(b), a Party may disclose Confidential Information of the other Party to the extent such disclosure is reasonably necessary in the following instances:

 

i.                       disclosure to each applicable country’s patent office to the extent necessary for the prosecution and maintenance of Patent Rights in accordance with this Agreement;

 

ii.                    making necessary filings with regulatory authorities with respect to Licensed Products or Licensed Services in the receiving Party’s Exclusive Field;

 

iii.                 complying with applicable laws or submitting information to governmental authorities; provided that if a Party is required by law to make any public disclosure of Confidential Information of the other Party, to the extent it may legally do so, it will give reasonable advance notice to the other Party of such disclosure and will use its reasonable efforts to secure confidential treatment of such Confidential Information prior to its disclosure (whether through protective orders or otherwise); or

 

iv.                to the extent mutually agreed to in writing by the Parties.

 

c.               Each Party may disclose the existence and terms of this Agreement to its Affiliates and to prospective and actual acquirers, licensors, collaborators, licensees, sublicensees, lenders, financing sources, investment bankers, employees, contractors, agents, accountants, lawyers, consultants, auditors, advisors and investors, on a need to know basis, each of whom prior to disclosure must be bound by written or professional ethical obligations of confidentiality and non-use equivalent in scope to those set forth in this

 

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Section 7 and that are of reasonable duration in view of the circumstances of the disclosure.

 

d.              JHU agrees that any JHU Confidential Information may be disclosed by a Party in accordance with this Section 7.

 

e.               Nothing herein grants JHU the right to disclose to a Party (i) the Existing JHU License Agreement of the other Party or (ii) any proprietary materials, information, records or data of the other Party.

 

f.                Nothing herein requires either Party to disclose or produce its Existing JHU License Agreement to the other Party.

 

g.               In no event shall this Section 7 (Confidentiality) limit JHU’s ability to disclose or publish its own Confidential Information.

 

8.                                      Indemnification.

 

a.              Each Party shall indemnify, hold harmless and defend the other Party, its Affiliates, and all of their respective officers, directors, employees, agents, licensors and shareholders (collectively, the “Indemnitees”) from and against any and all losses, damages, liabilities, judgments, fines, amounts paid in settlement, expenses and costs of defense (including reasonable attorneys’ fees and witness fees) resulting from any demand, claim, action or proceeding brought or initiated by a Third Party (each a “Third Party Claim”) against any Indemnitee to the extent arising out of (a) the research, development, making, having made, use, having used, importation, having imported, offering to sell, having offered for sale, sale and having sold Licensed Products, and the provision and having provided Licensed Services, by or on behalf of the Indemnifying Party, in the United States and worldwide, (b) a breach of this Agreement by such Party, or (c) the gross negligence or willful misconduct of such Party.

 

b.              As a condition to indemnification hereunder, (i) the indemnified Party shall provide the indemnifying Party with prompt notice of the Third Party Claim giving rise to the indemnification obligation under Section 8(a), (ii) the Indemnitees shall reasonably cooperate with the indemnifying Party, at the indemnifying Party’s reasonable request and reasonable expense with respect to out-of-pocket costs, in the defense of such claim, and (iii) the Indemnitees shall permit the indemnifying Party to exclusively defend or settle any such claim; provided however that the indemnifying Party shall not enter into any settlement for damages, or that imposes upon any Indemnitee any obligation or liability, without such Indemnitee’s prior written consent, such consent not to be unreasonably withheld, delayed or conditioned.  The Indemnitees shall have the right to participate, at its own expense and with counsel of its choice, in the defense of any claim or suit that has been assumed by the indemnifying Party.

 

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c.               Each Party shall indemnify JHU with respect to that Party’s research, development, making, having made, use, having used, importation, having imported, offering to sell, having offered for sale, sale and having sold Licensed Products in the indemnifying Party’s Exclusive Field, and the provision and having provided Licensed Services in the indemnifying Party’s Exclusive Field, in the United States and worldwide, in accordance with the indemnification procedures set forth in such Party’s Existing JHU License Agreement, mutatis mutandis.

 

9.                                      Termination.

 

a.              This Agreement shall remain in effect until the expiration of all JHU Patent Rights, Other JHU Patent Rights, Future Patent Rights and Kala/JHU Jointly Owned Patent Rights unless earlier terminated in accordance with this Section 9.

 

b.              If a Party (the “Disparaging Party”), or its employees, officers, directors, agents or representatives, Disparages a Current Patent Right or Kala/JHU Jointly Owned Patent Right directly licensed by JHU to the other Party (the “Disparaged Party”), then the Disparaged Party may, upon written notice to the Disparaging Party, immediately terminate one or more of its sublicenses granted to the Disparaging Party under this Agreement, including any further sublicenses granted by the Disparaging Party.  “Disparagement” (including, with correlative meanings, “Disparage”) means, with respect to a Patent Right, offensively opposing (including filing an opposition or declaration judgment action) or taking an independent action to attempt to invalidate, or formal steps prevent from issuing, such Patent Right, including by making written statements that such Patent Right is unpatentable; provided, however, that Disparagement shall not include any comments or arguments made by patent counsel for a Party before a patent office during the course of prosecution of any patent application owned by or licensed to such Party anywhere in the world.  Notwithstanding the foregoing, each Party shall have the right to defend itself, including in a litigation brought by the other Party, using any applicable position.  For example, if a Party sues the other Party for infringement, the purported infringer can defend itself with a position that the patentee’s asserted claim is invalid.

 

c.               Each Party may terminate any of the rights and licenses granted to it under this Agreement or under such Party’s Existing JHU License Agreement, on a Patent Right-by-Patent Right and country-by-country basis, by providing thirty (30) calendar days prior written notice thereof to the other Party and JHU, following which, but subject to Section 9(d), the terminating Party’s rights and obligations hereunder and under its Existing JHU License Agreement shall terminate with respect to such Patent Right in such country.  For clarity, termination of a Party’s rights and licenses under a Patent Right in a country shall not be deemed to have occurred merely because a particular

 

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patent application has been abandoned if such patent application continues to be Prosecuted and Maintained, or issues, through a Counterpart.

 

d.              Expiration or termination of this Agreement, or of any of the licenses under this Agreement, shall not relieve the Parties of any obligation accruing prior to such expiration or termination.   Termination of such licenses shall be in addition to, and shall not prejudice, the Parties’ remedies at law or in equity, including the Parties’ ability to receive legal damages or equitable relief with respect to any Disparagement.

 

e.               All remaining applicable provisions of this Agreement shall survive its expiration or termination.

 

10.                               Miscellaneous.

 

a.              Affirmative Amendment; Inconsistent Terms.  This Agreement affirmatively amends each Party’s Existing JHU License Agreement as necessary to reflect the terms of this Agreement.

 

b.              Assignment.  Neither this Agreement nor any right or obligation hereunder may be assigned or otherwise transferred by any Party without the consent of the other Party; provided, however, that any Party may, without such consent, assign this Agreement, in whole or in part: (a) to any of its Affiliates; provided that the assigning Party shall remain jointly and severally liable with such Affiliate(s) in respect of all obligations so assigned unless such Affiliate(s) are fully capable of fulfilling all the assigning Party’s obligations under this Agreement; or (b) to any successor in interest by way of merger, acquisition or sale of all or substantially all of its assets to which this Agreement relates.  Any assignment not in accordance with the foregoing shall be void.

 

c.               No Waivers; Severability.  No waiver of any breach of this Agreement shall constitute a waiver of any other breach of the same or other provision of this Agreement, and no waiver shall be effective unless made in writing.  Any provision hereof prohibited by or unenforceable under any applicable law of any jurisdiction shall as to such jurisdiction be deemed ineffective and deleted herefrom without affecting any other provision of this Agreement.  Should any provision contained herein be held by any governmental agency or court of competent jurisdiction to be void, illegal and unenforceable, the Parties shall negotiate in good faith for a substitute term or provision which carries out the original intent of the Parties.

 

d.              Entire Agreement; Amendment.  The Parties acknowledge that they have read this entire Agreement and that this Agreement constitutes the entire understanding and contract between the Parties with respect to the subject matter hereof and supersedes any and all prior or contemporaneous oral or written communications with respect to the subject matter hereof (including the Prior CDA).  It is expressly understood and

 

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agreed that there being no expectations to the contrary between the Parties, no usage of trade, verbal agreement or another regular practice or method of dealing within any industry or between the Parties shall be used to modify, interpret, supplement or alter in any manner the express terms of this Agreement.  This Agreement shall not be modified, amended or in any way altered except by an instrument in writing signed by both of the Parties and, with respect to any provision applicable to JHU’s rights, JHU.

 

e.               No Inconsistent Amendments.  Neither Party shall amend its Existing JHU License Agreement in a manner that is inconsistent with its or JHU’s obligations to the other Party under this Agreement.

 

f.                No Partnership.  Nothing in this Agreement shall be construed to create any agency, employment, partnership, joint venture or similar relationship between the Parties other than that of a licensor/licensee.  Neither Party shall have any right or authority whatsoever to incur any liability or obligation (express or implied) or otherwise act in any manner in the name or on the behalf of the other, or to make any promise, warranty or representation binding on the other.

 

g.               Governing Law.  This Agreement shall be construed, and legal relations between the parties hereto shall be determined, in accordance with the laws of the State of New York applicable to contracts solely executed and wholly to be performed within the State of New York without giving effect to the principles of conflicts of laws.

 

h.              Dispute Resolution.  Each Party will appoint one representative (each a “Representative”) to serve as the main point of contact for activities relating to this Agreement.   Neither Party will file suit against the other Party with respect to a dispute arising in connection with this Agreement except as permitted under this Section 10(h).  In the event that any dispute arises between the Parties in connection with this Agreement, the Parties will, upon written notice from either Party to the other Party (the “First Notice”), first attempt to resolve it through good faith negotiations among the Representatives.  If the Representatives fail to resolve the dispute within [**] days of the First Notice, then upon written notice from one Party to the other (the “Second Notice”), the Parties will escalate the dispute to their respective CEOs who will also attempt to resolve the dispute by good faith negotiations.  In the event the Parties are unable to resolve such dispute within [**] days of the Second Notice, either Party may, subject to Section 10(g), proceed to file suit regarding the dispute without further obligations under this Section 10(h) with respect to such dispute (including any claims and counterclaims which may be subsequently added or modified).  Notwithstanding the foregoing, a Party may at any time seek or obtain preliminary, interim, or conservatory measures from a court.

 

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i.                  Notice.  All notices or communication required or permitted to be given by either Party hereunder shall be deemed sufficiently given if sent by overnight courier providing evidence of delivery, such as Federal Express or United States Postal Service (USPS) overnight, to the other Party at its respective address set forth below or to such other address as one Party shall give notice of to the other from time to time hereunder, and a courtesy copy shall be sent by email to the email address(es) shown below or to such other email address(es) as one Party shall give notice of to the other from time to time hereunder.  Notices shall be deemed received the following Business Day.

 

If to GrayBug:

GrayBug, LLC

 

[**]

 

Baltimore, MD 21203

 

 

 

Attn:  Chief Executive Office (currently Michael O’Rourke)

 

Email:  [**]

 

 

With a Copy to:

[**]

 

 

If to Kala:

Kala Pharmaceuticals, Inc.

 

100 Beaver Street

Suite 201

Waltham, MA 02453

 

Attn:  President (currently Charlie McDermott, Interim President)

Email: [**]

 

 

With a Copy to:

Chief IP Counsel (at the same address)

 

Email: [**]

 

Notices to JHU shall be provided by the relevant Party in accordance with the provisions of its Existing JHU License Agreement.

 

j.                 Compliance with All Laws.  In all activities undertaken pursuant to this Agreement, both Parties covenant and agree that each will in all material respects comply with such federal, state and local laws and statutes, as may be in effect at the time of performance and all valid rules, regulations and orders thereof regulating such activities.  Each Party has confirmed that it is not required to make a filing under the HSR Act with respect to the rights granted to it as of the Settlement Agreement Effective Date under this Agreement.

 

k.              Delays or Omissions.  Except as expressly provided herein, no delay or omission to exercise any right, power or remedy accruing to any Party shall impair any such right, power or remedy to such Party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or in any similar breach or default be

 

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deemed a waiver of any other breach or default theretofore or thereafter occurring.  Any waiver, permit, consent or approval of any kind or character on the part of any Party of any breach or default under this Agreement, or any waiver on the part of any Party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing.  All remedies either under this Agreement or by law or otherwise afforded to any Party, shall be cumulative and not alternative.

 

l.                  No Third Party Beneficiaries.  Nothing in this Agreement shall be construed as giving any Person, other than the Parties, JHU (to the extent set forth herein) and their successors and permitted assigns, any right, remedy or claim under or in respect of this Agreement or any provision hereof.

 

m.          Headings.  Section headings are for convenient reference and not a part of this Agreement.

 

n.              Counterparts.  This Agreement may be executed in counterparts, each of which shall be deemed an original and all of which when taken together shall be deemed but one instrument.

 

[Signature Page Follows]

 

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IN WITNESS WHEREOF, this Agreement shall take effect as of the Settlement Agreement Effective Date when it has been executed below by the duly authorized representatives of the Parties.

 

 

GrayBug, LLC

 

Kala Pharmaceuticals, Inc.

 

 

 

 

 

 

 

 

 

 

BY:

/s/ Michael O’Rourke

 

BY:

/s/ Charles McDermott

 

 

 

 

 

NAME:

Michael O’Rourke

 

NAME:

Charles McDermott

 

 

 

 

 

TITLE:

President and Chief Executive Officer

 

TITLE:

Chief Business Officer and Interim President

 

 

[JHU Signature Page Attached]

 

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JHU Signature Page, including Kala and GrayBug Signatures

 

WHEREAS, there is a dispute over the rights licensed to each Party under certain Patent Rights owned by JHU;

 

WHEREAS, the Parties and JHU now wish to settle such dispute in an amicable manner which is intended to settle and clarify rights granted by JHU to each Party and to permit each Party to have the freedom to effectively develop pharmaceutical products that will benefit patients;

 

WHEREAS, at JHU’s request, GrayBug and Kala have undertaken extensive time and effort to work cooperatively to negotiate the terms of the Settlement and License Agreement to which this JHU Signature Page is attached (the “Settlement Agreement”) that sets forth the terms and conditions for settling all currently outstanding disputes between JHU and the Parties, and each of their respective directors, officers, employees, and agents; and

 

WHEREAS, the Settlement Agreement provides for resolution of all known disputes as of the Settlement Agreement Effective Date relating to the scope of subject matter licensed to a Party from JHU, including releases of the Parties and JHU, and their respective predecessors, successors, assigns, employees, officers and directors, as set forth in Section 5 of the Settlement Agreement, which include releasing JHU in connection with any allegations of breach of contract or other potential causes of action with respect to such subject matter.

 

JHU acknowledges, accepts, and agrees with GrayBug and Kala that:

 

·                  The capitalized terms used but not defined in on this JHU Signature Page have the meaning ascribed to them in the Settlement Agreement.

 

·                  Kala, GrayBug and JHU each agrees to, and shall comply with, all the terms and conditions of the Settlement Agreement to the extent relevant or applicable to such Party or JHU, as applicable.  Without limitation, it is confirmed that the provisions of Sections 1-7 and 10 of the Settlement Agreement shall apply to JHU and to the paragraphs set forth on this JHU Signature Page to the same extent as they apply to either Party.

 

·                  Each Existing JHU License Agreement is hereby amended to reflect the terms set forth in the Settlement Agreement, to the extent necessary to implement the intent, terms, and provisions of the Settlement Agreement, including Sections 2, 3, 4, 7, and 9 of the Settlement Agreement.

 

·                  As set forth in more detail and in accordance with Section 5(b) of the Settlement Agreement, Kala (on behalf of itself and its other Releasors (as defined in Section 5(a) of the Settlement Agreement)) fully, finally and forever releases, relinquishes, acquits and discharges the JHU Releasees (as defined in Section 5(b) of the Settlement Agreement) of and from, and covenants not to sue, not to assign to any other Person a right to sue and not to authorize any other Person to sue the JHU Releasees for, any and all Losses of every name and nature, both at law

 

43



 

and in equity, accrued or unaccrued, that (i) any of such Releasors is aware of as of the Settlement Agreement Effective Date, (ii) arise out of the actions of the Parties or JHU Releasees leading to the execution of this Agreement and (iii) relate to the subject matter hereof.

 

·                  As set forth in more detail and in accordance with Section 5(b) of the Settlement Agreement, GrayBug (on behalf of itself and its other Releasors (as defined in Section 5(a) of the Settlement Agreement)) fully, finally and forever releases, relinquishes, acquits and discharges the JHU Releasees (as defined in Section 5(b) of the Settlement Agreement) of and from, and covenants not to sue, not to assign to any other Person a right to sue and not to authorize any other Person to sue the JHU Releasees for, any and all Losses of every name and nature, both at law and in equity, accrued or unaccrued, that (i) any of such Releasors is aware of as of the Settlement Agreement Effective Date, (ii) arise out of the actions of the Parties or JHU Releasees leading to the execution of this Agreement and (iii) relate to the subject matter hereof.

 

·                  JHU (on behalf of itself and the JHU Releasees (as defined on Section 5(b) of the Settlement Agreement)) fully, finally and forever releases, relinquishes, acquits and discharges each Party and each of its predecessors, successors, assigns, employees, officers and directors (each, a “Party Releasee”), of and from, and covenants not to sue, not to assign to any other Person a right to sue and not to authorize any other Person to sue any Party Releasee for, any and all Losses of every name and nature, both at law and in equity, accrued or unaccrued, that (i) any of such JHU Releasees is aware of as of the Settlement Agreement Effective Date, (ii) arise out of the actions of the Parties or JHU Releasees leading to the execution of the Settlement Agreement and (iii) relate to the subject matter thereof.  This paragraph shall not prevent or impair the right of JHU to bring a proceeding in court or any other forum to enforce its rights under this Agreement or its Existing JHU License Agreement with a Party (except as explicitly or implicitly amended by the Settlement Agreement).

 

·                  JHU acknowledges that the releases and amendments provided in the Settlement Agreement and continued consideration under the Parties’ Existing JHU License Agreements constitute full consideration for the Settlement Agreement and this JHU Signature Page.  Notwithstanding any obligation that either Party may have to JHU regarding responsibility for sublicensees under an Existing JHU License Agreement, neither Party shall have any liability to JHU for the acts or omissions of the other Party, whether as a “Sublicensee” as defined under an Existing JHU License Agreement or otherwise.

 

·                  JHU represents and that:  (i) it has good and marketable title to its interest in each of the inventions claimed under any PATENT RIGHTS (as defined in each of the Existing JHU License Agreements), GrayBug Current Patent Rights, Kala Current Patent Rights, Other JHU Patent Rights, Kala/JHU Jointly Owned Patent Rights (all such patent rights, collectively, the “LICENSED PATENT RIGHTS”), including by acquiring, through written assignment, the rights of the relevant inventors in such inventions and patent rights therein and having taken all necessary actions in accordance with the Bayh-Dole Act to elect to retain title to such inventions, subject to certain

 

44



 

retained rights (other than ownership) of the United States Government which may apply to such JHU-owned inventions and LICENSED PATENT RIGHTS if any part of the JHU research was funded in whole or in part by the United States Government; (ii) as of the Settlement Agreement Effective Date, it has not entered any contract, license or similar agreement with a third party that restricts, contradicts, interferes with or otherwise limits the grant of rights under this Settlement Agreement; (iii) it has proper authority to enter into this Settlement Agreement and to grant the rights set forth herein; (iv) it has not granted any rights or licenses that may conflict with this Settlement Agreement or the rights and licenses granted herein; (v) to its knowledge, neither JHU nor any assignee of or inventor listed in any of the LICENSED PATENT RIGHTS has received any notice from any third party that the exercise of the LICENSED PATENT RIGHTS infringes or reasonably could be expected to infringe the rights of any third party; and (vi) to its knowledge, all inventors have been named in the LICENSED PATENT RIGHTS.

 

 

 

ACKNOWLEDGED, ACCEPTED, AND AGREED:

 

 

 

 

 

THE JOHNS HOPKINS UNIVERSITY

 

 

 

 

 

BY:

/s/ Jill E. Uhl

 

NAME:

Jill E. Uhl

 

TITLE:

Interim Executive Director

 

 

 

 

 

 

KALA PHARMACEUTICALS, INC.

 

 

 

 

 

 

BY:

/s/ Charles McDermott

 

NAME:

Charles McDermott

 

TITLE:

Interim President & CEO

 

 

 

 

 

 

GRAYBUG, LLC

 

 

 

 

BY:

/s/ Michael O’Rourke

 

NAME:

Michael O’Rourke

 

TITLE:

President & CEO

 

 

45



 

SCHEDULE 1.21

 

GRAYBUG CURRENT PATENT RIGHTS

 

[**]

 

Institution
Number

 

Application
Number

 

Type of
Patent
Filing

 

Application
Date

 

Patent
Issued
Number

 

Patent
Issued
Date

 

Filing
Country

 

 

 

 

 

 

 

 

 

 

 

 

 

[**]

 

[**]

 

[**]

 

[**]

 

 

 

 

 

[**]

 

 

 

 

 

 

 

 

 

 

 

 

 

[**]

 

[**]

 

[**]

 

[**]

 

 

 

 

 

[**]

 

 

 

 

 

 

 

 

 

 

 

 

 

[**]

 

[**]

 

[**]

 

[**]

 

 

 

 

 

[**]

 

 

 

 

 

 

 

 

 

 

 

 

 

[**]

 

[**]

 

[**]

 

[**]

 

[**]

 

[**]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[**]

 

[**]

 

[**]

 

[**]

 

 

 

 

 

[**]

 

 

 

 

 

 

 

 

 

 

 

 

 

[**]

 

[**]

 

[**]

 

[**]

 

 

 

 

 

[**]

 

 

 

 

 

 

 

 

 

 

 

 

 

[**]

 

[**]

 

[**]

 

[**]

 

 

 

 

 

[**]

 

Confidential Materials omitted and filed separately with the Securities and Exchange Commission.  A total of one page was omitted. [**]

 



 

SCHEDULE 1.22

 

KALA/JHU JOINTLY OWNED PATENT RIGHTS

 

[**]

 

Institution
Number

 

Application Number

 

Type of
Patent Filing

 

Application
Date

 

Publication
or Patent
Number

 

Publication
or Grant
Date

 

Filing
Country

 

 

 

 

 

 

 

 

 

 

 

 

 

[**]

 

[**]

 

[**]

 

[**]

 

 

 

 

 

[**]

 

 

 

 

 

 

 

 

 

 

 

 

 

[**]

 

[**]

 

[**]

 

[**]

 

[**]

 

[**]

 

[**]

 

 

 

 

 

 

 

 

 

 

 

 

 

[**]

 

[**]

 

[**]

 

[**]

 

 

 

 

 

[**]

 

 

 

 

 

 

 

 

 

 

 

 

 

[**]

 

 

 

[**]

 

[**]

 

 

 

 

 

[**]

 

 

 

 

 

 

 

 

 

 

 

 

 

[**]

 

 

 

[**]

 

[**]

 

 

 

 

 

[**]

 

 

 

 

 

 

 

 

 

 

 

 

 

[**]

 

 

 

[**]

 

[**]

 

 

 

 

 

[**]

 

 

 

 

 

 

 

 

 

 

 

 

 

[**]

 

 

 

[**]

 

[**]

 

 

 

 

 

[**]

 

 

 

 

 

 

 

 

 

 

 

 

 

[**]

 

 

 

[**]

 

[**]

 

 

 

 

 

[**]

 



 

SCHEDULE 1.23

 

KALA CURRENT PATENT RIGHTS

 

[**]

 

Institution
Number

 

Application Number

 

Type of Patent
Filing

 

Application
Date

 

Publication or
Patent Number

 

Publication or
Grant Date

 

Filing Country

 

 

 

 

 

 

 

 

 

 

 

 

 

[**]

 

[**]

 

[**]

 

[**]

 

[**]

 

[**]

 

[**]

 

 

 

 

 

 

 

 

 

 

 

 

 

[**]

 

[**]

 

[**]

 

[**]

 

[**]

 

[**]

 

[**]

 

 

 

 

 

 

 

 

 

 

 

 

 

[**]

 

[**]

 

[**]

 

[**]

 

[**]

 

[**]

 

[**]

 

 

 

 

 

 

 

 

 

 

 

 

 

[**]

 

[**]

 

[**]

 

[**]

 

 

 

 

 

[**]

 

 

 

 

 

 

 

 

 

 

 

 

 

[**]

 

[**]

 

[**]

 

[**]

 

 

 

 

 

[**]

 

Confidential Materials omitted and filed separately with the Securities and Exchange Commission. A total of three pages were omitted. [**]

 



 

SCHEDULE 1.24

 

OTHER JHU PATENT RIGHTS

 

[**]

 

Institution
Number

 

Application
Number

 

Type of
Patent Filing

 

Application
Date

 

Publication
or Patent
Number

 

Publication
or Grant
Date

 

Filing Country

 

 

 

 

 

 

 

 

 

 

 

 

 

[**]

 

[**]

 

[**]

 

[**]

 

 

 

 

 

[**]

 

 

 

 

 

 

 

 

 

 

 

 

 

[**]

 

[**]

 

[**]

 

[**]

 

[**]

 

[**]

 

[**]

 

 

 

 

 

 

 

 

 

 

 

 

 

[**]

 

[**]

 

[**]

 

[**]

 

[**]

 

[**]

 

[**]

 

Confidential Materials omitted and filed separately with the Securities and Exchange Commission. A total of three pages were omitted. [**]

 



 

SCHEDULE 2(C)(IX)

 

PENDING CO-INVENTORS

 

[**]

 


 

 

January 8, 2015

 

MEMORADUM:  CO-INVENTORS

 

To Whom It May Concern,

 

As of the Settlement and License Agreement date, October 24, 2014, all potential Co-Inventors listed in the definition of Future Patent Rights were additionally identified as “Pending Co-Inventors” on Schedule 2c(ix).  This letter is to inform that [**]Pending Co-Inventors have agreed in writing to become Co-Inventors and subject to the relevant provisions of the Settlement and License Agreement.  These Co-Inventors are as follows:

 

[**]

 

Sincerely,

 

 

 

 

 

/s/ Jill E. Uhl

 

Jill Uhl

 

Interim Executive Director

 

Johns Hopkins Technology Transfer

 

 

       JHIT – Bringing the Benefits of Discovery to the World

 

 


 



Exhibit 10.9

 

LEASE AGREEMENT

 

THIS LEASE AGREEMENT (this “Lease”) is made this 30th day of September, 2013, between ARE-MA REGION NO. 9, LLC, a Delaware limited liability company (“Landlord”), and KALA PHARMACEUTICALS, INC., a Delaware corporation (“Tenant”).

 

Building:

 

100 Beaver Street, Waltham, Massachusetts

 

 

 

Premises:

 

That portion of the second floor of the Building, containing approximately 11,747 rentable square feet, as determined by Landlord, as shown on Exhibit A.

 

 

 

Project:

 

The real property on which the Building in which the Premises are located, together with all improvements thereon and appurtenances thereto as described on Exhibit B.

 

 

 

 

 

Base Rent:

 

Months 1 — 12:

 

$28.50 per rentable square foot of the Premises per annum

 

 

Months 13 — 24:

 

$29.50 per rentable square foot of the Premises per annum

 

 

Months 25 — 36:

 

$30.50 per rentable square foot of the Premises per annum

 

Rentable Area of Premises:  11,747 sq. ft

 

Rentable Area of Project:  82,330 sq. ft.                                                                   Tenant’s Share of Operating Expenses:  14.27%

 

Security Deposit:                        $83,697.37

 

Target Commencement Date:  February 1, 2014

 

Base Term:

 

Beginning on the Commencement Date and ending 36 months from the first day of the first full month of the Term (as defined in Section 2) hereof.

 

 

 

Permitted Use:

 

Research and development laboratory, related office and other related uses consistent with the character of the Project and otherwise in compliance with the provisions of Section 7 hereof.

 

Address for Rent Payment:
P.O. Box 975383
Dallas, TX 75397-5383

Landlord’s Notice Address:
385 E. Colorado Boulevard, Suite 299
Pasadena, CA 91101
Attention: Corporate Secretary

 

 

Tenant’s Notice Address
Before the Commencement Date:

135 Beaver Street, Suite 309
Waltham, MA 02452
Attention: General Counsel

Tenant’s Notice Address
After the Commencement Date:

100 Beaver Street, Suite 201
Waltham, MA 02452
Attention: General Counsel

 

The following Exhibits and Addenda are attached hereto and incorporated herein by this reference:

 

x EXHIBIT A - PREMISES DESCRIPTION

x EXHIBIT B - DESCRIPTION OF PROJECT

x EXHIBIT C - WORK LETTER

x EXHIBIT D - COMMENCEMENT DATE

x EXHIBIT E - RULES AND REGULATIONS

x EXHIBIT F - TENANT’S PERSONAL PROPERTY

x EXHIBIT G - HAZARDOUS MATERIALS LIST

 

 

 

 



 

Net Multi-Tenant Laboratory

 

100 Beaver/Kala

 

1.                                      Lease of Premises. Upon and subject to all of the terms and conditions hereof, Landlord hereby leases the Premises to Tenant and Tenant hereby leases the Premises from Landlord. The portions of the Project which are for the non-exclusive use of tenants of the Project are collectively referred to herein as the “Common Areas,” which shall include, but not be limited to, all common hallways, lobbies, bathrooms, corridors, walkways, elevators (including freight elevators), loading docks and dumpsters. Landlord reserves the right to modify Common Areas, provided that such modifications do not materially adversely affect Tenant’s use of the Premises for the Permitted Use. From and after the Commencement Date through the expiration of the Term, Tenant shall have access to the Building and the Premises 24 hours a day, 7 days a week, except in the case of emergencies, as the result of Legal Requirements, the performance by Landlord of any installation, maintenance or repairs, or any other temporary interruptions, and otherwise subject to the terms of this Lease.

 

2.                                      Delivery; Acceptance of Premises; Commencement Date. Landlord shall use reasonable efforts to deliver the Premises to Tenant on or before the Target Commencement Date, with Landlord’s Work Substantially Completed (“Delivery” or “Deliver”). If Landlord fails to timely Deliver the Premises, Landlord shall not be liable to Tenant for any loss or damage resulting therefrom, and this Lease shall not be void or voidable except as provided herein. If Landlord does not Deliver the Premises within 45 days of the Target Commencement Date for any reason other than Force Majeure delays and Tenant Delays, this Lease may be terminated by Tenant by written notice to Landlord, and if so terminated by Tenant: (a) the Security Deposit, or any balance thereof (i.e., after deducting therefrom all amounts to which Landlord is entitled under the provisions of this Lease), shall be returned to Tenant, and (b) neither Landlord nor Tenant shall have any further rights, duties or obligations under this Lease, except with respect to provisions which expressly survive termination of this Lease. As used herein, the terms “Landlord’s Work,” “Tenant Delays” and “Substantially Completed” shall have the meanings set forth for such terms in the Work Letter. If Tenant does not elect to void this Lease within 10 business days of the lapse of such 45 day period, such right to void this Lease shall be waived and this Lease shall remain in full force and effect. Notwithstanding anything to the contrary contained herein, if Tenant does not terminate this Lease pursuant to the immediately preceding sentence, Base Rent shall be abated 1 day for each day after such 45 day period (as extended by Force Majeure delays and Tenant Delays) that the Premises are not Delivered to Tenant.

 

The “Commencement Date” shall be the earlier of: (i) the date Landlord Delivers the Premises to Tenant; and (ii) the date Landlord could have Delivered the Premises but for Tenant Delays; provided, however, in no event shall the Commencement Date occur prior to January 15, 2014. Upon request of Landlord, Landlord and Tenant shall execute and deliver a written acknowledgment of the Commencement Date, and the expiration date of the Term when such are established in the form of the “Acknowledgement of Commencement Date” attached to this Lease as Exhibit D; provided, however, Tenant’s failure to execute and deliver such acknowledgment shall not affect Landlord’s rights hereunder. The “Term” of this Lease shall be the Base Term, as defined above on the first page of this Lease and the Extension Term which Tenant may elect pursuant to Section 40 hereof.

 

Except as set forth in the Work Letter and as otherwise expressly set forth in this Lease: (i) Tenant shall accept the Premises in their condition as of the Commencement Date, subject to all applicable Legal Requirements (as defined in Section 7 hereof); (ii) Landlord shall have no obligation for any defects in the Premises; and (iii) Tenant’s taking possession of the Premises shall be conclusive evidence that Tenant accepts the Premises. Any occupancy of the Premises by Tenant before the Commencement Date shall be subject to all of the terms and conditions of this Lease, including the obligation to pay Base Rent and Operating Expenses. Tenant shall be entitled to receive the benefit of all construction warranties and manufacturer’s equipment warranties issued for the benefit of Landlord relating to the Tenant Improvements constructed in the Premises pursuant to the Work Letter.

 

2



 

For the period of 90 consecutive days after the Commencement Date, Landlord shall, at its sole cost and expense (which shall not constitute an Operating Expense), be responsible for any repairs that are required to be made to the structural portion of the Premises or Building Systems (as defined in Section 13) serving the Premises, unless Tenant or any Tenant Party was responsible for the cause of such repair, in which case Tenant shall pay the cost.

 

Tenant agrees and acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty with respect to the condition of all or any portion of the Premises or the Project, and/or the suitability of the Premises or the Project for the conduct of Tenant’s business, and Tenant waives any implied warranty that the Premises or the Project are suitable for the Permitted Use. This Lease constitutes the complete agreement of Landlord and Tenant with respect to the subject matter hereof and supersedes any and all prior representations, inducements, promises, agreements, understandings and negotiations which are not contained herein. Landlord in executing this Lease does so in reliance upon Tenant’s representations, warranties, acknowledgments and agreements contained herein.

 

3.                                      Rent.

 

(a)                                 Base Rent. The Security Deposit and the first month’s Base Rent shall be due and payable on or before January 10, 2014. Tenant shall pay to Landlord in advance, without demand, abatement, deduction or set-off, equal monthly installments of Base Rent on or before the first day of each calendar month during the Term hereof, in lawful money of the United States of America, at the office of Landlord for payment of Rent set forth above, or to such other person or at such other place as Landlord may from time to time designate in writing. Payments of Base Rent for any fractional calendar month shall be prorated. The obligation of Tenant to pay Base Rent and other sums to Landlord and the obligations of Landlord under this Lease are independent obligations. Tenant shall have no right at any time to abate, reduce, or set-off any Rent (as defined in Section 5) due hereunder except for any abatement as may be expressly provided in this Lease.

 

(b)                                 Additional Rent. In addition to Base Rent, Tenant agrees to pay to Landlord as additional rent (“Additional Rent”): (i) Tenant’s Share of “Operating Expenses” (as defined in Section 5), and (ii) any and all other amounts Tenant assumes or agrees to pay under the provisions of this Lease, including, without limitation, any and all other sums that may become due by reason of any default of Tenant or failure to comply with the agreements, terms, covenants and conditions of this Lease to be performed by Tenant, after any applicable notice and cure period.

 

4.                                      Base Rent Adjustments.

 

(a)                                 Annual Adjustment. Base Rent shall be increased during the Base Term as provided for in the schedule set forth on page 1 of this Lease. Base Rent adjustments for any fractional calendar month shall be prorated.

 

(b)                                 TI Rent. Landlord shall, subject to the terms of the Work Letter, make the Glasswasher Allowance (as defined in the Work Letter) available to Tenant. Commencing on the Commencement Date and continuing thereafter on the first day of each month during the Term, Tenant shall pay the amount necessary to fully amortize the portion of the Glasswasher Allowance actually funded by Landlord, if any, over 6 years in equal monthly payments with interest at a rate of 8% per annum (“TI Rent”).

 

5.                                      Operating Expense Payments. Landlord shall deliver to Tenant a written estimate of Operating Expenses for each calendar year during the Term (the “Annual Estimate”), which may be revised by Landlord from time to time during such calendar year. During each month of the Term, on the

 

3



 

same date that Base Rent is due, Tenant shall pay Landlord an amount equal to 1/12th of Tenant’s Share of the Annual Estimate. Payments for any fractional calendar month shall be prorated.

 

The term “Operating Expenses” means all costs and expenses of any kind or description whatsoever incurred or accrued each calendar year by Landlord with respect to the Project (including, without duplication, Taxes (as defined in Section 9), reasonable reserves consistent with good business practice for future repairs and replacements, capital repairs and improvements amortized over the lesser of 10 years and the useful life of such capital items (as reasonably determined by Landlord taking into account relevant factors), and the costs of Landlord’s third party property manager or, if there is no third party property manager, administration rent in the amount of 2.5% of Base Rent), excluding only:

 

(a)                                 the original construction costs of the Project and renovation prior to the date of the Lease and costs of correcting defects in such original construction or renovation;

 

(b)                                 capital expenditures for expansion of the Project;

 

(c)                                  interest, principal payments of Mortgage (as defined in Section 27) debts of Landlord, financing costs and amortization of funds borrowed by Landlord, whether secured or unsecured;

 

(d)                                 depreciation of the Project (except for capital improvements, the cost of which are includable in Operating Expenses);

 

(e)                                  advertising, legal and space planning expenses and leasing commissions and other costs and expenses incurred in procuring and leasing space to tenants for the Project, including any leasing office maintained in the Project, free rent and construction allowances for tenants;

 

(f)                                   legal and other expenses incurred in the negotiation or enforcement of leases;

 

(g)                                  completing, fixturing, improving, renovating, painting, redecorating or other work, which Landlord pays for or performs for other tenants within their premises, and costs of correcting defects in such work;

 

(h)                                 costs to be reimbursed by other tenants of the Project or Taxes to be paid directly by Tenant or other tenants of the Project, whether or not actually paid;

 

(i)                                     salaries, wages, benefits and other compensation paid to officers and employees of Landlord who are not assigned in whole or in part to the operation, management, maintenance or repair of the Project;

 

(j)                                    general organizational, administrative and overhead costs relating to maintaining Landlord’s existence, either as a corporation, partnership, or other entity, including general corporate, legal and accounting expenses;

 

(k)                                 costs (including attorneys’ fees and costs of settlement, judgments and payments in lieu thereof) incurred in connection with disputes with tenants, other occupants, or prospective tenants, and costs and expenses, including legal fees, incurred in connection with negotiations or disputes with employees, consultants, management agents, leasing agents, purchasers or mortgagees of the Building;

 

(l)                                     costs incurred by Landlord due to the violation by Landlord, its employees, agents or contractors or any tenant of the terms and conditions of any lease of space in the Project or any Legal Requirement (as defined in Section 7);

 

4



 

(m)                             penalties, fines or interest incurred as a result of Landlord’s inability or failure to make payment of Taxes and/or to file any tax or informational returns when due, or from Landlord’s failure to make any payment of Taxes required to be made by Landlord hereunder before delinquency;

 

(n)                                 overhead and profit increment paid to Landlord or to subsidiaries or affiliates of Landlord for goods and/or services in or to the Project to the extent the same exceeds the costs of such goods and/or services rendered by unaffiliated third parties on a competitive basis;

 

(o)                                 costs of Landlord’s charitable or political contributions, or of fine art maintained at the Project;

 

(p)                                 costs in connection with services (including electricity), items or other benefits of a type which are not standard for the Project and which are not available to Tenant without specific charges therefor, but which are provided to another tenant or occupant of the Project, whether or not such other tenant or occupant is specifically charged therefor by Landlord;

 

(q)                                 costs incurred in the sale or refinancing of the Project;

 

(r)                                    the cost of designing and constructing the Tenant Improvements in the Premises pursuant to the Work Letter;

 

(s)                                   net income taxes of Landlord or the owner of any interest in the Project, franchise, capital stock, gift, estate or inheritance taxes or any federal, state or local documentary taxes imposed against the Project or any portion thereof or interest therein; and

 

(t)                                    any expenses otherwise includable within Operating Expenses to the extent actually reimbursed by persons other than tenants of the Project under leases for space in the Project.

 

Within 90 days after the end of each calendar year (or such longer period as may be reasonably required), Landlord shall furnish to Tenant a statement (an “Annual Statement”) showing in reasonable detail: (a) the total and Tenant’s Share of actual Operating Expenses for the previous calendar year, and (b) the total of Tenant’s payments in respect of Operating Expenses for such year. If Tenant’s Share of actual Operating Expenses for such year exceeds Tenant’s payments of Operating Expenses for such year, the excess shall be due and payable by Tenant as Rent within 30 days after delivery of such Annual Statement to Tenant. If Tenant’s payments of Operating Expenses for such year exceed Tenant’s Share of actual Operating Expenses for such year Landlord shall pay the excess to Tenant within 30 days after delivery of such Annual Statement, except that after the expiration, or earlier termination of the Term or if Tenant is delinquent in its obligation to pay Rent, Landlord shall pay the excess to Tenant after deducting all other amounts due Landlord.

 

The Annual Statement shall be final and binding upon Tenant unless Tenant, within 30 days after Tenant’s receipt thereof, shall contest any item therein by giving written notice to Landlord, specifying each item contested and the reason therefor. If, during such 30 day period, Tenant reasonably and in good faith questions or contests the accuracy of Landlord’s statement of Tenant’s Share of Operating Expenses, Landlord will provide Tenant with access to Landlord’s books and records relating to the operation of the Project and such information as Landlord reasonably determines to be responsive to Tenant’s questions (the “Expense Information”). If after Tenant’s review of such Expense Information, Landlord and Tenant cannot agree upon the amount of Tenant’s Share of Operating Expenses, then Tenant shall have the right to have an independent regionally recognized accounting firm selected by Tenant, working pursuant to a fee arrangement other than a contingent fee (at Tenant’s sole cost and expense) and approved by Landlord (which approval shall not be unreasonably withheld or delayed), audit and/or

 

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review the Expense Information for the year in question (the “Independent Review”). The results of any such Independent Review shall be binding on Landlord and Tenant. If the Independent Review shows that the payments actually made by Tenant with respect to Operating Expenses for the calendar year in question exceeded Tenant’s Share of Operating Expenses for such calendar year, Landlord shall at Landlord’s option either (i) credit the excess amount to the next succeeding installments of estimated Operating Expenses or (ii) pay the excess to Tenant within 30 days after delivery of such statement, except that after the expiration or earlier termination of this Lease or if Tenant is delinquent in its obligation to pay Rent, Landlord shall pay the excess to Tenant after deducting all other amounts due Landlord. If the Independent Review shows that Tenant’s payments with respect to Operating Expenses for such calendar year were less than Tenant’s Share of Operating Expenses for the calendar year, Tenant shall pay the deficiency to Landlord within 30 days after delivery of such statement. If the Independent Review shows that Tenant has overpaid with respect to Operating Expenses by more than 5% then Landlord shall reimburse Tenant for all costs incurred by Tenant for the Independent Review. Operating Expenses for the calendar years in which Tenant’s obligation to share therein begins and ends shall be prorated. Notwithstanding anything set forth herein to the contrary, if the Project is not at least 95% occupied on average during any year of the Term, Tenant’s Share of Operating Expenses for such year shall be computed as though the Project had been 95% occupied on average during such year.

 

Tenant’s Share” shall be the percentage set forth on the first page of this Lease as Tenant’s Share as reasonably adjusted by Landlord for changes in the physical size of the Premises or the Project occurring thereafter. Landlord may equitably increase Tenant’s Share for any item of expense or cost reimbursable by Tenant that relates to a repair, replacement, or service that benefits only the Premises or only a portion of the Project that includes the Premises or that varies with occupancy or use. Base Rent, Tenant’s Share of Operating Expenses and all other amounts payable by Tenant to Landlord hereunder are collectively referred to herein as “Rent.”

 

6.                                      Security Deposit. Tenant shall deposit with Landlord, on or before January 10, 2014, a security deposit (the “Security Deposit”) for the performance of all of Tenant’s obligations hereunder in the amount set forth on page 1 of this Lease, which Security Deposit shall be in the form of an unconditional and irrevocable letter of credit (the “Letter of Credit”): (i) in form and substance satisfactory to Landlord, (ii) naming Landlord as beneficiary, (iii) expressly allowing Landlord to draw upon it at any time from time to time by delivering to the issuer notice that Landlord is entitled to draw thereunder, (iv) issued by an FDIC-insured financial institution satisfactory to Landlord, and (v) redeemable by presentation of a sight draft in the state of Landlord’s choice. If Tenant does not provide Landlord with a substitute Letter of Credit complying with all of the requirements hereof at least 10 days before the stated expiration date of any then current Letter of Credit, Landlord shall have the right to draw the full amount of the current Letter of Credit and hold the funds drawn in cash without obligation for interest thereon as the Security Deposit. The Security Deposit shall be held by Landlord as security for the performance of Tenant’s obligations under this Lease. The Security Deposit is not an advance rental deposit or a measure of Landlord’s damages in case of Tenant’s default. Upon each occurrence of a Default (as defined in Section 20), Landlord may use all or any part of the Security Deposit to pay delinquent payments due under this Lease, future rent damages and the cost of any damage, injury, expense or liability caused by such Default, without prejudice to any other remedy provided herein or provided by law. Landlord’s right to use the Security Deposit under this Section 6 includes the right to use the Security Deposit to pay future rent damages following the termination of this Lease pursuant to Section 21(c) below. Upon any use of all or any portion of the Security Deposit, Tenant shall pay Landlord on demand the amount that will restore the Security Deposit to the amount set forth on Page 1 of this Lease. Tenant hereby waives the provisions of any law, now or hereafter in force which provide that Landlord may claim from a security deposit only those sums reasonably necessary to remedy defaults in the payment of Rent, to repair damage caused by Tenant or to clean the Premises, it being agreed that

 

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Landlord may, in addition, claim those sums reasonably necessary to compensate Landlord for any other loss or damage, foreseeable or unforeseeable, caused by the act or omission of Tenant or any officer, employee, agent or invitee of Tenant. Upon 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 periods prior to the filing of such proceedings. Upon any such use of all or any portion of the Security Deposit, Tenant shall, within 5 days after demand from Landlord, restore the Security Deposit to its original amount. If Tenant shall fully perform every provision of this Lease to be performed by Tenant, the Security Deposit, or any balance thereof (i.e., after deducting therefrom all amounts to which Landlord is entitled under the provisions of this Lease), shall be returned to Tenant (or, at Landlord’s option, to the last assignee of Tenant’s interest hereunder) within 90 days after the expiration or earlier termination of this Lease.

 

If Landlord transfers its interest in the Project or this Lease, Landlord shall either (a) transfer any Security Deposit then held by Landlord to a person or entity assuming Landlord’s obligations under this Section 6, or (b) return to Tenant any Security Deposit then held by Landlord and remaining after the deductions permitted herein. Upon such transfer to such transferee or the return of the Security Deposit to Tenant, Landlord shall have no further obligation with respect to the Security Deposit, and Tenant’s right to the return of the Security Deposit shall apply solely against Landlord’s transferee. The Security Deposit is not an advance rental deposit or a measure of Landlord’s damages in case of Tenant’s default. Landlord’s obligation respecting the Security Deposit is that of a debtor, not a trustee, and no interest shall accrue thereon.

 

7.                                      Use. The Premises shall be used solely for the Permitted Use set forth in the basic lease provisions on page 1 of this Lease, and in compliance with all laws, orders, judgments, ordinances, regulations, codes, directives, permits, licenses, covenants and restrictions now or hereafter applicable to the Premises, and to the use and occupancy thereof, including, without limitation, the Americans With Disabilities Act, 42 U.S.C. § 12101, et seq. (together with the regulations promulgated pursuant thereto, “ADA”) (collectively, “Legal Requirements” and each, a “Legal Requirement”). Tenant shall, upon 5 days’ written notice from Landlord, discontinue any use of the Premises which is declared by any Governmental Authority (as defined in Section 9) having jurisdiction to be a violation of a Legal Requirement. Tenant will not use or permit the Premises to be used for any purpose or in any manner that would void Tenant’s or Landlord’s insurance, increase the insurance risk, or cause the disallowance of any sprinkler or other credits. Tenant shall not permit any part of the Premises to be used as a “place of public accommodation”, as defined in the ADA or any similar legal requirement. Tenant shall reimburse Landlord promptly upon demand for any additional premium charged for any such insurance policy by reason of Tenant’s failure to comply with the provisions of this Section or otherwise caused by Tenant’s use and/or occupancy of the Premises. Tenant will use the Premises in a careful, safe and proper manner and will not commit or permit waste, overload the floor or structure of the Premises, subject the Premises to use that would damage the Premises or obstruct or interfere with the rights of Landlord or other tenants or occupants of the Project, including conducting or giving notice of any auction, liquidation, or going out of business sale on the Premises, or using or allowing the Premises to be used for any unlawful purpose. Tenant shall cause any equipment or machinery to be installed in the Premises so as to reasonably prevent sounds or vibrations from the Premises from extending into Common Areas, or other space in the Project. Tenant shall not place any machinery or equipment that would overload the floor in or upon the Premises or transport or move such items through the Common Areas of the Project or in the Project elevators without the prior written consent of Landlord. Landlord hereby consents to the transport through the Common Areas and the placement within the Premises (in the locations reflected on the Space Plan (as defined in the Work Letter)) of the Tenant equipment reflected in the Space Plan pursuant to its determination that the same, as located as reflected in the Space Plan, is within the structural capacity of the floor of the Premises. Except as may be provided under the Work Letter, Tenant shall not, without the

 

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prior written consent of Landlord, use the Premises in any manner which will require ventilation, air exchange, heating, gas, steam, electricity or water beyond the existing capacity of the Project as proportionately allocated to the Premises based upon Tenant’s Share as usually furnished for the Permitted Use.

 

Landlord shall be responsible for the compliance of the Premises and the Common Areas of the Project with Legal Requirements as of the Commencement Date. Following the Commencement Date, Landlord shall, as an Operating Expense (to the extent such Legal Requirement is generally applicable to similar buildings in the area in which the Project is located) and at Tenant’s expense (to the extent such Legal Requirement is triggered by reason of Tenant’s, as compared to other tenants of the Project, specific use of the Premises or Tenant’s Alterations) make any alterations or modifications to the Common Areas or the exterior of the Building that are required by Legal Requirements. Tenant, at its sole expense, shall make any alterations or modifications to the interior of the Premises that are required by Legal Requirements (including, without limitation, compliance of the Premises with the ADA) related to Tenant’s specific use or occupancy of the Premises or Tenant’s Alterations. Notwithstanding any other provision herein to the contrary, Tenant shall be responsible for any and all demands, claims, liabilities, losses, costs, expenses, actions, causes of action, damages or judgments, and all reasonable expenses incurred in investigating or resisting the same (including, without limitation, reasonable attorneys’ fees, charges and disbursements and costs of suit) (collectively, “Claims”) arising out of or in connection with Tenant’s failure to comply with Legal Requirements applicable to Tenant’s specific use or occupancy of the Premises or Tenant’s Alterations, and Tenant shall indemnify, defend, hold and save Landlord harmless from and against any and all Claims arising out of or in connection with any failure of the Premises to comply with any Legal Requirement applicable to Tenant’s specific use or occupancy of the Premises or Tenant’s Alterations.

 

8.                                      Holding Over. If, with Landlord’s express written consent, Tenant retains possession of the Premises after the termination of the Term, (i) unless otherwise agreed in such written consent, such possession shall be subject to immediate termination by Landlord at any time, (ii) all of the other terms and provisions of this Lease (including, without limitation, the adjustment of Base Rent pursuant to Section 4 hereof) shall remain in full force and effect (excluding any expansion or renewal option or other similar right or option) during such holdover period, (iii) Tenant shall continue to pay Base Rent in the amount payable upon the date of the expiration or earlier termination of this Lease or such other amount as Landlord may indicate, in Landlord’s sole and absolute discretion, in such written consent, and (iv) all other payments shall continue under the terms of this Lease. If Tenant remains in possession of the Premises after the expiration or earlier termination of the Term without the express written consent of Landlord, (A) Tenant shall become a tenant at sufferance upon the terms of this Lease except that the monthly rental shall be equal to 150% of Rent in effect during the last 30 days of the Term, and (B) Tenant shall be responsible for all damages suffered by Landlord resulting from or occasioned by Tenant’s holding over, including consequential damages. No holding over by Tenant, whether with or without consent of Landlord, shall operate to extend this Lease except as otherwise expressly provided, and this Section 8 shall not be construed as consent for Tenant to retain possession of the Premises. Acceptance by Landlord of Rent after the expiration of the Term or earlier termination of this Lease shall not result in a renewal or reinstatement of this Lease.

 

9.                                      Taxes. Landlord shall pay, as part of Operating Expenses, all taxes, levies, fees, assessments and governmental charges of any kind with respect to the Project, existing as of the Commencement Date or thereafter enacted (collectively referred to as “Taxes”), imposed by any federal, state, regional, municipal, local or other governmental authority or agency, including, without limitation, quasi-public agencies (collectively, “Governmental Authority”) during the Term, including, without limitation, all Taxes: (i) imposed on or measured by or based, in whole or in part, on rent payable to (or

 

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gross receipts received by) Landlord under this Lease and/or from the rental by Landlord of the Project or any portion thereof, or (ii) based on the square footage, assessed value or other measure or evaluation of any kind of the Premises or the Project, or (iii) assessed or imposed by or on the operation or maintenance of any portion of the Premises or the Project, including parking, or (iv) assessed or imposed by, or at the direction of, or resulting from Legal Requirements, or interpretations thereof, promulgated by any Governmental Authority, or (v) imposed as a license or other fee, charge, tax, or assessment on Landlord’s business or occupation of leasing space in the Project. Landlord may contest by appropriate legal proceedings the amount, validity, or application of any Taxes or liens securing Taxes. Taxes shall not include any net income taxes imposed on Landlord except to the extent such net income taxes are in substitution for any Taxes payable hereunder. If any such Tax is levied or assessed directly against Tenant, then Tenant shall be responsible for and shall pay the same at such times and in such manner as the taxing authority shall require. Tenant shall pay, prior to delinquency, any and all Taxes levied or assessed against any personal property or trade fixtures placed by Tenant in the Premises, whether levied or assessed against Landlord or Tenant. If any Taxes on Tenant’s personal property or trade fixtures are levied against Landlord or Landlord’s property, or if the assessed valuation of the Project is increased by a value attributable to 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, higher than the base valuation on which Landlord from time-to-time allocates Taxes to all tenants in the Project, Landlord shall have the right, but not the obligation, to pay such Taxes. Landlord’s determination of any excess assessed valuation shall be binding and conclusive, absent manifest error. The amount of any such payment by Landlord shall constitute Additional Rent due from Tenant to Landlord immediately upon demand.

 

10.                               Parking. Subject to all matters of record, Force Majeure, a Taking (as defined in Section 19 below) and the exercise by Landlord of its rights hereunder, Tenant shall have the right, at no additional cost to Tenant, in common with other tenants of the Project pro rata in accordance with the rentable area of the Premises and the rentable areas of the Project occupied by such other tenants, to park in those areas designated for non-reserved parking, subject in each case to Landlord’s rules and regulations. As of the date of this Lease, Tenant’s pro rata share of parking spaces is equal to 3.3 parking spaces per 1,000 rentable square feet of the Premises. Landlord may allocate parking spaces among Tenant and other tenants in the Project pro rata as described above if Landlord determines that such parking facilities are becoming crowded. Landlord shall not be responsible for enforcing Tenant’s parking rights against any third parties, including other tenants of the Project.

 

11.                               Utilities, Services. Landlord shall provide, subject to the terms of this Section 11, water, electricity, heat, light, power, sewer, and other utilities (including gas and fire sprinklers to the extent the Project is plumbed for such services), refuse and trash collection and janitorial services (collectively, “Utilities”). Landlord shall pay, as Operating Expenses or subject to Tenant’s reimbursement obligation, for all Utilities used on the Premises, all maintenance charges for Utilities, and any storm sewer charges or other similar charges for Utilities imposed by any Governmental Authority or Utility provider, and any taxes, penalties, surcharges or similar charges thereon. Landlord may cause, at Landlord’s expense, any Utilities to be separately metered or charged directly to Tenant by the provider. Tenant shall pay directly to the Utility provider, prior to delinquency, any separately metered Utilities and services which may be furnished to Tenant or the Premises during the Term. Tenant shall pay, as part of Operating Expenses, its share of all charges for jointly metered Utilities based upon consumption, as reasonably determined by Landlord. No interruption or failure of Utilities, from any cause whatsoever other than Landlord’s willful misconduct, shall result in eviction or constructive eviction of Tenant, termination of this Lease or the abatement of Rent. Tenant agrees to limit use of water and sewer with respect to Common Areas to normal restroom use.

 

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Landlord’s sole obligation for either providing emergency generators or providing emergency back-up power to Tenant shall be:  (i) to provide emergency generators with not less than the capacity of the emergency generators located in the Building as of the Commencement Date, and (ii) to contract with a third party to maintain the emergency generators as per the manufacturer’s standard maintenance guidelines.  Landlord shall have no obligation to provide Tenant with operational emergency generators or back-up power or to supervise, oversee or confirm that the third party maintaining the emergency generators is maintaining the generators as per the manufacturer’s standard guidelines or otherwise.  During any period of replacement, repair or maintenance of the emergency generators when the emergency generators are not operational, including any delays thereto due to the inability to obtain parts or replacement equipment, Landlord shall have no obligation to provide Tenant with an alternative back-up generator or generators or alternative sources of back-up power.  At least once per month as part of the maintenance of the Building, Landlord shall run the emergency generator for a period reasonably determined by Landlord for the purpose of determining whether it operates when started.  Tenant expressly acknowledges and agrees that Landlord does not guaranty that such emergency generators will be operational at all times or that emergency power will be available to the Premises when needed.

 

12.                               Alterations and Tenant’s Property.  Any alterations, additions, or improvements made to the Premises by or on behalf of Tenant, including additional locks or bolts of any kind or nature upon any doors or windows in the Premises, but excluding installation, removal or realignment of furniture systems (other than removal of furniture systems owned or paid for by Landlord) not involving any modifications to the structure or connections (other than by ordinary plugs or jacks) to Building Systems (as defined in Section 13) (“Alterations”) shall be subject to Landlord’s prior written consent, which may be given or withheld in Landlord’s sole discretion if any such Alteration affects the structure or Building Systems and shall not be otherwise unreasonably withheld, conditioned or delayed.  Tenant may construct nonstructural cosmetic Alterations in the Premises without Landlord’s prior approval if the aggregate cost of all such work in any 12 month period does not exceed $50,000 (a “Notice-Only Alteration”), provided Tenant notifies Landlord in writing of such intended Notice-Only Alteration, and such notice shall be accompanied by plans, specifications, work contracts and such other information concerning the nature and cost of the Notice-Only Alteration as may be reasonably requested by Landlord, which notice and accompanying materials shall be delivered to Landlord not less than 15 business days in advance of any proposed construction.  If Landlord approves any Alterations, Landlord may impose such conditions on Tenant in connection with the commencement, performance and completion of such Alterations as Landlord may deem appropriate in Landlord’s sole and absolute discretion.  Any request for approval shall be in writing, delivered not less than 15 business days in advance of any proposed construction, and accompanied by plans, specifications, bid proposals, work contracts and such other information concerning the nature and cost of the alterations as may be reasonably requested by Landlord, including the identities and mailing addresses of all persons performing work or supplying materials.  Landlord’s right to review plans and specifications and to monitor construction shall be solely for its own benefit, and Landlord shall have no duty to ensure that such plans and specifications or construction comply with applicable Legal Requirements.  Tenant shall cause, at its sole cost and expense, all Alterations to comply with insurance requirements and with Legal Requirements and shall implement at its sole cost and expense any alteration or modification required by Legal Requirements as a result of any Alterations.  Tenant shall pay to Landlord, as Additional Rent, on demand an amount equal to 5% of all charges incurred by Tenant or its contractors or agents in connection with any Alteration to cover Landlord’s overhead and expenses for plan review, coordination, scheduling and supervision.  Before Tenant begins any Alteration, Landlord may post on and about the Premises notices of non-responsibility pursuant to applicable law.  Tenant shall reimburse Landlord for, and indemnify and hold Landlord harmless from, any expense incurred by Landlord by reason of faulty work done by Tenant or its contractors, delays caused by such work, or inadequate cleanup.

 

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Tenant shall furnish security or make other arrangements satisfactory to Landlord to assure payment for the completion of all Alterations work free and clear of liens, and shall provide (and cause each contractor or subcontractor to provide) certificates of insurance for workers’ compensation and other coverage in amounts and from an insurance company satisfactory to Landlord protecting Landlord against liability for personal injury or property damage during construction.  Upon completion of any Alterations, Tenant shall deliver to Landlord:  (i) sworn statements setting forth the names of all contractors and subcontractors who did the work and final lien waivers from all such contractors and subcontractors; and (ii) “as built” plans for any such Alteration.

 

Except for Removable Installations (as hereinafter defined), all Installations (as hereinafter defined) shall be and shall remain the property of Landlord during the Term and following the expiration or earlier termination of the Term, shall not be removed by Tenant at any time during the Term, and shall remain upon and be surrendered with the Premises as a part thereof.  Notwithstanding the foregoing, Landlord may, at the time its approval of any such Installation is requested, or at the time it receives notice of a Notice-Only Alteration, notify Tenant that Landlord requires that Tenant remove such Installation upon the expiration or earlier termination of the Term, in which event Tenant shall remove such Installation in accordance with the immediately succeeding sentence.  Upon the expiration or earlier termination of the Term, Tenant shall remove (i) all wires, cables or similar equipment which Tenant has installed in the Premises or in the risers or plenums of the Building, (ii) any Installations for which Landlord has given Tenant notice of removal in accordance with the immediately preceding sentence, and (iii) all of Tenant’s Property (as hereinafter defined), and Tenant shall restore and repair any damage caused by or occasioned as a result of such removal, including, without limitation, capping off all such connections behind the walls of the Premises and repairing any holes.  During any restoration period beyond the expiration or earlier termination of the Term, Tenant shall pay Rent to Landlord as provided herein as if said space were otherwise occupied by Tenant.  If Landlord is requested by Tenant or any lender, lessor or other person or entity claiming an interest in any of Tenant’s Property to waive any lien Landlord may have against any of Tenant’s Property, and Landlord consents to such waiver, then Landlord shall be entitled to be paid as administrative rent a fee of $1,000 per occurrence for its time and effort in preparing and negotiating such a waiver of lien.

 

For purposes of this Lease, (x) “Removable Installations” means any items listed on Exhibit F attached hereto and any items agreed by Landlord in writing to be included on Exhibit F in the future, (y) “Tenant’s Property” means Removable Installations and, other than Installations, any personal property or equipment of Tenant that may be removed without material damage to the Premises, and (z) “Installations” means all property of any kind paid for by Landlord, all Alterations, all fixtures, and all partitions, hardware, built-in machinery, built-in casework and cabinets and other similar additions, equipment, property and improvements built into the Premises so as to become an integral part of the Premises, including, without limitation, fume hoods which penetrate the roof or plenum area, built-in cold rooms, built-in warm rooms, walk-in cold rooms, walk-in warm rooms, deionized water systems, glass washing equipment, autoclaves, chillers, built-in plumbing, electrical and mechanical equipment and systems, and any power generator and transfer switch.

 

13.                               Landlord’s Repairs.  Landlord, as an Operating Expense, shall maintain all of the structural, exterior, parking and other Common Areas of the Project, including HVAC, plumbing, fire sprinklers, elevators and all other building systems serving the Premises and other portions of the Project (“Building Systems”), in good repair, reasonable wear and tear and uninsured losses and damages caused by Tenant, or by any of Tenant’s agents, servants, employees, invitees and contractors (collectively, “Tenant Parties”) excluded.  Losses and damages caused by Tenant or any Tenant Party shall be repaired by Landlord, to the extent not covered by insurance, at Tenant’s sole cost and expense.  Landlord reserves the right to stop Building Systems services when necessary (i) by reason of accident or

 

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emergency, or (ii) for planned repairs, alterations or improvements, which are, in the judgment of Landlord, desirable or necessary to be made, until said repairs, alterations or improvements shall have been completed.  Landlord shall have no responsibility or liability for failure to supply Building Systems services during any such period of interruption; provided, however, that Landlord shall, except in case of emergency, make a commercially reasonable effort to give Tenant 72 hours advance notice of any planned stoppage of Building Systems services for routine maintenance, repairs, alterations or improvements.  Tenant shall promptly give Landlord written notice of any repair required by Landlord pursuant to this Section, after which Landlord shall make a commercially reasonable effort to effect such repair.  Landlord shall not be liable for any failure to make any repairs or to perform any maintenance unless such failure shall persist for an unreasonable time after Tenant’s written notice of the need for such repairs or maintenance.  Tenant waives its rights under any state or local law to terminate this Lease or to make such repairs at Landlord’s expense and agrees that the parties’ respective rights with respect to such matters shall be solely as set forth herein.  Repairs required as the result of fire, earthquake, flood, vandalism, war, or similar cause of damage or destruction shall be controlled by Section 18.

 

14.                               Tenant’s Repairs.  Subject to Section 13 hereof, Tenant, at its expense, shall repair, replace and maintain in good condition all portions of the Premises, including, without limitation, entries, doors, ceilings, interior windows, interior walls, and the interior side of demising walls.  Such repair and replacement may include capital expenditures and repairs whose benefit may extend beyond the Term.  Should Tenant fail to make any such repair or replacement or fail to maintain the Premises, Landlord shall give Tenant notice of such failure.  If Tenant fails to commence cure of such failure within 10 days of Landlord’s notice, and thereafter diligently prosecute such cure to completion, Landlord may perform such work and shall be reimbursed by Tenant within 10 business days after demand therefor; provided, however, that if such failure by Tenant creates or could create an emergency, Landlord may immediately commence cure of such failure and shall thereafter be entitled to recover the costs of such cure from Tenant.  Subject to Sections 17 and 18, Tenant shall bear the full uninsured cost of any repair or replacement to any part of the Project that results from damage caused by Tenant or any Tenant Party and any repair that benefits only the Premises.

 

15.                               Mechanic’s Liens.  Tenant shall discharge, by bond or otherwise, any mechanic’s lien filed against the Premises or against the Project for work claimed to have been done for, or materials claimed to have been furnished to, Tenant within 10 days after the filing thereof, at Tenant’s sole cost and shall otherwise keep the Premises and the Project free from any liens arising out of work performed, materials furnished or obligations incurred by Tenant.  Should Tenant fail to discharge any lien described herein, Landlord shall have the right, but not the obligation, to pay such claim or post a bond or otherwise provide security to eliminate the lien as a claim against title to the Project and the cost thereof shall be immediately due from Tenant as Additional Rent.  If Tenant shall lease or finance 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 filed as a matter of public record by any lessor or creditor of Tenant will 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 Project be furnished on the statement without qualifying language as to applicability of the lien only to removable personal property, located in an identified suite held by Tenant.

 

16.                               Indemnification.  Tenant hereby indemnifies and agrees to defend, save and hold Landlord harmless from and against any and all Claims for injury or death to persons or damage to property occurring within or about the Premises, arising directly or indirectly out of use or occupancy of the Premises or a breach or default by Tenant in the performance of any of its obligations hereunder, except to the extent caused by the willful misconduct or negligence of Landlord.  Landlord shall not be

 

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liable to Tenant for, and Tenant assumes all risk of damage to, personal property (including, without limitation, loss of records kept within the Premises).  Tenant further waives any and all Claims for injury to Tenant’s business or loss of income relating to any such damage or destruction of personal property (including, without limitation, any loss of records).  Landlord shall not be liable for any damages arising from any act, omission or neglect of any tenant in the Project or of any other third party.

 

17.                               Insurance.  Landlord shall maintain all risk property and, if applicable, sprinkler damage insurance covering the full replacement cost of the Project or such lesser coverage amount as Landlord may elect provided such coverage amount is not less than 90% of such full replacement cost.  Landlord shall further procure and maintain commercial general liability insurance with a single loss limit of not less than $2,000,000 for bodily injury and property damage with respect to the Project.  Landlord may, but is not obligated to, maintain such other insurance and additional coverages as it may deem necessary, including, but not limited to, flood, environmental hazard and earthquake, loss or failure of building equipment, errors and omissions, rental loss during the period of repair or rebuilding, workers’ compensation insurance and fidelity bonds for employees employed to perform services and insurance for any improvements installed by Tenant or which are in addition to the standard improvements customarily furnished by Landlord without regard to whether or not such are made a part of the Project.  All such insurance shall be included as part of the Operating Expenses.  The Project may be included in a blanket policy (in which case the cost of such insurance allocable to the Project will be determined by Landlord based upon the insurer’s cost calculations).  Tenant shall also reimburse Landlord for any increased premiums or additional insurance which Landlord reasonably deems necessary as a result of Tenant’s use of the Premises.

 

Tenant, at its sole cost and expense, shall maintain during the Term:  all risk property insurance with business interruption and extra expense coverage, covering the full replacement cost of all property and improvements installed or placed in the Premises by Tenant at Tenant’s expense; workers’ compensation insurance with no less than the minimum limits required by law; employer’s liability insurance with such limits as required by law; and commercial general liability insurance, with a minimum limit of not less than $2,000,000 per occurrence for bodily injury and property damage with respect to the Premises.  The commercial general liability insurance policy shall name Alexandria Real Estate Equities, Inc., and Landlord, its officers, directors, employees, managers and agents (collectively, “Landlord Parties”), as additional insureds; insure on an occurrence and not a claims-made basis; be issued by insurance companies which have a rating of not less than policyholder rating of A and financial category rating of at least Class X in “Best’s Insurance Guide”; shall not be cancelable for nonpayment of premium unless 30 days prior written notice shall have been given to Landlord from the insurer; contain a hostile fire endorsement and a contractual liability endorsement; and provide primary coverage to Landlord (any policy issued to Landlord providing duplicate or similar coverage shall be deemed excess over Tenant’s policies).  Certificates of insurance snowing the limits of coverage required hereunder and showing Landlord as an additional insured shall be delivered to Landlord by Tenant upon commencement of the Term and upon each renewal of said insurance.  Tenant’s policy shall include an aggregate per location endorsement which specifically provides that the amount of insurance shall not be prejudiced by other losses covered by the policy.  Tenant shall, prior to the expiration of such policies, furnish Landlord with renewal certificates.

 

In each instance where insurance is to name Landlord as an additional insured, Tenant shall upon written request of Landlord also designate and furnish certificates so evidencing Landlord as additional insured to:  (i) any lender of Landlord holding a security interest in the Project or any portion thereof, (ii) the landlord under any lease wherein Landlord is tenant of the real property on which the Project is located, if the interest of Landlord is or shall become that of a tenant under a ground or other underlying

 

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lease rather than that of a fee owner, and/or (iii) any management company retained by Landlord to manage the Project.

 

The property insurance obtained by Landlord and Tenant shall include a waiver of subrogation by the insurers and all rights based upon an assignment from its insured, against Landlord or Tenant, and their respective officers, directors, employees, managers and agents (“Related Parties”), in connection with any loss or damage thereby insured against.  Neither party nor its respective Related Parties shall be liable to the other for loss or damage caused by any risk insured against under property insurance required to be maintained hereunder, and each party waives any claims against the other party, and its respective Related Parties, for such loss or damage.  The failure of a party to insure its property shall not void this waiver.  Landlord and its respective Related Parties shall not be liable for, and Tenant hereby waives all claims against such parties for, business interruption and losses occasioned thereby sustained by Tenant or any person claiming through Tenant resulting from any accident or occurrence in or upon the Premises or the Project from any cause whatsoever.  If the foregoing waivers shall contravene any law with respect to exculpatory agreements, the liability of Landlord or Tenant shall be deemed not released but shall be secondary to the other’s insurer.

 

Landlord may require insurance policy limits to be raised to conform with requirements of Landlord’s lender and/or to bring coverage limits to levels then being generally required of new tenants within the Project.

 

18.                               Restoration.  If, at any time during the Term, the Project or the Premises are damaged or destroyed by a fire or other insured casualty, Landlord shall notify Tenant within 45 days after discovery of such damage as to the amount of time Landlord reasonably estimates it will take to restore the Project or the Premises, as applicable (the “Restoration Period”).  If the Restoration Period is estimated to exceed 9 months (the “Maximum Restoration Period”), Landlord may, in such notice, elect to terminate this Lease as of the date that is 75 days after the date of discovery of such damage or destruction; provided, however, that notwithstanding Landlord’s election to restore, Tenant may elect to terminate this Lease by written notice to Landlord delivered within 5 business days of receipt of a notice from Landlord estimating a Restoration Period for the Premises longer than the Maximum Restoration Period.  If Tenant has not exercised its Extension Right pursuant to Section 40, Tenant may also terminate this Lease by written notice to Landlord delivered within 5 business days after receipt of a notice estimating the date on which the Restoration Period is expected to occur if the Restoration Period is estimated by Landlord to be completed during the last 12 months of the Base Term.  Unless either Landlord or Tenant so elects to terminate this Lease, Landlord shall, subject to receipt of sufficient insurance proceeds (with any deductible to be treated as a current Operating Expense), promptly restore the Premises (excluding the improvements installed by Tenant or by Landlord and paid for by Tenant), subject to delays arising from the collection of insurance proceeds, from Force Majeure events or as needed to obtain any license, clearance or other authorization of any kind required to enter into and restore the Premises issued by any Governmental Authority having jurisdiction over the use, storage, handling, treatment, generation, release, disposal, removal or remediation of Hazardous Materials (as defined in Section 30) in, on or about the Premises (collectively referred to herein as “Hazardous Materials Clearances”); provided, however, that if repair or restoration of the Premises is not substantially complete as of the end of the Maximum Restoration Period or, if longer, the Restoration Period, Landlord may, in its sole and absolute discretion, elect not to proceed with such repair and restoration, or Tenant may by written notice to Landlord delivered within 5 business days of the expiration of the Maximum Restoration Period or, if longer, the Restoration Period, elect to terminate this Lease, in which event Landlord shall be relieved of its obligation to make such repairs or restoration and this Lease shall terminate as of the date that is 75 days after the later of:  (i) discovery of such damage or destruction, or (ii) the date all required Hazardous

 

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Materials Clearances are obtained, but Landlord shall retain any Rent paid and the right to any Rent payable by Tenant prior to such election by Landlord or Tenant.

 

Tenant, at its expense, shall promptly perform, subject to delays arising from the collection of insurance proceeds, from Force Majeure (as defined in Section 34) events or to obtain Hazardous Material Clearances, all repairs or restoration not required to be done by Landlord and shall promptly re-enter the Premises and commence doing business in accordance with this Lease.  Notwithstanding the foregoing, either Landlord or Tenant may terminate this Lease upon written notice to the other if the Premises are damaged during the last year of the Term and Landlord reasonably estimates that it will take more than 2 months to repair such damage; provided, however, that such notice is delivered within 10 business days after the date that Landlord provides Tenant with written notice of the estimated Restoration Period.  Landlord shall also have the right to terminate this Lease if insurance proceeds are not available for such restoration.  Rent shall be abated from the date all required Hazardous Material Clearances are obtained until the Premises are repaired and restored, in the proportion which the area of the Premises, if any, which is not usable by Tenant bears to the total area of the Premises, unless Landlord provides Tenant with other space reasonably acceptable to Tenant during the period of repair that is suitable for the temporary conduct of Tenant’s business.  In the event that no Hazardous Material Clearances are required to be obtained by Tenant with respect to the Premises, rent abatement shall commence on the date of discovery of the damage or destruction.  Such abatement shall be the sole remedy of Tenant, and except as provided in this Section 18, Tenant waives any right to terminate the Lease by reason of damage or casualty loss.

 

The provisions of this Lease, including this Section 18, constitute an express agreement between Landlord and Tenant with respect to any and all damage to, or destruction of, all or any part of the Premises, or any other portion of the Project, and any statute or regulation which is now or may hereafter be in effect shall have no application to this Lease or any damage or destruction to all or any part of the Premises or any other portion of the Project, the parties hereto expressly agreeing that this Section 18 sets forth their entire understanding and agreement with respect to such matters.

 

19.                               Condemnation.  If the whole or any material part of the Premises or the Project is taken for any public or quasi-public use under governmental law, ordinance, or regulation, or by right of eminent domain, or by private purchase in lieu thereof (a “Taking” or “Taken”), and the Taking would in Landlord’s reasonable judgment, impair Landlord’s ownership or operation of the Project or would in the reasonable judgment of Landlord and Tenant either prevent or materially interfere with Tenant’s use of the Premises (as resolved, if the parties are unable to agree, by arbitration by a single arbitrator with the qualifications and experience appropriate to resolve the matter and appointed pursuant to and acting in accordance with the rules of the American Arbitration Association), then upon written notice by Landlord or Tenant to the other this Lease shall terminate and Rent shall be apportioned as of said date.  If part of the Premises shall be Taken, and this Lease is not terminated as provided above, Landlord shall promptly restore the Premises and the Project as nearly as is commercially reasonable under the circumstances to their condition prior to such partial Taking and the rentable square footage of the Building, the rentable square footage of the Premises, Tenant’s Share of Operating Expenses and the Rent payable hereunder during the unexpired Term shall be reduced to such extent as may be fair and reasonable under the circumstances.  Upon any such Taking, Landlord shall be entitled to receive the entire price or award from any such Taking without any payment to Tenant, and Tenant hereby assigns to Landlord Tenant’s interest, if any, in such award.  Tenant shall have the right, to the extent that same shall not diminish Landlord’s award, to make a separate claim against the condemning authority (but not Landlord) for such compensation as may be separately awarded or recoverable by Tenant for moving expenses and damage to Tenant’s trade fixtures, if a separate award for such items is made to Tenant.  Tenant hereby waives

 

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any and all rights it might otherwise have pursuant to any provision of state law to terminate this Lease upon a partial Taking of the Premises or the Project.

 

20.                               Events of Default.  Each of the following events shall be a default (“Default”) by Tenant under this Lease:

 

(a)                                 Payment Defaults.  Tenant shall fail to pay any installment of Rent or any other payment hereunder when due.

 

(b)                                 Insurance.  Any insurance required to be maintained by Tenant pursuant to this Lease shall be canceled or terminated or shall expire or shall be reduced or materially changed, or Landlord shall receive a notice of nonrenewal of any such insurance and Tenant shall fail to obtain replacement insurance at least 20 days before the expiration of the current coverage.

 

(c)                                  Abandonment.  Tenant shall abandon the Premises.  Tenant shall not be deemed to have abandoned the Premises if (i) Tenant provides Landlord with reasonable advance notice prior to vacating and, at the time of vacating the Premises, Tenant completes Tenant’s obligations with respect to the Surrender Plan in compliance with Section 28 (Tenant will not be required prepare another Surrender Plan at the expiration or earlier termination of the Term if Tenant does not re-enter the Premises following such abandonment), (ii) Tenant has made reasonable arrangements with Landlord for the security of the Premises for the balance of the Term, and (iii) Tenant continues during the balance of the Term to satisfy all of its obligations under the Lease as they come due.

 

(d)                                 Improper Transfer.  Tenant shall assign, sublease or otherwise transfer or attempt to transfer all or any portion of Tenant’s interest in this Lease or the Premises except as expressly permitted herein, or Tenant’s interest in this Lease shall be attached, executed upon, or otherwise judicially seized and such action is not released within 90 days of the action.

 

(e)                                  Liens.  Tenant shall fail to discharge or otherwise obtain the release of any lien placed upon the Premises in violation of this Lease within 10 days after any such lien is filed against the Premises.

 

(f)                                   Insolvency Events.  Tenant or any guarantor or surety of Tenant’s obligations hereunder shall:  (A) make a general assignment for the benefit of creditors; (B) commence any case, proceeding or other action seeking to have an order for relief entered on its behalf as a debtor or to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, liquidation, dissolution or composition of it or its debts or seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or of any substantial part of its property (collectively a “Proceeding for Relief”); (C) become the subject of any Proceeding for Relief which is not dismissed within 90 days of its filing or entry; or (D) die or suffer a legal disability (if Tenant, guarantor, or surety is an individual) or be dissolved or otherwise fail to maintain its legal existence (if Tenant, guarantor or surety is a corporation, partnership or other entity).

 

(g)                                  Estoppel Certificate or Subordination Agreement.  Tenant fails to execute any document required from Tenant under Sections 23 or 27 within 5 days after a second notice requesting such document.

 

(h)                                 Other Defaults.  Tenant shall fail to comply with any provision of this Lease other than those specifically referred to in this Section 20, and, except as otherwise expressly provided herein, such failure shall continue for a period of 10 days after written notice thereof from Landlord to Tenant.

 

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Any notice given under Section 20(h) hereof shall:  (i) specify the alleged default, (ii) demand that Tenant cure such default, (iii) be in lieu of, and not in addition to, or shall be deemed to be, any notice required under any provision of applicable law, and (iv) not be deemed a forfeiture or a termination of this Lease unless Landlord elects otherwise in such notice; provided that if the nature of Tenant’s default pursuant to Section 20(h) is such that it cannot be cured by the payment of money and reasonably requires more than 10 days to cure, then Tenant shall not be deemed to be in default if Tenant commences such cure within said 10 day period and thereafter diligently prosecutes the same to completion; provided, however, that such cure shall be completed no later than 30 days from the date of Landlord’s notice.

 

21.                               Landlord’s Remedies.

 

(a)                                 Payment By Landlord; Interest.  Upon a Default by Tenant hereunder, Landlord may, without waiving or releasing any obligation of Tenant hereunder, make such payment or perform such act.  All sums so paid or incurred by Landlord, together with interest thereon, from the date such sums were paid or incurred, at the annual rate equal to 12% per annum or the highest rate permitted by law (the “Default Rate”), whichever is less, shall be payable to Landlord on demand as Additional Rent.  Nothing herein shall be construed to create or impose a duty on Landlord to mitigate any damages resulting from Tenant’s Default hereunder.

 

(b)                                 Late Payment Rent.  Late payment by Tenant to Landlord of Rent and other sums due will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult and impracticable to ascertain.  Such costs include, but are not limited to, processing and accounting charges and late charges which may be imposed on Landlord under any Mortgage covering the Premises.  Therefore, if any installment of Rent due from Tenant is not received by Landlord within 5 days after the date such payment is due, Tenant shall pay to Landlord an additional sum of 6% of the overdue Rent as a late charge.  Notwithstanding the foregoing, before assessing a late charge the first time in any calendar year, Landlord shall provide Tenant written notice of the delinquency and will waive the right if Tenant pays such delinquency within 5 days thereafter.  The parties agree that this late charge represents a fair and reasonable estimate of the costs Landlord will incur by reason of late payment by Tenant.  In addition to the late charge, Rent not paid when due shall bear interest at the Default Rate from the 5th day after the date due until paid.

 

(c)                                  Remedies.  Upon the occurrence of a Default, Landlord, at its option, without further notice or demand to Tenant, shall have in addition to all other rights and remedies provided in this Lease, at law or in equity, the option to pursue any one or more of the following remedies, each and all of which shall be cumulative and nonexclusive, without any notice or demand whatsoever.  No cure in whole or in part of such Default by Tenant after Landlord has taken any action beyond giving Tenant notice of such Default to pursue any remedy provided for herein (including retaining counsel to file an action or otherwise pursue any remedies) shall in any way affect Landlord’s right to pursue such remedy or any other remedy provided Landlord herein or under law or in equity, unless Landlord, in its sole discretion, elects to waive such Default.

 

(i)                                     This Lease and the Term and estate hereby granted are subject to the limitation that whenever a Default shall have happened and be continuing, Landlord shall have the right, at its election, then or thereafter while any such Default shall continue and notwithstanding the fact that Landlord may have some other remedy hereunder or at law or in equity, to give Tenant written notice of Landlord’s intention to terminate this Lease on a date specified in such notice, which date shall be not less than 5 days after the giving of such notice, and upon the date so specified, this Lease and the estate hereby granted shall expire and terminate with the same force and effect as if the date specified in such notice were the date hereinbefore fixed for the expiration of this Lease, and all right of Tenant hereunder shall expire and terminate, and Tenant

 

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shall be liable as hereinafter in this Section 21(c) provided.  If any such notice is given, Landlord shall have, on such date so specified, the right of re-entry and possession of the Premises and the right to remove all persons and property therefrom and to store such property in a warehouse or elsewhere at the risk and expense, and for the account, of Tenant.  Should Landlord elect to re-enter as herein provided or should Landlord take possession pursuant to legal proceedings or pursuant to any notice provided for by law, Landlord may from time to time re-let the Premises or any part thereof for such term or terms and at such rental or rentals and upon such terms and conditions as Landlord may deem advisable, with the right to make commercially reasonable alterations in and repairs to the Premises.

 

(ii)                                  In the event of any termination of this Lease as in this Section 21 provided or as required or permitted by law or in equity, Tenant shall forthwith quit and surrender the Premises to Landlord, and Landlord may, without further notice, enter upon, re-enter, possess and repossess the same by summary proceedings, ejectment or otherwise, and again have, repossess and enjoy the same as if this Lease had not been made, and in any such event Tenant and no person claiming through or under Tenant by virtue of any law or an order of any court shall be entitled to possession or to remain in possession of the Premises.  Landlord, at its option, notwithstanding any other provision of this Lease, shall be entitled to recover from Tenant, as and for liquidated damages, the sum of:

 

(A)                               all Base Rent, Additional Rent and other amounts payable by Tenant hereunder then due or accrued and unpaid:  and

 

(B)                               the amount equal to the aggregate of all unpaid Base Rent and Additional Rent which would have been payable if this Lease had not been terminated prior to the end of the Term then in effect, discounted to its then present value in accordance with accepted financial practice using a rate of 5% per annum, for loss of the bargain; and

 

(C)                               all other damages and expenses (including attorneys’ fees and expenses), if any, which Landlord shall have sustained by reason of the breach of any provision of this Lease; less

 

(D)                               the net proceeds of any re-letting actually received by Landlord and the amount of damages which Tenant proves could have been avoided had Landlord taken reasonable steps to mitigate its damages.

 

(iii)                               Nothing herein contained shall limit or prejudice the right of Landlord, in any bankruptcy or insolvency proceeding, to prove for and obtain as liquidated damages by reason of such termination an amount equal to the maximum allowed by any bankruptcy or insolvency proceedings, or to prove for and obtain as liquidated damages by reason of such termination, an amount equal to the maximum allowed by any statute or rule of law, but in each case not more than the amount to which Landlord would otherwise be entitled under this Section 21.

 

(iv)                              Nothing in this Section 21 shall be deemed to affect the right of either party to indemnifications pursuant to this Lease.

 

(v)                                 If Landlord terminates this Lease upon the occurrence of a Default, Tenant will quit and surrender the Premises to Landlord or its agents, and Landlord may, without further notice, enter upon, re-enter and repossess the Premises by summary proceedings, ejectment or otherwise.  The words “enter”, “re-enter”, and “re-entry” are not restricted to their technical legal meanings.

 

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(vi)                              If either party shall be in default in the observance or performance of any provision of this Lease, and an action shall be brought for the enforcement thereof, the non-prevailing party shall pay to the prevailing party all fees, costs and other expenses which may become payable as a result thereof or in connection therewith, including attorneys’ fees and expenses.

 

(vii)                           If Tenant shall default in the keeping, observance or performance of any covenant, agreement, term, provision or condition herein contained, Landlord, without thereby waiving such default, may perform the same for the account and at the expense of Tenant (a) immediately or at any time thereafter and without notice in the case of emergency or in case such default will result in a violation of any legal or insurance requirements, or in the imposition of any lien against all or any portion of the Premises (but only after Tenant has failed to respond to such lien as permitted by Section 15 within the time period provided in Section 15), and (b) in any other case if such default continues after any applicable notice and cure period provided in Section 21.  All reasonable costs and expenses incurred by Landlord in connection with any such performance by it for the account of Tenant and also all reasonable costs and expenses, including attorneys’ fees and disbursements incurred by Landlord in any action or proceeding (including any summary dispossess proceeding) brought by Landlord to enforce any obligation of Tenant under this Lease and/or right of Landlord in or to the Premises, shall be paid by Tenant to Landlord within 10 days after demand.

 

(viii)                        Independent of the exercise of any other remedy of Landlord hereunder or under applicable law, Landlord may conduct an environmental test of the Premises as generally described in Section 30(d), at Tenant’s expense, to the extent provided in Section 30(d).

 

(ix)                              In the event that Tenant is in breach or Default under this Lease, whether or not Landlord exercises its right to terminate or any other remedy, Tenant shall reimburse Landlord upon demand for any costs and expenses that Landlord may incur in connection with any such breach or Default, as provided in this Section 21(c).  Such costs shall include legal fees and costs incurred for the negotiation of a settlement, enforcement of rights or otherwise.  Tenant shall also indemnify Landlord against and hold Landlord harmless from all costs, expenses, demands and liability, including without limitation, legal fees and costs Landlord shall incur if Landlord shall become or be made a party to any claim or action instituted by Tenant against any third party, or by any third party against Tenant, or by or against any person holding any interest under or using the Premises by license of or agreement with Tenant.

 

Except as otherwise provided in this Section 21, no right or remedy herein conferred upon or reserved to Landlord is intended to be exclusive of any other right or remedy, and every right and remedy shall be cumulative and in addition to any other legal or equitable right or remedy given hereunder, or now or hereafter existing.  No waiver of any provision of this Lease shall be deemed to have been made unless expressly so made in writing.  Landlord shall be entitled, to the extent permitted by law, to seek injunctive relief in case of the violation, or attempted or threatened violation, of any provision of this Lease, or to seek a decree compelling observance or performance of any provision of this Lease, or to seek any other legal or equitable remedy.

 

22.                               Assignment and Subletting.

 

(a)                                 General Prohibition.  Without Landlord’s prior written consent subject to and on the conditions described in Section 22(b) below, Tenant shall not, directly or indirectly, voluntarily or by operation of law, assign this Lease or sublease the Premises or any part thereof or mortgage, pledge, or hypothecate its leasehold interest or grant any concession or license within the Premises, and any attempt

 

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to do any of the foregoing shall be void and of no effect.  If Tenant is a corporation, partnership or limited liability company, the shares or other ownership interests thereof which are not actively traded upon a stock exchange or in the over-the-counter market, a transfer or series of transfers whereby 25% or more of the issued and outstanding shares or other ownership interests of such corporation are, or voting control is, transferred (but excepting transfers upon deaths of individual owners) from a person or persons or entity or entities which were owners thereof at time of execution of this Lease to persons or entities who were not owners of shares or other ownership interests of the corporation, partnership or limited liability company at time of execution of this Lease, shall be deemed an assignment of this Lease requiring the consent of Landlord as provided in this Section 22.  Notwithstanding the foregoing, Tenant shall have the right to obtain financing from institutional investors (including venture capital funding and corporate partners) which regularly invest in private biotechnology companies or undergo a public offering which results in a change in control of Tenant without such change of control constituting an assignment under this Section 22 requiring Landlord consent, provided that (i) Tenant notifies Landlord in writing of the financing at least 5 business days prior to the closing of the financing, and (ii) provided that in no event shall such financing result in a change in use of the Premises from the use contemplated by Tenant at the commencement of the Term.

 

(b)                                 Permitted Transfers.  If Tenant desires to assign, sublease, hypothecate or otherwise transfer this Lease or sublet the Premises other than pursuant to a Permitted Assignment (as defined below), then at least 15 business days, but not more than 45 business days, before the date Tenant desires the assignment or sublease to be effective (the “Assignment Date”), Tenant shall give Landlord a notice (the “Assignment Notice”) containing such information about the proposed assignee or sublessee, including the proposed use of the Premises and any Hazardous Materials proposed to be used, stored handled, treated, generated in or released or disposed of from the Premises, the Assignment Date, any relationship between Tenant and the proposed assignee or sublessee, and all material terms and conditions of the proposed assignment or sublease, including a copy of any proposed assignment or sublease in its final form, and such other information as Landlord may deem reasonably necessary or appropriate to its consideration whether to grant its consent.  Landlord may, by giving written notice to Tenant within 15 business days after receipt of the Assignment Notice:  (i) grant such consent, (ii) refuse such consent, in its reasonable discretion; or (iii) terminate this Lease with respect to the space described in the Assignment Notice as of the Assignment Date (an “Assignment Termination”).  Among other reasons, it shall be reasonable for Landlord to withhold its consent in any of these instances:  (1) the proposed assignee or subtenant is a governmental agency; (2) in Landlord’s reasonable judgment, the use of the Premises by the proposed assignee or subtenant would entail any alterations that would lessen the value of the leasehold improvements in the Premises, or would require increased services by Landlord; (3) in Landlord’s reasonable judgment, the proposed assignee or subtenant is engaged in areas of scientific research or other business concerns that are controversial; (4) in Landlord’s reasonable judgment, the proposed assignee or subtenant lacks the creditworthiness to support the financial obligations it will incur under the proposed assignment or sublease; (5) in Landlord’s reasonable judgment, the character, reputation, or business of the proposed assignee or subtenant is inconsistent with the desired tenant-mix or the quality of other tenancies in the Project or is inconsistent with the type and quality of the nature of the Building; (6) Landlord has received from any prior landlord to the proposed assignee or subtenant a negative report concerning such prior landlord’s experience with the proposed assignee or subtenant; (7) Landlord has experienced previous defaults by or is in litigation with the proposed assignee or subtenant; (8) the use of the Premises by the proposed assignee or subtenant will violate any applicable Legal Requirement; (9) the proposed assignee or subtenant, or any entity that, directly or indirectly, controls, is controlled by, or is under common control with the proposed assignee or subtenant, is then an occupant of the Project; (10) the proposed assignee or subtenant is an entity with whom Landlord is negotiating to lease space in the Project; or (11) the assignment or sublease is prohibited by Landlord’s lender.  If Landlord delivers notice of its election to exercise an Assignment Termination, Tenant shall have the

 

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right to withdraw such Assignment Notice by written notice to Landlord of such election within 5 business days after Landlord’s notice electing to exercise the Assignment Termination.  If Tenant withdraws such Assignment Notice, this Lease shall continue in full force and effect.  If Tenant does not withdraw such Assignment Notice, this Lease, and the term and estate herein granted, shall terminate as of the Assignment Date with respect to the space described in such Assignment Notice.  No failure of Landlord to exercise any such option to terminate this Lease, or to deliver a timely notice in response to the Assignment Notice, shall be deemed to be Landlord’s consent to the proposed assignment, sublease or other transfer.  Tenant shall pay to Landlord a fee equal to One Thousand Five Hundred Dollars ($1,500) in connection with its consideration of any Assignment Notice and/or its preparation or review of any consent documents.  Notwithstanding the foregoing, Tenant shall have the right to assign this Lease, upon 10 days prior written notice to Landlord (unless Tenant is prohibited from providing such notice by confidentiality or Legal Requirements in which case Tenant shall notify Landlord promptly thereafter) but without obtaining Landlord’s prior written consent, to a corporation or other entity which is a successor-in-interest to Tenant, by way of merger, consolidation or corporate reorganization, or by the purchase of all or substantially all of the assets or the ownership interests of Tenant provided that (i) such merger or consolidation, or such acquisition or assumption, as the case may be, is for a good business purpose and not principally for the purpose of transferring the Lease, and (ii) as of the date that is 1 day after the Permitted Assignment, the net worth (as determined in accordance with generally accepted accounting principles (“GAAP”)) of the assignee is not less than the greater of the net worth (as determined in accordance with GAAP) of Tenant as of (A) the Commencement Date, or (B) as of the date of Tenant’s most current quarterly or annual financial statements, and (iii) such assignee shall agree in writing to assume all of the terms, covenants and conditions of this Lease arising after the effective date of the assignment (a “Permitted Assignment”).

 

(c)                                  Additional Conditions.  As a condition to any such assignment or subletting, whether or not Landlord’s consent is required, Landlord may require:

 

(i)                                     that any assignee or subtenant agree, in writing at the time of such assignment or subletting, that if Landlord gives such party notice that Tenant is in default under this Lease, such party shall thereafter make all payments otherwise due Tenant directly to Landlord, which payments will be received by Landlord without any liability except to credit such payment against those due under the Lease, and any such third party shall agree to attorn to Landlord or its successors and assigns should this Lease be terminated for any reason; provided, however, in no event shall Landlord or its successors or assigns be obligated to accept such attornment; and

 

(ii)                                  A list of Hazardous Materials, certified by the proposed assignee or sublessee to be true and correct, which the proposed assignee or sublessee intends to use, store, handle, treat, generate in or release or dispose of from the Premises, together with copies of all documents relating to such use, storage, handling, treatment, generation, release or disposal of Hazardous Materials by the proposed assignee or subtenant in the Premises or on the Project, prior to the proposed assignment or subletting, including, without limitation:  permits; approvals; reports and correspondence; storage and management plans; plans relating to the installation of any storage tanks to be installed in or under the Project (provided, said installation of tanks shall only be permitted after Landlord has given its written consent to do so, which consent may be withheld in Landlord’s sole and absolute discretion); and all closure plans or any other documents required by any and all federal, state and local Governmental Authorities for any storage tanks installed in, on or under the Project for the closure of any such tanks.  Neither Tenant nor any such proposed assignee or subtenant is required, however, to provide Landlord with any portion(s) of the such documents containing information of a proprietary nature which, in and of themselves, do not contain a reference to any Hazardous Materials or hazardous activities.

 

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(d)                                 No Release of Tenant, Sharing of Excess Rents.  Notwithstanding any assignment or subletting, Tenant and any guarantor or surety of Tenant’s obligations under this Lease shall at all times remain fully and primarily responsible and liable for the payment of Rent and for compliance with all of Tenant’s other obligations under this Lease.  If the Rent due and payable by a sublessee or assignee (or a combination of the rental payable under such sublease or assignment plus any bonus or other consideration therefor or incident thereto in any form) exceeds the Rent payable under this Lease, (excluding however, any Rent payable under this Section) (“Excess Rent”), then Tenant shall be bound and obligated to pay Landlord as Additional Rent hereunder 50% of such Excess Rent within 10 days following receipt thereof by Tenant.  If Tenant shall sublet the Premises or any part 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 as assignee and as attorney-in-fact for Tenant, or a receiver for Tenant appointed on Landlord’s application, may collect such rent and apply it toward Tenant’s obligations under this Lease; except that, until the occurrence of a Default, Tenant shall have the right to collect such rent.

 

(e)                                  No Waiver.  The consent by Landlord to an assignment or subletting shall not relieve Tenant or any assignees of this Lease or any sublessees of the Premises from obtaining the consent of Landlord to any further assignment or subletting nor shall it release Tenant or any assignee or sublessee of Tenant from full and primary liability under the Lease.  The acceptance of Rent hereunder, or the acceptance of performance of any other term, covenant, or condition thereof, from any other person or entity shall not be deemed to be a waiver of any of the provisions of this Lease or a consent to any subletting, assignment or other transfer of the Premises.

 

(f)                                   Prior Conduct of Proposed Transferee.  Notwithstanding any other provision of this Section 22, if (i) the proposed assignee or sublessee of Tenant has been required by any prior landlord, lender or Governmental Authority to take remedial action in connection with Hazardous Materials contaminating a property, where the contamination resulted from such party’s action or use of the property in question, (ii) the proposed assignee or sublessee is subject to an enforcement order issued by any Governmental Authority in connection with the use, storage, handling, treatment, generation, release or disposal of Hazardous Materials (including, without limitation, any order related to the failure to make a required reporting to any Governmental Authority), or (iii) because of the existence of a pre-existing environmental condition in the vicinity of or underlying the Project, the risk that Landlord would be targeted as a responsible party in connection with the remediation of such pre-existing environmental condition would be materially increased or exacerbated by the proposed use of Hazardous Materials by such proposed assignee or sublessee, Landlord shall have the absolute right to refuse to consent to any assignment or subletting to any such party.

 

23.                               Estoppel Certificate.  Tenant shall, within 10 business days of written notice from Landlord, execute, acknowledge and deliver a statement in writing in any form reasonably requested by a proposed lender or purchaser, (i) 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 the rental and other charges are paid in advance, if any, (ii) acknowledging that there are not any uncured defaults on the part of Landlord hereunder, or specifying such defaults if any are claimed, and (iii) setting forth such further information with respect to the status of this Lease or the Premises as may be requested thereon.  Notwithstanding the foregoing, in no event shall Tenant be required to make any statement or certification that Tenant reasonably determines contains misstatements of material facts.  Any such statement may be relied upon by any prospective purchaser or encumbrancer of all or any portion of the real property of which the Premises are a part.  Tenant’s failure to deliver such statement within such time shall, at the option of Landlord, constitute a Default under this Lease, and, in any event, shall be conclusive upon Tenant that the Lease is in full force

 

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and effect and without modification except as may be represented by Landlord in any certificate prepared by Landlord and delivered to Tenant for execution.

 

24.                               Quiet Enjoyment.  So long as Tenant is not in Default under this Lease, Tenant shall, subject to the terms of this Lease, at all times during the Term, have peaceful and quiet enjoyment of the Premises against any person claiming by, through or under Landlord.

 

25.                               Prorations.  All prorations required or permitted to be made hereunder shall be made on the basis of a 360 day year and 30 day months.

 

26.                               Rules and Regulations.  Tenant shall, at all times during the Term and any extension thereof, comply with all reasonable rules and regulations at any time or from time to time established by Landlord covering use of the Premises and the Project.  The current rules and regulations are attached hereto as Exhibit E.  If there is any conflict between said rules and regulations and other provisions of this Lease, the terms and provisions of this Lease shall control.  Landlord shall not have any liability or obligation for the breach of any rules or regulations by other tenants in the Project and shall not enforce such rules and regulations in a discriminatory manner.

 

27.                               Subordination.  This Lease and Tenant’s interest and rights hereunder are hereby made and shall be subject and subordinate at all times to the lien of any Mortgage now existing or hereafter created on or against the Project or the Premises, and all amendments, restatements, renewals, modifications, consolidations, refinancing, assignments and extensions thereof, without the necessity of any further instrument or act on the part of Tenant; provided, however that so long as there is no Default hereunder, Tenant’s right to possession of the Premises shall not be disturbed by the Holder of any such Mortgage.  Tenant agrees, at the election of the Holder of any such Mortgage, to attorn to any such Holder.  Tenant agrees upon demand to execute, acknowledge and deliver such instruments, confirming such subordination, and such instruments of attornment as shall be requested by any such Holder, provided any such instruments contain appropriate non-disturbance provisions assuring Tenant’s quiet enjoyment of the Premises as set forth in Section 24 hereof.  Tenant hereby appoints Landlord attorney-in-fact for Tenant irrevocably (such power of attorney being coupled with an interest) to execute, acknowledge and deliver any such instrument and instruments for and in the name of Tenant and to cause any such instrument to be recorded.  Notwithstanding the foregoing, any such Holder may at any time subordinate its Mortgage to this Lease, without Tenant’s consent, by notice in writing to Tenant, and thereupon this Lease shall be deemed prior to such Mortgage without regard to their respective dates of execution, delivery or recording and in that event such Holder shall have the same rights with respect to this Lease as though this Lease had been executed prior to the execution, delivery and recording of such Mortgage and had been assigned to such Holder.  Notwithstanding the foregoing, in no event shall Tenant be required to execute any instruments pursuant to this Section 27 which Tenant reasonably determines contains misstatements of material facts in which case Tenant shall immediately notify Landlord in writing of the existence of such misstatements of material facts.  The term “Mortgage” whenever used in this Lease shall be deemed to include deeds of trust, security assignments and any other encumbrances, and any reference to the “Holder” of a Mortgage shall be deemed to include the beneficiary under a deed of trust.

 

28.                               Surrender.  Upon the expiration of the Term or earlier termination of Tenant’s right of possession, Tenant shall surrender the Premises to Landlord in the same condition as received, subject to any Alterations or Installations permitted by Landlord to remain in the Premises, free of Hazardous Materials brought upon, kept, used, stored, handled, treated, generated in, or released or disposed of from, the Premises by any person other than a Landlord Party (collectively, “Tenant HazMat Operations”) and released of all Hazardous Materials Clearances, broom clean, ordinary wear and tear and casualty loss and condemnation covered by Sections 18 and 19 excepted.  At least 3 months prior to the surrender of

 

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the Premises, Tenant shall deliver to Landlord a narrative description of the actions proposed (or required by any Governmental Authority) to be taken by Tenant in order to surrender the Premises (including any Installations permitted by Landlord to remain in the Premises) at the expiration or earlier termination of the Term, free from any residual impact from the Tenant HazMat Operations and otherwise released for unrestricted use and occupancy (the “Surrender Plan”).  Such Surrender Plan shall be accompanied by a current listing of (i) all Hazardous Materials licenses and permits held by or on behalf of any Tenant Party with respect to the Premises, and (ii) all Hazardous Materials used, stored, handled, treated, generated, released or disposed of from the Premises, and shall be subject to the review and approval of Landlord’s environmental consultant.  In connection with the review and approval of the Surrender Plan, upon the request of Landlord, Tenant shall deliver to Landlord or its consultant such additional non-proprietary information concerning Tenant HazMat Operations as Landlord shall request.  On or before such surrender, Tenant shall deliver to Landlord evidence that the approved Surrender Plan shall have been satisfactorily completed and Landlord shall have the right, subject to reimbursement at Tenant’s expense as set forth below, to cause Landlord’s environmental consultant to inspect the Premises and perform such additional procedures as may be deemed reasonably necessary to confirm that the Premises are, as of the effective date of such surrender or early termination of the Lease, free from any residual impact from Tenant HazMat Operations.  Tenant shall reimburse Landlord, as Additional Rent, for the actual out-of pocket expense incurred by Landlord for Landlord’s environmental consultant to review and approve the Surrender Plan and to visit the Premises and verify satisfactory completion of the same, which cost shall not exceed $5,000.  Landlord shall have the unrestricted right to deliver such Surrender Plan and any report by Landlord’s environmental consultant with respect to the surrender of the Premises to third parties.

 

If Tenant shall fail to prepare or submit a Surrender Plan approved by Landlord, or if Tenant shall fail to complete the approved Surrender Plan, or if such Surrender Plan, whether or not approved by Landlord, shall fail to adequately address any residual effect of Tenant HazMat Operations in, on or about the Premises, Landlord shall have the right to take such actions as Landlord may deem reasonable or appropriate to assure that the Premises and the Project are surrendered free from any residual impact from Tenant HazMat Operations, the cost of which actions shall be reimbursed by Tenant as Additional Rent, without regard to the limitation set forth in the first paragraph of this Section 28.

 

Tenant shall immediately return to Landlord all keys and/or access cards to parking, the Project, restrooms or all or any portion of the Premises furnished to or otherwise procured by Tenant.  If any such access card or key is lost, Tenant shall pay to Landlord, at Landlord’s election, either the cost of replacing such lost access card or key or the cost of reprogramming the access security system in which such access card was used or changing the lock or locks opened by such lost key.  Any Tenant’s Property, Alterations and property not so removed by Tenant as permitted or required herein shall be deemed abandoned and may be stored, removed, and disposed of by Landlord at Tenant’s expense, and Tenant waives all claims against Landlord for any damages resulting from Landlord’s retention and/or disposition of such property.  All obligations of Tenant hereunder not fully performed as of the termination of the Term, including the obligations of Tenant under Section 30 hereof, shall survive the expiration or earlier termination of the Term, including, without limitation, indemnity obligations, payment obligations with respect to Rent and obligations concerning the condition and repair of the Premises.

 

29.                               Waiver of Jury Trial.  TO THE EXTENT PERMITTED BY LAW, TENANT AND LANDLORD WAIVE ANY RIGHT TO TRIAL BY JURY OR TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, BETWEEN LANDLORD AND TENANT ARISING OUT OF THIS LEASE OR ANY OTHER INSTRUMENT, DOCUMENT, OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED HERETO.

 

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30.                               Environmental Requirements.

 

(a)                                 Prohibition/Compliance/lndemnity.  Tenant shall not cause or permit any Hazardous Materials (as hereinafter defined) to be brought upon, kept, used, stored, handled, treated, generated in or about, or released or disposed of from, the Premises or the Project in violation of applicable Environmental Requirements (as hereinafter defined) by Tenant or any Tenant Party.  If Tenant breaches the obligation stated in the preceding sentence, or if the presence of Hazardous Materials in the Premises during the Term or any holding over results in contamination of the Premises, the Project or any adjacent property or if contamination of the Premises, the Project or any adjacent property by Hazardous Materials brought into, kept, used, stored, handled, treated, generated in or about, or released or disposed of from, the Premises by anyone other than Landlord and Landlord’s employees, agents and contractors otherwise occurs during the Term or any holding over, Tenant hereby indemnifies and shall defend and hold Landlord, its officers, directors, employees, agents and contractors harmless from any and all actions (including, without limitation, remedial or enforcement actions of any kind, administrative or judicial proceedings, and orders or judgments arising out of or resulting therefrom), costs, claims, damages (including, without limitation, punitive damages and damages based upon diminution in value of the Premises or the Project, or the loss of, or restriction on, use of the Premises or any portion of the Project), expenses (including, without limitation, attorneys’, consultants’ and experts’ fees, court costs and amounts paid in settlement of any claims or actions), fines, forfeitures or other civil, administrative or criminal penalties, injunctive or other relief (whether or not based upon personal injury, property damage, or contamination of, or adverse effects upon, the environment, water tables or natural resources), liabilities or losses (collectively, “Environmental Claims”) which arise during or after the Term as a result of such contamination.  This indemnification of Landlord by Tenant includes, without limitation, costs incurred in connection with any investigation of site conditions or any cleanup, treatment, remedial, removal, or restoration work required by any federal, state or local Governmental Authority because of Hazardous Materials present in the air, soil or ground water above, on, or under the Premises.  Without limiting the foregoing, if the presence of any Hazardous Materials on the Premises, the Project or any adjacent property caused or permitted by Tenant or any Tenant Party results in any contamination of the Premises, the Project or any adjacent property, Tenant shall promptly take all actions at its sole expense and in accordance with applicable Environmental Requirements as are necessary to return the Premises, the Project or any adjacent property to the condition existing prior to the time of such contamination, provided that Landlord’s approval of such action shall first be obtained, which approval shall not unreasonably be withheld so long as such actions would not potentially have any material adverse long-term or short-term effect on the Premises or the Project.

 

(b)                                 Business.  Landlord acknowledges that it is not the intent of this Section 30 to prohibit Tenant from using the Premises for the Permitted Use.  Tenant may operate its business according to prudent industry practices so long as the use or presence of Hazardous Materials is strictly and properly monitored according to all then applicable Environmental Requirements.  As a material inducement to Landlord to allow Tenant to use Hazardous Materials in connection with its business, Tenant agrees to deliver to Landlord prior to the Commencement Date a list identifying each type of Hazardous Materials to be brought upon, kept, used, stored, handled, treated, generated on, or released or disposed of from, the Premises and setting forth any and all governmental approvals or permits required in connection with the presence, use, storage, handling, treatment, generation, release or disposal of such Hazardous Materials on or from the Premises (“Hazardous Materials List”).  Tenant shall deliver to Landlord an updated Hazardous Materials List at least once a year and shall also deliver an updated list before any new Hazardous Material is brought onto, kept, used, stored, handled, treated, generated on, or released or disposed of from, the Premises.  Tenant shall deliver to Landlord true and correct copies of the following documents (the “Haz Mat Documents”) relating to the use, storage, handling, treatment, generation, release or disposal of Hazardous Materials prior to the Commencement Date, or if unavailable at that

 

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time, concurrent with the receipt from or submission to a Governmental Authority:  permits; approvals; reports and correspondence; storage and management plans, notice of violations of any Legal Requirements; plans relating to the installation of any storage tanks to be installed in or under the Project (provided, said installation of tanks shall only be permitted after Landlord has given Tenant its written consent to do so, which consent may be withheld in Landlord’s sole and absolute discretion); all closure plans or any other documents required by any and all federal, state and local Governmental Authorities for any storage tanks installed in, on or under the Project for the closure of any such tanks; and a Surrender Plan (to the extent surrender in accordance with Section 28 cannot be accomplished in 3 months).  Tenant is not required, however, to provide Landlord with any portion(s) of the Haz Mat Documents containing information of a proprietary nature which, in and of themselves, do not contain a reference to any Hazardous Materials or hazardous activities.  It is not the intent of this Section to provide Landlord with information which could be detrimental to Tenant’s business should such information become possessed by Tenant’s competitors.  Notwithstanding anything to the contrary contained herein, Tenant has advised Landlord that the Hazardous Materials List attached to this Lease as Exhibit G reflects the type and quality of Hazardous Materials that Tenant will initially be using in the Premises and Landlord acknowledges and agrees that the Hazardous Materials List attached hereto as Exhibit G fulfills Tenant’s obligation to deliver a Hazardous Materials List pursuant to the second sentence of this paragraph.

 

(c)                                  Tenant Representation and Warranty.  Tenant hereby represents and warrants to Landlord that (i) neither Tenant nor any of its legal predecessors has been required by any prior landlord, lender or Governmental Authority at any time to take remedial action in connection with Hazardous Materials contaminating a property which contamination was permitted by Tenant of such predecessor or resulted from Tenant’s or such predecessor’s action or use of the property in question, and (ii) Tenant is not subject to any enforcement order issued by any Governmental Authority in connection with the use, storage, handling, treatment, generation, release or disposal of Hazardous Materials (including, without limitation, any order related to the failure to make a required reporting to any Governmental Authority).  If Landlord determines that this representation and warranty was not true as of the date of this lease, Landlord shall have the right to terminate this Lease in Landlord’s sole and absolute discretion.

 

(d)                                 Testing.  Landlord shall have the right to conduct annual tests of the Premises to determine whether any contamination of the Premises or the Project has occurred as a result of Tenant’s use.  Tenant shall be required to pay the cost of such annual test of the Premises if there is violation of this Section 30 or if contamination for which Tenant is responsible under this Section 30 is identified; provided, however, that if Tenant conducts its own tests of the Premises using third party contractors and test procedures acceptable to Landlord which tests are certified to Landlord, Landlord shall accept such tests in lieu of the annual tests to be paid for by Tenant.  In addition, at any time, and from time to time, prior to the expiration or earlier termination of the Term, Landlord shall have the right to conduct appropriate tests of the Premises and the Project to determine if contamination has occurred as a result of Tenant’s use of the Premises.  In connection with such testing, upon the request of Landlord, Tenant shall deliver to Landlord or its consultant such non-proprietary information concerning the use of Hazardous Materials in or about the Premises by Tenant or any Tenant Party.  If contamination has occurred for which Tenant is liable under this Section 30, Tenant shall pay all costs to conduct such tests.  If no such contamination is found, Landlord shall pay the costs of such tests (which shall not constitute an Operating Expense).  Landlord shall provide Tenant with a copy of all third party, non-confidential reports and tests of the Premises made by or on behalf of Landlord during the Term without representation or warranty and subject to a confidentiality agreement.  Tenant shall, at its sole cost and expense, promptly and satisfactorily remediate any environmental conditions identified by such testing in accordance with all Environmental Requirements.  Landlord’s receipt of or satisfaction with any environmental assessment in no way waives any rights which Landlord may have against Tenant.

 

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(e)                                  Control Areas.  Tenant shall be allowed to utilize up to its pro rata share of the Hazardous Materials inventory within any control area or zone (located within the Premises), as designated by the applicable building code, for chemical use or storage.  As used in the preceding sentence, Tenant’s pro rata share of any control areas or zones located within the Premises shall be determined based on the rentable square footage that Tenant leases within the applicable control area or zone.  For purposes of example only, if a control area or zone contains 10,000 rentable square feet and 2,000 rentable square feet of a tenant’s premises are located within such control area or zone (while such premises as a whole contains 5,000 rentable square feet), the applicable tenant’s pro rata share of such control area would be 20%.

 

(f)                                   Underground Tanks.  If underground or other storage tanks storing Hazardous Materials located on the Premises or the Project are used by Tenant or are hereafter placed on the Premises or the Project by Tenant, Tenant shall install, use, monitor, operate, maintain, upgrade and manage such storage tanks, maintain appropriate records, obtain and maintain appropriate insurance, implement reporting procedures, properly close any underground storage tanks, and take or cause to be taken all other actions necessary or required under applicable state and federal Legal Requirements, as such now exists or may hereafter be adopted or amended in connection with the installation, use, maintenance, management, operation, upgrading and closure of such storage tanks.

 

(g)                                  Tenant’s Obligations.  Tenant’s obligations under this Section 30 shall survive the expiration or earlier termination of the Lease.  During any period of time after the expiration or earlier termination of this Lease required by Tenant or Landlord to complete the removal from the Premises of any Hazardous Materials (including, without limitation, the release and termination of any licenses or permits restricting the use of the Premises and the completion of the approved Surrender Plan), Tenant shall continue to pay the full Rent in accordance with this Lease for any portion of the Premises not relet by Landlord in Landlord’s sole discretion, which Rent shall be prorated daily.

 

(h)                                 Definitions.  As used herein, the term “Environmental Requirements” means all applicable present and future statutes, regulations, ordinances, rules, codes, judgments, orders or other similar enactments of any Governmental Authority regulating or relating to health, safety, or environmental conditions on, under, or about the Premises or the Project, or the environment, including without limitation, the following:  the Comprehensive Environmental Response, Compensation and Liability Act; the Resource Conservation and Recovery Act; and all state and local counterparts thereto, and any regulations or policies promulgated or issued thereunder.  As used herein, the term “Hazardous Materials” means and includes any substance, material, waste, pollutant, or contaminant listed or defined as hazardous or toxic, or regulated by reason of its impact or potential impact on humans, animals and/or the environment under any Environmental Requirements, asbestos and petroleum, including crude oil or any fraction thereof, natural gas liquids, liquefied natural gas, or synthetic gas usable for fuel (or mixtures of natural gas and such synthetic gas).  As defined in Environmental Requirements, Tenant is and shall be deemed to be the “operator” of Tenant’s “facility” and the “owner” of all Hazardous Materials brought on the Premises by Tenant or any Tenant Party, and the wastes, by-products, or residues generated, resulting, or produced therefrom.

 

31.                               Tenant’s Remedies/Limitation of Liability.  Landlord shall not be in default hereunder unless Landlord fails to perform any of its obligations hereunder within 30 days after written notice from Tenant specifying such failure (unless such performance will, due to the nature of the obligation, require a period of time in excess of 30 days, then after such period of time as is reasonably necessary).  Upon any default by Landlord, Tenant shall give notice by registered or certified mail to any Holder of a Mortgage covering the Premises and to any landlord of any lease of property in or on which the Premises are located and Tenant shall offer such Holder and/or landlord a reasonable opportunity to cure the default, including time to obtain possession of the Project by power of sale or a judicial action if such should

 

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prove necessary to effect a cure; provided Landlord shall have furnished to Tenant in writing the names and addresses of all such persons who are to receive such notices.  All obligations of Landlord hereunder shall be construed as covenants, not conditions; and, except as may be otherwise expressly provided in this Lease, Tenant may not terminate this Lease for breach of Landlord’s obligations hereunder.

 

All obligations of Landlord under this Lease will be binding upon Landlord only during the period of its ownership of the Premises and not thereafter.  The term “Landlord” in this Lease shall mean only the owner for the time being of the Premises.  Upon the transfer by such owner of its interest in the Premises, such owner shall thereupon be released and discharged from all obligations of Landlord thereafter accruing, but such obligations shall be binding during the Term upon each new owner for the duration of such owner’s ownership.

 

32.                               Inspection and Access.  Landlord and its agents, representatives, and contractors may enter the Premises at any reasonable time to inspect the Premises and to make such repairs as may be required or permitted pursuant to this Lease and for any other business purpose.  Landlord and Landlord’s representatives may enter the Premises during business hours on not less than 48 hours advance written notice (except in the case of emergencies in which case no such notice shall be required and such entry may be at any time) for the purpose of effecting any such repairs, inspecting the Premises, showing the Premises to prospective purchasers and, during the last year of the Term, to prospective tenants or for any other business purpose.  Landlord may erect a suitable sign on the Premises stating the Premises are available to let or that the Project is available for sale.  Landlord may grant easements, make public dedications, designate Common Areas and create restrictions on or about the Premises, provided that no such easement, dedication, designation or restriction materially, adversely affects Tenant’s use or occupancy of the Premises for the Permitted Use.  At Landlord’s request, Tenant shall execute such instruments as may be necessary for such easements, dedications or restrictions.  Tenant shall at all times, except in the case of emergencies, have the right to escort Landlord or its agents, representatives, contractors or guests while the same are in the Premises, provided such escort does not materially and adversely affect Landlord’s access rights hereunder.

 

33.                               Security.  Tenant acknowledges and agrees that security devices and services, if any, while intended to deter crime may not in given instances prevent theft or other criminal acts and that Landlord is not providing any security services with respect to the Premises.  Tenant agrees that Landlord shall not be liable to Tenant for, and Tenant waives any claim against Landlord with respect to, any loss by theft or any other damage suffered or incurred by Tenant in connection with any unauthorized entry into the Premises or any other breach of security with respect to the Premises.  Tenant shall be solely responsible for the personal safety of Tenant’s officers, employees, agents, contractors, guests and invitees while any such person is in, on or about the Premises and/or the Project.  Tenant shall at Tenant’s cost obtain insurance coverage to the extent Tenant desires protection against such criminal acts.

 

34.                               Force Majeure.  Landlord shall not be responsible or liable for delays in the performance of its obligations hereunder when caused by, related to, or arising out of acts of God, sinkholes or subsidence, strikes, lockouts, or other labor disputes, embargoes, quarantines, weather, national, regional, or local disasters, calamities, or catastrophes, inability to obtain labor or materials (or reasonable substitutes therefor) at reasonable costs or failure of, or inability to obtain, utilities necessary for performance, governmental restrictions, orders, limitations, regulations, or controls, national emergencies, delay in issuance or revocation of permits, enemy or hostile governmental action, terrorism, insurrection, riots, civil disturbance or commotion, fire or other casualty, and other causes or events beyond the reasonable control of Landlord (“Force Majeure”).

 

35.                               Brokers.  Landlord and Tenant each represents and warrants that it has not dealt with any broker, agent or other person (collectively, “Broker”) in connection with this transaction and that no

 

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Broker brought about this transaction, other than Cushman & Wakefield and NAI Hunneman Commercial.  Landlord and Tenant each hereby agree to indemnify and hold the other harmless from and against any claims by any Broker, other than the broker, if any named in this Section 35, claiming a commission or other form of compensation by virtue of having dealt with Tenant or Landlord, as applicable, with regard to this leasing transaction.  Landlord shall be responsible for all commissions due to Cushman & Wakefield and NAI Hunneman Commercial arising out of the execution of this Lease in accordance with the terms of a separate written agreements between Cushman & Wakefield and NAI Hunneman Commercial and Landlord.  Tenant shall not be required to pay any commissions to Cushman & Wakefield and NAI Hunneman Commercial in connection with this Lease.

 

36.                               Limitation on Landlord’s Liability.  NOTWITHSTANDING ANYTHING SET FORTH HEREIN OR IN ANY OTHER AGREEMENT BETWEEN LANDLORD AND TENANT TO THE CONTRARY:  (A) LANDLORD SHALL NOT BE LIABLE TO TENANT OR ANY OTHER PERSON FOR (AND TENANT AND EACH SUCH OTHER PERSON ASSUME ALL RISK OF) LOSS, DAMAGE OR INJURY, WHETHER ACTUAL OR CONSEQUENTIAL TO:  TENANT’S PERSONAL PROPERTY OF EVERY KIND AND DESCRIPTION, INCLUDING, WITHOUT LIMITATION TRADE FIXTURES, EQUIPMENT, INVENTORY, SCIENTIFIC RESEARCH, SCIENTIFIC EXPERIMENTS, LABORATORY ANIMALS, PRODUCT, SPECIMENS, SAMPLES, AND/OR SCIENTIFIC, BUSINESS, ACCOUNTING AND OTHER RECORDS OF EVERY KIND AND DESCRIPTION KEPT AT THE PREMISES AND ANY AND ALL INCOME DERIVED OR DERIVABLE THEREFROM; (B) THERE SHALL BE NO PERSONAL RECOURSE TO LANDLORD FOR ANY ACT OR OCCURRENCE IN, ON OR ABOUT THE PREMISES OR ARISING IN ANY WAY UNDER THIS LEASE OR ANY OTHER AGREEMENT BETWEEN LANDLORD AND TENANT WITH RESPECT TO THE SUBJECT MATTER HEREOF AND ANY LIABILITY OF LANDLORD HEREUNDER SHALL BE STRICTLY LIMITED SOLELY TO LANDLORD’S INTEREST IN THE PROJECT OR ANY PROCEEDS FROM SALE OR CONDEMNATION THEREOF AND ANY INSURANCE PROCEEDS PAYABLE IN RESPECT OF LANDLORD’S INTEREST IN THE PROJECT OR IN CONNECTION WITH ANY SUCH LOSS; AND (C) IN NO EVENT SHALL ANY PERSONAL LIABILITY BE ASSERTED AGAINST LANDLORD IN CONNECTION WITH THIS LEASE NOR SHALL ANY RECOURSE BE HAD TO ANY OTHER PROPERTY OR ASSETS OF LANDLORD OR ANY OF LANDLORD’S OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR CONTRACTORS.  UNDER NO CIRCUMSTANCES SHALL LANDLORD OR ANY OF LANDLORD’S OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR CONTRACTORS BE LIABLE FOR INJURY TO TENANT’S BUSINESS OR FOR ANY LOSS OF INCOME OR PROFIT THEREFROM.

 

37.                               Severability.  If any clause or provision of this Lease is illegal, invalid or unenforceable under present or future laws, then and in that event, it is the intention of the parties hereto that the remainder of this Lease shall not be affected thereby.  It is also the intention of the parties to this Lease that in lieu of each clause or provision of this Lease that is illegal, invalid or unenforceable, there be added, as a part of this Lease, a clause or provision as similar in effect to such illegal, invalid or unenforceable clause or provision as shall be legal, valid and enforceable.

 

38.                               Signs; Exterior Appearance.  Tenant shall not, without the prior written consent of Landlord, which may be granted or withheld in Landlord’s sole discretion:  (i) attach any awnings, exterior lights, decorations, balloons, flags, pennants, banners, painting or other projection to any outside wall of the Project, (ii) use any curtains, blinds, shades or screens other than Landlord’s standard window coverings, (iii) coat or otherwise sunscreen the interior or exterior of any windows, (iv) place any bottles, parcels, or other articles on the window sills, (v) place any equipment, furniture or other items of personal property on any exterior balcony, or (vi) paint, affix or exhibit on any part of the Premises or the Project

 

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any signs, notices, window or door lettering, placards, decorations, or advertising media of any type which can be viewed from the exterior of the Premises.  Signage on the second floor and the lobby directory tablet shall be inscribed, painted or affixed for Tenant by Landlord at Tenant’s cost, and shall be of a size, color and type acceptable to Landlord.  Nothing may be placed on the exterior of corridor walls or corridor doors other than Landlord’s standard lettering.  The lobby directory tablet shall be provided exclusively for the display of the name and location of tenants.

 

39.                               Right to Expand.

 

(a)                                 Expansion in the Building.  Tenant shall, during the Base Term, have the one-time right, but not the obligation, to expand the Premises (the “Expansion Right”) to include any Available Space in the Building upon the terms and conditions set forth in this Section.  For purposes of this Section 39(a),Available Space” shall mean the balance of the rentable square footage in the Building not already included as part of the Premises, which is not occupied by a tenant or which is occupied by an existing tenant whose lease is expiring within 6 months or less and such tenant does not wish to renew (whether or not such tenant has a right to renew) its occupancy of such space.  If there is any Available Space in the Building, Landlord shall, at such time as Landlord shall elect so long as Tenant’s rights hereunder are preserved, deliver to Tenant written notice (the “Expansion Notice”) of such Available Space, together with the terms and conditions on which Landlord is prepared to lease Tenant such Available Space; provided that Base Rent shall be at the Market Rate (as defined in Section 40(a) below) for such Available Space.  Tenant shall be entitled to exercise its right under this Section 39(a) only with respect to the entire Available Space described in such Expansion Notice (“Identified Available Space”).  Tenant shall have 5 business days following delivery of the Expansion Notice to deliver to Landlord written notification of Tenant’s exercise of the Expansion Right with respect to the Identified Available Space (“Exercise Notice”).  Tenant shall be entitled to lease such Identified Available Space upon the terms and conditions set forth in the Expansion Notice.  If Landlord and Tenant are unable to agree on the Market Rate for the Available Space after negotiating in good faith within 5 days after Tenant’s delivery of an Exercise Notice, the applicable Market Rate will be determined through arbitration in accordance with Section 40(b).  Tenant acknowledges and agrees that, if Tenant has delivered an Exercise Notice pursuant to this Section 39(a), Tenant shall have no right thereafter to rescind or elect not to lease the Available Space.  Tenant acknowledges that the Term of the Lease with respect to the Identified Available Space may not be co-terminous with the Term of the Lease with respect to the original Premises.  Notwithstanding anything to the contrary contained herein, Tenant shall have no right to exercise the Expansion Right and the provisions of this Section 39(a) shall no longer apply after the date that is 9 months prior to the expiration of the Base Term if Tenant has not exercised its Extension Right pursuant to Section 40.  If Tenant fails to deliver an Exercise Notice to Landlord for the Identified Available Space within the required 5 business day period, Tenant shall be deemed to have forever waived its rights under this Section 39(a) to lease the Identified Available Space, and Landlord shall have the right to lease the Identified Available Space to any third party on any terms and conditions acceptable to Landlord.

 

(b)                                 Amended Lease.  If:  (i) Tenant fails to timely deliver an Exercise Notice, or (ii) after the expiration of a period of 10 days from the date Tenant gives notice accepting Landlord’s offer to lease such Identified Available Space, no lease amendment or lease agreement for the Identified Available Space has been executed, and Landlord tenders to Tenant an amendment to this Lease setting forth the terms for the rental of the Identified Available Space consistent with those set forth in the Expansion Notice and otherwise consistent with the terms of this Lease and Tenant fails to execute such Lease amendment within 10 business days following such tender, Tenant shall be deemed to have forever waived its right to lease such Identified Available Space.

 

(c)                                  Exceptions.  Notwithstanding the above, the Expansion Right shall, at Landlord’s option, not be in effect and may not be exercised by Tenant:

 

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(i)                                     during any period of time that Tenant is in Default under any provision of the Lease; or

 

(ii)                                  if Tenant has been in Default under any provision of the Lease 3 or more times, whether or not the Defaults are cured, during the 12 month period prior to the date on which Tenant seeks to exercise the Expansion Right.

 

(d)                                 Termination.  The Expansion Right shall, at Landlord’s option, terminate and be of no further force or effect even after Tenant’s due and timely exercise of the Expansion Right, if, after such exercise, but prior to the commencement date of the lease of such Identified Available Space, (i) Tenant fails to timely cure any default by Tenant under the Lease; or (ii) Tenant has Defaulted 3 or more times during the period from the date of the exercise of the Expansion Right to the date of the commencement of the lease of the Identified Available Space, whether or not such Defaults are cured.

 

(e)                                  Rights Personal.  The Expansion Right is personal to Tenant and are not assignable without Landlord’s consent, which may be granted or withheld in Landlord’s sole discretion separate and apart from any consent by Landlord to an assignment of Tenant’s interest in the Lease.

 

(f)                                   No Extensions.  The period of time within which the Expansion Right may be exercised shall not be extended or enlarged by reason of Tenant’s inability to exercise the Expansion Right.

 

40.                               Right to Extend Term.  Tenant shall have the right to extend the Term of the Lease upon the following terms and conditions:

 

(a)                                 Extension Rights.  Tenant shall have 1 right (an “Extension Right”) to extend the term of this Lease for 2 years (an “Extension Term”) on the same terms and conditions as this Lease (other than with respect to Base Rent and the Work Letter) by giving Landlord written notice of its election to exercise the Extension Right at least 9 months prior to the expiration of the Base Term of the Lease.

 

Upon the commencement of the Extension Term, Base Rent for the first year of the Extension Term shall be payable at the Market Rate (as defined below).  Base Rent shall thereafter be adjusted on each annual anniversary of the commencement of the Extension Term by a percentage as determined by Landlord and agreed to by Tenant at the time the Market Rate is determined.  As used herein, “Market Rate” shall mean shall mean the then market rental rate, as determined by Landlord and agreed to by Tenant, for laboratory space in the Waltham market of comparable size, quality, and location as the Premises, taking into account all relevant factors.

 

If, on or before the date which is 180 days prior to the expiration of the Base Term of this Lease, Tenant has not agreed with Landlord’s determination of the Market Rate and the rent escalations during the Extension Term after negotiating in good faith, Tenant shall be deemed to have elected arbitration as described in Section 40(b).  Tenant acknowledges and agrees that, if Tenant has elected to exercise the Extension Right by delivering notice to Landlord as required in this Section 40(a).  Tenant shall have no right thereafter to rescind or elect not to extend the term of the Lease for the Extension Term.

 

(b)                                 Arbitration.

 

(i)                                     Within 10 days of Tenant’s notice to Landlord of its election (or deemed election) to arbitrate Market Rate and escalations, each party shall deliver to the other a proposal containing the Market Rate and escalations that the submitting party believes to be correct (“Extension Proposal”).  If either party fails to timely submit an Extension Proposal, the other party’s submitted proposal shall determine the Base Rent and escalations for the Extension Term. 

 

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If both parties submit Extension Proposals, then Landlord and Tenant shall meet within 7 days after delivery of the last Extension Proposal and make a good faith attempt to mutually appoint a single Arbitrator (and defined below) to determine the Market Rate and escalations.  If Landlord and Tenant are unable to agree upon a single Arbitrator, then each shall, by written notice delivered to the other within 10 days after the meeting, select an Arbitrator.  If either party fails to timely give notice of its selection for an Arbitrator, the other party’s submitted proposal shall determine the Base Rent for the Extension Term.  The 2 Arbitrators so appointed shall, within 5 business days after their appointment, appoint a third Arbitrator.  If the 2 Arbitrators so selected cannot agree on the selection of the third Arbitrator within the time above specified, then either party, on behalf of both parties, may request such appointment of such third Arbitrator by application to any state court of general jurisdiction in the jurisdiction in which the Premises are located, upon 10 days prior written notice to the other party of such intent.

 

(ii)                                  The decision of the Arbitrator(s) shall be made within 30 days after the appointment of a single Arbitrator or the third Arbitrator, as applicable.  The decision of the single Arbitrator shall be final and binding upon the parties.  The average of the two closest Arbitrators in a three Arbitrator panel shall be final and binding upon the parties.  Each party shall pay the fees and expenses of the Arbitrator appointed by or on behalf of such party and the fees and expenses of the third Arbitrator shall be borne equally by both parties.  If the Market Rate and escalations are not determined by the first day of the Extension Term, then Tenant shall pay Landlord Base Rent in an amount equal to the Base Rent in effect immediately prior to the Extension Term and increased by 3% until such determination is made.  After the determination of the Market Rate and escalations, the parties shall make any necessary adjustments to such payments made by Tenant.  Landlord and Tenant shall then execute an amendment recognizing the Market Rate and escalations for the Extension Term.

 

(iii)                               An “Arbitrator” shall be any person appointed by or on behalf of either party or appointed pursuant to the provisions hereof and:  (i) shall be (A) a member of the American Institute of Real Estate Appraisers with not less than 10 years of experience in the appraisal of improved office and high tech industrial real estate in the greater Waltham metropolitan area, or (B) a licensed commercial real estate broker with not less than 15 years experience representing landlords and/or tenants in the leasing of high tech or life sciences space in the greater Waltham metropolitan area, (ii) devoting substantially all of their time to professional appraisal or brokerage work, as applicable, at the time of appointment and (iii) be in all respects impartial and disinterested.

 

(c)                                  Rights Personal.  The Extension Right is personal to Tenant and is not assignable without Landlord’s consent, which may be granted or withheld in Landlord’s sole discretion separate and apart from any consent by Landlord to an assignment of Tenant’s interest in the Lease.

 

(d)                                 Exceptions.  Notwithstanding anything set forth above to the contrary, the Extension Right shall, at Landlord’s option, not be in effect and Tenant may not exercise the Extension Right:

 

(i)                                     during any period of time that Tenant is in Default under any provision of this Lease; or

 

(ii)                                  if Tenant has been in Default under any provision of this Lease 3 or more times, whether or not the Defaults are cured, during the 12 month period immediately prior to the date that Tenant intends to exercise the Extension Right, whether or not the Defaults are cured.

 

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(e)                                  No Extensions.  The period of time within which the Extension Right may be exercised shall not be extended or enlarged by reason of Tenant’s inability to exercise the Extension Right.

 

(f)                                   Termination.  The Extension Right shall, at Landlord’s option, terminate and be of no further force or effect even after Tenant’s due and timely exercise of the Extension Right, if, after such exercise, but prior to the commencement date of the Extension Term, (i) Tenant fails to timely cure any default by Tenant under this Lease; or (ii) Tenant has Defaulted 3 or more times during the period from the date of the exercise of the Extension Right to the date of the commencement of the Extension Term, whether or not such Defaults are cured.

 

41.                               Miscellaneous.

 

(a)                                 Notices.  All notices or other communications between the parties shall be in writing and shall be deemed duly given upon delivery or refusal to accept delivery by the addressee thereof if delivered in person, or upon actual receipt if delivered by reputable overnight guaranty courier, addressed and sent to the parties at their addresses set forth above.  Landlord and Tenant may from time to time by written notice to the other designate another address for receipt of future notices.

 

(b)                                 Joint and Several Liability.  If and when included within the term “Tenant,” as used in this instrument, there is more than one person or entity, each shall be jointly and severally liable for the obligations of Tenant.

 

(c)                                  Financial Information.  Tenant shall furnish Landlord with true and complete copies of (i) Tenant’s most recent audited annual financial statements within 90 days of the end of each of Tenant’s fiscal years during the Term, (ii) Tenant’s most recent unaudited quarterly financial statements within 45 days of the end of each of Tenant’s first three fiscal quarters of each of Tenant’s fiscal years during the Term, (iii) at Landlord’s request from time to time, updated business plans, including cash flow projections and/or pro forma balance sheets and income statements, all of which shall be treated by Landlord as confidential information belonging to Tenant, (iv) corporate brochures and/or profiles prepared by Tenant for prospective investors, and (v) any other financial information or summaries that Tenant typically provides to its lenders or shareholders.  Notwithstanding the foregoing, in no event shall Tenant be required to provide any financial information to Landlord which Tenant does not otherwise prepare (or cause to be prepared) for its own purposes.  So long as Tenant is a “public company” and its financial information is publicly available, then the foregoing delivery requirements of this Section 41(c) shall not apply.  Landlord shall treat Tenant’s financial information as confidential information belonging to Tenant.  Landlord may, however, disclose Tenant’s financial information to Landlord’s auditors, attorneys, consultants, lenders and prospective purchasers; provided, however, that Landlord advises such parties of the confidentiality of such information.

 

(d)                                 Recordation.  Neither this Lease nor a memorandum of lease shall be filed by or on behalf of Tenant in any public record.  Landlord may prepare and file, and upon request by Landlord Tenant will execute, a memorandum of lease.

 

(e)                                  Interpretation.  The normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Lease or any exhibits or amendments hereto.  Words of any gender used in this Lease shall be held and construed to include any other gender, and words in the singular number shall be held to include the plural, unless the context otherwise requires.  The captions inserted in this Lease are for convenience only and in no way define, limit or otherwise describe the scope or intent of this Lease, or any provision hereof, or in any way affect the interpretation of this Lease.

 

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(f)                                   Not Binding Until Executed.  The submission by Landlord to Tenant of this Lease shall have no binding force or effect, shall not constitute an option for the leasing of the Premises, nor confer any right or impose any obligations upon either party until execution of this Lease by both parties.

 

(g)                                  Limitations on Interest.  It is expressly the intent of Landlord and Tenant at all times to comply with applicable law governing the maximum rate or amount of any interest payable on or in connection with this Lease.  If applicable law is ever judicially interpreted so as to render usurious any interest called for under this Lease, or contracted for, charged, taken, reserved, or received with respect to this Lease, then it is Landlord’s and Tenant’s express intent that all excess amounts theretofore collected by Landlord be credited on the applicable obligation (or, if the obligation has been or would thereby be paid in full, refunded to Tenant), and the provisions of this Lease immediately shall be deemed reformed and the amounts thereafter collectible hereunder reduced, without the necessity of the execution of any new document, so as to comply with the applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder.

 

(h)                                 Choice of Law.  Construction and interpretation of this Lease shall be governed by the internal laws of the state in which the Premises are located, excluding any principles of conflicts of laws.

 

(i)                                     Time.  Time is of the essence as to the performance of Tenant’s obligations under this Lease.

 

(j)                                    OFAC.  Tenant, and all beneficial owners of Tenant, are currently (a) in compliance with and shall at all times during the Term of this Lease remain in compliance with the regulations of the Office of Foreign Assets Control (“OFAC”) of the U.S. Department of Treasury and any statute, executive order, or regulation relating thereto (collectively, the “OFAC Rules”), (b) not listed on, and shall not during the term of this Lease be listed on, the Specially Designated Nationals and Blocked Persons List maintained by OFAC and/or on any other similar list maintained by OFAC or other governmental authority pursuant to any authorizing statute, executive order, or regulation, and (c) not a person or entity with whom a U.S. person is prohibited from conducting business under the OFAC Rules.

 

(k)                                 Incorporation by Reference.  All exhibits and addenda attached hereto are hereby incorporated into this Lease and made a part hereof.  If there is any conflict between such exhibits or addenda and the terms of this Lease, such exhibits or addenda shall control.

 

(l)                                     Entire Agreement.  This Lease, including the exhibits attached hereto, constitutes the entire agreement between Landlord and Tenant pertaining to the subject matter hereof and supersedes all prior and contemporaneous agreements, understandings, letters of intent, negotiations and discussions, whether oral or written, of the parties, and there are no warranties, representations or other agreements, express or implied, made to either party by the other party in connection with the subject matter hereof except as specifically set forth herein.

 

(m)                             No Accord and Satisfaction.  No payment by Tenant or receipt by Landlord of a lesser amount than the monthly installment of Base Rent or any Additional Rent will be other than on account of the earliest stipulated Base Rent and Additional Rent, nor will any endorsement or statement on any check or letter accompanying a check for payment of any Base Rent or Additional Rent be an accord and satisfaction.  Landlord may accept such check or payment without prejudice to Landlord’s right to recover the balance of such Rent or to pursue any other remedy provided in this Lease.

 

(n)                                 Hazardous Activities.  Notwithstanding any other provision of this Lease, Landlord, for itself and its employees, agents and contractors, reserves the right to refuse to perform any repairs or

 

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services in any portion of the Premises which, pursuant to Tenant’s routine safety guidelines, practices or custom or prudent industry practices, require any form of protective clothing or equipment other than safety glasses.  In any such case, Tenant shall contract with parties who are acceptable to Landlord, in Landlord’s reasonable discretion, for all such repairs and services, and Landlord shall, to the extent required, equitably adjust Tenant’s Share of Operating Expenses in respect of such repairs or services to reflect that Landlord is not providing such repairs or services to Tenant.

 

[ Signatures on next page ]

 

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IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the day and year first above written.

 

 

TENANT:

 

 

 

KALA PHARMACEUTICALS, INC.,

 

a Delaware corporation

 

 

 

 

 

 

 

By:

/s/ Guillaume Pfefer

 

Its:

President and CEO

 

 

 

 

 

 

 

LANDLORD:

 

 

 

ARE-MA REGION NO. 9, LLC,

 

a Delaware limited liability company

 

 

 

 

By:

ARE-MA REGION NO. 9MM, LLC, a Delaware limited liability company, manager

 

 

 

 

 

By:

ALEXANDRIA REAL ESTATE EQUITIES, L.P., a Delaware limited partnership, its member

 

 

 

 

 

 

 

By:

ARE-QRS CORP., a Maryland corporation, general partner

 

 

 

 

 

 

 

 

By:

/s/ Eric S. Johnson

 

 

 

 

Eric S. Johnson

 

 

 

Its:

Vice President

 

 

 

 

Real Estate Legal Affairs

 

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EXHIBIT A TO LEASE

 

DESCRIPTION OF PREMISES

 

GRAPHIC

 

1



 

EXHIBIT B TO LEASE

 

DESCRIPTION OF PROJECT

 

The land with the buildings and improvements thereon known as and numbered 100 Beaver Street, Waltham, Middlesex County, Massachusetts more fully bounded and described as follows:

 

A certain parcel of land with buildings thereon situated on Beaver Street in the City of Waltham, Middlesex County, Massachusetts, being shown as Lot 2 on a plan entitled, “Subdivision Plan of Land, Waltham, Mass.”, dated March 28, 1985, R.E. Cameron & Associates, Inc., C.E.’s, recorded in Middlesex South Registry of Deeds, Book 16248, Page 282, bounded and described as follows:

 

SOUTHERLY

by the centerline of a way shown on said plan as “Parsons Avenue, 40ft. wide – Unimproved”, 673.53 ft.;

 

 

WESTERLY

by Lot 1, as shown on said plan, 220.28 ft.;

 

 

NORTHERLY

by a 30 ft. wide right of way, as shown on said plan 663.20 ft.;

 

 

EASTERLY

by Beaver Street, as shown on said plan 169.22 ft.;

 

 

SOUTHEASTERLY

by land of owners unknown 176.43 ft. as shown on said plan.

 

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EXHIBIT C TO LEASE

 

WORK LETTER

 

THIS WORK LETTER dated September 30, 2013 (this “Work Letter”) is made and entered into by and between ARE-MA REGION NO. 9, LLC, a Delaware limited liability company (“Landlord”), and KALA PHARMACEUTICALS, INC., a Delaware corporation (“Tenant”), and is attached to and made a part of the Lease Agreement dated September 30, 2013 (the “Lease”), by and between Landlord and Tenant.  Any initially capitalized terms used but not defined herein shall have the meanings given them in the Lease.

 

1.                                      General Requirements.

 

(a)                                 Tenant’s Authorized Representative.  Tenant designates Kathy Rizzo and Guillaume Pfefer (either such individual acting alone, “Tenant’s Representative”) as the only persons authorized to act for Tenant pursuant to this Work Letter.  Landlord shall not be obligated to respond to or act upon any request, approval, inquiry or other communication (collectively, “Communication”) from or on behalf of Tenant in connection with this Work Letter unless such Communication is in writing from Tenant’s Representative.  Tenant may change either Tenant’s Representative at any time upon not less than 5 business days advance written notice to Landlord.  Neither Tenant nor Tenant’s Representative shall be authorized to direct Landlord’s contractors in the performance of Landlord’s Work (as hereinafter defined).

 

(b)                                 Landlord’s Authorized Representative.  Landlord designates Tim White and Dawn Leaman (either such individual acting alone, “Landlord’s Representative”) as the only persons authorized to act for Landlord pursuant to this Work Letter.  Tenant shall not be obligated to respond to or act upon any Communication from or on behalf of Landlord in connection with this Work Letter unless such Communication is in writing from Landlord’s Representative.  Landlord may change either Landlord’s Representative at any time upon not less than 5 business days advance written notice to Tenant.  Landlord’s Representative shall be the sole persons authorized to direct Landlord’s contractors in the performance of Landlord’s Work.

 

(c)                                  Architects, Consultants and Contractors.  Landlord and Tenant hereby acknowledge and agree that: (i) TRG Builders shall be the general contractor for the Tenant Improvements, (ii) any subcontractors for the Tenant Improvements shall be selected by Landlord, subject to Tenant’s approval, which approval shall not be unreasonably withheld, conditioned or delayed, and (iii) ArchDesign shall be the architect (the “TI Architect”) for the Tenant Improvements.

 

2.                                      Tenant Improvements.

 

(a)                                 Tenant Improvements Defined.  As used herein, “Tenant Improvements” shall mean all improvements to the Project of a fixed and permanent nature as shown on the TI Construction Drawings, as defined in Section 2(c) below.  Other than Landlord’s Work (as defined in Section 3(a) below, Landlord shall not have any obligation whatsoever with respect to the finishing of the Premises for Tenant’s use and occupancy.

 

(b)                                 Tenant’s Space Plans.  Landlord and Tenant acknowledge and agree that the plan prepared by the TI Architect attached hereto as Schedule 1 (the “Space Plan”) has been approved by both Landlord and Tenant.

 



 

(c)                                  Working Drawings.  Landlord shall cause the TI Architect to prepare and deliver to Tenant for review and comment construction plans, specifications and drawings for the Tenant Improvements (“TI Construction Drawings”), which TI Construction Drawings shall be prepared substantially in accordance with the Space Plan.  Tenant shall be solely responsible for ensuring that the TI Construction Drawings reflect Tenant’s requirements for the Tenant Improvements.  Tenant shall deliver its written comments on the TI Construction Drawings to Landlord not later than 10 business days after Tenant’s receipt of the same; provided, however, that Tenant may not disapprove any matter that is consistent with the Space Plan without submitting a Change Request.  Landlord and the TI Architect shall consider all such comments in good faith and shall, within 10 business days after receipt, notify Tenant how Landlord proposes to respond to such comments, but Tenant’s review rights pursuant to the foregoing sentence shall not delay the design or construction schedule for the Tenant Improvements.  Any disputes in connection with such comments shall be resolved in accordance with Section 2(d) hereof.  Provided that the design reflected in the TI Construction Drawings is consistent with the Space Plan, Tenant shall approve the TI Construction Drawings submitted by Landlord, unless Tenant submits a Change Request.  Once approved by Tenant, subject to the provisions of Section 4 below, Landlord shall not materially modify the TI Construction Drawings except as may be reasonably required in connection with the issuance of the TI Permit (as defined in Section 3(b) below).

 

(d)                                 Approval and Completion.  It is hereby acknowledged by Landlord and Tenant that the TI Construction Drawings must be completed and approved not later than October 15, 2013, in order for the Landlord’s Work to be Substantially Complete by the Target Commencement Date (as defined in the Lease).  Upon any dispute regarding the design of the Tenant Improvements, which is not settled within 10 business days after notice of such dispute is delivered by one party to the other, Tenant may make the final decision regarding the design of the Tenant Improvements, provided (i) Tenant acts reasonably and such final decision is either consistent with or a compromise between Landlord’s and Tenant’s positions with respect to such dispute, (ii) that all costs and expenses resulting from any such decision by Tenant shall be payable by Tenant, and (iii) Tenant’s decision will not affect the base Building, structural components of the Building or any Building systems.  Any changes to the TI Construction Drawings following Landlord’s and Tenant’s approval of same requested by Tenant shall be processed as provided in Section 4 hereof.

 

3.                                      Performance of Landlord’s Work.

 

(a)                                 Definition of Landlord’s Work.  As used herein, “Landlord’s Work” shall mean the work of constructing and completing the Tenant Improvements.

 

(b)                                 Commencement and Permitting.  Landlord shall commence construction of the Tenant Improvements upon obtaining a building permit (the “TI Permit”) authorizing the construction of the Tenant Improvements consistent with the TI Construction Drawings approved by Tenant.  The cost of obtaining the TI Permit shall be payable by Landlord.  Tenant shall assist Landlord in obtaining the TI Permit.  If any Governmental Authority having jurisdiction over Landlord’s Work or any portion thereof shall impose terms or conditions upon the construction thereof that: (i) are inconsistent with Landlord’s obligations hereunder, (ii) increase the cost of constructing Landlord’s Work, or (iii) will materially delay the construction of Landlord’s Work, Landlord and Tenant shall reasonably and in good faith seek means by which to mitigate or eliminate any such terms and conditions provided; however, that such terms and conditions do not constitute material changes to the TI Construction Drawings and that the cost of such terms and conditions shall be the responsibility of Landlord.

 



 

(c)                                  Completion of Landlord’s Work.  Landlord shall substantially complete or cause to be substantially completed Landlord’s Work in a good and workmanlike manner, in accordance with the TI Permit subject, in each case, to Minor Variations and normal “punch list” items of a non-material nature that do not interfere with the use of the Premises and shall obtain a certificate or temporary certificate of occupancy (or an equivalent approval) for the Premises permitting lawful occupancy of the Premises during the Term (but specifically excluding any permits, licenses or other governmental approvals required to be obtained in connection with Tenant’s operations in the Premises not relating to Landlord’s Work)(“Substantial Completion” or “Substantially Complete”).  Upon Substantial Completion of Landlord’s Work, Landlord shall require the TI Architect and the general contractor to execute and deliver, for the benefit of Tenant and Landlord, a Certificate of Substantial Completion in the form of the American Institute of Architects (“AIA”) document G704.  For purposes of this Work Letter, “Minor Variations” shall mean any modifications reasonably required: (i) to comply with all applicable Legal Requirements and/or to obtain or to comply with any required permit (including the TI Permit); (ii) to comply with any request by Tenant for modifications to Landlord’s Work; (iii) to comport with good design, engineering, and construction practices that are not material; or (iv) to make reasonable adjustments in accordance with good design, engineering, and construction practices for field deviations or conditions encountered during the construction of Landlord’s Work.

 

(d)                                 Selection of Materials.  Where more than one type of material or structure is indicated on the TI Construction Drawings approved by Landlord and Tenant, the option will be selected at Landlord’s sole and absolute subjective discretion, provided that such material or structure shall be consistent with existing Building standard materials and/or structures, as applicable.  As to all building materials and equipment that Landlord is obligated to supply under this Work Letter, Landlord shall select the manufacturer thereof in its sole and absolute subjective discretion.

 

(e)                                  Delivery of the Premises.  When Landlord’s Work is Substantially Complete, subject to the remaining terms and provisions of this Section 3(e), Tenant shall accept the Premises.  Tenant’s taking possession and acceptance of the Premises shall not constitute a waiver of: (i) any warranty with respect to workmanship (including installation of equipment) or material (exclusive of equipment provided directly by manufacturers), (ii) any non-compliance of Landlord’s Work with applicable Legal Requirements, or (iii) any claim that Landlord’s Work was not completed substantially in accordance with the TI Construction Drawings (subject to Minor Variations and such other changes as are permitted hereunder) (collectively, a “Construction Defect”).  Tenant shall have one year after Substantial Completion within which to notify Landlord of any such Construction Defect discovered by Tenant, and Landlord shall use reasonable efforts to remedy or cause the responsible contractor to remedy any such Construction Defect within 30 days thereafter.  Notwithstanding the foregoing, Landlord shall not be in default under the Lease if the applicable contractor, despite Landlord’s reasonable efforts, fails to remedy such Construction Defect within such 30-day period, in which case Landlord shall continue to use reasonable efforts to remedy such Construction Defect .

 

Tenant shall be entitled to receive the benefit of all construction warranties and manufacturer’s equipment warranties relating to equipment installed in the Premises.  If requested by Tenant, Landlord shall attempt to obtain extended warranties from manufacturers and suppliers of such equipment, but the cost of any such extended warranties shall be borne solely by Tenant.  Landlord shall promptly undertake and complete, or cause to be completed, all punch list items.

 

(f)                                   Commencement Date Delay.  Except as otherwise provided in the Lease, Delivery of the Premises shall occur when Landlord’s Work has been Substantially Completed, except to the extent

 



 

that completion of Landlord’s Work shall have been actually delayed by any one or more of the following causes in which case the Target Commencement Date shall be extended (“Tenant Delay”):

 

(i)                                     Tenant’s Representative was not available within 2 business days to give or receive any Communication or to take any other action required to be taken by Tenant hereunder;

 

(ii)                                  Tenant’s request for Change Requests (as defined in Section 4(a) below) to the extent that they actually result in a delay of Landlord’s Work, whether or not any such Change Requests are actually performed;

 

(iii)                               Construction of any Change Requests;

 

(iv)                              Tenant’s request for materials, finishes or installations requiring unusually long lead times to the extent they actually result in a delay of Landlord’s Work, provided that promptly after Landlord learns of such long lead time items, Landlord informs Tenant that the requested items will require unusually long lead times;

 

(v)                                 Tenant’s delay in reviewing, revising or approving plans and specifications beyond the periods set forth herein;

 

(vi)                              Tenant’s delay in providing information critical to the normal progression of the Project.  Tenant shall provide such information as soon as reasonably possible, but in no event longer than one week after receipt of any request for such information from Landlord;

 

(vii)                           Tenant’s delay in making payments to Landlord for Excess TI Costs (as defined in Section 5(b) below); or

 

(viii)                        Any other act or omission by Tenant or any Tenant Party (as defined in the Lease), or persons employed by any of such persons that continues for more than 2 days after Landlord’s notice thereof to Tenant.

 

If Delivery is delayed for any of the foregoing reasons, then Landlord shall cause the TI Architect to certify the date on which the Tenant Improvements would have been Substantially Completed but for such Tenant Delay and such certified date shall be the date of Delivery.

 

4.                                      Changes.  Any changes requested by Tenant to the Space Plan attached to this Work Letter or after the delivery and approval by Landlord and Tenant of the TI Construction Drawings, any changes by Tenant to the TI Construction Drawings, shall be requested and instituted in accordance with the provisions of this Section 4 and shall be subject to the written approval of Landlord and the TI Architect, such approval not to be unreasonably withheld, conditioned or delayed.

 

(a)                                 Tenant’s Request For Changes.  If Tenant shall request changes to the Tenant Improvements that are not reflected in the Space Plan or TI Construction Drawings, as applicable (“Changes”), Tenant shall request such Changes by notifying Landlord 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 such Change. Such Change Request must be signed by Tenant’s Representative.  Landlord shall, before proceeding with any Change, use commercially reasonable efforts to respond to Tenant as soon as is reasonably possible with an estimate of: (i) the time it will take, and (ii) the architectural and engineering fees and costs that will be incurred, to analyze such Change Request

 



 

(which costs shall be paid by Tenant to the extent actually incurred, whether or not such change is implemented). Landlord shall thereafter submit to Tenant in writing, within 5 business days of receipt of the Change Request (or such longer period of time as is reasonably required depending on the extent of the Change Request), an analysis of the additional cost or savings involved, including, without limitation, architectural and engineering costs and the period of time, if any, that the Change will extend the date on which Landlord’s Work will be Substantially Complete. Any such delay in the completion of Landlord’s Work caused by a Change, including any suspension of Landlord’s Work while any such Change is being evaluated and/or designed, shall be Tenant Delay.

 

(b)                                 Implementation of Changes.  If Tenant: (i) approves in writing the cost or savings and the estimated extension in the time for completion of Landlord’s Work, if any, and (ii) deposits with Landlord any Excess TI Costs required in connection with such Change, Landlord shall cause the approved Change to be instituted.  Notwithstanding any approval or disapproval by Tenant of any estimate of the delay caused by such proposed Change, the TI Architect’s determination of the amount of Tenant Delay in connection with such Change shall be final and binding on Landlord and Tenant.

 

5.                                      Costs.

 

(a)                                 TI Costs.  Landlord shall be solely responsible for the payment of all design, permits and construction and related costs and expenses in connection with the construction of the Tenant Improvements, including, without limitation, the cost of preparing the TI Construction Drawings and the Space Plans and Landlord’s out-of-pocket expenses (collectively, “TI Costs”).  Notwithstanding anything to the contrary contained herein, in no event shall Landlord be required to pay for any furniture, personal property or other non-Building system materials or equipment, including, but not limited to, Tenant’s voice or data cabling, non-ducted biological safety cabinets and other scientific equipment not incorporated into the Tenant Improvements (collectively “FF&E”), which FF&E shall be at Tenant’s option and cost.

 

(b)                                 Excess TI Costs.  Notwithstanding anything to the contrary contained herein, Tenant acknowledges and agrees that Landlord shall have no responsibility for any costs arising from or related to (i) Tenant’s changes to the Space Plan, (ii) Tenant’s changes to the TI Construction Drawings approved pursuant to Section 2(d) hereof, (iii) Tenant Delays, and (iv) the cost of Changes and Change Requests (collectively, “Excess TI Costs”); provided, however, Tenant shall only be responsible for the same to the extent of any net increase in the actual cost of the Tenant Improvements.  Notwithstanding anything to the contrary contained herein, Tenant shall also be responsible for any and all costs relating to the purchase and installation of the Glasswasher (as defined below), provided that Tenant shall have the right, but not the obligation, to use the Glasswasher Allowance to pay for such costs.  Upon Landlord’s request from time to time, Tenant shall deposit with Landlord, as a condition precedent to Landlord’s obligation to complete the Tenant Improvements, 100% of the Excess TI Costs.  If Tenant fails to deposit the Excess TI Costs with Landlord, Landlord shall have all of the rights and remedies set forth in the Lease for nonpayment of Rent (including, but not limited to, the right to interest at the Default Rate and the right to assess a late charge).  For purposes of any litigation instituted with regard to such amounts, those amounts will be deemed Rent under the Lease.

 

(c)                                  Glasswasher Allowance.  Landlord shall provide to Tenant an allowance of up to $50,000 in the aggregate (“Glasswasher Allowance”) for the purchase and installation of a glasswasher, reasonably acceptable to Landlord and Tenant (“Glasswasher”) in the Premises.  Tenant shall notify Landlord how much, if any, Glasswasher Allowance Tenant has elected to receive from Landlord within 30 days after the mutual execution and delivery of the Lease by the parties.  Such election shall be final

 



 

and binding on Tenant, and may not thereafter be modified without Landlord’s consent, which may be granted or withheld in Landlord’s sole and absolute subjective discretion.  If Tenant elects to use any portion of the Glasswasher Allowance, Tenant shall be responsible for all costs of the Glasswasher in excess of the Glasswasher Allowance.  Tenant shall have no right to the use or benefit (including any reduction to or payment of Base Rent) of any portion of the Glasswasher Allowance not required for the purchase and installation of the Glasswasher.  Any portion of the Glasswasher Allowance actually disbursed shall, to the extent used, result in TI Rent as set forth in the Lease.  If all or any portion of the Glasswasher Allowance is used to purchase or install the Glasswasher, the Glasswasher shall be the property of Landlord and Tenant shall not remove the Glasswasher at the expiration or earlier termination of the Term, nor shall Tenant have the right to remove the Glasswasher from the Premises at any time during the Term.

 

6.                                      Tenant Access.

 

(a)                                 Tenant’s Access Rights.  Landlord hereby agrees to permit Tenant access, at Tenant’s sole risk and expense, to the Building (i) 30 days prior to the Commencement Date to install Tenant’s voice and data cabling, telecommunications and other equipment, and to perform any work required by Tenant other than Landlord’s Work (collectively, “Tenant’s Work”), provided that such Tenant’s Work is coordinated with the TI Architect and the general contractor, and complies with the Lease and all other reasonable restrictions and conditions Landlord may impose, and (ii) prior to the completion of Landlord’s Work, to inspect and observe work in process; all such access shall be during normal business hours or at such other times as are reasonably designated by Landlord.  Notwithstanding the foregoing, Tenant shall have no right to enter onto the Premises or the Project unless and until Tenant shall deliver to Landlord evidence reasonably satisfactory to Landlord demonstrating that any insurance reasonably required by Landlord in connection with such pre-commencement access (including, but not limited to, any insurance that Landlord may require pursuant to the Lease) is in full force and effect.  Any entry by Tenant shall comply with all established safety practices of Landlord’s contractor and Landlord until completion of Landlord’s Work and acceptance thereof by Tenant.

 

(b)                                 No Interference.  Neither Tenant nor any Tenant Party (as defined in the Lease) shall interfere with the performance of Landlord’s Work, nor with any inspections or issuance of final approvals by applicable Governmental Authorities, and upon any such interference, Landlord shall have the right to exclude Tenant and any Tenant Party from the Premises and the Project until Substantial Completion of Landlord’s Work.

 

(c)                                  No Acceptance of Premises.  The fact that Tenant may, with Landlord’s consent, enter into the Project prior to the date Landlord’s Work is Substantially Complete for the purpose of performing Tenant’s Work shall not be deemed an acceptance by Tenant of possession of the Premises, but in such event Tenant shall defend with counsel reasonably acceptable by Landlord, indemnify and hold Landlord harmless from and against any loss of or damage to Tenant’s property, completed work, fixtures, equipment, materials or merchandise, and from liability for death of, or injury to, any person, caused by the act or omission of Tenant or any Tenant Party arising from such access to the Project by Tenant or any Tenant Party prior to the Substantial Completion of the Landlord’s Work.

 

7.                                      Miscellaneous.

 

(a)                                 Consents.  Whenever consent or approval of either party is required under this Work Letter, that party shall not unreasonably withhold, condition or delay such consent or approval, unless expressly set forth herein to the contrary.

 



 

(b)                                 Modification.  No modification, waiver or amendment of this Work Letter or of any of its conditions or provisions shall be binding upon Landlord or Tenant unless in writing signed by Landlord and Tenant.

 


 

Schedule 1

 

Space Plan

 

 


 

TRG BUILDERS

 

Kala Pharmaceuticals

 

Revised    9/12/13

100 Beaver Stret

 

 

Waltham, MA

 

 

Budget Estimate

 

 

 

Division/Description

 

Qty

 

UM

 

Unit Cost

 

Total

 

Division Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Project Requirements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Final cleaning

 

1

 

Is

 

 

 

 

 

 

 

General labor / daily cleaning

 

17

 

dys

 

 

 

 

 

 

 

Debris dumpsters

 

4

 

ea

 

 

 

 

 

 

 

Misc. tools and supplies.

 

2

 

mo

 

 

 

 

 

 

 

Reproduction of contract documents.

 

1

 

Is

 

 

 

 

 

 

 

General safety/protection/barricades, incl maintenance.

 

2

 

mo

 

 

 

 

 

 

 

Safety inspections

 

6

 

ea

 

 

 

 

 

 

 

Dust control (materials)

 

1

 

Is

 

 

 

 

 

 

 

Draining & shutdown fees ( sprinkler, etc.)

 

 

 

 

 

 

 

By Others

 

 

 

General police details/fire watch

 

 

 

 

 

 

 

W/ subs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demolition

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Remove walls per plans

 

717

 

If

 

 

 

 

 

 

 

Remove partial suspended ceilings as required

 

4201

 

sf

 

 

 

 

 

 

 

Remove carpet as required

 

1207

 

sf

 

 

 

 

 

 

 

Remove VCT

 

5230

 

sf

 

 

 

 

 

 

 

Remove doors & frames

 

26

 

ea

 

 

 

 

 

 

 

Remove GWB ceilings

 

323

 

sf

 

 

 

 

 

 

 

Remove abandoned lab casework & hoods

 

1

 

Is

 

 

 

 

 

 

 

Haz. Waste abatement & removal

 

 

 

 

 

 

 

By Others

 

 

 

Common area temp protection, isolation, exhaust

 

1

 

alw

 

 

 

 

 

 

 

General labor & daily cleanup

 

3

 

dys

 

 

 

 

 

 

 

Dumpsters

 

3

 

ea

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Concrete & Masonry

 

 

 

 

 

 

 

 

 

No work

 

 

 

 

 

 

 

 

 

 

 

 

 

Steel & misc. iron

 

 

 

 

 

 

 

 

 

No work

 

 

 

 

 

 

 

 

 

 

 

 

 

Rough and Finish Carpentry

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Misc. carpentry labor

 

 

 

 

 

 

 

By super

 

 

 

Installation of doors & hardware

 

 

 

 

 

 

 

By super

 

 

 

New Cafe / meeting millwork uppers & lowers

 

16

 

If

 

 

 

 

 

 

 

Allowance to patch wood window sills per new layout

 

84

 

If

 

 

 

 

 

 

 

Lab supply & office supply shelving / bench

 

 

 

 

 

 

 

By Others

 

 

 

General labor & daily cleanup

 

3

 

dys

 

 

 

 

 

 

 

Dumpsters

 

1

 

ea

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Thermal and Moisture Protection

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Misc caulking

 

 

 

 

 

 

 

In painting

 

 

 

 

Page 1 of 5

 



 

Division/Description

 

Qty

 

UM

 

Unit Cost

 

Total

 

Division Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Doors, Frames and Hardware

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reuse existing office doors & frames as possible

 

5

 

ea

 

 

 

inc

 

 

 

New wood doors, frames & hardware

 

12

 

ea

 

 

 

 

 

 

 

New HM sidelite frames

 

4

 

ea

 

 

 

 

 

 

 

Reuse existing sidelite frames

 

6

 

ea

 

 

 

inc

 

 

 

Specially / card access hardware

 

 

 

 

 

 

 

By others

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Glass and Glazing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Remove & reinstall existing glass at sidelites

 

6

 

ea

 

 

 

 

 

 

 

New glass door sidelite glazing

 

4

 

ea

 

 

 

 

 

 

 

New 4’ high borrowed lite glass at Café / Meeting

 

14

 

If

 

 

 

 

 

 

 

New interior butt glazed glass wall at Café / meeting

 

14

 

If

 

 

 

 

 

 

 

New interior butt glazed glass wall at Executive Office

 

10

 

If

 

 

 

 

 

 

 

Vision kits at doors

 

3

 

ea

 

 

 

 

 

 

 

Conf. room & main entry glass

 

 

 

 

 

 

 

Existing

 

 

 

General labor & daily cleanup

 

1

 

dys

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gypsum Drywall

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Install door frames

 

17

 

ea

 

 

 

 

 

 

 

Install sidelite frames

 

10

 

ea

 

 

 

 

 

 

 

New 10’ GWB partitions

 

443

 

If

 

 

 

 

 

 

 

New full ht GWB partitions

 

90

 

If

 

 

 

 

 

 

 

Inwall blocking

 

1

 

a/w

 

 

 

 

 

 

 

Allowance for misc. patch at demo areas

 

1

 

a/w

 

 

 

 

 

 

 

Extend existing to clock as required for demising

 

325

 

sf

 

 

 

 

 

 

 

GWB. ceilings

 

 

 

 

 

 

 

EXCLUDED

 

 

 

General labor & daily cleanup

 

3

 

dys

 

 

 

 

 

 

 

Dumpsters

 

1

 

ea

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acoustic Ceilings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New Mylar ceiling tiles in existing grid

 

3,385

 

sf

 

7.75

 

 

 

 

 

New suspended ceilings as required to match @ office areas

 

5,292

 

sf

 

 

 

 

 

 

 

New suspended ceiling at Cafeteria.

 

550

 

sf

 

4.30

 

 

 

 

 

General labor & daily cleanup

 

3

 

dys

 

400

 

 

 

 

 

Dumpsters

 

0.50

 

ea

 

 

 

 

 

 

 

 

Page 2 of 5

 



 

Division/Description

 

Qty

 

UM

 

Unit Cost

 

Total

 

Division Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Flooring Systems

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sheet vinyl in BL-2 lab

 

30

 

sy

 

95

 

 

 

 

 

New VCT Cafeteria / Meeting

 

550

 

sf

 

2.75

 

 

 

 

 

New VCT at main labs & lab corridor

 

3,538

 

sf

 

2.75

 

 

 

 

 

New VCT at Lab supply

 

187

 

sf

 

2.75

 

 

 

 

 

Vinyl baseboard

 

1,388

 

If

 

2.25

 

 

 

 

 

Floor prep

 

4,200

 

sf

 

1.25

 

 

 

 

 

Carpet for Exec. Area 3 offices

 

67

 

sy

 

35

 

 

 

 

 

Caroet for offices adjacent to café

 

34

 

sy

 

35

 

 

 

 

 

Carpet at open office area

 

 

 

 

 

 

 

To remain

 

 

 

Carpet at conf. room

 

 

 

 

 

 

 

To remain

 

 

 

Carpet at reception

 

 

 

 

 

 

 

To remain

 

 

 

Epoxy flooring in glass wash

 

 

 

 

 

 

 

To remain

 

 

 

New carpet at new offices

 

7

 

ea

 

 

 

inc

 

 

 

New carpet at small conf. rooms

 

2

 

ea

 

 

 

inc

 

 

 

Subcontractor quote

 

1

 

qt

 

 

 

 

 

 

 

General labor & daily cleanup

 

2

 

dys

 

 

 

 

 

 

 

Dumpsters

 

0.50

 

ea

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Painting

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Epoxy paint new & existing walls at lab & lab support rooms

 

4,474

 

sf

 

1.10

 

 

 

 

 

Latex prime & paint at new & existing office & office support areas

 

7,920

 

sf

 

0.75

 

 

 

 

 

Paint new & existing door & sidelite frames

 

16

 

ea

 

1.75

 

 

 

 

 

Existing paint to remain at existing to remain areas

 

 

 

 

 

 

 

inc

 

 

 

General labor & daily cleanup

 

2

 

dys

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Specialties & furnishings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supply & install Dishwasher

 

1

 

alw

 

650

 

 

 

 

 

Supply & install Ref.

 

1

 

alw

 

1,400

 

 

 

 

 

Office furniture & cubicles

 

 

 

 

 

 

 

By others

 

 

 

Supply & install Lancer 1400 LXPGW (Labrepco qt)

 

1

 

ea

 

 

 

By others

 

 

 

Sales tax for Lancer equipment

 

1

 

Is

 

 

 

By others

 

 

 

Remove & dispose of existing wash equipment

 

1

 

qt

 

 

 

 

 

 

 

Laboratory equipment (BSC’s, etc.)

 

 

 

 

 

 

 

By others

 

 

 

Reception desk

 

 

 

 

 

 

 

By others

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Laboratory Casework

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supply & install new fixed lab casework island benches per plans

 

4

 

ea

 

 

 

inc

 

 

 

New island bench reagent shelving per plans

 

3

 

pcs

 

 

 

inc

 

 

 

New wall bench with epoxy sink at Analytical

 

29

 

If

 

 

 

inc

 

 

 

New wall bench at Ancillary lab

 

13

 

If

 

 

 

inc

 

 

 

New island bench sink bases with epoxy sinks

 

2

 

ea

 

 

 

inc

 

 

 

Island benches to have 6’ wide epoxy tops

 

1

 

Is

 

 

 

inc

 

 

 

Subcontractor quote (LFI&S)

 

1

 

qt

 

 

 

 

 

 

 

6’ Chemical Fume hoods

 

5

 

ea

 

 

 

To remain

 

 

 

New Chemical Fume Hoods

 

 

 

 

 

 

 

EXCLUDED

 

 

 

BL2 lab bench

 

 

 

 

 

 

 

To remain

 

 

 

Glasswash Room lab bench

 

 

 

 

 

 

 

To remain

 

 

 

General labor & daily cleanup

 

2

 

dys

 

 

 

 

 

 

 

 

Page 3 of 5

 



 

Division Description

 

Qty

 

UM

 

Unit Cost

 

Total

 

Division Total

 

 

 

 

 

 

 

 

 

 

 

Fire Protection

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Relocate heads per code at areas of renovation

 

5,292

 

sf

 

 

 

 

 

 

Fire protection engineering

 

1

 

Is

 

 

 

 

 

 

General labor & daily cleanup

 

2

 

dys

 

 

 

 

 

 

Draining & shut down fees

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Plumbing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demo & disconnect of existing adandoned services

 

1

 

is

 

 

 

inc

 

 

New Cafteria sink, piping, drain & DW connection

 

1

 

ea

 

 

 

inc

 

 

New vacuum piping & drops (connect to existing mains)

 

10

 

ea

 

 

 

inc

 

 

Now C, A piping & drops (connect to existing mains)

 

10

 

ea

 

 

 

inc

 

 

New gaseous N2 piping to existing CFH’s

 

5

 

ea

 

 

 

inc

 

 

Design & engineering & permits

 

1

 

Is

 

 

 

inc

 

 

Change out sinks at existing lab (water, drain, RODI & EW)

 

3

 

ea

 

 

 

inc

 

 

Disconnect existing GW & connect to new Lancer unit

 

1

 

ea

 

 

 

inc

 

 

Subcontractor budget (NSMC)

 

1

 

bgt

 

 

 

 

 

 

Existing sinks at BL2 & GW rooms

 

3

 

ea

 

 

 

To remain

 

 

Utilities & piping to furne hoods

 

5

 

ea

 

 

 

To remain

 

 

Vacuum pump, Air compressor & RODI system

 

 

 

 

 

 

 

To remain

 

 

Existing ES / EW stations & piping

 

 

 

 

 

 

 

To remain

 

 

N2 / Specialty gas manfolds

 

 

 

 

 

 

 

EXCLUDED

 

 

Natural gas piping

 

 

 

 

 

 

 

EXCLUDED

 

 

New RODI piping & drops

 

 

 

 

 

 

 

None shown

 

 

Liquid N2 & piping

 

 

 

 

 

 

 

By others

 

 

Process chiller & chiller equipment piping

 

 

 

 

 

 

 

By others

 

 

 

 

 

 

 

 

 

 

 

 

 

HVAC

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demo and Make safe hot water piping to existing reheat coils

 

1

 

Is

 

 

 

inc

 

 

Demo and Make safe supply and exhaust valves in existing holding room

 

1

 

Is

 

 

 

inc

 

 

Provide four new VAV boxes with re heats (cafe, conference, and offices

 

4

 

ea

 

 

 

inc

 

 

New controls and wiring

 

1

 

Is

 

 

 

inc

 

 

Disconnect and make safe existing hood

 

1

 

Is

 

 

 

inc

 

 

Programing

 

1

 

Is

 

 

 

inc

 

 

Graphics upgrade to existing controls

 

1

 

Is

 

 

 

inc

 

 

Hot water piping to new coils

 

5

 

ea

 

 

 

inc

 

 

Pipe and duct insulation

 

1

 

Is

 

 

 

inc

 

 

Start up, testing, balancing

 

1

 

Is

 

 

 

inc

 

 

Design & engineering & permits

 

1

 

Is

 

 

 

inc

 

 

Subcontractor budget (ESI)

 

1

 

bgt

 

 

 

 

 

 

General labor & daily cleanup

 

2

 

dys

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Electrical

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixtures and switching

 

1

 

Is

 

 

 

inc

 

 

Recepticals and wire mold

 

1

 

Is

 

 

 

inc

 

 

Re-use fixtures where possible

 

1

 

Is

 

 

 

inc

 

 

New parabolic lights in new private offices

 

1

 

Is

 

 

 

inc

 

 

Power wiring to new HVAC equipment

 

1

 

Is

 

 

 

inc

 

 

Relocate existing panels in Future cafe

 

1

 

Is

 

 

 

inc

 

 

Distribution and feeds

 

1

 

Is

 

 

 

inc

 

 

Fire alarm

 

1

 

Is

 

 

 

inc

 

 

misc power for equipment

 

1

 

Is

 

 

 

inc

 

 

480 v 3 ph power for new GW

 

1

 

ea

 

 

 

inc

 

 

Design & engineering & permits

 

1

 

Is

 

 

 

inc

 

 

Ring & String Tenant supplied T/D wiring

 

1

 

Is

 

 

 

inc

 

 

 

Page 4 of 5

 



 

Division/Description

 

Qty

 

UM

 

Unit Cost

 

Total

 

Division Total

 

Subcontractor budget (IES)

 

1

 

bgt

 

 

 

 

 

 

 

Ring & String for Tenant supplied T/D wiring

 

1

 

Is

 

 

 

inc

 

 

 

T/D wiring

 

 

 

 

 

 

 

By Others

 

 

 

Existing Laboratory lighting

 

 

 

 

 

 

 

To remain

 

 

 

Existing glass wash room lighting & power

 

 

 

 

 

 

 

To remain

 

 

 

Engineering

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Architectural services (Archdesign)

 

 

 

 

 

 

 

 

 

 

 

MEP Engineering

 

 

 

 

 

 

 

WJ subs

 

 

 

Structural engineering

 

 

 

 

 

 

 

EXCLUDED

 

 

 

Pre-construction & planner

 

1

 

Is

 

 

 

 

 

 

 

Permits

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fire department fees

 

1

 

Is

 

 

 

 

 

 

 

Building Permit fees

 

22

 

%

 

 

 

 

 

 

 

I&I fees

 

 

 

 

 

 

 

EXCLUDED

 

 

 

Supervision & Management

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Project Manager (2/5 time)

 

8

 

wks

 

 

 

 

 

 

 

Working Superintendent

 

8

 

wks

 

 

 

 

 

 

 

Admin & accounting

 

6

 

dys

 

 

 

 

 

 

 

General Conditions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Field Office

 

 

 

 

 

 

 

 

 

 

 

Field office supplies

 

2

 

mo

 

 

 

 

 

 

 

Courier/overnight/postage

 

2

 

mo

 

 

 

 

 

 

 

Drinking water

 

2

 

mo

 

 

 

 

 

 

 

Sanitary facilities

 

 

 

 

 

 

 

Use existing

 

 

 

Cell Phone & wireless usage

 

200

 

mo

 

 

 

 

 

 

 

Insurance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General Liability Insurance

 

0.8

 

%

 

 

 

 

 

 

 

Bond

 

 

 

 

 

 

 

Excluded

 

 

 

 

Clarifications:

 

1) Estimate is based on normal working hours (7:00-3:30 M-F)

2) Estimate is based on a single phase of construction

3) Estimate is based on drawings: Space Plan Option “D” 8/19/13 & KALA equipment list 82313 by John R. Refuse AIA

4) Estimate EXCLUDES any new CFH’s

 

Page 5 of 5

 


 

EXHIBIT D TO LEASE

 

ACKNOWLEDGMENT OF COMMENCEMENT DATE

 

This ACKNOWLEDGMENT OF COMMENCEMENT DATE is made this       day of               ,      , between ARE-MA REGION NO. 9, LLC, a Delaware limited liability company (“Landlord”), and KALA PHARMACEUTICALS, INC., a Delaware corporation (“Tenant”), and is attached to and made a part of the Lease dated             ,       (the “Lease”), by and between Landlord and Tenant.  Any initially capitalized terms used but not defined herein shall have the meanings given them in the Lease.

 

Landlord and Tenant hereby acknowledge and agree, for all purposes of the Lease, that the Commencement Date is             ,      , and the termination date of the Base Term of the Lease shall be midnight on             ,      .  In case of a conflict between the terms of the Lease and the terms of this Acknowledgment of Commencement Date, this Acknowledgment of Commencement Date shall control for all purposes.

 

IN WITNESS WHEREOF, Landlord and Tenant have executed this ACKNOWLEDGMENT OF COMMENCEMENT DATE to be effective on the date first above written.

 

 

TENANT:

 

 

 

KALA PHARMACEUTICALS, INC.,

 

a Delaware corporation

 

 

 

 

 

By:

 

 

Its:

 

 

 

 

 

 

LANDLORD:

 

 

 

ARE-MA REGION NO. 9, LLC,

 

a Delaware limited liability company

 

 

 

By:

ARE-MA REGION NO. 9MM, LLC, a Delaware limited liability company, manager

 

 

 

 

By:

ALEXANDRIA REAL ESTATE EQUITIES, L.P., a Delaware limited partnership, its member

 

 

 

 

By:

ARE-QRS CORP.,

 

 

a Maryland corporation,

 

 

general partner

 

 

 

 

 

 

 

 

By:

 

 

 

Its:

 

 

1



 

EXHIBIT E TO LEASE

 

Rules and Regulations

 

1.                                      The sidewalk, entries, and driveways of the Project shall not be obstructed by Tenant, or any Tenant Party, or used by them for any purpose other than ingress and egress to and from the Premises.

 

2.                                      Tenant shall not place any objects, including antennas, outdoor furniture, etc., in the parking areas, landscaped areas or other areas outside of its Premises, or on the roof of the Project.

 

3.                                      Except for animals assisting the disabled, no animals shall be allowed in the offices, halls, or corridors in the Project.

 

4.                                      Tenant shall not disturb the occupants of the Project or adjoining buildings by the use of any radio or musical instrument or by the making of loud or improper noises.

 

5.                                      If Tenant desires telegraphic, telephonic or other electric connections in the Premises, Landlord or its agent will direct the electrician as to where and how the wires may be introduced; and, without such direction, no boring or cutting of wires will be permitted.  Any such installation or connection shall be made at Tenant’s expense.

 

6.                                      Tenant shall not install or operate any steam or gas engine or boiler, or other mechanical apparatus in the Premises, except as specifically approved in the Lease.  The use of oil, gas or inflammable liquids for heating, lighting or any other purpose is expressly prohibited.  Explosives or other articles deemed extra hazardous shall not be brought into the Project.

 

7.                                      Parking any type of recreational vehicles is specifically prohibited on or about the Project.  Except for the overnight parking of operative vehicles, no vehicle of any type shall be stored in the parking areas at any time.  In the event that a vehicle is disabled, it shall be removed within 48 hours.  There shall be no “For Sale” or other advertising signs on or about any parked vehicle.  All vehicles shall be parked in the designated parking areas in conformity with all signs and other markings.  All parking will be open parking, and no reserved parking, numbering or lettering of individual spaces will be permitted except as specified by Landlord.

 

8.                                      Tenant shall maintain the Premises free from rodents, insects and other pests.

 

9.                                      Landlord reserves the right to exclude or expel from the Project any person who, in the judgment of Landlord, is intoxicated or under the influence of liquor or drugs or who shall in any manner do any act in violation of the Rules and Regulations of the Project.

 

10.                               Tenant shall not cause any unnecessary labor by reason of Tenant’s carelessness or indifference in the preservation of good order and cleanliness.  Landlord shall not be responsible to Tenant for any loss of property on the Premises, however occurring, or for any damage done to the effects of Tenant by the janitors or any other employee or person.

 

11.                               Tenant shall give Landlord prompt notice of any defects in the water, lawn sprinkler, sewage, gas pipes, electrical lights and fixtures, heating apparatus, or any other service equipment affecting the Premises.

 

1



 

12.                               Tenant shall not permit storage outside the Premises, including without limitation, outside storage of trucks and other vehicles, or dumping of waste or refuse or permit any harmful materials to be placed in any drainage system or sanitary system in or about the Premises.

 

13.                               All moveable trash receptacles provided by the trash disposal firm for the Premises must be kept in the trash enclosure areas, if any, provided for that purpose.

 

14.                               No auction, public or private, will be permitted on the Premises or the Project.

 

15.                               No awnings shall be placed over the windows in the Premises except with the prior written consent of Landlord.

 

16.                               The Premises shall not be used for lodging, sleeping or cooking or for any immoral or illegal purposes or for any purpose other than that specified in the Lease.  No gaming devices shall be operated in the Premises.

 

17.                               Tenant shall ascertain from Landlord the maximum amount of electrical current which can safely be used in the Premises, taking into account the capacity of the electrical wiring in the Project and the Premises and the needs of other tenants, and shall not use more than such safe capacity.  Landlord’s consent to the installation of electric equipment shall not relieve Tenant from the obligation not to use more electricity than such safe capacity.

 

18.                               Tenant assumes full responsibility for protecting the Premises from theft, robbery and pilferage.

 

19.                               Tenant shall not install or operate on the Premises any machinery or mechanical devices of a nature not directly related to Tenant’s ordinary use of the Premises and shall keep all such machinery free of vibration, noise and air waves which may be transmitted beyond the Premises.

 

2



 

EXHIBIT F TO LEASE

 

TENANT’S PERSONAL PROPERTY

 

None.

 

1


 

EXHIBIT G TO LEASE

 

HAZARDOUS MATERIALS LIST

 

Kala Pharmaceuticals, Inc.

FLAMMABLE CHEMICALS LISTING

Sep-2013

 

Kala Pharmaceuticals Inc.

Third Floor, 135 BEAVER STREET

WALTHAM, MA

 

Sep-13

 

Requested Permit Amounts:

 

Class I

 

100 gallons

Class II

 

20 gallons

Class III

 

20 gallons

Flammable gas

 

300 cu ft

Flammable solids

 

<10 lbs

 

FLAMMABLE CHEMICALS LISTING

 

FLAMMABLE LIQUIDS-Class 1A, 1B, 1C

 

 

 

Substance

 

Flammable Class

 

Physical state

 

Volume (L)

 

Volume (Gal)

10684

 

Diethyl ether

 

1A

 

liquid

 

4

 

1.03

10265

 

Diethyl ether

 

1A

 

liquid

 

20

 

5.14

NA

 

Waste Class 1A

 

1A

 

liquid

 

77.6

 

20.00

total volume Class 1A:

 

 

 

 

 

101.8

 

26.17

10440

 

1,4-Dioxane

 

1B

 

liquid

 

1

 

0.26

10705

 

2-Propanol

 

1B

 

liquid

 

4

 

1.03

10723

 

2-Propanol

 

1B

 

liquid

 

4

 

1.03

10724

 

2-Propanol

 

1B

 

liquid

 

4

 

1.03

10746

 

2-Propanol

 

1B

 

liquid

 

4

 

1.03

10747

 

2-Propanol

 

1B

 

liquid

 

4

 

1.03

10713

 

Acetone

 

1B

 

liquid

 

4

 

1.03

10719

 

Acetone

 

1B

 

liquid

 

4

 

1.03

10943

 

Acetone

 

1B

 

liquid

 

1

 

0.26

10753

 

Acetonitrile

 

1B

 

liquid

 

4

 

1.03

10729

 

Acetonitrile

 

1B

 

liquid

 

4

 

1.03

10725

 

Acetonitrile

 

1B

 

liquid

 

4

 

1.03

10730

 

Acetonitrile

 

1B

 

liquid

 

4

 

1.03

10702

 

Acetonitrile

 

1B

 

liquid

 

4

 

1.03

10697

 

Acetonitrile

 

1B

 

liquid

 

4

 

1.03

10386

 

Acetonitrile

 

1B

 

liquid

 

1

 

0.26

10272

 

Benzene

 

1B

 

liquid

 

1

 

0.26

10392

 

Cyclohexane

 

1B

 

liquid

 

1

 

0.26

10289

 

Ethanol

 

1B

 

liquid

 

4

 

1.03

10748

 

Ethyl acetate

 

1B

 

liquid

 

4

 

1.03

10749

 

Ethyl acetate

 

1B

 

liquid

 

4

 

1.03

10755

 

Ethyl acetate

 

1B

 

liquid

 

4

 

1.03

10756

 

Ethyl acetate

 

1B

 

liquid

 

4

 

1.03

10718

 

Ethyl acetate

 

1B

 

liquid

 

4

 

1.03

10715

 

Ethyl acetate

 

1B

 

liquid

 

4

 

1.03

10958

 

Hexanes

 

1B

 

liquid

 

4

 

1.03

10393

 

Isopropyl ether

 

1B

 

liquid

 

1

 

0.26

10738

 

Methanol

 

1B

 

liquid

 

4

 

1.03

10739

 

Methanol

 

1B

 

liquid

 

4

 

1.03

10734

 

Methanol

 

1B

 

liquid

 

4

 

1.03

10740

 

Methanol

 

1B

 

liquid

 

4

 

1.03

 

1



 

10689

 

Methanol

 

1B

 

liquid

 

4

 

1.03

10391

 

Methanol

 

1B

 

liquid

 

1

 

0.26

10434

 

Methyl ethyl ketone

 

1B

 

liquid

 

4

 

1.03

10279

 

Methyl ethyl ketone

 

1B

 

liquid

 

4

 

1.03

10546

 

n-Propanol

 

1B

 

liquid

 

1

 

0.26

10288

 

Propyl acetate

 

1B

 

liquid

 

1

 

0.26

10292

 

Pyridine

 

1B

 

liquid

 

1

 

0.26

10517

 

t-Butanol

 

1B

 

liquid

 

1

 

0.26

10647

 

Tetrahydrofuran

 

1B

 

liquid

 

1

 

0.26

10670

 

Tetrahydrofuran

 

1B

 

liquid

 

1

 

026

10290

 

Toluene

 

1B

 

liquid

 

1

 

0.26

10375

 

Methyl tert-butyl ether

 

1B

 

liquid

 

1

 

0.26

10962

 

1,2-Dichloroethane

 

1B

 

liquid

 

1

 

0.26

10962

 

1,2-Dichloroethane

 

1B

 

liquid

 

1

 

0.28

NA

 

Waste, Class 1B

 

1B

 

liquid

 

155.6

 

40.00

total volume Class 1B:

 

 

 

 

 

284.6

 

73.16

10295

 

Nitromethane

 

1C

 

liquid

 

1

 

0.26

10269

 

1-Butanol

 

1C

 

liquid

 

1

 

0.26

total volume Class 1C:

 

 

 

 

 

2

 

0.51

total volume Class 1:

 

 

 

 

 

388.4

 

99.85

 

NOTE: Total volume of Class I is higher than the June 2013 list by 9 gallons due to increase in Waste from 51 to 60 gallons.

 

COMBUSTIBLE LIQUIDS-Class II

 

 

 

Substance

 

Flammable Class

 

Physical state

 

Volume (L)

 

Volume (Gal)

10278

 

1,2-Dimethoxyethane

 

2

 

liquid

 

1

 

0.26

10268

 

N,N-Dimethylformamide

 

2

 

liquid

 

1

 

0.26

10731

 

N,N-Dimethylformamide

 

2

 

liquid

 

1

 

0.26

10277

 

1-Octanethiol

 

2

 

liquid

 

1

 

0.26

10291

 

Hexan-1-ol

 

2

 

liquid

 

1

 

0.26

10274

 

2-Methoxyethyl ether

 

2

 

liquid

 

1

 

0.26

total volume Class 2:

 

 

 

 

 

6

 

1.54

 

COMBUSTIBLE LIQUIDS-Class III

 

 

 

Substance

 

Flammable Class

 

Physical state

 

Volume (L)

 

Volume (Gal)

10520

 

N,N-Dimethylacetamide

 

3A

 

liquid

 

1

 

0.26

10264

 

Dimethyl sulfoxide

 

3

 

liquid

 

4

 

1.03

10273

 

Etahanolamine

 

3A

 

liquid

 

1

 

0.26

10297

 

Ethylene glycol

 

3B

 

liquid

 

1

 

0.26

10276

 

Ethylene glycol

 

3B

 

liquid

 

1

 

0.26

10632

 

N-Methyl-2-pyrrolidone

 

3A

 

liquid

 

1

 

0.26

10293

 

Propylene glycol

 

3B

 

liquid

 

1

 

0.26

total volume Class 3:

 

 

 

 

 

10

 

2.57

 

FLAMMABLE GASES

 

 

 

Substance

 

Vol (cu. ft)

 

 

 

 

 

 

NA

 

HYDROGEN

 

100

 

 

 

 

 

 

10390

 

BUTANE CYL

 

30

 

 

 

 

 

 

10389

 

PROPANE-1-1

 

17

 

 

 

 

 

 

total volume

 

 

 

147

 

 

 

 

 

 

 

2




Exhibit 10.10

 

KALA PHARMACEUTICALS, INC.

 

LOAN AND SECURITY AGREEMENT

 



 

This LOAN AND SECURITY AGREEMENT (this “Agreement”) is entered into as of November 20, 2014, by and among Square 1 Bank (“Square 1”), in its capacity as administrative and collateral agent (together with its successors and assigns in such capacity, “Agent”) for the lenders hereto as of the date hereof and other financial institutions who hereafter become parties to this Agreement as lenders (each individually a “Lender” and, collectively, the “Lenders”), the Lenders set forth on Schedule 1 hereto and Kala Pharmaceuticals, Inc. (“Borrower”).

 

RECITALS

 

Borrower wishes to obtain credit from time to time from the Lenders, and the Lenders desire to extend credit to Borrower.  This Agreement sets forth the terms on which the Lenders will advance credit to Borrower and Borrower will repay the amounts owing to the Lenders.

 

AGREEMENT

 

The parties agree as follows:

 

1.                                      DEFINITIONS AND CONSTRUCTION.

 

1.1                               Definitions.  As used in this Agreement, all capitalized terms shall have the definitions set forth on Exhibit A.  Any term used in the Code and not defined herein shall have the meaning given to the term in the Code.

 

1.2                               Accounting Terms.  Any accounting term not specifically defined on Exhibit A shall be construed in accordance with GAAP, and all calculations shall be made in accordance with GAAP (except for the calculation of warrant liabilities and stock compensation expenses on Borrower’s unaudited financial statements only, which calculations shall be made in accordance with management accounting consistent with past practices).  The term “financial statements” shall include the accompanying notes and schedules.

 

2.                                      LOAN AND TERMS OF PAYMENT.

 

2.1                               Credit Extensions.

 

(a)                                 Promise to Pay.  Borrower promises to pay to the Lenders, in lawful money of the United States of America, the aggregate unpaid principal amount of all Credit Extensions made by the Lenders to Borrower, together with interest on the unpaid principal amount of such Credit Extensions at rates in accordance with the terms hereof.

 

(b)                                 Term Loan.

 

(i)                        Subject to and upon the terms and conditions of this Agreement, the Lenders agree to make, severally and not jointly, according to each Lender’s Term Loan Commitment Amount, one or more term loans to Borrower in an aggregate principal amount not to exceed $10,000,000 (each a “Term Loan” and, collectively, the “Term Loans”).  Each Term Loan shall be in a minimum amount of $250,000.  Borrower may request Term Loans at any time from the date hereof through the Availability End Date.  The proceeds

 

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of the Term Loans shall be used for general working capital purposes, and for capital equipment purchases, to pay Lender Expenses and to pay the fees under this Agreement.

 

(ii)                    Interest shall accrue from the date of each Term Loan at the rate specified in Section 2.2(a) and, through the Interest-Only End Date, shall be payable monthly in arrears beginning on the first day of the month next following such Term Loan, and continuing on the same day of each month thereafter.  Any Term Loans that are outstanding on the Interest-Only End Date shall be payable in 30 equal monthly installments of principal, plus all accrued interest, beginning on the first day of the month immediately following the Interest-Only End Date and continuing on the same day of each month thereafter through the Term Loan Maturity Date, at which time all amounts due in connection with the Term Loans and any other amounts due under this Agreement shall be immediately due and payable.  Term Loans, once repaid, may not be reborrowed.  Borrower may prepay any Term Loan, subject to the payment of the Prepayment Fee.

 

(iii)                When Borrower desires to obtain a Term Loan, Borrower shall notify Agent (which notice shall be irrevocable) by facsimile transmission to be received no later than 3:30 p.m. Eastern time at least five Business Days prior to the date on which the Term Loan is to be made.  Such notice shall be substantially in the form of Exhibit C and signed by an Authorized Officer.  Promptly upon receiving such notice, Agent shall notify each Lender of the contents of such notice and each Lender’s Pro Rata Share of such Term Loan.

 

2.2                               Interest Rates, Payments, and Calculations.

 

(a)                                 Interest Rates.  Except as set forth in Section 2.2(b), the Term Loans shall bear interest, on the outstanding daily balance thereof, at a variable annual rate equal to the greater of (i) 3.00% above the Prime Rate then in effect, or (ii) 6.25%.

 

(b)                                 Late Fee; Default Rate.  If any payment is not made within 15 days after the date such payment is due, Borrower shall pay Agent (for the benefit of the Lenders) a late fee equal to the lesser of (i) 5% of the amount of such unpaid amount or (ii) the maximum amount permitted to be charged under applicable law.  All Obligations shall bear interest, from and after the occurrence and during the continuance of an Event of Default, at a rate equal to five percentage points above the interest rate applicable immediately prior to the occurrence of the Event of Default.

 

(c)                                  Payments.  Agent shall charge all interest, all Lender Expenses, and all Periodic Payments against any of Borrower’s deposit accounts.  Any interest not paid when due shall be compounded by becoming a part of the Obligations, and such interest shall thereafter accrue interest at the rate then applicable hereunder.

 

(d)                                 Computation.  In the event the Prime Rate is changed from time to time hereafter, the applicable rate of interest hereunder shall be increased or decreased, effective as of the day the Prime Rate is changed, by an amount equal to such change in the Prime Rate.  All interest chargeable under the Loan Documents shall be computed on the basis of a 360-day year for the actual number of days elapsed.

 

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2.3                               Crediting Payments.  Prior to the occurrence of an Event of Default, Agent shall credit a wire transfer of funds, check or other item of payment to such deposit account or Obligation as Borrower specifies.  After the occurrence and during the continuance of an Event of Default, Agent shall have the right, in its sole discretion, to immediately apply any wire transfer of funds, check, or other item of payment Agent may receive to conditionally reduce Obligations, but such applications of funds shall not be considered a payment on account unless such payment is of immediately available federal funds or unless and until such check or other item of payment is honored when presented for payment.  Notwithstanding anything to the contrary contained herein, any wire transfer or payment received by Agent after 5:30 p.m. Eastern time shall be deemed to have been received by Agent as of the opening of business on the immediately following Business Day.  Whenever any payment to Agent under the Loan Documents would otherwise be due (except by reason of acceleration) on a date that is not a Business Day, such payment shall instead be due on the next Business Day, and additional fees or interest, as the case may be, shall accrue and be payable for the period of such extension.

 

2.4                               Fees.  Borrower shall pay the following:

 

(a)                                 Facility Fee.  On or before the Closing Date, a fee equal to $50,000 to be paid to Agent (for the benefit of the Lenders), which shall be nonrefundable;

 

(b)                                 Lender Expenses.  On the Closing Date, all Lender Expenses incurred through the Closing Date, and, after the Closing Date, all Lender Expenses, as and when they become due.

 

(c)                                  Prepayment Fee.  In connection with any prepayment of any principal amount of the Term Loans prior to the Term Loan Maturity Date, including following acceleration under Section 9.1, Borrower shall pay to Agent (for the benefit of the Lenders), on the date of such prepayment, a prepayment fee (the “Prepayment Fee”) in an amount equal to the principal amount so prepaid multiplied by a percentage determined in accordance with the following schedule:

 

Period

 

Applicable Prepayment Percentage

 

From the Closing Date to (but not including) the first anniversary of the Closing Date

 

0.90

%

From the first anniversary of the Closing Date to (but not including) the second anniversary of the Closing Date

 

0.60

%

From the second anniversary of the Closing Date and thereafter until the Term Loan Maturity Date

 

0.30

%

 

Borrower acknowledges that the foregoing Prepayment Fee represents a reasonable and fair estimate for the loss that the Lenders may sustain from the prepayment of the Term Loans prior to the Term Loan Maturity Date and further acknowledges that, except as specifically provided herein, Borrower has no right to optionally prepay the Term Loans in whole or in part without paying the foregoing Prepayment Fee.  For the avoidance of doubt, no Prepayment Fee shall be payable in connection with any payment of regularly scheduled principal installments of the Term Loans.

 

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2.5                               Term.  This Agreement shall become effective on the Closing Date and, subject to Section 12.7, shall continue in full force and effect for so long as any Obligations remain outstanding or any Lender has any obligation to make Credit Extensions under this Agreement.  Notwithstanding the foregoing, the Lenders shall have the right to terminate their obligation to make Credit Extensions under this Agreement immediately and without notice upon the occurrence and during the continuance of an Event of Default.

 

3.                                      CONDITIONS OF LOANS.

 

3.1                               Conditions Precedent to Closing.  The agreement of Agent and the Lenders to enter into this Agreement on the Closing Date is subject to the condition precedent that Agent and the Lenders shall have received, in form and substance satisfactory to Agent and the Lenders, each of the following items and shall have completed each of the following requirements:

 

(a)                                 this Agreement;

 

(b)                                 an officer’s certificate of Borrower with respect to incumbency and resolutions authorizing the execution and delivery of this Agreement;

 

(c)                                  a financing statement (Form UCC-1);

 

(d)                                 a Loan Advance/Paydown Request Form in a minimum amount of $5,000,000;

 

(e)                                  payment of the fees and Lender Expenses then due specified in Section 2.4, which may be debited from any of Borrower’s accounts with Square 1;

 

(f)                                   current SOS Reports indicating that, except for Permitted Liens, there are no other security interests or Liens of record in the Collateral;

 

(g)                                 current financial statements, including audited statements for Borrower’s most recently ended fiscal year, together with an unqualified opinion (or an opinion qualified only for going concern solely due to Borrower’s projected need for additional funding to continue operations), company prepared consolidated, if applicable, balance sheets, income statements and statements of cash flows for the most recently ended month in accordance with Section 6.2, and such other updated financial information as the Lenders may reasonably request;

 

(h)                                 current Compliance Certificate in accordance with Section 6.2;

 

(i)                                    warrants duly executed by Borrower and issued to each Lender;

 

(j)                                    a Borrower Information Certificate;

 

(k)                                 a deposit account control agreement with respect to Borrower’s account numbers and at Square 1;

 

(l)                                    [Reserved];

 

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(m)                             a payoff letter from Lighthouse Capital Partners VI, L.P.;

 

(n)                                 a copy of Borrower’s policies or certificates of insurance including any endorsements showing Agent as loss payee (for the benefit of Lenders) and showing Agent and each Lender as an additional insured;

 

(o)                                 such other documents or certificates, and completion of such other matters, as Agent and/or any Lender may reasonably request; and

 

(p)                                 Borrower shall have opened and funded deposit accounts held with Square 1.

 

3.2                               Conditions Precedent to all Credit Extensions.  The obligation of the Lenders to make each Credit Extension, including the initial Credit Extension, is contingent upon Borrower’s compliance with Section 3.1 above, and is further subject to the following conditions (except that the initial Credit Extension is not subject to the conditions in clause (b)):

 

(a)                                 timely receipt by Agent of the Loan Advance/Paydown Request Form as provided in Section 2.1;

 

(b)                                 Borrower shall have transferred substantially all of its Cash assets into operating accounts held with Square 1 and shall otherwise be in compliance with Section 6.6 hereof;

 

(c)                                  in the Lenders’ sole reasonable discretion, there has not been a Material Adverse Effect; and

 

(d)                                 the representations and warranties contained in Article 5 shall be true and correct in all material respects on and as of the date of such Loan Advance/Paydown Request Form and on the effective date of each Credit Extension as though made at and as of each such date, and no Event of Default shall have occurred and be continuing, or would exist after giving effect to such Credit Extension (provided, however, that those representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of such date).  The making of each Credit Extension shall be deemed to be a representation and warranty by Borrower on the date of such Credit Extension as to the accuracy of the facts referred to in this Section 3.2.

 

4.                                      CREATION OF SECURITY INTEREST.

 

4.1                               Grant of Security Interest.  Borrower grants and pledges to Agent (for the benefit of the Lenders) a continuing security interest in the Collateral to secure prompt repayment of any and all Obligations and to secure prompt performance by Borrower of each of its covenants and duties under the Loan Documents (other than warrants).  Except for Permitted Liens or as disclosed in the Schedule, such security interest constitutes a valid, first priority security interest in the presently existing Collateral, and will constitute a valid, first priority security interest in later-acquired Collateral.  Borrower also hereby agrees not to sell, transfer, assign, mortgage, pledge, lease, grant a security interest in, or encumber any of its Intellectual Property, except for Permitted Transfers and Permitted Liens.  Notwithstanding any termination

 

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of this Agreement or of any filings undertaken related to Agent’s or the Lenders’ rights under the Code, Agent’s Lien on the Collateral shall remain in effect for so long as any Obligations are outstanding.

 

4.2                               Perfection of Security Interest.  Borrower authorizes Agent to file at any time financing statements, continuation statements, and amendments thereto that (a) either specifically describe the Collateral or describe the Collateral as all assets of Borrower of the kind pledged hereunder, and (b) contain any other information required by the Code for the sufficiency of filing office acceptance of any financing statement, continuation statement, or amendment, including whether Borrower is an organization, the type of organization and any organizational identification number issued to Borrower, if applicable.  Borrower shall have possession of the Collateral, except where expressly otherwise provided in this Agreement or where Agent chooses to perfect its security interest by possession in addition to the filing of a financing statement.  Where Collateral is in possession of a third-party bailee, Borrower shall take such steps as Agent reasonably requests for Agent to (i) to the extent required under Section 7.10 below, obtain an acknowledgment, in form and substance reasonably satisfactory to Agent and the Required Lenders, of the bailee that the bailee holds such Collateral for the benefit of Agent, and (ii) to the extent required under Section 6.6 below, obtain “control” of any Collateral consisting of investment property, deposit accounts, letter-of-credit rights or electronic chattel paper (as such items and the term “control” are defined in Revised Article 9 of the Code) by causing the securities intermediary or depositary institution or issuing bank to execute a control agreement in form and substance reasonably satisfactory to Agent and the Required Lenders.  Borrower will not create any chattel paper without placing a legend on the chattel paper acceptable to Agent indicating that Agent (for the benefit of the Lenders) has a security interest in the chattel paper.  Borrower from time to time, pursuant to additional agreements by Borrower, may deposit with a Lender specific cash collateral to secure specific Obligations; Borrower authorizes the Lenders to hold such specific balances in pledge and to decline to honor any drafts thereon or any request by Borrower or any other Person to pay or otherwise transfer any part of such balances for so long as the specific Obligations are outstanding.  Borrower shall take such other actions as Agent reasonably requests to perfect Agent’s security interests granted under this Agreement.

 

5.                                      REPRESENTATIONS AND WARRANTIES.

 

Borrower represents and warrants to Agent and each Lender as follows:

 

5.1                               Due Organization and Qualification.  Borrower and each Subsidiary is duly existing under the laws of the state in which it is organized and qualified and licensed to do business in any state in which the conduct of its business or its ownership of property requires that it be so qualified, except where the failure to do so would not reasonably be expected to cause a Material Adverse Effect.

 

5.2                               Due Authorization; No Conflict.  The execution, delivery, and performance of the Loan Documents are within Borrower’s powers, have been duly authorized, and are not in conflict with nor constitute a breach of any provision contained in Borrower’s Certificate of Incorporation or Bylaws, nor will they constitute an event of default under any material agreement by which Borrower is bound.  Borrower is not in default under any

 

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agreement by which it is bound, except to the extent such default would not reasonably be expected to cause a Material Adverse Effect.

 

5.3                               Collateral.  Except as set forth on Schedule 5.3, Borrower has rights in or the power to transfer the Collateral, and its title to the Collateral is free and clear of Liens, adverse claims, and restrictions on transfer or pledge except for Permitted Liens and licenses and agreements containing customary anti-assignment provisions so long as such provisions are, or would be, rendered unenforceable or ineffective under applicable law (including, without limitation, Sections 9-406, 9-407 and 9-408 of the Code).  Other than movable items of personal property such as laptop computers, all Collateral having an aggregate book value in excess of $100,000 is located solely in the Collateral State, at the locations set forth on Schedule 7.10 and such other locations permitted under Section 7.10.  All Inventory is in all material respects of good and merchantable quality, free from all material defects, except for Inventory for which adequate reserves have been made.  Except as set forth in the Schedule or as permitted under Section 6.6, none of Borrower’s Cash is maintained or invested with a Person other than Square 1 or Square 1’s Affiliates.

 

5.4                               Intellectual Property.  Except as set forth on Schedule 5.4, Borrower is the sole owner of the Intellectual Property created or purchased by Borrower.  Except as set forth on Schedule 5.4, to the best of Borrower’s knowledge, each of the Copyrights, Trademarks and Patents created or purchased by Borrower is valid and enforceable, and no part of the Intellectual Property created or purchased by Borrower has been judged invalid or unenforceable, in whole or in part, and no claim has been made to Borrower that any part of the Intellectual Property created or purchased by Borrower violates the rights of any third party except to the extent such claim would not reasonably be expected to cause a Material Adverse Effect.

 

5.5                               Name; Location of Chief Executive Office.  Except as disclosed in the Schedule, Borrower has not done business under any name other than that specified on the signature page hereof, and its exact legal name is as set forth in the first paragraph of this Agreement.  As of the date hereof, the chief executive office of Borrower is located at the address indicated in Article 10 hereof.

 

5.6                               Litigation.  Except as set forth in the Schedule, there are no actions or proceedings pending by or against Borrower or any Subsidiary before any court or administrative agency which would reasonably be expected to have a Material Adverse Effect.

 

5.7                               No Material Adverse Change in Financial Statements.  All consolidated and consolidating, if applicable, financial statements related to Borrower and any Subsidiary that are delivered by Borrower to Agent and the Lenders fairly present in all material respects Borrower’s consolidated and consolidating, if applicable, financial condition as of the date thereof and Borrower’s consolidated and consolidating, if applicable, results of operations for the period then ended.  There has not been a material adverse change in the consolidated or in the consolidating, if applicable, financial condition of Borrower since the date of the most recent of such financial statements submitted to Agent and the Lenders.

 

5.8                               Solvency, Payment of Debts.  Borrower is able to pay its debts (including trade debts) as they mature; the fair saleable value of Borrower’s assets (including goodwill

 

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minus disposition costs) exceeds the fair value of its liabilities; and Borrower is not left with unreasonably small capital after the transactions contemplated by this Agreement.

 

5.9                               Compliance with Laws and Regulations.  Borrower and each Subsidiary have met the minimum funding requirements of ERISA with respect to any employee benefit plans subject to ERISA.  No event has occurred resulting from Borrower’s failure to comply with ERISA that is reasonably likely to result in Borrower’s incurring any liability that could have a Material Adverse Effect.  Borrower is not an “investment company” or a company “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940.  Borrower is not engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulations T and U of the Board of Governors of the Federal Reserve System).  Borrower has not violated any statutes, laws, ordinances or rules applicable to it, the violation of which would reasonably be expected to have a Material Adverse Effect.  Borrower and each Subsidiary have filed or caused to be filed all tax returns required to be filed, and have paid, or have made adequate provision for the payment of, all taxes reflected therein except those being contested in good faith with adequate reserves under GAAP or where the failure to file such returns or pay such taxes would not reasonably be expected to have a Material Adverse Effect.

 

5.10                        Subsidiaries.  Borrower does not own any stock, partnership interest or other equity securities of any Person, except for Permitted Investments.

 

5.11                        Government Consents.  Borrower and each Subsidiary have obtained all consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all governmental authorities that are necessary for the continued operation of Borrower’s business as currently conducted, except where the failure to do so would not reasonably be expected to cause a Material Adverse Effect.

 

5.12                        Inbound Licenses; Other Agreements.  Except as disclosed on the Schedule, disclosed in accordance with Section 6.7, Borrower is not a party to, nor is bound by, any material license or other similar agreement important for the conduct of Borrower’s business that prohibits or otherwise restricts Borrower from granting a security interest in Borrower’s interest in such license or agreement or any other property important for the conduct of Borrower’s business, other than this Agreement or the other Loan Documents.

 

5.13                        Full Disclosure.  No representation, warranty or other statement made by Borrower in any certificate or written statement furnished to Agent or any Lender in connection with the Loan Documents taken together with all such certificates and written statements furnished to Agent or any Lender contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained in such certificates or statements not misleading in light of the circumstances in which they were made, it being recognized by Agent and the Lenders that the projections and forecasts provided by Borrower in good faith and based upon reasonable assumptions are not to be viewed as facts and that actual results during the period or periods covered by any such projections and forecasts may differ from the projected or forecasted results.

 

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6.                                      AFFIRMATIVE COVENANTS.

 

Borrower covenants that, until payment in full of all outstanding Obligations, and for so long as any Lender may have any commitment to make a Credit Extension hereunder, Borrower shall do all of the following (unless Agent and the Required Lenders provide their prior written consent, which shall not be unreasonably withheld):

 

6.1                               Good Standing and Government Compliance.  Borrower shall maintain its and each of its Subsidiaries’ corporate existence and good standing in their respective states of formation, shall maintain qualification and good standing in each other jurisdiction in which the failure to so qualify would reasonably be expected to have a Material Adverse Effect, and shall furnish to Agent the organizational identification number issued to Borrower by the authorities of the state in which Borrower is organized, if applicable.  Borrower shall meet, and shall cause each Subsidiary to meet, the minimum funding requirements of ERISA with respect to any employee benefit plans subject to ERISA.  Borrower shall comply, and shall cause each Subsidiary to comply, with all statutes, laws, ordinances and government rules and regulations to which it is subject, and shall maintain, and shall cause each of its Subsidiaries to maintain, in force all licenses, approvals and agreements, the loss of which or failure to comply with which would reasonably be expected to have a Material Adverse Effect.

 

6.2                               Financial Statements, Reports, Certificates.  Borrower shall deliver to Agent and the Lenders:  (i) as soon as available, but in any event within 30 days after the end of each calendar month, a company prepared consolidated and consolidating, if applicable, balance sheet, income statement, and statement of cash flows covering Borrower’s operations during such period, in a form reasonably acceptable to Agent and the Required Lenders and certified by a Responsible Officer pursuant to a Compliance Certificate; (ii) as soon as available, but in any event within 90 days after the end of each calendar quarter, a company prepared consolidated and consolidating, if applicable, balance sheet, income statement, and statement of cash flows covering Borrower’s operations during such period, in a form reasonably acceptable to Agent and the Required Lenders and certified by a Responsible Officer; (iii) as soon as available, but in any event within 180 days after the end of Borrower’s fiscal year, audited (or such other level as is required pursuant to the Investment Agreement) consolidated and consolidating, if applicable, financial statements of Borrower prepared in accordance with GAAP, consistently applied, together with an opinion (which is either unqualified, qualified only for going concern solely due to Borrower’s projected need for additional funding to continue operations or otherwise consented to in writing by Agent and the Required Lenders) on such financial statements of an independent certified public accounting firm reasonably acceptable to Agent and the Required Lenders; (iv) an annual budget approved by Borrower’s Board of Directors as soon as available but not later than the earlier of (A) 60 days after the end of each fiscal year during the term of this Agreement or (B) five days following approval by Borrower’s Board of Directors; (v) if applicable, copies of all statements, reports and notices sent or made available generally by Borrower to its security holders or to any holders of Subordinated Debt and all reports on Forms 10-K and 10-Q filed with the Securities and Exchange Commission; (vi) promptly upon receipt of notice thereof, a report of any legal actions pending or threatened against Borrower or any Subsidiary that would reasonably be expected to result in damages or costs to Borrower or any Subsidiary of $250,000 or more; (vii) promptly upon receipt, each management letter prepared by Borrower’s independent certified public accounting firm regarding Borrower’s management

 

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control systems; (viii) promptly following presentation to Borrower’s Board of Directors, and no less frequently than quarterly (or more frequently if requested by Agent or the Required Lenders (such frequency not to exceed six times per year so long as no Event of Default has occurred and is continuing)), clinical program updates in the form provided to Borrower’s Board of Directors with such additional information as any Lender may reasonably request from time to time; and (ix) such budgets, sales projections, operating plans or other financial information generally prepared by Borrower in the ordinary course of business as any Lender may reasonably request from time to time.

 

(a)                                 Within 30 days after the last day of each month, Borrower shall deliver to Agent and the Lenders with the monthly financial statements a Compliance Certificate certified as of the last day of the applicable month and signed by a Responsible Officer in substantially the form of Exhibit D hereto, together with aged listings by invoice date of accounts receivable and accounts payable.

 

(b)                                 As soon as possible and in any event within three Business Days after becoming aware of the occurrence or existence of an Event of Default hereunder, Borrower shall deliver to Agent and the Lenders a written statement of a Responsible Officer setting forth details of the Event of Default, and the action which Borrower has taken or proposes to take with respect thereto.

 

(c)                                  Agent (through any of its officers, employees, or agents) shall have the right, upon reasonable prior notice, from time to time during Borrower’s usual business hours but no more than once a year (unless an Event of Default has occurred and is continuing), to inspect Borrower’s Books and to make copies thereof and to check, test, inspect, audit and appraise the Collateral (and Lenders (through any of their respective officers, employees or agents) shall have the right to join any such inspection) at Borrower’s expense in order to verify Borrower’s financial condition or the amount of, condition of, or any other matter relating to, the Collateral.

 

Borrower may deliver to Agent and the Lenders on an electronic basis any certificates, reports or information required pursuant to this Section 6.2, and Agent and the Lenders shall be entitled to rely on the information contained in the electronic files, provided that Agent and the Lenders in good faith believe that the files were delivered by a Responsible Officer.  Borrower shall include a submission date on any certificates and reports to be delivered electronically.

 

6.3                               Inventory and Equipment; Returns.  Borrower shall keep all Inventory and Equipment in good and merchantable condition, free from all material defects except for Inventory and Equipment (a) sold in the ordinary course of business, and (b) for which adequate reserves have been made, in all cases in the United States and such other locations as to which Borrower gives prior written notice.  Returns and allowances, if any, as between Borrower and its account debtors shall be on the same basis and in accordance with the usual customary practices of Borrower, as they exist on the Closing Date.  Borrower shall promptly notify Agent and the Lenders of all returns and recoveries and of all written disputes and claims involving inventory having a book value of more than $100,000.

 

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6.4                               Taxes.  Borrower shall make, and cause each Subsidiary to make, due and timely payment or deposit of all material federal, state, and local taxes, assessments, or contributions required of it by law, including, but not limited to, those laws concerning income taxes, F.I.C.A., F.U.T.A. and state disability, and will execute and deliver to Agent, on demand, proof satisfactory to Agent indicating that Borrower or a Subsidiary has made such payments or deposits and any appropriate certificates attesting to the payment or deposit thereof; provided that Borrower or a Subsidiary need not make any payment if the amount or validity of such payment is contested in good faith by appropriate proceedings and is reserved against (to the extent required by GAAP) by Borrower or such Subsidiary.

 

6.5                               Insurance.  Borrower, at its expense, shall (a) keep the Collateral insured against loss or damage, and (b) maintain liability and other insurance, in each case as ordinarily insured against by other owners in businesses similar to Borrower’s.  All such policies of insurance shall be in such form, with such companies, and in such amounts as reasonably satisfactory to Agent and the Required Lenders.  All policies of property insurance shall contain a lender’s loss payable endorsement, in a form reasonably satisfactory to Agent and the Required Lenders, showing Agent (for the benefit of the Lenders) as an additional loss payee, and all applicable liability insurance policies shall show Agent and each Lender as an additional insured and specify that the insurer must give at least 20 days’ notice to Agent and each Lender before canceling its policy for any reason (except ten days’ notice for nonpayment).  Upon Agent’s or any Lender’s request, Borrower shall deliver to Agent and the Lenders certified copies of the policies of insurance and evidence of all premium payments.  Proceeds payable under any casualty policy will, at Borrower’s option, be payable to Borrower to repair or replace the property subject to the claim, provided that any such repaired or replacement property shall be deemed Collateral in which Agent (for the benefit of the Lenders) has been granted a first priority security interest, provided that, if an Event of Default has occurred and is continuing, all proceeds payable under any such policy shall, at Agent’s option, be payable to Agent (for the benefit of the Lenders) to be applied on account of the Obligations.

 

6.6                               Primary Depository.  Borrower shall, within one Business Day of the Closing Date, maintain substantially all of its depository and operating accounts with Square 1 and substantially all of its primary investment accounts with Square 1 or Square 1’s Affiliates; provided that, for a period of 60 days following the Closing Date, Borrower may maintain at Silicon Valley Bank (a) up to $85,000 to secure a letter of credit issued for the benefit of Borrower’s landlord with respect to Borrower’s lease of its offices at 100 Beaver Street, Suite 201, Waltham, MA 02453, (b) up to $35,000 to secure credit card reimbursement obligations and (c) up to $300,000 in its operating account.  Borrower shall, within 60 days of the Closing Date, maintain all of its depository and operating accounts with Square 1 and its primary investment accounts with Square 1 or Square 1’s Affiliates.  Prior to maintaining any deposit accounts with Square 1 or any investment accounts with Square 1’s Affiliates, Borrower, Agent, and any such Affiliate, as applicable, shall have entered into a deposit account control agreement or a securities account control agreement, as applicable, with respect to any such deposit accounts and investment accounts, in form and substance satisfactory to Agent and the Required Lenders.

 

6.7                               Consent of Inbound Licensors.  Within ten days after entering into or becoming bound by any material inbound license or similar agreement, Borrower shall:  (a) provide written notice to Agent and the Lenders of the material terms of such license or

 

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agreement with a description of its likely impact on Borrower’s business or financial condition; and (b) upon request of Agent, in good faith use commercially reasonable efforts to obtain the consent of, or waiver by, any person whose consent or waiver is necessary for Borrower’s interest in such licenses or contract rights to be deemed Collateral and for Agent (for the benefit of the Lenders) to have a security interest in it that would reasonably be expected to otherwise be restricted by the terms of the applicable license or agreement, whether now existing or entered into in the future, provided, however, that the failure to obtain any such consent or waiver shall not constitute a default under this Agreement.

 

6.8                               Creation/Acquisition of Subsidiaries.  In the event that any Borrower or any Subsidiary of any Borrower creates or acquires any Subsidiary, Borrower or such Subsidiary shall promptly notify Agent and the Lenders of such creation or acquisition, and Borrower or such Subsidiary shall take all actions reasonably requested by Agent or any Lender to achieve any of the following with respect to such “New Subsidiary” (defined as a Subsidiary formed after the date hereof during the term of this Agreement): (a) if such New Subsidiary is organized under the laws of the United States, to cause such New Subsidiary to become either a co-Borrower hereunder, or a secured guarantor with respect to the Obligations; and (b) to grant and pledge to Agent (for the benefit of the Lenders) a perfected security interest in 100% of the stock, units or other evidence of ownership held by Borrower or its Subsidiaries of any such New Subsidiary which is organized under the laws of the United States, and 65% of the stock, units or other evidence of ownership held by Borrower or its Subsidiaries of any such New Subsidiary which is not organized under the laws of the United States.

 

6.9                               Further Assurances.  At any time and from time to time Borrower shall execute and deliver such further instruments and take such further action as may reasonably be requested by Agent or any Lender to effect the purposes of this Agreement.

 

6.10                        Post-Closing.  Borrower shall use its commercially reasonable efforts to deliver a fully-executed landlord waiver with respect to Borrower’s lease of its offices at 100 Beaver Street, Suite 201, Waltham, MA 02453, in form and substance reasonably satisfactory to Agent and the Required Lenders on or before the date 30 days following the Closing Date.

 

7.                                      NEGATIVE COVENANTS.

 

Borrower covenants and agrees that, so long as any credit hereunder shall be available and until the outstanding Obligations are paid in full or for so long as any Lender may have any commitment to make any Credit Extensions, Borrower will not do any of the following without Agent’s and the Required Lenders’ prior written consent, which shall not be unreasonably withheld:

 

7.1                               Dispositions.  Convey, sell, lease, license, transfer or otherwise dispose of (collectively, to “Transfer”), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, or move Cash balances on deposit with Square 1 to accounts opened at another financial institution, other than Permitted Transfers.

 

7.2                               Change in Name, Location, Executive Office, or Executive Management; Change in Business; Change in Fiscal Year; Change in Control.  Change its

 

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name or the state of Borrower’s formation or relocate its chief executive office without 30 days’ prior written notification to Agent and the Lenders; replace or suffer the departure of its chief executive officer (or, if Borrower did not have a chief executive officer, its Interim President and Chief Business Officer) or chief financial officer (or, if Borrower did not have a chief financial officer, its Senior Director of Finance) without delivering written notification to Agent and the Lenders within ten days; fail to appoint an interim replacement or fill a vacancy in the position of chief executive officer or chief financial officer for more than 60 consecutive days (it being understood and agreed that (x) Borrower currently does not have a chief executive officer and shall have no obligation to appoint an interim replacement for or fill a vacancy in such position so long as Borrower’s Interim President and Chief Business Officer remains in such position and (y) Borrower currently does not have a chief financial officer and shall have no obligation to appoint an interim replacement for or fill a vacancy in such position so long as Borrower’s Senior Director of Finance remains in such position); suffer a change on its board of directors which results in the failure of at least one partner from at least one of (a) Polaris Venture Partners or its Affiliates, (b) Third Rock Ventures or its Affiliates, and (c) Lux Capital or its Affiliates to serve as a voting member (other than a change resulting from a partner of such an investor failing to be elected to the board of directors following a bona fide equity financing or series of financings in which such investor’s ownership in Borrower is diluted) or suffer the resignation of one or more directors from its board of directors in anticipation of Borrower’s insolvency, in either case without the prior written consent of Agent and the Required Lenders which may be withheld in Agent’s and the Required Lenders’ sole discretion; take action to liquidate, wind up, or otherwise cease to conduct business; engage in any business, or permit any of its Subsidiaries to engage in any business, other than or reasonably related or incidental to the businesses currently engaged in by Borrower; change its fiscal year end; or have a Change in Control.

 

7.3                               Mergers or Acquisitions.  Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with or into any other business organization (other than mergers or consolidations of a Subsidiary into another Subsidiary or into Borrower), or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person except where (a) each of the following conditions is applicable:  (i) the consideration paid in connection with such transactions (including assumption of liabilities) does not in the aggregate exceed $100,000 during any fiscal year, (ii) no Event of Default has occurred, is continuing or would exist after giving effect to such transactions, (iii) such transactions do not result in a Change in Control, and (iv) Borrower is the surviving entity; or (b) the Obligations are repaid in full concurrently with the closing of any merger or consolidation of Borrower in which Borrower is not the surviving entity; provided, however, that Borrower shall not, without Agent’s and the Required Lenders’ prior written consent, enter into any binding contractual arrangement with any investment bank, broker, financial advisor or similar Person to attempt to facilitate a merger or acquisition of Borrower, unless (i) no Event of Default exists when such agreement is entered into by Borrower, (ii)  such agreement does not give such Person the right to claim any fee, payment or damages from any parties, other than from Borrower or Borrower’s investors, in connection with a sale of Borrower’s stock or assets pursuant to or resulting from an assignment for the benefit of creditors, an asset turnover to Borrower’s creditors (including, without limitation, the Lenders), foreclosure, bankruptcy or similar liquidation, and (iii) Borrower notifies Agent and the Lenders in advance of entering into such an agreement (provided that the failure to give such notification shall not be deemed a breach of this Agreement).

 

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7.4                               Indebtedness.  Create, incur, assume, guarantee or be or remain liable with respect to any Indebtedness, or permit any Subsidiary so to do, other than Permitted Indebtedness, or prepay any Indebtedness or take any actions which impose on Borrower an obligation to prepay any Indebtedness, except Indebtedness to the Lenders.

 

7.5                               Encumbrances.  Create, incur, assume or allow any Lien with respect to its property, or assign or otherwise convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries so to do, except for Permitted Liens, or covenant to any other Person (other than (a) the licensors of in-licensed property with respect to such property, (b) the lessors of specific equipment or lenders financing specific equipment with respect to such leased or financed equipment or (c) Schedule 7.5) that Borrower in the future will refrain from creating, incurring, assuming or allowing any Lien with respect to any of Borrower’s property, except for licenses and agreements containing customary anti-assignment provisions so long as such provisions are, or would be, rendered unenforceable or ineffective under applicable law (including, without limitation, Sections 9-406, 9-407 and 9-408 of the Code).

 

7.6                               Distributions.  Pay any dividends or make any other distribution or payment on account of or in redemption, retirement or purchase of any capital stock, except that Borrower may (a) repurchase the stock of former employees or directors pursuant to stock repurchase agreements in an aggregate amount not to exceed $100,000 in any fiscal year, so long as an Event of Default does not exist prior to such repurchase or would not exist after giving effect to such repurchase, and (b) repurchase the stock of former employees or directors pursuant to stock repurchase agreements in any amount where the consideration for the repurchase is the cancellation of indebtedness owed by such former employees or directors to Borrower regardless of whether an Event of Default exists.

 

7.7                               Investments.  Directly or indirectly acquire or own an Investment in, or make any Investment in or to any Person, or permit any of its Subsidiaries so to do, other than Permitted Investments, or maintain or invest any of its investment property with a Person other than Square 1 and Square 1’s Affiliates or permit any Subsidiary to do so unless such Person has entered into a control agreement with Agent (for the benefit of the Lenders), in form and substance reasonably satisfactory to Agent and the Required Lenders, or suffer or permit any Subsidiary to be a party to, or be bound by, an agreement that restricts such Subsidiary from paying dividends or otherwise distributing property to Borrower.

 

7.8                               Transactions with Affiliates.  Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Borrower except for transactions that are in the ordinary course of Borrower’s business, upon fair and reasonable terms that are no less favorable to Borrower than would be obtained in an arm’s-length transaction with a non-affiliated Person and except for transactions permitted under Section 7.9.

 

7.9                               Subordinated Debt.  Make any payment in respect of any Subordinated Debt, or permit any of its Subsidiaries to make any such payment, except in compliance with the terms of such Subordinated Debt, or amend any provision affecting Agent’s or the Lenders’ rights contained in any documentation relating to the Subordinated Debt without Agent’s and the Required Lenders’ prior written consent.

 

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7.10                        Inventory and Equipment.  Store Inventory or Equipment with a book value in excess of $100,000 with a bailee, warehouseman, collocation facility or similar third party (other than equipment in transit or held for repair in the ordinary course of Borrower’s business) unless the third party has been notified of Agent’s security interest and Agent (a) has received an acknowledgment from the third party that it is holding or will hold the Inventory or Equipment for Agent’s benefit or (b) is in possession of the warehouse receipt, where negotiable, covering such Inventory or Equipment.  Except for Inventory sold in the ordinary course of business and for movable items of personal property having an aggregate book value not in excess of $100,000, and except for such other locations as Agent may approve in writing, Borrower shall keep the Inventory and Equipment only at the locations set forth on Schedule 7.10 and such other locations of which Borrower gives Agent and the Lenders prior written notice and as to which Agent is able to take such actions as may be reasonably necessary to perfect its security interest or to obtain a bailee’s acknowledgment of Agent’s rights in the Collateral.

 

7.11                        No Investment Company; Margin Regulation.  Become or be controlled by an “investment company,” within the meaning of the Investment Company Act of 1940, or become principally engaged in, or undertake as one of its important activities, the business of extending credit for the purpose of purchasing or carrying margin stock, or use the proceeds of any Credit Extension for such purpose.

 

8.                                      EVENTS OF DEFAULT.

 

Any one or more of the following events shall constitute an Event of Default by Borrower under this Agreement:

 

8.1                               Payment Default.  If Borrower fails to pay any of the Obligations when due;

 

8.2                               Covenant Default.

 

(a)                                 If Borrower fails to perform any obligation under Section 6.2 (financial reporting), 6.4 (taxes), 6.5 (insurance), or 6.6 (primary accounts), or violates any of the covenants contained in Article 7 of this Agreement; or

 

(b)                                 If Borrower fails or neglects to perform or observe any other material term, provision, condition, or covenant contained in this Agreement, in any of the Loan Documents, or in any other present or future agreement between Borrower and Agent and/or any Lender and as to any default under such other term, provision, condition or covenant that can be cured, has failed to cure such default within ten days after Borrower receives notice thereof or any officer of Borrower becomes aware thereof; provided, however, that if the default cannot by its nature be cured within the ten-day period or cannot after diligent attempts by Borrower be cured within such ten-day period, and such default is likely to be cured within a reasonable time, then Borrower shall have an additional reasonable period (which shall not in any case exceed 30 days) to attempt to cure such default, and within such reasonable time period the failure to have cured such default shall not be deemed an Event of Default but no Credit Extensions will be made;

 

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8.3                               Material Adverse Change.  If there occurs any circumstance or any circumstances which would reasonably be expected to have a Material Adverse Effect;

 

8.4                               Attachment.  If any material portion of Borrower’s assets is attached, seized, subjected to a writ or distress warrant, or is levied upon, or comes into the possession of any trustee, receiver or person acting in a similar capacity and such attachment, seizure, writ or distress warrant or levy has not been removed, discharged or rescinded within ten days, or if Borrower is enjoined, restrained, or in any way prevented by court order from continuing to conduct all or any material part of its business affairs, or if a judgment or other claim becomes a lien or encumbrance upon any material portion of Borrower’s assets, or if a notice of lien, levy, or assessment is filed of record with respect to any material portion of Borrower’s assets by the United States Government, or any department, agency, or instrumentality thereof, or by any state, county, municipal, or governmental agency, and the same is not paid within ten days after Borrower receives notice thereof, provided that none of the foregoing shall constitute an Event of Default where such action or event is stayed or an adequate bond has been posted pending a good faith contest by Borrower (provided that no Credit Extensions will be made during such cure period);

 

8.5                               Insolvency.  If Borrower becomes insolvent, or if an Insolvency Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced against Borrower and is not dismissed or stayed within 45 days (provided that no Credit Extensions will be made prior to the dismissal of such Insolvency Proceeding);

 

8.6                               Other Agreements.  If there is a default or other failure to perform in any agreement to which Borrower is a party with a third party or parties (a) resulting in a right by such third party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness in an amount in excess of $250,000, (b) in connection with any lease of real property material to the conduct of Borrower’s business, if such default or failure to perform results in the right of another party, whether or not exercised, to terminate such lease, or (c) that would reasonably be expected to have a Material Adverse Effect;

 

8.7                               Judgments.  If a final non-appealable, uninsured judgment or judgments for the payment of money in an amount, individually or in the aggregate, of at least $250,000 shall be rendered against Borrower and shall remain unsatisfied and unstayed for a period of ten days (provided that no Credit Extensions will be made prior to the satisfaction or stay of the judgment); or

 

8.8                               Misrepresentations.  If any material misrepresentation or material misstatement exists now or hereafter in any warranty or representation set forth herein or in any certificate delivered to Agent or any Lender by any Responsible Officer pursuant to this Agreement or to induce Agent or any Lender to enter into this Agreement or any other Loan Document.

 

9.                                      LENDERS’ RIGHTS AND REMEDIES.

 

9.1                               Rights and Remedies.  Upon the occurrence and during the continuance of an Event of Default, Agent may, and at the written direction of the Required Lenders shall,

 

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without notice of its election and without demand, do any one or more of the following, all of which are authorized by Borrower:

 

(a)                                 Declare all Obligations, whether evidenced by this Agreement, by any of the other Loan Documents, or otherwise, immediately due and payable (provided that, upon the occurrence of an Event of Default described in Section 8.5 (insolvency), all Obligations shall become immediately due and payable without any action by Agent or the Lenders);

 

(b)                                 Notify Borrower that Lenders are ceasing advancing money or extending credit to or for the benefit of Borrower under this Agreement and/or under any other agreement between Borrower and Agent and/or any Lender;

 

(c)                                  Settle or adjust disputes and claims directly with account debtors for amounts, upon terms and in whatever order that Agent reasonably considers advisable;

 

(d)                                 Make such payments and do such acts as Agent considers necessary or reasonable to protect its security interest in the Collateral.  Borrower agrees to assemble the Collateral if Agent so requires, and to make the Collateral available to Agent as Agent may designate.  Borrower authorizes Agent to enter the premises where the Collateral is located, to take and maintain possession of the Collateral, or any part of it, and to pay, purchase, contest, or compromise any encumbrance, charge, or lien which in Agent’s determination appears to be prior or superior to its security interest and to pay all expenses incurred in connection therewith.  With respect to any of Borrower’s owned premises, Borrower hereby grants Agent a license to enter into possession of such premises and to occupy the same, without charge, in order to exercise any of Agent’s rights or remedies provided herein, at law, in equity, or otherwise;

 

(e)                                  Set off and apply to the Obligations any and all (i) balances and deposits of Borrower held by a Lender, and (ii) indebtedness at any time owing to or for the credit or the account of Borrower held by a Lender;

 

(f)                                   Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell (in the manner provided for herein) the Collateral.  Agent is hereby granted a license or other right, solely pursuant to the provisions of this Section 9.1, to use, without charge, Borrower’s labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks, service marks, and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral and, in connection with Agent’s exercise of its rights under this Section 9.1, Borrower’s rights under all licenses and all franchise agreements shall inure to Agent’s benefit;

 

(g)                                 Sell the Collateral at either a public or private sale, or both, by way of one or more contracts or transactions, for cash or on terms, in such manner and at such places (including Borrower’s premises) as is commercially reasonable, and apply any proceeds to the Obligations in whatever manner or order Agent deems appropriate.  Agent may sell the Collateral without giving any warranties as to the Collateral.  Agent may specifically disclaim any warranties of title or the like.  This procedure will not be considered adversely to affect the

 

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commercial reasonableness of any sale of the Collateral.  If Agent sells any of the Collateral upon credit, Borrower will be credited only with payments actually made by the purchaser, received by Agent, and applied to the indebtedness of the purchaser.  If the purchaser fails to pay for the Collateral, Agent may resell the Collateral and Borrower shall be credited with the proceeds of the sale;

 

(h)                                 Credit bid and purchase at any public sale;

 

(i)                                    Apply for the appointment of a receiver, trustee, liquidator or conservator of the Collateral, without notice and without regard to the adequacy of the security for the Obligations and without regard to the solvency of Borrower, any guarantor or any other Person liable for any of the Obligations; and

 

(j)                                    Any deficiency that exists after disposition of the Collateral as provided above will be paid immediately by Borrower.

 

Agent’s compliance with any applicable state or federal law requirements in connection with a disposition of the Collateral will not be considered adversely to affect the commercial reasonableness of any sale of the Collateral.

 

9.2                               Power of Attorney.  Effective only upon the occurrence and during the continuance of an Event of Default, Borrower hereby irrevocably appoints Agent (and any of Agent’s designated officers or employees) (for the benefit of the Lenders) as Borrower’s true and lawful attorney to:  (a) send requests for verification of Accounts or notify account debtors of Agent’s security interest in the Accounts; (b) endorse Borrower’s name on any checks or other forms of payment or security that may come into Agent’s possession; (c) sign Borrower’s name on any invoice or bill of lading relating to any Account, drafts against account debtors, schedules and assignments of Accounts, verifications of Accounts, and notices to account debtors; (d) dispose of any Collateral; (e) make, settle, and adjust all claims under and decisions with respect to Borrower’s policies of insurance; (f) settle and adjust disputes and claims respecting the accounts directly with account debtors, for amounts and upon terms which Agent determines to be reasonable; and (g) file, in its sole discretion, one or more financing or continuation statements and amendments thereto, relative to any of the Collateral; provided that Agent may exercise such power of attorney to sign the name of Borrower on any of the documents described in clause (g) above, regardless of whether an Event of Default has occurred.  The appointment of Agent as Borrower’s attorney in fact, and each and every one of Agent’s rights and powers, being coupled with an interest, is irrevocable until all of the Obligations have been fully repaid and performed, and each Lender’s obligation to provide advances hereunder is terminated.

 

9.3                               Accounts Collection.  At any time after the occurrence and during the continuation of an Event of Default, Agent may notify any Person owing funds to Borrower of Agent’s security interest in such funds and verify the amount of such Account.  Borrower shall collect all amounts owing to Borrower for Agent, receive in trust all payments as Agent’s trustee, and immediately deliver such payments to Agent (for the benefit of the Lenders) in their original form as received from the account debtor, with proper endorsements for deposit.

 

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9.4                               Lender Expenses.  If Borrower fails to pay any amounts or furnish any required proof of payment due to third persons or entities, as required under the terms of this Agreement, then Agent may do any or all of the following after reasonable notice to Borrower:  (a) make payment of the same or any part thereof; or (b) obtain and maintain insurance policies of the type discussed in Section 6.5 of this Agreement, and take any action with respect to such policies as Agent deems prudent.  Any amounts so paid or deposited by Agent shall constitute Lender Expenses, shall be immediately due and payable, shall bear interest at the then applicable rate hereinabove provided, and shall be secured by the Collateral.  Any payments made by Agent shall not constitute an agreement by Agent or any Lender to make similar payments in the future or a waiver by Agent of any Event of Default under this Agreement.

 

9.5                               Liability for Collateral; Duty of Agent With Respect to Collateral; Marshaling.

 

(a)                                 Agent and the Lenders have no obligation to clean up or otherwise prepare the Collateral for sale.  All risk of loss, damage or destruction of the Collateral shall be borne by Borrower.

 

(b)                                 Agent’s and each Lender’s sole duty with respect to the custody, safekeeping and physical preservation of the Collateral in Agent’s or the Lender’s possession shall be to deal with it in the same manner as Agent and the Lender, as applicable, deals with similar property for its own account.  The powers conferred on Agent and the Lenders hereunder are solely to protect Agent’s and the Lenders’ interest in the Collateral and shall not impose any duty upon Agent or any Lender to exercise any such powers.  Agent and each Lender shall be accountable only for amounts that Agent or the Lender receives as a result of the exercise of such powers, and neither Agent nor any Lender shall be responsible to Borrower for any act or failure to act hereunder, except for its own gross negligence or willful misconduct as finally determined by a non-appealable judgment of a court of competent jurisdiction.  In addition, neither Agent nor any Lender shall be liable or responsible for any loss or damage to any Collateral, or for any diminution in the value thereof, by reason of the act or omission of any warehousemen, carrier, forwarding agency, consignee or other bailee selected by it in good faith.  Agent may (but shall not be obligated to except at the request of the Required Lenders) pay taxes on behalf of Borrower, satisfy any Liens against the Collateral (other than Permitted Liens), purchase insurance to protect Agent’s and the Lenders’ interest if Borrower fails to maintain the insurance required hereunder and pay for the maintenance, insurance, protection and preservation of the Collateral and effect compliance with the terms of any Loan Document.  Borrower agrees to reimburse Agent, on demand, for all costs and expenses incurred by Agent in connection with such payment or performance and agrees that such amounts shall constitute Obligations.  Borrower hereby (i) waives any right under the UCC or any other applicable law to receive notice and/or copies of any filed or recorded financing statements, amendments thereto, continuations thereof or termination statements and (ii) releases and excuses Agent and each Lender from any obligation under the UCC or any other applicable law to provide notice or a copy of any such filed or recorded documents.

 

(c)                                  Neither Agent nor any Lender shall be under any obligation to marshal any property in favor of Borrower or any other Person or against or in payment of any Obligation.

 

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9.6                               No Obligation to Pursue Others.  Agent and the Lenders have no obligation to attempt to satisfy the Obligations by collecting them from any other person liable for them, and Agent may release, modify or waive any collateral provided by any other Person to secure any of the Obligations, all without affecting Agent’s and the Lenders’ rights against Borrower.  Borrower waives any right it may have to require Agent or any Lender to pursue any other Person for any of the Obligations.

 

9.7                               Remedies Cumulative.  Agent’s and the Lenders’ rights and remedies under this Agreement, the Loan Documents, and all other agreements shall be cumulative.  Agent and the Lenders shall have all other rights and remedies not inconsistent herewith as provided under the Code, by law, or in equity.  No exercise by Agent or any Lender of one right or remedy shall be deemed an election, and no waiver by Agent or any Lender of any Event of Default on Borrower’s part shall be deemed a continuing waiver.  No delay by Agent or any Lender shall constitute a waiver, election, or acquiescence by it.  No waiver by Agent or any Lender shall be effective unless made in a written document signed on behalf of Agent and the Required Lenders and then shall be effective only in the specific instance and for the specific purpose for which it was given.  Borrower expressly agrees that this Section 9.7 may not be waived or modified by Agent or any Lender by course of performance, conduct, estoppel or otherwise.

 

9.8                               Demand; Protest.  Except as otherwise provided in this Agreement, Borrower waives demand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment and any other notices relating to the Obligations.

 

10.                               NOTICES.

 

Unless otherwise provided in this Agreement, all notices or demands by any party relating to this Agreement or any other agreement entered into in connection herewith shall be in writing and (except for financial statements and other informational documents which may be sent by first-class mail, postage prepaid) shall be personally delivered or sent by a recognized overnight delivery service, certified mail, postage prepaid, return receipt requested, or by telefacsimile to Borrower, to Agent or to the Lenders, as the case may be, at its address set forth below:

 

If to Borrower:

Kala Pharmaceuticals, Inc.

 

Attn: Mary Reumuth

 

100 Beaver Street, Suite 201

 

Waltham, MA 02453

 

FAX: (781) 642-0399

 

 

With a copy (which will

 

not constitute notice) to:

Wilmer Cutler Pickering Hale and Dorr LLP

 

Attn: Jamie N. Class, Esq.

 

60 State Street

 

Boston, MA 02446

 

FAX: (617) 526-5000

 

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If to Agent:

Square 1 Bank

 

Attn: Loan Operations Manager

 

Durham, NC 27701

 

FAX: (919) 314-3080

 

 

If to a Lender:

To such Lender’s address on Schedule 1

 

The parties hereto may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other.

 

11.                               CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.

 

This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of North Carolina, without regard to principles of conflicts of law.  Jurisdiction shall lie in the State of North Carolina.  All disputes, controversies, claims, actions and similar proceedings arising with respect to Borrower’s account or any related agreement or transaction shall be brought in the General Court of Justice of North Carolina sitting in Durham County, North Carolina or the United States District Court for the Middle District of North Carolina, except as provided below with respect to arbitration of such matters.  AGENT, EACH LENDER AND BORROWER EACH ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED.  EACH OF THEM, AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL OF THEIR CHOICE, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY RELATED INSTRUMENT OR LOAN DOCUMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY COURSE OF CONDUCT, DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTION OF ANY OF THEM.  THESE PROVISIONS SHALL NOT BE DEEMED TO HAVE BEEN MODIFIED IN ANY RESPECT OR RELINQUISHED BY AGENT, ANY LENDER OR BORROWER, EXCEPT BY A WRITTEN INSTRUMENT EXECUTED BY EACH OF THEM.  If the jury waiver set forth in this Article 11 is not enforceable, then any dispute, controversy, claim, action or similar proceeding arising out of or relating to this Agreement, the Loan Documents or any of the transactions contemplated therein shall be settled by final and binding arbitration held in Durham County, North Carolina in accordance with the then current Commercial Arbitration Rules of the American Arbitration Association by one arbitrator appointed in accordance with those rules.  The arbitrator shall apply North Carolina law to the resolution of any dispute, without reference to rules of conflicts of law or rules of statutory arbitration. Judgment upon any award resulting from arbitration may be entered into and enforced by any state or federal court having jurisdiction thereof.  Notwithstanding the foregoing, the parties may apply to any court of competent jurisdiction for preliminary or interim equitable relief, or to compel arbitration in accordance with this Article.  The costs and expenses of the arbitration, including without limitation, the arbitrator’s fees and expert witness fees, and reasonable attorneys’ fees, incurred by the parties to the arbitration may be awarded to the prevailing party, in the discretion of the arbitrator, or may be apportioned between the parties in any manner deemed appropriate by the arbitrator.  Unless and until the arbitrator decides that one party is to pay for all (or a share) of

 

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such costs and expenses, both parties shall share equally in the payment of the arbitrator’s fees as and when billed by the arbitrator.

 

12.                               GENERAL PROVISIONS.

 

12.1                        Successors and Assigns.  This Agreement shall bind and inure to the benefit of the respective successors and permitted assigns of each of the parties and shall bind all persons who become bound as a debtor to this Agreement.  Borrower may not transfer, pledge or assign this Agreement or any rights or obligations under it without Agent’s and each Lender’s prior written consent (which may be granted or withheld in Agent’s and each Lender’s sole discretion).  The Lenders have the right without the consent of or notice to Borrower to sell, transfer, assign, pledge, negotiate or grant a participation in (any such sale, transfer, assignment, negotiation or grant of a participation, a “Lender Transfer”) all or any part of, or any interest in, the Lenders’ obligations, rights and benefits under this Agreement and the other Loan Documents; provided, however, that any such Lender Transfer of its obligations, rights and benefits under this Agreement and the other Loan Documents shall (a) be in minimum increments of $1,000,000 or, if the remaining outstanding principal amount of the obligations owing to such Lender is less than $1,000,000, then the entirety of such lesser amount, and (b) except with respect to a Lender Transfer to the transferring Lender’s Affiliate, another Lender or an Affiliate of another Lender, require the prior written consent of Agent which consent shall not be unreasonably withheld or delayed.  Borrower and Agent shall be entitled to continue to deal solely and directly with such Lender in connection with the interests so assigned until Agent shall have received and accepted an effective assignment agreement in form satisfactory to Agent executed, delivered and fully completed by the applicable parties thereto, and shall have received such other information regarding such transferee as Agent reasonably shall require.

 

12.2                        Indemnification.  Borrower shall defend, indemnify and hold harmless Agent, each Lender and their respective officers, employees, and agents (each an “Indemnified Person”) against:  (a) all obligations, demands, claims, and liabilities claimed or asserted (collectively, “Claims”) by any other party in connection with the transactions contemplated by this Agreement; and (b) all losses or Lender Expenses in any way suffered, incurred, or paid by any Indemnified Person as a result of or in any way arising out of, following, or consequential to transactions between Borrower and Agent and/or any Lender whether under this Agreement, or otherwise (including without limitation reasonable attorneys’ fees and expenses), except for Claims, losses and/or Lender Expenses caused by an Indemnified Person’s gross negligence or willful misconduct.

 

12.3                        Time of Essence.  Time is of the essence for the performance of all obligations set forth in this Agreement.

 

12.4                        Severability of Provisions.  Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision.

 

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12.5                        Amendments, Waivers; Integration.

 

(a)                                 No amendment, modification, termination or waiver of any provision of any Loan Document, and no consent with respect to any departure by Borrower therefrom, shall be effective unless the same shall be in writing and signed by Agent, the Required Lenders (or by Agent with the consent of the Required Lenders) and Borrower; provided that no such amendment, waiver or consent shall, unless in writing and signed by all of the Lenders directly affected thereby (or by Agent with the written consent of all of the Lenders directly affected thereby), in addition to Agent, the Required Lenders (or by Agent with the written consent of the Required Lenders) and Borrower, do any of the following:  (i) increase or decrease the amount of any Term Loan Commitment Amount (which shall be deemed to affect all of the Lenders), (ii) reduce the principal of or rate of interest on (other than waiving the imposition of the Default Rate) any Credit Extension or reduce the amount of any fees payable under any Loan Document, (iii) postpone the date fixed for or reduce or waive any scheduled installment of principal or any payment of interest or fees due to any Lender under the Loan Documents, (iv) release or subordinate the Lien on all or substantially all of the Collateral, or consent to a transfer of all or substantially all of the Collateral or Intellectual Property, in each case, except as otherwise may be provided in any Loan Document (which shall be deemed to affect all of the Lenders), (v) release Borrower from, or consent to Borrower’s assignment or delegation of, Borrower’s obligations under the Loan Documents (which shall be deemed to affect all of the Lenders), except as otherwise may be provided in any Loan Document, (vi) amend or modify the definition of “Required Lenders” or “Pro Rata Share” or any provision providing for the consent or other action by all of the Lenders, or (vii) amend, modify, terminate or waive this Section 12.5(a).

 

(b)                                 Notwithstanding any provision in Section 12.5(a) to the contrary, (i) Agent may amend Schedule 1 to reflect assignments permitted hereunder and (ii) Agent and Borrower may amend or modify any Loan Document to grant a new Lien, extend an existing Lien over additional property or join additional Persons as credit parties hereunder, in each case for the benefit of Agent and the Lenders.

 

(c)                                  All prior agreements, understandings, representations, warranties and negotiations between Borrower and the Lenders with respect to the subject matter of this Agreement and the other Loan Documents, if any, are merged into this Agreement and the Loan Documents.

 

12.6                        Counterparts.  This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement. Executed copies of the signature pages of this Agreement sent by facsimile or transmitted electronically in Portable Document Format (PDF), or any similar format, shall be treated as originals, fully binding and with full legal force and effect, and the parties waive any rights they may have to object to such treatment.

 

12.7                        Survival.  All covenants, representations and warranties made in this Agreement shall continue in full force and effect so long as any Obligations remain outstanding or any Lender has any obligation to make any Credit Extension to Borrower.  The obligations of

 

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Borrower to indemnify Agent and the Lenders with respect to the expenses, damages, losses, costs and liabilities described in Section 12.2 shall survive until all applicable statute of limitations periods with respect to actions that may be brought against Agent and/or any Lender have run.

 

12.8                        Confidentiality.  In handling any confidential information, Agent, the Lenders, Borrower and all employees and agents of each such party shall exercise the same degree of care that such party exercises with respect to its own proprietary information of the same types to maintain the confidentiality of any non-public information provided by or on behalf of such party pursuant to the Loan Documents or upon request of such party, except that disclosure of such information may be made (a) in the case of Agent and the Lenders, to the subsidiaries or Affiliates of Agent or any Lender in connection with their present or prospective business relations with Borrower, provided that such subsidiaries or Affiliates are bound by confidentiality obligations substantially the same as those of this Section 12.8, (b) in the case of Agent or any Lender, to prospective transferees or purchasers of any interest in the Credit Extensions, provided that they have entered into a comparable confidentiality agreement in favor of Borrower and have delivered a copy to Borrower, (c) as requested or required by law, regulations, rule or order (including, without limitation, the rules or regulations of any regulatory authority having jurisdiction over such party or its securities or stock exchange on which such party’s securities are traded), in legal proceedings, by subpoena, civil investigative demand or judicial order or by other similar order or process, (d) in the case of Agent and the Lenders, as may be required in connection with the examination, audit or similar investigation of Agent or any Lender, (e) as Agent or any Lender may determine in connection with the enforcement of any remedies hereunder or (f) to a Representative of Agent, the Lenders or Borrower, provided that such Representative is bound by either confidentiality obligations substantially the same as those of this Section 12.8 with the party providing it confidential information or other legal or fiduciary obligation to such party.  Confidential information hereunder shall not include information that either:  (i) is in the public domain or in the knowledge or possession of the receiving party when disclosed to such party, or becomes part of the public domain after disclosure to such receiving party through no fault of such receiving party; or (ii) is disclosed to such receiving party by a third party, provided that the receiving party does not have actual knowledge that such third party is prohibited from disclosing such information.

 

13.                               AGENT.

 

13.1                        Appointment and Authority.

 

(a)                                 Each Lender hereby appoints Square 1 (together with any successor Agent pursuant to Section 13.7) as Agent under the Loan Documents and authorizes Agent to (i) execute and deliver the Loan Documents and accept delivery thereof on its behalf from Borrower, (ii) take such action on its behalf and to exercise all rights, powers and remedies and perform the duties as are expressly delegated to Agent under the Loan Documents, and (iii) exercise such powers as are reasonably incidental thereto.  The provisions of this Article 13 are solely for the benefit of Agent and the Lenders, and Borrower shall have no rights as a third-party beneficiary of any of such provisions.

 

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(b)                                 Without limiting the generality of clause (a) above, Agent shall have the sole and exclusive right and authority (to the exclusion of the Lenders) and is hereby authorized to (i) act as the disbursing and collecting agent for the Lenders with respect to all payments and collections arising in connection with the Loan Documents (including in any other bankruptcy, insolvency or similar proceeding), and each Person making any payment in connection with any Loan Document to any Lender is hereby authorized to make such payment to Agent, (ii) file and prove claims and file other documents necessary or desirable to allow the claims of Agent and the Lenders with respect to any Obligations in any bankruptcy, insolvency or similar proceeding, (iii) act as collateral agent for Agent and each Lender for purposes of the perfection, holding and enforcing of all Liens created by the Loan Documents and all other purposes stated therein, together with such powers and discretion as are reasonably incidental thereto and (iv) execute any amendment, consent or waiver under the Loan Documents on behalf of any Lender that has consented in writing to such amendment, consent or waiver; provided, however, that Agent hereby appoints, authorizes and directs each Lender to act as collateral sub-agent for Agent and the Lenders for purposes of the perfection of all Liens with respect to the Collateral, including any deposit account maintained by Borrower with, and cash held by, such Lender, and may further authorize and direct the Lenders to take further actions as collateral sub-agents for purposes of enforcing such Liens or otherwise to transfer the Collateral subject thereto to Agent, and each Lender hereby agrees to take such further actions to the extent, and only to the extent, so authorized and directed.  Agent may, upon any term or condition it specifies, delegate or exercise any of its rights, powers and remedies under, and delegate or perform any of its duties or any other action with respect to, any Loan Document by or through any trustee, co-agent, employee, attorney-in-fact and any other Person (including any other Lender).  Any such Person shall benefit from this Article 13 to the extent provided by Agent but shall only have obligations to Agent and not to Borrower, any Lender or any other Person, and neither Borrower, any Lender nor any other Person shall have any rights, directly or indirectly, as a third-party beneficiary or otherwise against any such Person.

 

(c)                                  The Lenders irrevocably authorize Agent to release any Lien on any property granted to or held by Agent under any Loan Document (i) upon all of the Obligations (other than contingent obligations not yet accrued and payable) having been paid in full and so long as no Lender has any commitment to make any Credit Extensions, (ii) that is disposed of as part of or in connection with any Permitted Transfer, (iii) subject to Section 12.5, if approved, authorized or ratified in writing by the Required Lenders or (iv) as expressly provided in any of the other Loan Documents.  Upon request by Agent at any time, the Required Lenders will confirm in writing Agent’s authority to release its interest in particular types or items of property.  In each case as specified in this Section 13.1(c), Agent will, at Borrower’s expense, execute and deliver to Borrower such documents as Borrower may reasonably request to evidence the release of items of Collateral from the assignment and security interest granted under the Loan Documents, in each case in accordance with the terms of the Loan Documents and this Section 13.1(c); provided that Borrower shall have delivered to Agent a certificate of a Responsible Officer of Borrower certifying that any such transaction has been consummated in compliance with this Agreement and the other Loan Documents as Agent shall reasonably request.

 

(d)                                 Under the Loan Documents, Agent (i) is acting solely on behalf of the Lenders, with duties that are entirely administrative in nature, notwithstanding the use of the

 

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defined term “Agent”, the terms “agent”, “Agent” and “collateral agent” and similar terms in any Loan Document to refer to Agent, which terms are used for title purposes only, (ii) is not assuming any obligation under any Loan Document other than as expressly set forth herein or therein or any role as agent, fiduciary or trustee of or for any Lender or any other Person, and (iii) shall have no implied functions, responsibilities, duties, obligations or other liabilities under any Loan Document.  Each Lender, by accepting the benefits of the Loan Documents, hereby waives and agrees not to assert any claim against Agent based on the roles, duties and legal relationships expressly disclaimed in clauses (i) through (iii) above.

 

13.2                        Binding Effect; Use of Discretion.

 

(a)                                 Each Lender, by accepting the benefits of the Loan Documents, agrees that (i) any action taken by Agent or the Required Lenders (or, if expressly required in any Loan Document, a greater proportion of the Lenders) in accordance with the provisions of the Loan Documents, (ii) any action taken by Agent in reliance upon the instructions of the Required Lenders (or, where so required, such greater proportion), and (iii) the exercise by Agent or the Required Lenders (or, where so required, such greater proportion) of the powers set forth herein or therein, together with such other powers as are reasonably incidental thereto, shall be authorized and binding upon all of the Lenders.

 

(b)                                If Agent shall request instructions from the Required Lenders or all of the affected Lenders with respect to any act or action (including failure to act) in connection with any Loan Document, then Agent shall be entitled to refrain from such act or taking such action unless and until Agent shall have received instructions from the Required Lenders or all of the affected Lenders, as the case may be, and Agent shall not incur liability to any Person by reason of so refraining.  Agent shall be fully justified in failing or refusing to take any action under any Loan Document (i) if such action would, in the opinion of Agent, be contrary to any requirement of law or any Loan Document, (ii) if such action would, in the opinion of Agent, expose Agent to any potential liability under any requirement of law, or (iii) if Agent shall not first be indemnified to its satisfaction against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action.  Without limiting the foregoing, no Lender shall have any right of action whatsoever against Agent as a result of Agent acting or refraining from acting under any Loan Document in accordance with the instructions of the Required Lenders or all of the affected Lenders, as applicable.

 

13.3                        Agent’s Reliance, Etc.  Agent may, without incurring any liability hereunder, (a) consult with any of its Related Persons and, whether or not selected by it, any other advisors, accountants and other experts (including advisors to, and accountants and experts engaged by, Borrower) and (b) rely and act upon any document and information (including those transmitted by electronic transmission) and any telephone message or conversation, in each case believed by it to be genuine and transmitted, signed or otherwise authenticated by the appropriate parties.  None of Agent and its Related Persons shall be liable for any action taken or omitted to be taken by any of them under or in connection with any Loan Document, and each Lender and Borrower hereby waives and shall not assert (and Borrower shall cause its Subsidiaries to waive and agree not to assert) any right, claim or cause of action based thereon, except to the extent of liabilities resulting from the gross negligence or willful misconduct of Agent or, as the case may be, such Related Person (each as determined in a final, non-appealable judgment of a court of

 

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competent jurisdiction) in connection with the duties of Agent expressly set forth herein.  Without limiting the foregoing, Agent: (i) shall not be responsible or otherwise incur liability for any action or omission taken in reliance upon the instructions of the Required Lenders or for the actions or omissions of any of its Related Persons, except to the extent that a court of competent jurisdiction determines in a final non-appealable judgment that Agent acted with gross negligence or willful misconduct in the selection of such Related Person; (ii) shall not be responsible to any Lender or other Person for the due execution, legality, validity, enforceability, effectiveness, genuineness, sufficiency or value of, or the attachment, perfection or priority of any Lien created or purported to be created under or in connection with, any Loan Document; (iii) makes no warranty or representation, and shall not be responsible, to any Lender or other Person for any statement, document, information, representation or warranty made or furnished by or on behalf of Borrower or any Related Person of Borrower in connection with any Loan Document or any transaction contemplated therein or any other document or information with respect to Borrower, whether or not transmitted or (except for documents expressly required under any Loan Document to be transmitted to the Lenders) omitted to be transmitted by Agent, including as to completeness, accuracy, scope or adequacy thereof, or for the scope, nature or results of any due diligence performed by Agent in connection with the Loan Documents; and (iv) shall not have any duty to ascertain or to inquire as to the performance or observance of any provision of any Loan Document, whether any condition set forth in any Loan Document is satisfied or waived, as to the financial condition of Borrower or as to the existence or continuation or possible occurrence or continuation of any default or Event of Default, and shall not be deemed to have notice or knowledge of such occurrence or continuation unless it has received a notice from Borrower or any Lender describing such default or Event of Default that is clearly labeled “notice of default” (in which case Agent shall promptly give notice of such receipt to all of the Lenders, provided that Agent shall not be liable to any Lender for any failure to do so, except to the extent that such failure is attributable to Agent’s gross negligence or willful misconduct as determined by a final non-appealable judgment of a court of competent jurisdiction); and, for each of the items set forth in clauses (i) through (iv) above, each Lender and Borrower hereby waives and agrees not to assert (and Borrower shall cause its Subsidiaries to waive and agree not to assert) any right, claim or cause of action it might have against Agent based thereon.  No Lender shall have any right of action whatsoever against Agent as a result of Agent acting or (where so instructed) refraining from acting hereunder or under any of the other Loan Documents in accordance with the instructions of the Required Lenders (or such other number or percentage of the Lenders as shall be expressly provided for herein or in the other Loan Documents).

 

13.4                        Agent Individually.  Agent and its Affiliates may make loans and other extensions of credit to, acquire stock of, accept deposits from, and engage in any kind of business with, Borrower or any Affiliate thereof as though it were not acting as Agent and may receive separate fees and other payments therefor.  To the extent Agent or any of its Affiliates is or becomes a Lender hereunder, it shall have and may exercise the same rights and powers hereunder and shall be subject to the same obligations and liabilities as any other Lender, and the terms “Lender”, “Required Lender” and any similar terms shall, except where otherwise expressly provided in any Loan Document, include, without limitation, Agent or such Affiliate, as the case may be, in its individual capacity as a Lender, or as one of the Required Lenders.

 

13.5                        Lender Credit Decision.  Each Lender acknowledges that it shall, independently and without reliance upon Agent, any Lender or any of their Related Persons or

 

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upon any document solely or in part because such document was transmitted by Agent or any of its Related Persons, conduct its own independent investigation of the financial condition and affairs of Borrower and make and continue to make its own credit decisions in connection with entering into, and taking or not taking any action under, any Loan Document or with respect to any transaction contemplated in any Loan Document, in each case based on such documents and information as it shall deem appropriate.  Except for documents expressly required by any Loan Document to be transmitted by Agent to the Lenders, Agent shall not have any duty or responsibility to provide any Lender with credit or any other information concerning Borrower, including with respect to its business, prospects, operations, property, financial and other conditions or creditworthiness, or any Affiliate of Borrower, that may come into the possession of Agent (whether in its capacity as Agent or otherwise) or any of its Related Persons.

 

13.6                        Indemnification.

 

(a)                                 Each Lender agrees to reimburse Agent and each of its Related Persons (to the extent not reimbursed by Borrower) promptly upon demand for its Pro Rata Share of any out-of-pocket costs and expenses (including, without limitation, fees, charges and disbursements of financial, legal and other advisors and any taxes or insurance paid in the name of, or on behalf of, Borrower) incurred by Agent or any of its Related Persons in connection with the preparation, execution, delivery, administration, modification, amendment, consent, waiver or enforcement of, or the taking of any other action (whether through negotiations, through any work-out, bankruptcy, restructuring or other legal or other proceeding (including, without limitation, preparation for and/or response to any subpoena or request for document production relating thereto) or otherwise) in respect of, or legal advice with respect to, its rights or responsibilities under, any Loan Document.  Each Lender further agrees to indemnify Agent and each of its Related Persons (to the extent not indemnified by Borrower), ratably according to its Pro Rata Share, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever (including, to the extent not indemnified by the applicable Lender, taxes, interests and penalties imposed for not properly withholding or backup withholding on payments made to or for the account of any Lender) that may be imposed on, incurred by, or asserted against Agent or any of its Related Persons in any matter relating to or arising out of, in connection with or as a result of any Loan Document or any other act, event or transaction related, contemplated in or attendant to any such document, or, in each case, any action taken or omitted to be taken by Agent or any of its Related Persons under or with respect to the foregoing; provided that no Lender shall be liable to Agent or any of its Related Persons under this Section 13.6 to the extent such liability has resulted from the gross negligence or willful misconduct of Agent or, as the case may be, such Related Person, as determined by a final non-appealable judgment of a court of competent jurisdiction.

 

(b)                                 To the extent required by any applicable requirement of law, Agent may withhold from any payment to any Lender under a Loan Document an amount equal to any applicable withholding tax.  If the Internal Revenue Service or any other governmental authority asserts a claim that Agent did not properly withhold tax from amounts paid to or for the account of any Lender for any reason, or if Agent reasonably determines that it was required to withhold taxes from a prior payment to or for the account of any Lender but failed to do so, such Lender shall promptly indemnify Agent fully for all amounts paid, directly or indirectly, by Agent as tax

 

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or otherwise, including penalties and interest, and together with all expenses incurred by Agent.  Agent may offset against any payment to any Lender under a Loan Document any applicable withholding tax that was required to be withheld from any prior payment to such Lender but which was not so withheld, as well as any other amounts for which Agent is entitled to indemnification from such Lender under the immediately preceding sentence of this Section 13.6.

 

13.7                        Successor Agent.  Agent may resign at any time by delivering notice of such resignation to the Lenders and Borrower, effective on the date set forth in such notice.  If Agent delivers any such notice, the Required Lenders shall have the right to appoint a successor Agent.  If, after 30 days after the date of the retiring Agent’s notice of resignation, no successor Agent has been appointed by the Required Lenders that has accepted such appointment, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent from among the Lenders, provided that, if Agent shall notify Borrower and the Lenders that no qualifying Person has accepted such appointment, then such resignation shall nonetheless become effective in accordance with such notice.  Effective immediately upon its resignation, (a) the retiring Agent shall be discharged from its duties and obligations under the Loan Documents, (b) the Lenders shall assume and perform all of the duties of Agent until a successor Agent shall have accepted a valid appointment hereunder and all payments, communications and determinations provided to be made by, to or through Agent shall instead be made by or to each Lender directly until such time as the Required Lenders appoint a successor Agent as provided for above in this paragraph, (c) the retiring Agent and its Related Persons shall no longer have the benefit of any provision of any Loan Document other than with respect to any actions taken or omitted to be taken while such retiring Agent was, or because such Agent had been, validly acting as Agent under the Loan Documents, and (d) subject to its rights under Section 13.2(b), the retiring Agent shall take such action as may be reasonably necessary to assign to the successor Agent its rights as Agent under the Loan Documents.  Effective immediately upon its acceptance of a valid appointment as Agent, a successor Agent shall succeed to, and become vested with, all of the rights, powers, privileges and duties of the retiring Agent under the Loan Documents.

 

13.8                        Setoff and Sharing of Payments.  In addition to any rights now or hereafter granted under any applicable requirement of law and not by way of limitation of any such rights, upon the occurrence and during the continuance of any Event of Default and subject to Section 13.9(d), each Lender is hereby authorized at any time or from time to time upon the direction of Agent, without notice to Borrower or any other Person, any such notice being hereby expressly waived, to setoff and to appropriate and to apply any and all balances held by it at any of its offices for the account of Borrower (regardless of whether such balances are then due to Borrower) and any other properties or assets at any time held or owing by that Lender or that holder to or for the credit or for the account of Borrower against and on account of any of the Obligations that are not paid when due.  Any Lender exercising a right of setoff or otherwise receiving any payment on account of the Obligations in excess of its Pro Rata Share thereof shall purchase for cash (and the other Lenders or holders shall sell) such participations in each such other Lender’s or holder’s Pro Rata Share of the Obligations as would be necessary to cause such Lender to share the amount so offset or otherwise received with each other Lender or holder in accordance with their respective Pro Rata Shares of the Obligations.  Borrower agrees, to the fullest extent permitted by law, that (a) any Lender may exercise its right to offset with respect to amounts in excess of its Pro Rata Share of the Obligations and may purchase participations in

 

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accordance with the preceding sentence and (b) any Lender so purchasing a participation in the Credit Extensions made or other Obligations held by other Lenders or holders may exercise all rights of offset, bankers’ lien, counterclaim or similar rights with respect to such participation as fully as if such Lender or holder were a direct holder of the Credit Extensions and the other Obligations in the amount of such participation.  Notwithstanding the foregoing, if all or any portion of the offset amount or payment otherwise received is thereafter recovered from the Lender that has exercised the right of offset, the purchase of participations by that Lender shall be rescinded and the purchase price restored without interest.

 

13.9                        Payments; Non-Funding Lenders; Actions in Concert.

 

(a)                                 Payments.  If Agent receives any payment for the account of any Lender on or prior to 2:00 p.m. (Eastern time) on any Business Day, Agent shall pay to the applicable Lender such payment on the next Business Day.  If Agent receives any payment for the account of any Lender after 2:00 p.m. (Eastern time) on any Business Day, Agent shall pay to the applicable Lender such payment on the second Business Day thereafter.

 

(b)                                 Return of Payments.

 

(i)                                    If Agent pays an amount to a Lender under this Agreement in the belief or expectation that a related payment has been or will be received by Agent from Borrower and such related payment is not received by Agent, then Agent will be entitled to recover such amount (including interest accruing on such amount at the rate otherwise applicable to such Obligation) from such Lender on demand without setoff, counterclaim or deduction of any kind.

 

(ii)                                If Agent determines at any time that any amount received by Agent under any Loan Document must be returned to Borrower or paid to any other Person pursuant to any insolvency law or otherwise, then, notwithstanding any other term or condition of any Loan Document, Agent will not be required to distribute any portion thereof to any Lender.  In addition, each Lender will repay to Agent on demand any portion of such amount that Agent has distributed to such Lender, together with interest at such rate, if any, as Agent is required to pay to Borrower or such other Person, without setoff, counterclaim or deduction of any kind.

 

(c)                                  Non-Funding Lenders.

 

(i)                                    Unless Agent shall have received notice from a Lender prior to the date of any particular Credit Extension that such Lender will not make available to Agent such Lender’s Pro Rata Share of such Credit Extension, Agent may assume that such Lender will make such amount available to it on the date of such Credit Extension in accordance with Section 2.1(b)(i), and Agent may (but shall not be obligated to), in reliance upon such assumption, make available a corresponding amount for the account of Borrower on such date.  If and to the extent that such Lender shall not have made such amount available to Agent, such Lender and Borrower severally agree to repay to Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the day such amount is made available to Borrower until the day such amount is repaid to Agent, at a rate per annum equal to the

 

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interest rate applicable to the Obligation that would have been created when Agent made available such amount to Borrower had such Lender made a corresponding payment available.  If such Lender shall repay such corresponding amount to Agent, the amount so repaid shall constitute such Lender’s portion of the applicable Credit Extension for purposes of this Agreement.

 

(ii)                                To the extent that any Lender has failed to fund any Credit Extension or any other payments required to be made by it under the Loan Documents after any such Credit Extension is required to be made or such payment is due (a “Non-Funding Lender”), Agent shall be entitled to set off the funding short-fall against that Non-Funding Lender’s Pro Rata Share of all payments received from Borrower.  The failure of any Non-Funding Lender to make any Credit Extension or any payment required by it hereunder shall not relieve any other Lender (each such other Lender, an “Other Lender”) of its obligations to make such Credit Extension, but neither any Other Lender nor Agent shall be responsible for the failure of any Non-Funding Lender to make such Credit Extension or make any other payment required hereunder.  Notwithstanding anything set forth herein to the contrary, a Non-Funding Lender shall not have any voting or consent rights under or with respect to any Loan Document or constitute a “Lender” (or be included in the calculation of the “Required Lenders” hereunder) for any voting or consent rights under or with respect to any Loan Document.  At Borrower’s request, Agent or a Person reasonably acceptable to Agent shall have the right with Agent’s consent and in Agent’s reasonable discretion (but Agent or any such Person shall have no obligation) to purchase from any Non-Funding Lender, and each Lender agrees that if it becomes a Non-Funding Lender it shall, at Agent’s request, sell and assign to Agent or such Person, all of the Term Loan Commitment Amount (if any) and all of the outstanding Credit Extensions of that Non-Funding Lender for an amount equal to the principal balance of all Credit Extensions held by such Non-Funding Lender and all accrued interest with respect thereto through the date of sale, such purchase and sale to be consummated pursuant to an executed assignment agreement.

 

(d)                                 Actions in Concert.  Anything in this Agreement to the contrary notwithstanding, each Lender hereby agrees with each other Lender that no Lender shall take any action to protect or enforce its rights arising out of any Loan Document (including exercising any rights of setoff) without first obtaining the prior written consent of Agent and the Required Lenders, it being the intent of the Lenders that any such action by a Lender to protect or enforce rights under any Loan Document shall be taken in concert and at the direction or with the consent of Agent and the Required Lenders.  Nothing contained herein shall be deemed to authorize Agent to authorize or consent to or accept or adopt on behalf of any Lender any plan of reorganization, arrangement, adjustment or composition affecting the Obligations or the rights of any Lender to authorize the Agent to vote in respect of the claim of any Lender or in any such proceeding.

 

[Signature Page Follows]

 

31



 

[Signature Page to Loan and Security Agreement]

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written.

 

 

BORROWER:

 

 

 

KALA PHARMACEUTICALS, INC.

 

 

 

 

By:

/s/ Mary Reumuth

 

 

 

 

Name:

 

 

 

 

 

Title:

 

 

 

 

 

AGENT:

 

 

 

SQUARE 1 BANK

 

 

 

 

By:

/s/ David B. Kho

 

 

 

 

Name:

David B. Kho

 

 

 

 

Title:

Vice President

 

 

 

 

LENDERS:

 

 

 

SQUARE 1 BANK

 

 

 

 

By:

/s/ David B. Kho

 

 

 

 

Name:

David B. Kho

 

 

 

 

Title:

Vice President

 

 

 

 

ALEXANDRIA EQUITIES, LLC,

 

a Delaware limited liability company

 

 

 

By:

Alexandria Real Estate Equities, Inc., a Maryland corporation, managing member

 

 

 

 

 

By:

/s/ Jennifer Banks

 

 

 

 

 

 

Name:

Jennifer Banks

 

 

 

 

 

 

Title:

EVP, General Counsel

 



 

SCHEDULE 1

 

LENDERS

 

 

Lender

 

Term Loan
Commitment
Amount

 

Closing Date
Pro Rata
Share

 

Address

Square 1 Bank

 

$

7,000,000

 

70

%

Square 1 Bank

Attn: Loan Operations Manager

406 Blackwell Street, Suite 240

Durham, NC 27701

 

With a copy to:

Square 1 Bank

Attn: Phil Gager

101 Main Street, Suite 1210

Cambridge, MA 02142

 

 

 

 

 

 

 

 

Alexandria Equities, LLC

 

$

3,000,000

 

30

%

Alexandria Equities, LLC

Attn: Corporate Secretary

385 E. Colorado Blvd., Suite 299

Pasadena, CA 91101

Fax: (626) 578-7252

 

With a copy to:

investments@are.com

 


 

EXHIBIT A

 

DEFINITIONS

 

“Accounts” means all presently existing and hereafter arising accounts, contract rights, payment intangibles and all other forms of obligations owing to Borrower arising out of the sale or lease of goods (including, without limitation, the licensing of software and other technology) or the rendering of services by Borrower and any and all credit insurance, guaranties, and other security therefor, as well as all merchandise returned to or reclaimed by Borrower and Borrower’s Books relating to any of the foregoing.

 

“Affiliate” means, with respect to any Person, any Person that owns or controls directly or indirectly such Person, any Person that controls or is controlled by or is under common control with such Person, and each of such Person’s senior executive officers, directors, and general partners.

 

“Agent” has the meaning assigned in the preamble of this Agreement.

 

“Agreement” has the meaning assigned in the preamble of this Agreement.

 

“Authorized Officer” means someone designated as such in the corporate resolution provided by Borrower to Agent in which this Agreement and the transactions contemplated hereunder are authorized by Borrower’s board of directors.  If Borrower provides subsequent corporate resolutions to Agent after the Closing Date, the individual(s) designated as “Authorized Officer(s)” in the most-recently provided resolution shall be the only “Authorized Officers” for purposes of this Agreement.

 

“Availability End Date” means the date that is 12 months from the Closing Date.

 

“Borrower” has the meaning assigned in the preamble of this Agreement.

 

“Borrower’s Books” means all of Borrower’s books and records including:  ledgers; records concerning Borrower’s assets or liabilities, the Collateral, business operations or financial condition; and all computer programs, or tape files, and the equipment containing such information.

 

“Business Day” means any day that is not a Saturday, Sunday, or other day on which banks in the State of North Carolina are authorized or required to close.

 

“Cash” means unrestricted cash and cash equivalents.

 

“Change in Control” means a transaction or series of transactions in which the stockholders of Borrower who were not stockholders immediately prior to the first such transaction own more than 49% of the voting stock of Borrower immediately after giving effect to such transaction or related series of such transactions; provided that, in any event, the following shall not constitute a Change in Control for purposes of this Agreement:  (a) an initial public offering of Borrower’s common stock (i) that is a QPO under Borrower’s Certificate of Incorporation, as the same may be amended from time to time, and (ii) in which Borrower receives aggregate gross proceeds of

 



 

not less than $30,000,000; or (b) a bona fide equity financing or series of financings on terms and from investors reasonably acceptable to Agent and the Required Lenders.

 

“Claims” has the meaning assigned in Section 12.2.

 

“Closing Date” means the date of this Agreement.

 

“Code” means the North Carolina Uniform Commercial Code as amended or supplemented from time to time.

 

“Collateral” means the property described on Exhibit B attached hereto and all Negotiable Collateral to the extent not described on Exhibit B, except to the extent any such property (a) is nonassignable by its terms without the consent of the licensor thereof or another party (but only to the extent such prohibition on transfer is enforceable under applicable law, including, without limitation, § 25-9-406 and § 25-9-408 of the Code), (b) the granting of a security interest therein is contrary to applicable law, provided that, upon the cessation of any such restriction or prohibition, such property shall automatically become part of the Collateral, (c) constitutes the capital stock of a controlled foreign corporation (as defined in the IRC), in excess of 65% of the voting power of all classes of capital stock of such controlled foreign corporations entitled to vote, or (d) property (including any attachments, accessions or replacements) that is subject to a Lien that is permitted pursuant to clauses (a) and (c) of the definition of Permitted Liens, if the grant of a security interest with respect to such property pursuant to this Agreement would be prohibited by the agreement creating such Permitted Lien or would otherwise constitute a default thereunder, provided that such property will be deemed “Collateral” hereunder upon the termination and release of such Permitted Lien.

 

“Collateral State” means the state where the Collateral is located, which is Massachusetts.

 

“Compliance Certificate” means a compliance certificate, in substantially the form of Exhibit D attached hereto, executed by a Responsible Officer of Borrower.

 

“Contingent Obligation” means, as applied to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to (a) any indebtedness, lease, dividend, letter of credit or other obligation of another, including, without limitation, any such obligation directly or indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by that Person, or in respect of which that Person is otherwise directly or indirectly liable; (b) any obligations with respect to undrawn letters of credit, corporate credit cards or merchant services issued for the account of that Person; and (c) all obligations arising under any interest rate, currency or commodity swap agreement, interest rate cap agreement, interest rate collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; provided, however, that the term “Contingent Obligation” shall not include endorsements for collection or deposit in the ordinary course of business.  The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determined amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by such Person in good faith; provided,

 



 

however, that such amount shall not in any event exceed the maximum amount of the obligations under the guarantee or other support arrangement.

 

“Copyrights” means any and all copyright rights, copyright applications, copyright registrations and like protections in each work or authorship and derivative work thereof, whether published or unpublished and whether or not the same also constitutes a trade secret, now or hereafter existing, created, acquired or held.

 

“Credit Extension” means each Term Loan or any other extension of credit by any Lender, to or for the benefit of Borrower hereunder.

 

“Equipment” means all present and future machinery, equipment, tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments in which Borrower has any interest.

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the regulations thereunder.

 

“Event of Default” has the meaning assigned in Article 8.

 

“GAAP” means generally accepted accounting principles, consistently applied, as in effect from time to time in the United States.

 

“Indebtedness” means (a) all indebtedness for borrowed money or the deferred purchase price of property or services, including without limitation reimbursement and other obligations with respect to surety bonds and letters of credit, (b) all obligations evidenced by notes, bonds, debentures or similar instruments, (c) all capital lease obligations (as such term is understood under GAAP as in effect on the date hereof), and (d) all Contingent Obligations.

 

“Indemnified Person” has the meaning assigned in Section 12.2.

 

“Insolvency Proceeding” means any proceeding commenced by or against any Person or entity under any provision of the United States Bankruptcy Code, as amended, or under any other bankruptcy or insolvency law, including assignments for the benefit of creditors, formal or informal moratoria, compositions, extension generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief.

 

“Intellectual Property” means:

 

(a)                                 Copyrights, Trademarks and Patents;

 

(b)                                 Any and all trade secrets, and any and all intellectual property rights in computer software and computer software products now or hereafter existing, created, acquired or held;

 

(c)                                  Any and all design rights which may be available to Borrower now or hereafter existing, created, acquired or held;

 



 

(d)                                 Any and all claims for damages by way of past, present and future infringement of any of the rights included above, with the right, but not the obligation, to sue for and collect such damages for said use or infringement of the intellectual property rights identified above;

 

(e)                                  All amendments, renewals and extensions of any of the Copyrights, Trademarks or Patents; and

 

(f)                                   All other intellectual property.

 

“Interest-Only End Date” means May 31, 2016.

 

“Inventory” means all present and future inventory in which Borrower has any interest.

 

“Investment” means any beneficial ownership of (including stock, partnership or limited liability company interest or other securities) any Person, or any loan, advance or capital contribution to any Person.

 

“Investment Agreement” means, collectively, Borrower’s stock purchase and other agreement(s) pursuant to which Borrower most recently issued its preferred stock.

 

“IRC” means the Internal Revenue Code of 1986, as amended, and the regulations thereunder.

 

“Lender Expenses” means all reasonable costs or expenses (including reasonable attorneys’ fees and expenses, whether generated in-house or by outside counsel) incurred in connection with the preparation, negotiation, administration, and enforcement of the Loan Documents;  reasonable Collateral audit fees; and Agent’s and the Lenders’ reasonable attorneys’ fees and expenses (whether generated in-house or by outside counsel) incurred in amending, enforcing or defending the Loan Documents (including fees and expenses of appeal), incurred before, during and after an Insolvency Proceeding, whether or not suit is brought.

 

“Lender Transfer” has the meaning assigned in Section 12.1.

 

“Lien” means any mortgage, lien, deed of trust, charge, pledge, security interest or other encumbrance.

 

“Loan Documents” means, collectively, this Agreement, any note or notes executed by Borrower, and any other document, instrument or agreement entered into in connection with this Agreement, all as amended or extended from time to time.

 

“Material Adverse Effect” means a material adverse effect on (a) the operations, business or financial condition of Borrower and its Subsidiaries taken as a whole, (b) the ability of Borrower to repay the Obligations or otherwise perform its obligations under the Loan Documents, or (c) Borrower’s interest in, or the value, perfection or priority of Agent’s security interest in the Collateral.

 

“Mucus Penetrating Delivery Technology” means microparticle and nanoparticle technologies for delivering pharmaceutical agents, including, without limitation, microparticles and

 



 

nanoparticles for use in delivering therapeutic or prophylactic agents to or through mucus, mucin or mucosal barriers or tissues.

 

“Negotiable Collateral” means all of Borrower’s present and future letters of credit of which it is a beneficiary, drafts, instruments (including promissory notes), securities, documents of title, and chattel paper, and Borrower’s Books relating to any of the foregoing.

 

“New Subsidiary” has the meaning assigned in Section 6.8.

 

“Non-Funding Lender” has the meaning assigned in Section 13.9(c).

 

“Obligations” means all debt, principal, interest, Lender Expenses and other amounts owed to Agent or any Lender by Borrower pursuant to this Agreement or any other agreement, whether absolute or contingent, due or to become due, now existing or hereafter arising, including any interest that accrues after the commencement of an Insolvency Proceeding and including any debt, liability, or obligation owing from Borrower to others that Agent or any Lender may have obtained by assignment or otherwise.  Notwithstanding the foregoing, “Obligations” shall not include any obligations under the Warrants (other than Lender Expenses incurred in connection therewith).

 

“Other Lender” has the meaning assigned in Section 13.9(c).

 

“Patents” means all patents, patent applications and like protections including without limitation improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same.

 

“Periodic Payments” means all installments or similar recurring payments that Borrower may now or hereafter become obligated to pay to any Lender pursuant to the terms and provisions of any instrument, or agreement now or hereafter in existence between Borrower and Agent and/or any Lender.

 

“Permitted Indebtedness” means:

 

(a)                                 Indebtedness of Borrower in favor of the Lenders arising under this Agreement or any other Loan Document;

 

(b)                                 Indebtedness existing on the Closing Date and disclosed in the Schedule;

 

(c)                                  Indebtedness incurred as a result of endorsing negotiable instruments received in the ordinary course of business;

 

(d)                                 Indebtedness not to exceed $250,000 in the aggregate at any time secured by a lien described in clause (c) of the defined term “Permitted Liens,” provided that such Indebtedness does not exceed at the time it is incurred the lesser of the cost or fair market value of the property financed with such Indebtedness;

 

(e)                                  Subordinated Debt;

 



 

(f)                                   Indebtedness to trade creditors incurred in the ordinary course of business;

 

(g)                                 Reimbursement obligations with respect to Square 1 letters of credit and credit cards;

 

(h)                                 Indebtedness permitted under clause (d) of Permitted Investments; and

 

(i)                                    Extensions, refinancings and renewals of any items of Permitted Indebtedness, provided that the principal amount is not increased or the terms modified to impose more burdensome terms upon Borrower or its Subsidiary, as the case may be.

 

“Permitted Investment” means:

 

(a)                                 Investments existing on the Closing Date disclosed in the Schedule;

 

(b)                                 (i) Marketable direct obligations issued or unconditionally guaranteed by the United States of America or any agency or any State thereof maturing within one year from the date of acquisition thereof, (ii) commercial paper maturing no more than one year from the date of creation thereof and currently having rating of at least A-2 or P-2 from either Standard & Poor’s Corporation or Moody’s Investors Service, (iii) Square 1’s certificates of deposit maturing no more than one year from the date of investment therein, (iv) Square 1’s money market or other securities accounts, (v) Investments in regular deposit or checking accounts held with Square 1 or as otherwise permitted by, and subject to the terms and conditions of, Section 6.6 of this Agreement, and (vi) Investments consistent with any investment policy adopted by Borrower’s board of directors;

 

(c)                                  Investments accepted in connection with Permitted Transfers;

 

(d)                                 Investments (i) of Subsidiaries in or to other Subsidiaries (which are co-Borrowers or secured guarantors and, for Subsidiaries created or acquired after the date hereof, with respect to which Borrower and its Subsidiaries have fully complied with Section 6.8 hereof) or Borrower and Investments by Borrower in Subsidiaries (which are co-Borrowers or secured guarantors and, for Subsidiaries created or acquired after the date hereof, with respect to which Borrower and its Subsidiaries have fully complied with Section 6.8 hereof) and (ii) of Subsidiaries in or to other Subsidiaries (which are not co-Borrowers or secured guarantors) and Investments by Borrower in Subsidiaries (which are not co-Borrowers or secured guarantors) not to exceed $100,000 in the aggregate in any fiscal year;

 

(e)                                  Investments not to exceed $250,000 outstanding in the aggregate at any time consisting of (i) travel advances and employee relocation loans and other employee loans and advances in the ordinary course of business, and (ii) loans to employees, officers or directors relating to the purchase of equity securities of Borrower or its Subsidiaries pursuant to employee stock purchase plan agreements approved by Borrower’s Board of Directors;

 

(f)                                   Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of Borrower’s business;

 



 

(g)                                 Investments consisting of notes receivable of, or prepaid royalties and other credit extensions, to customers and suppliers who are not Affiliates, in the ordinary course of business, provided that this subparagraph (h) shall not apply to Investments of Borrower in any Subsidiary;

 

(h)                                 Joint ventures or strategic alliances in the ordinary course of Borrower’s business consisting of the non-exclusive licensing of technology, the development of technology or the providing of technical support, provided that any cash Investments by Borrower in another Person do not exceed $100,000 in the aggregate in any fiscal year;

 

(i)                                    Investments consisting of the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and

 

(j)                                    Investments permitted under Section 7.3.

 

“Permitted Licenses” means the following:

 

(a)                                 non-exclusive licenses or sublicenses and similar arrangements, partnerships and joint ventures on commercially reasonable terms for the use of the property of Borrower or its Subsidiaries in the ordinary course of business;

 

(b)                                 exclusive licenses or sublicenses on commercially reasonable terms of Borrower’s Mucus Penetrating Delivery Technology for any use (including the treatment of diseases and conditions of the eye) with a third-party proprietary therapeutic product candidate or group of third-party proprietary therapeutic product candidates or with a limited set of third-party proprietary drug targets targeting a specific disease or organ system, provided that any such license (i) does not include rights to any pre-clinical or clinical product candidate or drug target of Borrower (including without limitation where the active pharmaceutical ingredient is loteprednol etabonate or an RTKi developed by Borrower) and (ii) could not result in a legal transfer of title of the licensed property;

 

(c)                                  exclusive licenses or sublicenses on commercially reasonable terms only as to discrete geographical areas outside of the United States, provided that any such license could not result in a legal transfer of title of the licensed property; and

 

(d)                                 licenses or sublicenses existing on the Closing Date and disclosed on the Schedule;

 

provided, in each case, that, consistent with the terms of such license, Borrower’s interest in such license would be included in the Collateral and Agent (for the benefit of the Lenders) would obtain a security interest therein.

 

“Permitted Liens” means the following:

 

(a)                                 Any Liens existing on the Closing Date and disclosed in the Schedule (excluding Liens to be satisfied with the proceeds of the Credit Extensions) or arising under this Agreement, the other Loan Documents, or any other agreement in favor of Agent;

 



 

(b)                                 Liens for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate proceedings and for which Borrower maintains adequate reserves;

 

(c)                                  Liens not to exceed $250,000 in the aggregate at any time (i) upon or in any Equipment (other than Equipment financed by a Credit Extension) acquired or held by Borrower or any of its Subsidiaries to secure the purchase price of such Equipment or indebtedness incurred solely for the purpose of financing the acquisition or lease of such Equipment, or (ii) existing on such Equipment at the time of its acquisition, in each case provided that the Lien is confined solely to the property so acquired and improvements thereon, and the proceeds of such Equipment;

 

(d)                                 Liens incurred in connection with the extension, renewal or refinancing of the indebtedness secured by Liens of the type described in clauses (a) through (c) above, provided that any extension, renewal or replacement Lien shall be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness being extended, renewed or refinanced does not increase;

 

(e)                                  Liens securing Subordinated Debt;

 

(f)                                   Permitted Licenses;

 

(g)                                 Liens securing reimbursement obligations regarding Square 1 letters of credit and credit cards;

 

(h)                                 Liens of carriers, warehousemen, suppliers, or other Persons that are possessory in nature arising in the ordinary course of business so long as such Liens attach only to Inventory, securing liabilities in the aggregate amount not to exceed $25,000.00 and which are not delinquent or remain payable without penalty or which are being contested in good faith and by appropriate proceedings which proceedings have the effect of preventing the forfeiture or sale of the property subject thereto;

 

(i)                                    Liens to secure payment of workers’ compensation, employment insurance, old-age pensions, social security and other like obligations incurred in the ordinary course of business (other than Liens imposed by ERISA); and

 

(j)                                    Liens arising from judgments, decrees or attachments in circumstances not constituting an Event of Default under Section 8.4 (attachment) or 8.7 (judgments).

 

“Permitted Transfer” means the conveyance, sale, lease, transfer or disposition by Borrower or any Subsidiary of:

 

(a)                                 Inventory in the ordinary course of business;

 

(b)                                 Transfers that constitute Permitted Investments;

 

(c)                                  Transfers that constitute Permitted Licenses;

 



 

(d)                                 worn-out, surplus or obsolete Equipment; and

 

(e)                                  grants of security interests and other Liens that constitute Permitted Liens.

 

“Person” means any individual, sole proprietorship, partnership, limited liability company, joint venture, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or governmental agency.

 

“Prepayment Fee” has the meaning assigned in Section 2.4(c).

 

“Prime Rate” means the variable rate of interest, per annum, most recently announced by Square 1, as its “prime rate,” whether or not such announced rate is the lowest rate available from Square 1.

 

“Pro Rata Share” means a fraction (expressed as a percentage, carried out to the ninth decimal place), the numerator of which is the original principal amount of a Lender’s Credit Extensions to Borrower under this Agreement, and the denominator of which is the aggregate original principal amount of all Credit Extensions to Borrower under this Agreement, and, for clarity, as of the date hereof, means the percentage set forth on Schedule 1 hereto.

 

“Related Persons” means, with respect to any Person, each Affiliate of such Person and each director, officer, employee, agent, trustee, representative, attorney, accountant and each insurance, environmental, legal, financial and other advisor and other consultants and agents of or to such Person or any of its Affiliates.

 

“Representative” of Borrower, Agent or any Lender means, collectively, with respect to such party, its directors, officers, employees, agents or advisers (including, without limitation, attorneys, accountants, consultants, bankers and financial advisers).

 

“Required Lenders” means (a) for so long as all of the Persons that are Lenders on the Closing Date (each an “Original Lender”) have not assigned or transferred any of their interests in their respective Credit Extensions, Lenders holding 100% of the aggregate outstanding principal balance of the Credit Extensions, or (b) at any time from and after any Original Lender has assigned or transferred any interest in its Credit Extensions, all Lenders meeting the criteria of at least one of the clauses below:

 

(i)                                     each Original Lender that has not assigned or transferred any portion of its respective Credit Extensions,

 

(ii)                                  each assignee of an Original Lender provided (A) such assignee was assigned or transferred and continues to hold 100% of the assigning Original Lender’s interest in the Credit Extensions and (B) Agent has consented in writing to such assignee being a Required Lender by virtue of this clause (ii) of clause (b), except that no consent shall be required with respect to a Lender Transfer to the transferring Lender’s Affiliate, another Lender or an Affiliate of another Lender, and

 

(iii)                               in the event that the Required Lenders under clauses (i) and (ii) of this clause (b) collectively hold less than 66-2/3% of the aggregate outstanding principal

 



 

balance of the Credit Extensions, such other Lenders, when aggregated with the Required Lenders under clause (i) or (ii) of this clause (b), holding 66-2/3% or more of the aggregate outstanding principal balance of the Credit Extensions.

 

For purposes of this definition only, a Lender shall be deemed to include itself, and any Lender that is an Affiliate of such Lender.

 

“Responsible Officer” means each of the following, if applicable:  the Chief Executive Officer, the Chief Operating Officer, the Chief Financial Officer, the Senior Director of Finance, the Interim President and Chief Business Officer and the Controller of Borrower, as well as any other officer or employee identified as an Authorized Officer in the corporate resolution delivered by Borrower to Agent in connection with this Agreement.

 

“Schedule” means the schedule of exceptions attached hereto and approved by Agent and the Lenders, if any.

 

“SOS Reports” means the official reports from the Secretaries of State of each Collateral State, the state where Borrower’s chief executive office is located, the state of Borrower’s formation and other applicable federal, state or local government offices identifying all current security interests filed in the Collateral and Liens of record as of the date of such report.

 

“Square 1” has the meaning assigned in the preamble of this Agreement.

 

“Subordinated Debt” means any debt incurred by Borrower that is subordinated in writing to the debt owing by Borrower to the Lenders on terms reasonably acceptable to Agent and the Required Lenders (and identified as being such by Borrower, Agent and the Required Lenders).

 

“Subsidiary” means any corporation, partnership or limited liability company or joint venture in which (a) any general partnership interest or (b) more than 50% of the stock, limited liability company interest or joint venture of which by the terms thereof ordinary voting power to elect the Board of Directors, managers or trustees of the entity, at the time as of which any determination is being made, is owned by Borrower, either directly or through an Affiliate.

 

“Term Loan Commitment Amount” means the dollar amount set forth on Schedule 1 hereto, as amended from time to time.

 

“Term Loan Maturity Date” means December 1, 2018.

 

“Trademarks” means any trademark and servicemark rights, whether registered or not, applications to register and registrations of the same and like protections, and the entire goodwill of the business of Borrower connected with and symbolized by such trademarks.

 

“Transfer” has the meaning assigned in Section 7.1.

 


 

EXHIBIT B

 

COLLATERAL DESCRIPTION ATTACHMENT TO LOAN AND SECURITY AGREEMENT

 

DEBTOR

KALA PHARMACEUTICALS, INC.

 

 

SECURED PARTY:

SQUARE 1 BANK, AS AGENT FOR THE LENDERS

 

All personal property of Borrower (herein referred to as “Borrower” or “Debtor”) whether presently existing or hereafter created or acquired, and wherever located, including, but not limited to:

 

(a)                                 all accounts (including health-care-insurance receivables), chattel paper (including tangible and electronic chattel paper), deposit accounts, documents (including negotiable documents), equipment (including all accessions and additions thereto), financial assets, general intangibles, goods (including fixtures), instruments (including promissory notes), inventory (including all goods held for sale or lease or to be furnished under a contract of service, and including returns and repossessions), investment property (including securities and securities entitlements), letter of credit rights, money, and all of Debtor’s books and records with respect to any of the foregoing, and the computers and equipment containing said books and records;

 

(b)                                 any and all cash proceeds and/or noncash proceeds of any of the foregoing, including, without limitation, insurance proceeds, and all supporting obligations and the security therefor or for any right to payment.  All terms above have the meanings given to them in the North Carolina Uniform Commercial Code, as amended or supplemented from time to time, including revised Division 9 of the Uniform Commercial Code-Secured Transactions.

 

Notwithstanding the foregoing, the Collateral shall not include any (i) property expressly excluded from Collateral under that certain Loan and Security Agreement dated as of November 20, 2014 by and among Square 1 Bank, as agent, the lenders party thereto, and Kala Pharmaceuticals, Inc. (the “Loan and Security Agreement”) or (ii) Intellectual Property (as defined in the Loan and Security Agreement), in any medium, of any kind or nature whatsoever, now or hereafter owned or acquired or received by Borrower, or in which Borrower now holds or hereafter acquires or receives any right or interest (collectively, the “Intellectual Property”); provided, however, that the Collateral shall include all accounts and general intangibles that consist of rights to payment and proceeds from the sale, licensing or disposition of all or any part, or rights in, the foregoing (the “Rights to Payment”).

 

Notwithstanding the foregoing, if a judicial authority (including a U.S. Bankruptcy Court) holds that a security interest in the underlying Intellectual Property is necessary to have a security interest in the Rights to Payment, then the Collateral shall automatically, and effective as of November 20, 2014, include the Intellectual Property to the extent and only to the extent necessary to permit perfection of Agent’s security interest in the Rights to Payment, and further provided, however, that Agent’s enforcement rights with respect to any security interest in the Intellectual Property shall be absolutely limited to the Rights to Payment only, and Agent shall have no recourse whatsoever with respect to the underlying Intellectual Property.

 



 

EXHIBIT C

 

LOAN ADVANCE / PAYDOWN REQUEST FORM

 



 

EXHIBIT D

 

COMPLIANCE CERTIFICATE

 



 

SCHEDULE OF EXCEPTIONS

 

Permitted Indebtedness (Exhibit A)

 

1.              Irrevocable Standby Letter of Credit No. SVBSF008707, dated January 2, 2014 in the amount of $86,697.37 (Beneficiary: ARE-MA Region No. 9, LLC)

 

2.              Borrower’s credit cards with Silicon Valley Bank in an amount up to $35,000 in the aggregate.

 

Permitted Investments (Exhibit A) — None.

 

Permitted Licenses (Exhibit A)

 

1.              Exclusive License Agreement between The Johns Hopkins University and Kala Pharmaceuticals, Inc. (formerly known as Hanes Newco, Inc.) dated November 10, 2009, as amended by a First Amendment dated November 19, 2012, as further amended by a Second Amendment dated May 22, 2014, and as again amended by a Third Amendment dated August 26, 2014.

 

2.              Settlement and License Agreement, dated October 24, 2014, by and between The Johns Hopkins University, Kala Pharmaceuticals, Inc., and GrayBug, LLC

 

3.              Side Agreement, dated October 24, 2014, by and between The Johns Hopkins University, Kala Pharmaceuticals, Inc., and GrayBug, LLC

 

Permitted Liens (Exhibit A)

 

1.              That certain Irrevocable Standby Letter of Credit No. SVBSF008707, dated January 2, 2014 in the amount of $86,697.37 (Beneficiary: ARE-MA Region No. 9, LLC) disclosed above is secured by cash collateral in an amount equal to the dollar value of the letter of credit.

 

2.              Bank Services Pledge Agreement (Cash-Secured), dated December 19, 2013, between Silicon Valley Bank and Kala Pharmaceuticals, Inc. with respect to deposit account no.          relating to the letter of credit described in item 1 (“Pledge Agreement for Deposit Account No.               “).

 

3.              Borrower’s credit cards with Silicon Valley Bank disclosed above are secured by cash collateral in an amount equal to $35,000 in the aggregate.

 

4.              Bank Services Pledge Agreement (Cash-Secured), dated August 27, 2012, between Silicon Valley Bank and Kala Pharmaceuticals, Inc. with respect to deposit account no.              relating to the credit cards described in item 3 (“Pledge Agreement for Deposit Account No.                “).

 

Collateral (Section 5.3)

 

1.              Certain property of Borrower is subject to Liens as described in items 1 and 2 of Schedule 7.5 and certain licenses and agreements to which Borrower is a party are subject to restrictions on transfer and/or pledge as described in Schedule 7.5.

 

Intellectual Property (Section 5.4)

 

1.              Borrower’s patent family identified as Kala reference number KP003 is jointly owned by Borrower and The John’s Hopkins University.  This patent family includes U.S. Provisional Patent Application Serial No.                       , filed May 3, 2012 (now expired), U.S. Patent Application Serial No.

 



 

                      , filed May 3, 2013, and PCT International Application No.                                             , filed May 3, 2013, and any applications filed in the future claiming benefit of any of the foregoing.

 

2.              Borrower is actively engaged in performing feasibility studies with a number of parties under the terms of feasibility study agreements (“FSA”), wherein Borrower is applying its platform technology to active pharmaceutical ingredients (API) provided by the other party to an FSA.  In these arrangements, new inventions created in the course of that work (excluding inventions relating to the platform) are jointly owned by Borrower and the other party, and the parties cannot practice joint inventions without entering into a definitive license agreement.

 

3.              The ‘433 Patent (as defined in Schedule 5.6) was revoked as described in Schedule 5.6.

 

Prior Names (Section 5.5)

 

1.              Hanes Newco, Inc.

 

Litigation (Section 5.6)

 

1.              On November 16, 2011, Vectura Limited (“Vectura”) filed an opposition at the European Patent Office (the “Vectura Opposition”) against European Patent No. 2061433 (the “‘433 Patent”) owned by The Johns Hopkins University and licensed to Kala Pharmaceuticals, Inc.  Vectura sought to have all granted claims revoked.  An Oral Hearing was held at the European Patent Office on April 23, 2013, at which the ‘433 Patent was revoked.  A notice of appeal of the European Patent Office’s decision was filed July 16, 2013, and the statement of grounds of appeal was submitted on September 17, 2013. Vectura filed its reply to appeal on February 7, 2014.  The appeal is pending, and the Company is awaiting further communication or action by the European Patent Office.

 

Inbound Licenses; Other Agreements (Section 5.12)

 

1.              Exclusive License Agreement between The Johns Hopkins University and Kala Pharmaceuticals, Inc. (formerly known as Hanes Newco, Inc.) dated November 10, 2009, as amended by a First Amendment dated November 19, 2012, as further amended by a Second Amendment dated May 22, 2014, and as again amended by a Third Amendment dated August 26, 2014.

 

2.              Borrower is prohibited and/or restricted from granting a security interest in the licenses and agreements set forth in item 3 of Schedule 7.5.

 

Encumbrances (Section 7.5)

 

1.              Deposit Account No.          is subject to that certain Pledge Agreement described in item 2 of the Permitted Liens schedule.

 

2.              Deposit Account No.          is subject to that certain Pledge Agreement described in item 4 of the Permitted Liens schedule.

 

3.              The following licenses and agreements contain restrictions on transfer and/or pledge:

 

a.              Exclusive License Agreement between The Johns Hopkins University and Kala Pharmaceuticals, Inc. (formerly known as Hanes Newco, Inc.) dated November 10, 2009, as amended by a First Amendment dated November 19, 2012, as further amended by a Second Amendment dated May 22, 2014, and as again amended by a Third Amendment dated August 26, 2014.

 



 

b.              Settlement and License Agreement, dated October 24, 2014, by and between The Johns Hopkins University, Kala Pharmaceuticals, Inc., and GrayBug, LLC

 

c.               Side Agreement, dated October 24, 2014, by and between The Johns Hopkins University, Kala Pharmaceuticals, Inc., and GrayBug, LLC

 

d.              Lease Agreement, dated September 30, 2013, between ARE-MA Region No. 9, LLC and Kala Pharmaceuticals, Inc.

 

Locations (Section 7.10)

 

1.              Michigan

 

2.              California

 

3.              New Jersey

 

4.              Pennsylvania

 

5.              New Hampshire

 



 

USA PATRIOT ACT
NOTICE
OF
CUSTOMER IDENTIFICATION

 

IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT

 

To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account.

 

WHAT THIS MEANS FOR YOU:  when you open an account, we will ask your name, address, date of birth, and other information that will allow us to identify you.  We may also ask to see your driver’s license or other identifying documents.

 


 

SQUARE 1 BANK

 

 

AUTOMATIC DEBIT AUTHORIZATION

Member FDIC

 

 

To:  Square 1 Bank, as agent for the Lenders

 

Re:  Loan #                                                                     

 

You are hereby authorized and instructed to charge account No.                                        in the name of KALA PHARMACEUTICALS, INC.

 

for facility fees, principal, interest and other payments due on above-referenced loan as set forth below and credit the loan referenced above.

 

x                                  Debit the Facility Fee as it becomes due according to the terms of the Loan and Security Agreement and any renewals or amendments thereof.

 

x                                  Debit each interest payment as it becomes due according to the terms of the Loan and Security Agreement and any renewals or amendments thereof.

 

x                                  Debit each principal payment as it becomes due according to the terms of the Loan and Security Agreement and any renewals or amendments thereof.

 

x                                  Debit each payment for Lender Expenses as it becomes due according to the terms of the Loan and Security Agreement and any renewals or amendments thereof.

 

This Authorization is to remain in full force and effect until revoked in writing.

 

Borrower Signature

 

Date

 

 

 

 

 

 

 



 

CLIENT MARKETING AUTHORIZATION

 

We are excited to have you as a Square 1 Bank client and want to spread the word about your success!

 

From press releases to mentions on social media sites, and all points in between, Square 1’s marketing and communications team is constantly seeking new opportunities to promote our clients and to connect them to prospects, existing customers, and the larger entrepreneurial/venture capital community.

 

If you complete the authorization below and return it to us, you are authorizing us to reference and/or include your company as part of our marketing and advertising efforts without further review or advance approval by you. Please select all areas that you approve.

 

o                        All items listed below

 

o                        List company as a Square 1 Bank customer on social media sites, including Twitter, LinkedIn, Facebook, Square 1 Bank corporate blog, or any other social media site

 

o                        Press release including your company as a Square 1 Bank client (to include company name and description only; may appear alongside other clients)

 

o                        Press release including your company as a Square 1 Bank client (general press release not focused on your company, but referring to your company as a client, and including your company’s name, description, and editorial comments; may appear alongside other clients)

 

o                        Provide quote for inclusion in a Square 1 Bank press release

 

o                        Use of company name and logo in Square 1 Bank marketing materials including corporate marketing collateral, website, social media sites, and other advertising campaigns

 

o                        Provide quotes for inclusion in Square 1 Bank marketing materials including corporate marketing collateral, website, social media sites, and other advertising campaigns

 

o                        Customer case study/application brief (success story to be posted on website, included in press kits and/or pitched to publications as potential articles)

 

o                        Willing to participate in a video testimonial highlighting your banking relationship and experiences with Square 1 Bank

 

o                        Other (please describe):

 

If you have questions, please contact your Square 1 banker, or our Marketing + Communications department at marketing@square1bank.com.

 

Please acknowledge your authorization by signing below:

 

Company Name:

KALA PHARMACEUTICALS, INC.

 

Authorized Signer:

 

 

Name:

 

 

Title:

 

 

Date: