UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _______ to _______
Commission file number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
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Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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The |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The number of shares of the registrant’s common stock, par value $0.01 per share, outstanding as of July 25, 2023 was
HERON THERAPEUTICS, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2023
TABLE OF CONTENTS
PART I. |
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ITEM 1. |
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Condensed Consolidated Balance Sheets as of June 30, 2023 (Unaudited) and December 31, 2022 |
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4 |
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5 |
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Notes to Condensed Consolidated Financial Statements (Unaudited) |
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6 |
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ITEM 2. |
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Management's Discussion and Analysis of Financial Condition and Results of Operations |
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ITEM 3. |
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25 |
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ITEM 4. |
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PART II. |
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ITEM 1. |
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26 |
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ITEM 1A. |
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26 |
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ITEM 2. |
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27 |
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ITEM 3. |
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27 |
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ITEM 4. |
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ITEM 5. |
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ITEM 6. |
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28 |
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29 |
1
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
HERON THERAPEUTICS, INC.
Condensed Consolidated Balance Sheets
(In thousands)
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June 30, |
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December 31, |
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(Unaudited) |
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(See Note 2) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Short-term investments |
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Accounts receivable, net |
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Inventory |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Right-of-use lease assets |
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Other assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued clinical and manufacturing liabilities |
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Accrued payroll and employee liabilities |
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Other accrued liabilities |
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Current lease liabilities |
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Total current liabilities |
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Non-current lease liabilities |
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Non-current convertible notes payable, net |
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Other non-current liabilities |
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Total liabilities |
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Stockholders’ equity (deficit): |
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Common stock |
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Additional paid-in capital |
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Accumulated other comprehensive loss |
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Accumulated deficit |
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Total stockholders’ equity (deficit) |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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See accompanying notes.
2
HERON THERAPEUTICS, INC.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
(In thousands, except per share amounts)
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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2023 |
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2022 |
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2023 |
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2022 |
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Revenues: |
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Net product sales |
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$ |
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$ |
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$ |
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$ |
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Operating expenses: |
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Cost of product sales |
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Research and development |
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General and administrative |
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Sales and marketing |
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Total operating expenses |
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Loss from operations |
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Other income (expense), net |
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( |
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Net loss |
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Other comprehensive income (loss): |
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Unrealized gains (losses) on short-term investments |
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Comprehensive loss |
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$ |
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$ |
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$ |
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$ |
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Basic and diluted net loss per share |
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$ |
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$ |
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$ |
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Weighted average common shares outstanding, basic and diluted |
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See accompanying notes.
3
HERON THERAPEUTICS, INC.
Condensed Consolidated Statements of Stockholders’ Equity (Deficit)
(Unaudited)
(In thousands)
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Common Stock |
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Shares |
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Amount |
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Additional Paid-In |
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Accumulated Other Comprehensive |
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Accumulated |
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Total Stockholders’ |
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Balance as of December 31, 2022 |
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$ |
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$ |
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Issuance of common stock under equity incentive plan |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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( |
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Net unrealized gain on short-term investments |
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— |
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— |
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— |
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— |
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Comprehensive loss |
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Balance as of March 31, 2023 |
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Issuance of common stock under equity incentive plan |
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— |
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Issuance of common stock under the employee stock purchase plan |
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— |
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Stock-based compensation expense |
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— |
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Net loss |
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— |
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— |
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— |
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( |
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Net unrealized loss on short-term investments |
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— |
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( |
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— |
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Comprehensive loss |
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Balance as of June 30, 2023 |
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$ |
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$ |
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$ |
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Common Stock |
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Shares |
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Amount |
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Additional Paid-In |
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Accumulated Other Comprehensive Loss |
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Accumulated |
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Total Stockholders’ |
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Balance as of December 31, 2021 |
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$ |
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$ |
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Issuance of common stock under equity incentive plan |
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— |
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Stock-based compensation expense |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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( |
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Net unrealized loss on short-term investments |
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— |
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— |
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— |
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( |
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— |
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( |
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Comprehensive loss |
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Balance as of March 31, 2022 |
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Issuance of common stock under equity incentive plan |
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— |
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— |
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Issuance of common stock under the employee stock purchase plan |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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( |
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( |
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Net unrealized loss on short-term investments |
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— |
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— |
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— |
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( |
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— |
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Comprehensive loss |
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Balance as of June 30, 2022 |
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$ |
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$ |
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$ |
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See accompanying notes.
4
HERON THERAPEUTICS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
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Six Months Ended |
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2023 |
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2022 |
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Operating activities: |
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Net loss |
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$ |
( |
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$ |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Stock-based compensation expense |
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Depreciation and amortization |
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Amortization of debt issuance costs |
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(Accretion of discount) amortization of premium on short-term investments |
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Impairment of property and equipment |
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Loss on disposal of property and equipment |
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Change in operating assets and liabilities: |
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Accounts receivable |
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Inventory |
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Prepaid expenses and other assets |
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Accounts payable |
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Accrued clinical and manufacturing liabilities |
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Accrued payroll and employee liabilities |
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Other accrued and other non-current liabilities |
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Net cash used in operating activities |
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Investing activities: |
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Purchases of short-term investments |
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Maturities and sales of short-term investments |
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Purchases of property and equipment |
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Proceeds from the sale of property and equipment |
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— |
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Net cash provided by investing activities |
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Financing activities: |
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Payments for stock issued under the equity incentive plan |
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Proceeds from purchases under the employee stock purchase plan |
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Net cash provided by (used in) financing activities |
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Net decrease in cash and cash equivalents |
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Cash and cash equivalents at beginning of year |
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Cash and cash equivalents at end of period |
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$ |
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$ |
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Supplemental disclosure of cash flow information: |
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Interest paid |
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$ |
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$ |
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See accompanying notes.
5
HERON THERAPEUTICS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
In this Quarterly Report on Form 10-Q, all references to “Heron,” the “Company,” “we,” “us,” “our” and similar terms refer to Heron Therapeutics, Inc. and its wholly-owned subsidiary, Heron Therapeutics B.V. Heron Therapeutics®, the Heron logo, ZYNRELEF®, APONVIE®, CINVANTI®, SUSTOL®, and Biochronomer® are our trademarks. All other trademarks appearing or incorporated by reference into this Quarterly Report on Form 10-Q are the property of their respective owners.
1. Business
We are a commercial-stage biotechnology company focused on improving the lives of patients by developing and commercializing therapeutic innovations that improve medical care. Our advanced science, patented technologies, and innovative approach to drug discovery and development have allowed us to create and commercialize a portfolio of products that aim to advance the standard of care for acute care and oncology patients.
ZYNRELEF (bupivacaine and meloxicam) extended-release solution (“ZYNRELEF”) is approved in the United States (“U.S.”) and
As of June 30, 2023, we had cash, cash equivalents and short-term investments of $
2. Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, since they are interim statements, they do not include all of the information and disclosures required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2023 are not necessarily indicative of the results that may be expected for other quarters or the year ending December 31, 2023. The condensed consolidated balance sheet as of December 31, 2022 has been derived from the audited financial statements as of that date. For more complete financial information, these condensed consolidated financial statements and the notes thereto should be read in conjunction with the audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on March 29, 2023.
6
3. Accounting Policies
Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of Heron Therapeutics, Inc. and its wholly-owned subsidiary, Heron Therapeutics B.V., which was organized in the Netherlands in March 2015. Heron Therapeutics B.V. has no operations and no material assets or liabilities, and there have been no significant transactions related to Heron Therapeutics B.V. since its inception.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and disclosures made in the accompanying notes to the financial statements. Our significant accounting policies that involve significant judgment and estimates include revenue recognition, investments, inventory and the related reserves, accrued clinical liabilities, income taxes and stock-based compensation. Actual results could differ materially from those estimates.
Cash, Cash Equivalents and Short-term Investments
Cash and cash equivalents consist of cash and highly liquid investments with contractual maturities of three months or less from the original purchase date.
Short-term investments consist of securities with contractual maturities of greater than three months from the original purchase date. Securities with contractual maturities greater than one year are classified as short-term investments on the condensed consolidated balance sheets, as we have the ability, if necessary, to liquidate these securities to meet our liquidity needs in the next 12 months. We have classified our short-term investments as available-for-sale securities in the accompanying condensed consolidated financial statements. Available-for-sale securities are stated at fair market value, with net changes in unrealized gains and losses reported in other comprehensive loss and realized gains and losses included in other income (expense). The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in interest income within other income (expense).
Concentration of Credit Risk
Cash, cash equivalents and short-term investments are financial instruments that potentially subject us to concentrations of credit risk. We deposit our cash in financial institutions. At times, such deposits may be in excess of insured limits. We have not experienced any losses in such accounts and believe we are not exposed to significant risk with respect to our cash, cash equivalents and short-term investments.
We may also invest our excess cash in money market funds, U.S. government and agencies, corporate debt securities and commercial paper. We have established guidelines relative to our diversification of our cash investments and their maturities in an effort to maintain safety and liquidity. These guidelines are periodically reviewed and modified to take advantage of trends in yields and interest rates.
ZYNRELEF, APONVIE, CINVANTI and SUSTOL (collectively, our “Products”) are distributed in the U.S. through a limited number of specialty distributors and full line wholesalers (collectively, “Customers”) that resell to healthcare providers and hospitals, the end users of our Products.
The following table includes the percentage of product sales and accounts receivable balances for our three major Customers, each of which comprised 10% or more of our product sales:
|
|
Product Sales |
|
|
Accounts |
|
||||||
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
As of |
|
|||
Customer A |
|
|
% |
|
|
% |
|
|
% |
|||
Customer B |
|
|
% |
|
|
% |
|
|
% |
|||
Customer C |
|
|
% |
|
|
% |
|
|
% |
|||
Total |
|
|
% |
|
|
% |
|
|
% |
|||
7
Accounts Receivable, Net
Accounts receivable are recorded at the invoice amount, net of an allowance for credit losses. The allowance for credit losses reflects accounts receivable balances that are believed to be uncollectible. In estimating the allowance for credit losses, we consider: (1) our historical experience with collections and write-offs; (2) the credit quality of our Customers and any recent or anticipated changes thereto; (3) the outstanding balances and past due amounts from our Customers; and (4) reasonable and supportable forecast of economic conditions expected to exist throughout the contractual term of the receivable.
We offered extended payment terms to our Customers in connection with our product launch of APONVIE in March 2023. As of June 30, 2023 and December 31, 2022, we determined that an allowance for credit losses was not required. For the three and six months ended June 30, 2023 and 2022, we did not have any material write-offs of accounts receivable balances.
Inventory
Inventory is stated at the lower of cost or estimated net realizable value on a first-in, first-out, or FIFO, basis. We periodically analyze our inventory levels and write down inventory that has become obsolete, inventory that has a cost basis in excess of its estimated realizable value and inventory quantities that are in excess of expected sales requirements as cost of product sales. The determination of whether inventory costs will be realizable requires estimates by management. If actual market conditions are less favorable than projected by management, additional write-downs of inventory may be required, which would be recorded as cost of product sales.
Leases
We determine if an arrangement is a lease or contains lease components at inception. Operating leases with an initial term greater than 12 months are recorded as lease liabilities with corresponding right-of-use (“ROU”) lease assets on the condensed consolidated balance sheets. ROU lease assets represent our right to use the underlying assets over the lease term, and lease liabilities represent the present value of our obligation to make lease payments arising from the lease. Lease liabilities are recognized at the lease commencement based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. The ROU lease assets equal the lease liabilities, less unamortized lease incentives, unamortized initial direct costs and the cumulative difference between rent expense and amounts paid under the lease. The lease term includes any option to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense is recognized on a straight-line basis over the lease term. We have lease agreements with both lease and non-lease components, which are generally accounted for separately.
Revenue Recognition
Revenue is recognized in accordance with the Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“Topic 606”). Topic 606 is based on the principle that revenue should be recognized 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 or services.
Product Sales
Our Products are distributed in the U.S. through a limited number of Customers that resell to healthcare providers and hospitals, the end users of our Products.
Revenue is recognized in an amount that reflects the consideration we expect to receive in exchange for our Products. To determine revenue recognition for contracts with customers within the scope of Topic 606, we perform the following 5 steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations of the contract(s); (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract(s); and (v) recognize revenue when (or as) we satisfy the performance obligations. We recognize revenue from product sales when there is a transfer of control of the product to our Customers. We typically determine transfer of control based on when the product is delivered, and title passes to our Customers.
8
Product Sales Allowances
We recognize product sales allowances as a reduction of product sales in the same period the related revenue is recognized. Product sales allowances are based on amounts owed or to be claimed on the related sales. Such variable consideration includes estimates that take into consideration the terms of our agreements with Customers, historical product returns, rebates or discounts taken, the shelf life of the product and specific known market events, such as competitive pricing and new product introductions. If actual future results vary from our estimates, we may need to adjust these estimates, which could have an effect on product sales and earnings in the period of adjustment. Our product sales allowances include:
We believe our estimated allowance for product returns and GPO discounts requires a high degree of judgment and is subject to change based on our experience and certain quantitative and qualitative factors. We believe our estimated allowances for distributor fees, GPO rebates and administrative fees, Medicaid rebates and prompt pay discounts do not require a high degree of judgment because the amounts are settled within a relatively short period of time.
Our product sales allowances and related accruals are evaluated each reporting period and adjusted when trends or significant events indicate that a change in estimate is appropriate. Changes in product sales allowance estimates could materially affect our results of operations and financial position.
The following table provides disaggregated net product sales (in thousands):
|
|
For the Three Months Ended June 30, |
|
|
For the Six Months Ended June 30, |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
CINVANTI net product sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
SUSTOL net product sales |
|
|
|
|
|
|
|
|
|
|
|
|
||||
ZYNRELEF net product sales |
|
|
|
|
|
|
|
|
|
|
|
|
||||
APONVIE net product sales |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Total net product sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
9
The following table provides a summary of activity with respect to our product returns, distributor fees and discounts, rebates and administrative fees, which are included in other accrued liabilities on the condensed consolidated balance sheets (in thousands):
|
|
Product |
|
|
Distributor |
|
|
Discounts, |
|
|
Total |
|
||||
Balance at December 31, 2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Provision |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Payments/credits |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Balance at June 30, 2023 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Comprehensive Loss
Comprehensive loss is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. Net changes in unrealized gains and losses on available-for-sale securities are included in other comprehensive income (loss) and represent the difference between our net loss and comprehensive loss for all periods presented.
Net Loss per Share
Basic net loss per share is calculated by dividing the net loss by the weighted-average number of common shares outstanding for the period, without consideration of common stock equivalents. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of common shares and common stock equivalents outstanding for the period determined using the treasury stock method. For purposes of this calculation, stock options, restricted stock units, warrants and shares of common stock underlying convertible notes are considered to be common stock equivalents and are included in the calculation of diluted net loss per share only when their effect is dilutive.
Because we have incurred a net loss for all periods presented in the unaudited condensed consolidated statements of operations and comprehensive loss, the following common stock equivalents were not included in the computation of net loss per share because their effect would be anti-dilutive (in thousands):
|
|
June 30, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Stock options outstanding |
|
|
|
|
|
|
||
Restricted stock units outstanding |
|
|
|
|
|
|
||
Warrants outstanding |
|
|
|
|
|
— |
|
|
Shares of common stock underlying convertible notes outstanding |
|
|
|
|
|
|
||
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that we adopt as of the specified effective date. We have evaluated recently issued accounting pronouncements and do
4. Fair Value Measurements
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. The FASB ASC Topic 820, Fair Value Measurements and Disclosures, establishes a fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:
10
We measure cash, cash equivalents and short-term investments at fair value on a recurring basis. The fair values of such assets were as follows (in thousands):
|
|
|
|
|
Fair Value Measurements at Reporting Date Using |
|
||||||||||
|
|
Balance at |
|
|
Quoted Prices |
|
|
Significant |
|
|
Significant |
|
||||
Cash and money market funds |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
||
U.S. treasury bills and government agency obligations |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||
Foreign commercial paper |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|||
|
|
|
|
|
Fair Value Measurements at Reporting Date Using |
|
||||||||||
|
|
Balance at |
|
|
Quoted Prices |
|
|
Significant |
|
|
Significant |
|
||||
Cash and money market funds |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
||
U.S. treasury bills and government agency obligations |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||
U.S. corporate debt securities |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
U.S. commercial paper |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Foreign commercial paper |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|||
We have
As of June 30, 2023, short-term investments included $
A company may elect to use fair value to measure accounts receivable, available-for-sale securities, accounts payable, guarantees and issued debt, among others. If the use of fair value is elected, any upfront costs and fees related to the item such as debt issuance costs must be recognized in earnings and cannot be deferred. The fair value election is irrevocable and generally made on an instrument-by-instrument basis, even if a company has similar instruments that it elects not to measure based on fair value. Unrealized gains and losses on existing items for which fair value has been elected are reported as a cumulative adjustment to beginning retained earnings and any changes in fair value are recognized in earnings. We have elected to not apply the fair value option to our financial assets and liabilities.
Financial instruments, including cash, cash equivalents, receivables, inventory, prepaid expenses, other current assets, accounts payable and accrued expenses are carried at cost, which is considered to be representative of their respective fair values because of the short-term maturity of these instruments. Short-term available-for-sale investments are carried at fair value. Our convertible notes outstanding at June 30, 2023 and December 31, 2022 do not have a readily available ascertainable market value, however, the carrying value is considered to approximate its fair value.
11
5. Short-term Investments
The following is a summary of our short-term investments (in thousands):
|
|
June 30, 2023 |
|
|||||||||||||
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
||||
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Estimated |
|
||||
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Fair Value |
|
||||
U.S. treasury bills and government agency obligations |
|
$ |
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
|
||
Foreign commercial paper |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Total |
|
$ |
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
|
||
|
|
December 31, 2022 |
|
|||||||||||||
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
||||
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Estimated |
|
||||
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Fair Value |
|
||||
U.S. treasury bills and government agency obligations |
|
$ |
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
|
||
U.S. commercial paper |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Foreign commercial paper |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Total |
|
$ |
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
|
||
The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. We regularly monitor and evaluate the realizable value of our marketable securities. We did
Unrealized gains and losses associated with our investments are reported in accumulated other comprehensive income (loss). Realized gains and losses associated with our investments, if any, are reported in the statements of operations and comprehensive loss. We recognized $
6. Inventory
Inventory consists of the following (in thousands):
|
|
June 30, 2023 |
|
|
December 31, 2022 |
|
||
Raw materials |
|
$ |
|
|
$ |
|
||
Work in process |
|
|
|
|
|
|
||
Finished goods |
|
|
|
|
|
|
||
Total inventory |
|
$ |
|
|
$ |
|
||
As of June 30, 2023, total inventory included $
12
7. Leases
As of June 30, 2023, we had an operating lease for
Annual future minimum lease payments as of June 30, 2023 are as follows (in thousands):
2023 |
|
$ |
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
— |
|
Total future minimum lease payments |
|
$ |
|
|
Less: discount |
|
|
( |
) |
Total lease liabilities |
|
$ |
|
8. Reorganizations
June 2023 Reorganization
In June 2023, we implemented a restructuring plan under which we provided or will provide employees one-time severance payments upon termination, continuation of benefits for a specific period of time, outplacement services and certain stock award modifications. The total amount expected to be incurred for these activities is $
Executive Officer Departures
During the second and third quarters of 2023, we also implemented changes to our executive leadership structure. In connection with these changes, we provided
June 2022 Reorganization
In June 2022, we implemented a restructuring plan under which we provided employees one-time severance payments upon termination, continuation of benefits for a specific period of time, outplacement services and certain stock award modifications. The total amount incurred for these activities was $
13
We have accounted for these expenses in accordance with the FASB ASC Topic 420, Exit or Disposal Cost Obligations.
9. Convertible Notes
Senior Unsecured Convertible Notes
In May 2021, we entered into a note purchase agreement with funds affiliated with Baker Bros. Advisors LP for a private placement of $
The Notes were issued at par. The Notes bear interest at a rate of
The Notes will be subject to redemption at our option, between May 24, 2024 and May 24, 2025, but only if the last reported sale price per share of our common stock exceeds
Upon conversion, we will settle the Notes in shares of our common stock. The initial conversion rate for the Notes is
If a holder of the Notes converts upon a make-whole fundamental change or company redemption, the holder may be eligible to receive a make-whole premium through an increase to the conversion rate.
In May 2021, we filed a registration statement with the SEC to register for resale
The Notes were accounted for in accordance with ASC Subtopic 470-20, Debt with Conversion and Other Options (“ASC 470-20”) and ASC Subtopic 815-40, Contracts in Entity’s Own Equity (“ASC 815-40”). Under ASC 815-40, to qualify for equity classification (or non-bifurcation, if embedded), the instrument (or embedded feature) must be both (1) indexed to the issuer’s stock and (2) meet the requirements of the equity classification guidance. Based upon our analysis, it was determined that the Notes do contain embedded features indexed to our own stock, but do not meet the requirements for bifurcation, and therefore do not need to be separately accounted for as an equity component. Since the embedded conversion feature meets the equity scope exception from derivative accounting, and, also since the embedded conversion option does not need to be separately accounted for as an equity component under ASC 470-20, the proceeds received from the issuance of the Notes were recorded as a liability on the condensed consolidated balance sheets.
We incurred issuance costs related to the Notes of $
14
10. Stockholders’ Equity
On August 8, 2022, we entered into an agreement to sell
11. Equity Incentive Plan
Option Plan Activity
The following table summarizes the stock option activity for the six months ended June 30, 2023:
|
|
Shares |
|
|
Weighted- |
|
|
Weighted- |
|
|||
Outstanding at December 31, 2022 |
|
|
|
|
$ |
|
|
|
|
|||
Granted |
|
|
|
|
$ |
|
|
|
|
|||
Exercised |
|
|
— |
|
|
$ |
— |
|
|
|
|
|
Expired and forfeited |
|
|
( |
) |
|
$ |
|
|
|
|
||
Outstanding at June 30, 2023 |
|
|
|
|
$ |
|
|
|
|
|||
The following table summarizes the restricted stock unit activity (“RSUs”) for the six months ended June 30, 2023:
|
|
Shares |
|
|
Weighted-Average Grant Date Fair Value |
|
||
Outstanding at December 31, 2022 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
$ |
|
||
Released |
|
|
( |
) |
|
$ |
|
|
Expired and forfeited |
|
|
( |
) |
|
$ |
|
|
Outstanding at June 30, 2023 |
|
|
|
|
$ |
|
||
Stock-based Compensation
The following table summarizes stock-based compensation expense related to stock-based payment awards granted pursuant to all of our equity compensation arrangements (in thousands):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Research and development |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Sales and marketing |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total stock-based compensation expense |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
As of June 30, 2023, there was $
The fair value of RSUs is estimated based on the closing market price of our common stock on the date of the grant. RSUs generally vest quarterly over a
15
We estimated the fair value of each option grant on the grant date using the Black-Scholes option pricing model and for market-based stock option grants using the Monte Carlo simulation model. The following are the weighted-average assumptions:
|
|
For the Six Months Ended |
|
|||||
|
|
June 30, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Risk-free interest rate |
|
|
% |
|
|
% |
||
Dividend yield |
|
|
% |
|
|
% |
||
Volatility |
|
|
% |
|
|
% |
||
Expected life (years) |
|
|
|
|
|
|||
We estimated the fair value of each purchase right granted under our 1997 Employee Stock Purchase Plan, as amended, at the beginning of each new offering period using the Black-Scholes option pricing model with the following weighted-average assumptions:
|
|
For the Six Months Ended |
|
|||||
|
|
June 30, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Risk-free interest rate |
|
|
% |
|
|
% |
||
Dividend yield |
|
|
% |
|
|
% |
||
Volatility |
|
|
% |
|
|
% |
||
Expected life (months) |
|
|
|
|
|
|
||
16
12. Income Taxes
Deferred income tax assets and liabilities are recognized for temporary differences between financial statements and income tax carrying values using tax rates in effect for the years such differences are expected to reverse. Due to uncertainties surrounding our ability to generate future taxable income and consequently realize such deferred income tax assets, a full valuation allowance has been established. We continue to maintain a full valuation allowance against our deferred tax assets as of June 30, 2023.
The impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more likely than not to be sustained upon audit by the relevant tax authority. An uncertain income tax position will be recognized when it is more likely than not of being sustained. The disclosures regarding uncertain tax positions included in our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on March 29, 2023, continue to be accurate for the three and six months ended June 30, 2023.
13. Subsequent Events
2023 Private Placement
On July 21, 2023, we entered into a Securities Purchase Agreement (the “July 2023 Private Placement”) with Rubric Capital Management L.P., Velan Capital, Clearline Capital and Hercules Capital, Inc. (collectively, the “Purchasers”) whereby we sold
Working Capital Facility Agreement
On August 9, 2023, we entered into a working capital facility agreement (the “Loan Agreement”) with Hercules Capital, Inc., as administrative agent and collateral agent, and the lenders party thereto (the “Lenders”). The Loan Agreement provides an aggregate principal amount of up to $
In addition, in connection with the entry into the Loan Agreement, we issued warrants to the Lenders to purchase up to an amount of shares of our common stock equal to
17
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read together with our condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q and the audited financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the U.S. Securities and Exchange Commission (“SEC”) on March 29, 2023.
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. In some cases, you can identify forward-looking statements by the use of the words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “project,” “will,” “would,” “could,” “should,” “may,” “might,” “plan,” “assume” and other expressions that predict or indicate future events and trends and which do not relate to historical matters. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial position, business and commercialization strategy, products and product candidates, research pipeline, ongoing and planned preclinical studies and clinical trials, regulatory submissions and approvals, addressable patient population, research and development expenses, timing and likelihood of success, as well as plans and objectives of management for future operations, are forward-looking statements. You should not rely on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, some of which are beyond our control. These risks, uncertainties and other factors may cause our actual results, performance or achievements to be materially different from our anticipated future results, performance or achievements expressed or implied by the forward-looking statements.
Factors that might cause these differences include the following:
18
Any forward-looking statements in this Quarterly Report on Form 10-Q reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under the section entitled “Risk Factors” in this Quarterly Report on Form 10-Q, as well as the “Risk Factors” disclosed in Item 1A of our Annual Report on Form 10-K. You should carefully review all of these factors. Given these uncertainties, you should not place undue reliance on these forward-looking statements. These forward-looking statements were based on information, plans and estimates as of the date of this Quarterly Report on Form 10-Q, and except as required by law, we assume no obligation to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes. These risk factors may be updated by our future filings under the Securities Exchange Act of 1934 (“Exchange Act”). You should carefully review all information therein.
19
Overview
We are a commercial-stage biotechnology company focused on improving the lives of patients by developing and commercializing therapeutic innovations that improve medical care. Our advanced science, patented technologies, and innovative approach to drug discovery and development have allowed us to create and commercialize a portfolio of products that aim to advance the standard of care for acute care and oncology patients.
Acute Care Product Portfolio
ZYNRELEF
ZYNRELEF was initially approved by the FDA in May 2021, and we commenced commercial sales in the U.S. in July 2021. In December 2021, the FDA approved our sNDA for ZYNRELEF, which significantly expanded the indication statement. ZYNRELEF is currently indicated for use in adults for soft tissue or periarticular instillation to produce postsurgical analgesia for up to 72 hours after foot and ankle, small-to-medium open abdominal, and lower extremity total joint arthroplasty surgical procedures.
ZYNRELEF is a dual-acting local anesthetic that delivers a fixed-dose combination of the local anesthetic bupivacaine and a low dose of the nonsteroidal anti-inflammatory drug meloxicam. ZYNRELEF is the first and only modified-release local anesthetic to be classified by the FDA as an extended-release product because ZYNRELEF demonstrated in Phase 3 studies significantly reduced pain and significantly increased proportion of patients requiring no opioids through the first 72 hours following surgery compared to bupivacaine solution, the current standard-of-care local anesthetic for postoperative pain control.
In December 2022, we submitted an sNDA to the FDA requesting expansion of the indication statement for ZYNRELEF to broadly cover soft tissue and orthopedic surgical procedures. This sNDA is based on safety and pharmacokinetic data from clinical trials in total shoulder arthroplasty, spinal surgery, abdominoplasty, and C-section showing comparable results to the previously completed pivotal safety and efficacy trials of ZYNRELEF. The FDA accepted the sNDA for filing and set a Prescription Drug User Fee Act goal date of October 23, 2023. On July 31, 2023, Heron was notified by the FDA that the FDA was extending the goal date by three months to provide time for a full review of the submission. The FDA set a new extended PDUFA goal date of January 23, 2024.
In the fourth quarter of 2022, we validated large-scale manufacturing of our proprietary polymer and ZYNRELEF, which will allow for the manufacturing of millions of doses of ZYNRELEF annually at a significantly reduced cost of product sales.
In March 2022, the Centers for Medicare and Medicaid Services (“CMS”) approved a 3-year transitional pass-through status of ZYNRELEF, which became effective on April 1, 2022, for separate reimbursement outside of the surgical bundle payment in the Hospital Outpatient Department setting of care. In addition, in December 2022, H.R. 2617, the Omnibus spending bill was approved by Congress that includes a provision requiring CMS to pay for certain non-opioids outside the existing bundled payment for surgeries for the period January 1, 2025 to December 31, 2027.
ZYNRELEF was granted a marketing authorization by the European Commission (“EC”) in September 2020 and by the United Kingdom (“U.K.”) Regulatory Authority in January 2021. In August 2023, we cancelled the U.K. marketing authorization for ZYNRELEF, as we do not plan to commercially launch ZYNRELEF in the U.K. As of August 2, 2023, ZYNRELEF is approved in 30 European countries including the countries of the EU and EEA. ZYNRELEF is indicated in Europe for the treatment of somatic postoperative pain from small- to medium-sized surgical wounds in adults.
Health Canada issued a Notice of Compliance to commercialize ZYNRELEF in March 2022. In the second quarter of 2023, we withdrew our new drug submission, as we do not plan to commercially launch ZYNRELEF in Canada.
APONVIE
APONVIE was approved by the FDA in September 2022 and became commercially available in the U.S. in March 2023. APONVIE is indicated for the prevention of postoperative nausea and vomiting (“PONV”) in adults. CMS granted pass-through payment status for APONVIE, effective April 1, 2023.
APONVIE is the first and only intravenous formulation of a substance P/neurokinin-1 (“NK1”) receptor antagonist indicated for PONV. Delivered via a single 30-second intravenous (“IV”) injection, APONVIE has demonstrated rapid achievement of therapeutic drug levels ideally suited for the surgical setting.
20
Oncology Care Product Portfolio
SUSTOL
SUSTOL was approved by the FDA in August 2016, and we commenced commercial sales in the U.S. in October 2016.
SUSTOL is indicated in combination with other antiemetics in adults for the prevention of acute and delayed nausea and vomiting associated with initial and repeat courses of moderately emetogenic chemotherapy (MEC) or anthracycline and cyclophosphamide (AC) combination chemotherapy regimens. SUSTOL is an extended-release, injectable 5-hydroxytryptamine type 3 (“5-HT3”) receptor antagonist that utilizes our Biochronomer Technology to maintain therapeutic levels of granisetron for ≥5 days. The SUSTOL global Phase 3 development program was comprised of two, large, guideline-based clinical studies that evaluated SUSTOL’s efficacy and safety in more than 2,000 patients with cancer. SUSTOL’s efficacy in preventing nausea and vomiting was evaluated in both the acute phase (0–24 hours following chemotherapy) and the delayed phase (24–120 hours following chemotherapy).
SUSTOL is the first extended-release 5-HT3 receptor antagonist approved for the prevention of acute and delayed nausea and vomiting associated with both MEC and AC combination chemotherapy regimens. A standard of care in the treatment of breast cancer and other cancer types, AC regimens are among the most commonly prescribed HEC regimens, as defined by both the National Comprehensive Cancer Network (“NCCN”) and the American Society of Clinical Oncology (“ASCO”).
In February 2017, the NCCN included SUSTOL as a part of its NCCN Clinical Practice Guidelines in Oncology for Antiemesis Version 1.2017. The NCCN has given SUSTOL a Category 1 recommendation, the highest-level category of evidence and consensus, for use in the prevention of acute and delayed nausea and vomiting in patients receiving HEC or MEC regimens. The guidelines now identify SUSTOL as a “preferred” agent for preventing nausea and vomiting following MEC. Further, the guidelines highlight the unique, extended-release formulation of SUSTOL.
In January 2018, a product-specific billing code, or permanent J-code (“J-code”), for SUSTOL became available. The new J-code was assigned by CMS and has helped simplify the billing and reimbursement process for prescribers of SUSTOL.
CINVANTI
CINVANTI was approved by the FDA in November 2017, and we commenced commercial sales in the U.S. in January 2018.
CINVANTI, in combination with other antiemetic agents, is indicated in adults for the prevention of acute and delayed nausea and vomiting associated with initial and repeat courses of highly emetogenic cancer chemotherapy (HEC) including high-dose cisplatin as a single-dose regimen, delayed nausea and vomiting associated with initial and repeat courses of moderately emetogenic cancer chemotherapy (MEC) as a single-dose regimen, and nausea and vomiting associated with initial and repeat courses of MEC as a 3-day regimen.
CINVANTI is an IV formulation of aprepitant, a substance NK1 receptor antagonist. CINVANTI is the first IV formulation to directly deliver aprepitant, the active ingredient in EMEND® capsules. Aprepitant (including its prodrug, fosaprepitant) is the only single-agent NK1 receptor antagonist to significantly reduce nausea and vomiting in both the acute phase (0–24 hours after chemotherapy) and the delayed phase (24–120 hours after chemotherapy). CINVANTI is the first and only IV formulation of an NK1 receptor antagonist indicated for the prevention of acute and delayed nausea and vomiting associated with HEC and nausea and vomiting associated with MEC that is free of synthetic surfactants, including polysorbate 80.
NK1 receptor antagonists are typically used in combination with 5-HT3 receptor antagonists. The only other injectable NK1 receptor antagonist currently approved in the U.S. for both acute and delayed chemotherapy induced nausea and vomiting (“CINV”), EMEND® IV (fosaprepitant), contains polysorbate 80, a synthetic surfactant, which has been linked to hypersensitivity reactions, including anaphylaxis, and infusion site reactions. The CINVANTI formulation does not contain polysorbate 80 or any other synthetic surfactant. Our CINVANTI data has demonstrated the bioequivalence of CINVANTI to EMEND IV, supporting its efficacy for the prevention of both acute and delayed nausea and vomiting associated with HEC and nausea and vomiting associated with MEC. Results also showed CINVANTI was better tolerated in healthy volunteers than EMEND IV, with significantly fewer adverse events reported with CINVANTI.
In January 2019, a J-code for CINVANTI became available. The new J-code was assigned by CMS and has helped simplify the billing and reimbursement process for prescribers of CINVANTI.
21
In February 2019, the FDA approved our sNDA for CINVANTI, for IV use, which expanded the administration of CINVANTI beyond the initially approved administration method (a 30-minute IV infusion) to include a 2-minute IV injection.
In October 2019, the FDA approved our sNDA for CINVANTI to expand the indication and recommended dosage to include the 130 mg single-dose regimen for patients receiving MEC.
In the fourth quarter of 2022, we validated larger-scale manufacturing of CINVANTI, which will significantly reduce the cost of product sales.
Biochronomer Technology
Our proprietary Biochronomer Technology is designed to deliver therapeutic levels of a wide range of otherwise short-acting pharmacological agents over a period from days to weeks with a single administration. Our Biochronomer Technology consists of polymers that have been the subject of comprehensive animal and human toxicology studies that have shown evidence of the safety of the polymer. When administered, the polymers undergo controlled hydrolysis, resulting in a controlled, sustained release of the pharmacological agent encapsulated within the Biochronomer-based composition. Furthermore, our Biochronomer Technology is designed to permit more than one pharmacological agent to be incorporated, such that multimodal therapy can be delivered with a single administration.
Critical Accounting Estimates
The discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate our estimates on an ongoing basis, including those related to revenue recognition, investments, inventory and the related reserves, accrued research and development expenses, income taxes and stock-based compensation. We base our estimates on historical experience and on assumptions that we believe to be reasonable under the circumstances, the results of which form the basis of making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions.
Our critical accounting estimates include: revenue recognition, investments, inventory and the related reserves, accrued research and development expenses, income taxes, and stock-based compensation. There have been no material changes to our critical accounting estimates disclosures included in our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on March 29, 2023.
Recent Accounting Pronouncements
See Note 3 to the condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q.
22
Results of Operations for the Three and Six Months Ended June 30, 2023 and 2022
Net Product Sales
For the three and six months ended June 30, 2023, net product sales were $31.8 million and $61.4 million, respectively, compared to $27.6 million and $51.1 million, respectively, for the same periods in 2022.
Net Product Sales – Acute Care
For the three and six months ended June 30, 2023, net product sales of ZYNRELEF were $4.1 million and $7.7 million, respectively, compared to $2.5 million and $3.5 million, respectively, for the same periods in 2022. For the three and six months ended June 30, 2023, net product sales of APONVIE were $0.3 million and $0.6 million, respectively. APONVIE became commercially available in the U.S. in March 2023.
Net Product Sales – Oncology Care
For the three and six months ended June 30, 2023, net product sales of CINVANTI were $24.5 million and $47.3 million, respectively, compared to $22.7 million and $43.0 million, respectively, for the same periods in 2022. For the three and six months ended June 30, 2023, net product sales of SUSTOL were $2.9 million and $5.8 million, respectively, compared to $2.4 million and $4.5 million, respectively, for the same periods in 2022.
Cost of Product Sales
For the three and six months ended June 30, 2023, cost of product sales was $20.2 million and $37.0 million, respectively, compared to $16.2 million and $27.5 million, respectively, for the same periods in 2022. Cost of product sales primarily included raw materials, labor and overhead related to the manufacturing of our Products, as well as shipping and distribution costs. For the three and six months ended June 30, 2023, cost of product sales also included charges of $7.5 million and $12.8 million, respectively, compared to $2.5 million for the three and six months ended June 30, 2022, resulting primarily from the write-off of ZYNRELEF inventory.
We began capitalizing raw materials, labor and overhead related to the manufacturing of APONVIE following FDA approval in September 2022. There were no costs incurred prior to FDA approval for the commercial manufacturing of APONVIE.
Research and Development Expense
Research and development expense consisted of the following (in thousands):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
ZYNRELEF-related costs |
|
$ |
5,131 |
|
|
$ |
12,452 |
|
|
$ |
7,317 |
|
|
$ |
37,615 |
|
SUSTOL-related costs |
|
|
397 |
|
|
|
465 |
|
|
|
662 |
|
|
|
1,310 |
|
CINVANTI-related costs |
|
|
491 |
|
|
|
717 |
|
|
|
1,184 |
|
|
|
2,077 |
|
APONVIE-related costs |
|
|
1,234 |
|
|
|
465 |
|
|
|
1,850 |
|
|
|
728 |
|
HTX-034-related costs |
|
|
3 |
|
|
|
114 |
|
|
|
15 |
|
|
|
287 |
|
Personnel costs and other expenses |
|
|
6,470 |
|
|
|
10,199 |
|
|
|
13,576 |
|
|
|
19,902 |
|
Stock-based compensation expense |
|
|
3,846 |
|
|
|
4,422 |
|
|
|
6,785 |
|
|
|
8,985 |
|
Total research and development expense |
|
$ |
17,572 |
|
|
$ |
28,834 |
|
|
$ |
31,389 |
|
|
$ |
70,904 |
|
For the three and six months ended June 30, 2023, research and development expense was $17.6 million and $31.4 million, respectively, compared to $28.8 million and $70.9 million, respectively, for the same periods in 2022. The decrease was primarily due to decreases in costs related to ZYNRELEF, as production scale-up, validation activities and raw materials qualification were completed in 2022. In addition, the decrease in research and development expense was due to a decrease in personnel and related costs as a result of the savings from the June 2022 reduction in force.
General and Administrative Expense
For the three and six months ended June 30, 2023, general and administrative expense was $15.2 million and $26.1 million, respectively, compared to $9.2 million and $18.7 million, respectively, for the same periods in 2022. The increase was primarily due to severance and non-cash, stock-based compensation expense in connection with an executive departure in the second quarter of 2023, and ongoing legal costs associated with the CINVANTI patent litigation.
23
Sales and Marketing Expense
For the three and six months ended June 30, 2023, sales and marketing expense was $21.2 million and $42.4 million, respectively, compared to $22.9 million and $46.4 million, respectively, for the same periods in 2022. The decrease was primarily due to a decrease in costs to support the ongoing commercialization of ZYNRELEF, due to improved operational efficiencies.
Other Income (Expense), Net
For the three and six months ended June 30, 2023, other income (expense) was $0.3 million and $0.6 million, respectively, compared to ($6.9) million and ($7.8) million, respectively, for the same periods in 2022. The change for the three and six months ended June 30, 2023 was primarily due to the write-off of property and equipment at a third-party manufacturing site in 2022, as well as an increase in interest income earned on our invested cash balances in 2023.
Restructuring Plans
See Note 8 to the condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q for discussion of the June 2022 Reorganization and the June 2023 Reorganization.
Liquidity and Capital Resources
As of June 30, 2023, we had cash, cash equivalents and short-term investments of $33.2 million. In July 2023, we entered into an agreement to sell shares of our common stock and pre-funded warrants in a private placement. The private placement closed on July 25, 2023 and we received net proceeds of $29.7 million. In August 2023, we entered into a working capital facility agreement which provides an aggregate principal amount of up to $50.0 million. The working capital facility closed on August 9, 2023 at which time we received $24.5 million. Adjusting for net proceeds of $29.7 million from the private placement and proceeds of $24.5 million from the working capital facility, the Company has cash, cash equivalents and short-term investments of $87.4 million. Based on our current operating plan and projections, management believes that the Company's cash, cash equivalents and short-term investments, including the net proceeds from the July 2023 private placement and the proceeds from the working capital facility, will be sufficient to meet the Company's anticipated cash requirements for a period of at least one year from the date this Quarterly Report on Form 10-Q is filed with the SEC.
Our net loss for the three and six months ended June 30, 2023 was $42.1 million, or $0.35 per share, and $74.8 million, or $0.63 per share, respectively, compared to a net loss of $56.4 million, or $0.55 per share, and $120.2 million, or $1.18 per share, respectively, for the same periods in 2022.
Our net cash used in operating activities for the six months ended June 30, 2023 was $52.1 million, compared to $72.3 million for the same period in 2022. The decrease in net cash used in operating activities was primarily due to a decrease in net loss, partially offset by changes in working capital.
Our net cash provided by investing activities for the six months ended June 30, 2023 was $50.1 million, compared to $30.7 million for the same period in 2022. The increase in cash provided by investing activities was primarily due to net maturities of short-term investments of $50.6 million for the six months ended June 30, 2023, compared to $32.0 million for the same period in 2022.
Our net cash provided by financing activities for the six months ended June 30, 2023 was $0.1 million, compared to net cash used in financing activities of $0.3 million for the same period in 2022.
Historically, we have financed our operations, including technology and product research and development, primarily through sales of our common stock and debt financings.
24
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required for smaller reporting companies.
ITEM 4. CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports, filed under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer, principal financial officer, and principal accounting officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable and not absolute assurance of achieving the desired control objectives. In reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, the design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, a control may become inadequate because of changes in conditions or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
As required by Exchange Act Rule 13a-15(b), we carried out an evaluation under the supervision and with the participation of our management, including our principal executive officer, principal financial officer, and principal accounting officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our principal executive officer, principal financial officer, and principal accounting officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.
There were no changes in our internal control over financial reporting that occurred during the quarter covered by this report that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
25
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On June 14, 2022, the Company received a paragraph IV notice of certification (the “Notice Letter”) from Fresenius Kabi USA, LLC (“Fresenius Kabi”) advising that Fresenius Kabi had submitted an Abbreviated New Drug Application (“ANDA”) to the FDA seeking approval to manufacture, use or sell a generic version of CINVANTI in the U.S. prior to the expiration of U.S. Patent Nos.: 9,561,229, 9,808,465, 9,974,742, 9,974,793, 9,974,794, 10,500,208, 10,624,850, 10,953,018, and 11,173,118 (the “CINVANTI Patents”), which are listed in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations (the “Orange Book”). The Notice Letter alleges that the CINVANTI Patents are invalid, unenforceable and/or will not be infringed by the commercial manufacture, use or sale of the generic product described in Fresenius Kabi’s ANDA.
On July 27, 2022, the Company filed a complaint for patent infringement of the CINVANTI Patents against Fresenius Kabi and a related entity in the U.S. District Court for the District of Delaware in response to Fresenius Kabi’s ANDA filing. The complaint seeks, among other relief, equitable relief enjoining Fresenius Kabi from infringing the CINVANTI Patents. The action is currently in fact discovery, and a five-day bench trial is scheduled for June 24, 2024. The Company intends to vigorously enforce its intellectual property rights relating to CINVANTI. As a result of filing our complaint for patent infringement, the FDA may not approve the ANDA until the earlier of December 14, 2024 or resolution of the litigation.
ITEM 1A. RISK FACTORS
Our business is subject to various risks, including those described in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022. There have been no material changes from the risk factors disclosed in Item 1A of our Annual Report on Form 10-K.
26
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
27
ITEM 6. EXHIBITS
Exhibit Number |
|
Description |
|
|
|
3.1 |
|
|
|
|
|
10.1*+ |
|
Executive Employment Agreement, dated April 3, 2023, by and between the Company and Craig Collard |
|
|
|
10.2* |
|
|
|
|
|
10.3*+ |
|
Management Retention Agreement, dated June 6, 2023, by and between the Company and William Forbes |
|
|
|
10.4*+ |
|
Management Retention Agreement, dated June 16, 2023, by and between the Company and Ira Duarte |
|
|
|
10.5* |
|
|
|
|
|
10.6* |
|
|
|
|
|
10.7* |
|
|
|
|
|
10.8* |
|
|
|
|
|
10.9 |
|
|
|
|
|
10.10+ |
|
|
|
|
|
31.1+ |
|
|
|
|
|
31.2+ |
|
|
|
|
|
32.1++ |
|
|
|
|
|
101.INS |
|
XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
|
|
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
|
|
|
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
101.DEF |
|
Inline XBRL Extension Definition |
|
|
|
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
104 |
|
Cover Page Interactive Data File (embedded within the Inline XBRL document included as Exhibit 101) |
* Management contract or compensatory plan, contract or arrangement.
+ Filed herewith
++ Furnished herewith
28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
Heron Therapeutics, Inc. |
|
|
|
Date: August 14, 2023 |
|
/s/ Craig Collard |
|
|
Craig Collard |
|
|
Chief Executive Officer |
|
|
(As Principal Executive Officer) |
|
|
|
|
|
/s/ Ira Duarte |
|
|
Ira Duarte |
|
|
Executive Vice President, Chief Financial Officer |
|
|
(As Principal Financial Officer) |
|
|
|
29
Exhibit 10.1
EXECUTIVE EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the “Agreement”) is made and entered into effective as of April 3, 2023 (the “Effective Date”), by and between HERON THERAPEUTICS, INC. (the “Company”), and CRAIG COLLARD (the “Executive”). The Company and the Executive are hereinafter collectively referred to as the “Parties”, and individually referred to as a “Party”.
AGREEMENT
In consideration of the foregoing and the mutual promises and covenants herein contained, and for other good and valuable consideration, the Parties, intending to be legally bound, agree as follows:
1. EMPLOYMENT.
1.1 Title. The Executive shall initially have the title of Chief Executive Officer of the Company and shall serve in such other capacity or capacities as the Company may from time to time prescribe and to which the Executive agrees. The Executive shall initially report to the Board of Directors of the Company (the “Board”).
1.2 Duties. The Executive shall do and perform all services, acts or things necessary or advisable to manage and conduct the business of the Company and which are normally associated with the position of Chief Executive Officer, consistent with the Bylaws of the Company and as required by the Board.
1.3 Directorship. The Executive shall continue to serve as a member of the Board, subject to reelection by the Company’s stockholders in accordance with the Company’s Certificate of Incorporation, as amended and Bylaws; provided, however, that the Executive shall tender his resignation as a member of the Board concurrent with his termination of service as Chief Executive Officer, which resignation shall be conditional and subject to majority acceptance by the disinterested members of the Board. The Executive shall devote such time to the business of the Company as is necessary for the fulfillment of the Executive’s duties as a member of the Board. The Executive shall not be compensated for serving as a member of the Board while he is serving as Chief Executive Officer of the Company, provided that the Executive shall be entitled to continued vesting under the Legacy RSU Grant for so long as the Executive remains on the Board and for six months thereafter. The Company shall reimburse the Executive for reasonable expenses incurred in connection with his service as a member of the Board. If the Executive ceases to serve as Chief Executive Officer of the Company, but remains a member of the Board, the Executive’s compensation for serving as a member of the Board will resume at then-current rates.
1.4 Policies and Practices. The employment relationship between the Parties shall be governed by the policies and practices established by the Company and the Board. The Executive acknowledges that the Executive has read the Company’s employee handbook and other governing policies, which will govern the terms and conditions of the Executive’s employment with the Company, collectively with this Agreement. In the event that the terms of this Agreement differ from or are in conflict with the Company’s policies or practices or the Company’s employee handbook, this Agreement shall control.
1.5 Location. Unless the Parties otherwise agree in writing, during the term of this Agreement, it is expected that the Executive will work at the Company’s offices in San Diego, California as needed to reasonably perform his duties under this Agreement; provided, however, that the Company may from time to time require the Executive to travel temporarily to other locations in connection with the Company’s business. In no event shall the Executive’s work in California exceed six months in any calendar year. The Company shall pay for all travel expenses in connection with Executive’s duties.
2. LOYAL AND CONSCIENTIOUS PERFORMANCE; NONCOMPETITION.
2.1 Loyalty. During the Executive’s employment by the Company, the Executive shall devote the Executive’s full business energies, interest, abilities and productive time to the proper and efficient performance of the Executive’s duties under this Agreement.
2.2 Covenant Not to Compete. Except with the prior written consent of the Board, which shall not be unreasonably withheld, the Executive will not, during the Executive’s employment by the Company, engage in competition with the Company and/or any of its Affiliates, either directly or indirectly, in any manner or capacity, as adviser, principal, agent, affiliate, promoter, partner, officer, director, employee, stockholder, owner, co-owner, consultant, or member of any association or otherwise, in any phase of the business of developing, manufacturing and marketing of products or services which are in the same field of use or which otherwise compete with the products or services or proposed products or services of the Company and/or any of its Affiliates. For purposes of this Agreement, “Affiliate” means, with respect to any specific entity, any other entity that, directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with such specified entity.
2.3 Agreement Not to Participate in Company’s Competitors. During the term of this agreement, the Executive agrees not to acquire, assume or participate in, directly or indirectly, any position, investment or interest known by the Executive to be adverse or antagonistic to the Company, its business or prospects, financial or otherwise or in any company, person or entity that is, directly or indirectly, in competition with the business of the Company or any of its Affiliates. Ownership by the Executive, as a passive investment, of less than two percent (2%) of the outstanding shares of capital stock of any corporation with one or more classes of its capital stock listed on a national securities exchange or in the over-the-counter market shall not constitute a breach of this paragraph.
3. COMPENSATION OF THE EXECUTIVE.
3.1 Base Salary. The Company shall pay the Executive a base salary of at least $650,000 per year, less payroll deductions and all required withholdings payable in regular periodic payments in accordance with Company policy (“Base Salary”). Such base salary shall be prorated for any partial year of employment on the basis of a 365-day fiscal year.
3.2 Performance Bonus. In addition to the Executive’s base salary, the Executive shall be eligible for a performance bonus based upon the Executive’s and the Company’s achievement of specified objectives established by the Board during the first quarter of each year after consultation with the Executive, as evaluated by the Board in its discretion. The target bonus for full achievement of all objectives shall be 75% of the Executive’s Base Salary, prorated for 2023 based on the number of days the Executive is employed during the year. The Performance Bonus will be paid post annual audit and at the same time as other executives in the
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Company, and in any event no later than March 15 of the year following the year to which it relates.
3.3 Equity Incentives. On the Effective Date, the Executive will be granted the following equity awards under the Company’s Amended and Restated 2007 Equity Incentive Plan (the “Plan”):
3.3.1 Stock Option. An option to purchase up to 3,000,000 shares of the Company’s common stock (the “Option”). Subject to the Executive continuing to serve as Chief Executive Officer of the Company (except as set forth below), the Option will vest over a four-year period, with 750,000 shares vesting on the first anniversary of the Effective Date, and then the remainder vesting pro rata monthly thereafter over the next three years. The Option will have a ten-year term and will be treated as an incentive stock option, to the maximum extent possible under applicable regulations, with the remainder being non-statutory stock options. The portion of the Option that is vested as of the date of termination of the Executive’s service with the Company (whether as Chief Executive Officer or as a member of the board of directors, whichever occurs later) shall remain exercisable for a period of 90 days ; provided that, if the Executive continues to serve as a member of the Board following termination of his service as Chief Executive Officer of the Company, the Executive’s options will be treated for purposes of vesting as if the Executive had served for an additional 6 months as Chief Executive Officer. The Option shall be granted under the Plan and form of stock option award agreement in effect and in use by the Company at the time of grant, and shall be subject to the terms and conditions set forth in the award agreement evidencing the Option.
3.3.2 Restricted Stock Unit. An award of restricted stock units covering 250,000 shares of the Company’s common stock (the “RSU”). Subject to the Executive continuing to serve as Chief Executive Officer of the Company (except as set forth below), the RSU will vest over a four-year period, with 25% of the shares subject to the RSU vesting on each of the first four anniversaries of the Effective Date; provided that, if the Executive continues to serve as a member of the Board following termination of his service as Chief Executive Officer of the Company, the Executive’s RSUs will be treated for purposes of vesting as if the Executive had served for an additional 6 months as Chief Executive Officer. The RSU shall be granted under the Plan and form of restricted stock unit award agreement in effect and in use by the Company at the time of grant, and shall be subject to the terms and conditions set forth in the award agreement evidencing the RSU.
3.3.3 Performance Option. An option to purchase up to 4,250,000 shares of the Company’s common stock (the “PSOs”). Subject to the Executive continuing to serve as Chief Executive Officer of the Company (except as set forth below), the PSOs will vest based upon the achievement of the stock price performance goals as set forth in the following table (with vesting occurring on the date on which the closing price of the Company’s common stock equals or exceeds the below listed stock price (as adjusted for stock splits, stock dividends, reorganizations and recapitalizations) for any 20 trading days within any 30-trading day period):
Stock Price # PSOs Vesting $5.00 2,250,000 $5.50 2,500,000 $6.00 2,750,000 $6.50 3,000,000 |
Stock Price # PSOs Vesting $7.50 3,500,000 $8.00 3,750,000 $8.50 4,000,000 $9.00 4,250,000 |
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The PSOs will have a ten-year term and will be treated as a non-statutory stock option. The portion of the PSOs that is vested as of the date of termination of the Executive’s service with the Company (whether as Chief Executive Officer or as a member of the board of directors, whichever occurs later) shall remain exercisable for a period of 90 days following such termination. The PSOs shall be granted under the Plan and form of stock option award agreement in effect and in use by the Company at the time of grant, and shall be subject to the terms and conditions set forth in the award agreement evidencing the PSOs.
3.4 Changes to Compensation. The Executive’s compensation will be reviewed on a regular basis by the Company and may be changed from time to time as deemed appropriate. For clarity, the provisions of this Section 3.4 are not meant to supersede the right of the Executive to terminate for Good Reason in the event of a material reduction of Executive’s Base Salary as provided in Section 4.5.3.
3.5 Employment Taxes. All of the Executive’s compensation shall be subject to customary withholding taxes and any other employment taxes as are commonly required to be collected or withheld by the Company.
3.6 Temporary Living Expenses. The Company shall pay the Executive’s temporary living expenses in the amount of up to $150,000 for the first calendar year from the Effective Date (the “Living Expense Advance”) and thereafter up to $12,500 per month, so long as the Executive remains employed by the Company. If the Executive resigns as Chief Executive Officer (other than for Good Reason) prior to the first anniversary of the Effective Date, then the Executive shall reimburse the Company for a portion of the Living Expense Advance equal to the portion of such one-year period that the Executive did not serve as Chief Executive Officer.
4. TERMINATION.
4.1 Termination by the Company. The Executive’s employment by the Company shall be at-will. The Executive’s employment with the Company may be terminated by the Company at any time and for any reason or no reason, with or without Cause (as defined below), subject to the provisions of this Section 4.
4.2 Termination by Mutual Agreement of the Parties. The Executive’s employment pursuant to this Agreement may be terminated at any time upon a mutual agreement in writing of the Parties. Any such termination of employment shall have the consequences specified in such agreement.
4.3 Termination by the Executive. The Executive’s employment by the Company shall be at-will. The Executive shall have the right upon four weeks’ notice to resign or terminate the Executive’s employment at any time and for any reason, or no reason, with or without Good Reason (as defined below), subject to the provisions of this Section 4.
4.4 Compensation Upon Termination.
4.4.1 With Cause or Without Good Reason. If the Executive’s employment shall be terminated by the Company for Cause, or if the Executive terminates employment hereunder for other than Good Reason, the Company shall pay the Executive’s base salary and accrued and unused vacation benefits earned through the date of termination at the rate in effect at the time of termination, less standard deductions and withholdings, and the Company shall thereafter have no further obligations to the Executive under this Agreement,
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other than with respect to the Executive’s vested equity compensation and any rights the Executive may have under the Company’s employee benefit plans and arrangements.
4.4.2 Without Cause or With Good Reason. If the Executive’s employment shall be terminated by the Company without Cause, or by the Executive for Good Reason, the Executive shall receive the payments specified in Section 4.4.1, and, in addition, within ten days of the Executive’s delivery to the Company of a fully effective and irrevocable Release and Waiver in the form attached hereto as Exhibit A, within the applicable time period set forth therein, but in no event later than 21 days following termination of the Executive’s employment, the Executive shall receive the following: (i) a lump-sum payment equal to the sum of (A) the Executive’s annual base salary then in effect pursuant to Section 3.1, less required deductions and withholdings, and (B) the Executive’s target performance bonus then in effect pursuant to Section 3.2, less required deductions and withholdings; (ii) accelerated time-based vesting of shares subject to all stock awards issued by the Company, for the number of shares which would have vested accordingly had the Executive continued employment with the Company for a period of 12 months after termination (for the avoidance of doubt, which shall include partial accelerated vesting of the Option and RSU, but not the PSOs); and (iii) to the extent permitted under applicable law, provided that the Executive timely elects continued coverage under COBRA, reimbursement for or continuation of payment by the Company of its portion of the health insurance benefits provided to Executive immediately prior to termination pursuant to the terms of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”) or other applicable law for a period of up to 18 months from the date of termination.
4.4.3 Change in Control. If the Executive’s employment shall be terminated by the Company without Cause, or by the Executive for Good Reason within three months before or within 18 months following a Change in Control, the Executive shall receive the payments specified in Section 4.4.1, and, in addition, within ten days of the Executive’s delivery to the Company of a fully effective and irrevocable Release and Waiver in the form attached hereto as Exhibit A, within the applicable time period set forth therein, but in no event later than 45 days following termination of the Executive’s employment, the Executive shall receive the following: (i) a lump-sum payment equal to the sum of (A) the Executive’s annual base salary then in effect pursuant to Section 3.1, less required deductions and withholdings, and (B) the Executive’s target performance bonus then in effect pursuant to Section 3.2, less required deductions and withholdings; (ii) accelerated vesting of 100% of any outstanding and unvested time-based stock awards held by the Executive at such time (for the avoidance of doubt, which shall include accelerated vesting of the Option and RSU, but not the PSOs); and (iii) to the extent permitted under applicable law, provided that the Executive timely elects continued coverage under COBRA, reimbursement for or continuation of payment by the Company of its portion of the health insurance benefits provided to the Executive immediately prior to termination pursuant to the terms of COBRA or other applicable law for a period of up to 18 months from the date of termination. For the avoidance of doubt, the payment under this Section 4.4.3 (if applicable) shall be paid in lieu of, and not in addition to, the payment described in Section 4.4.2.
Additionally, upon the occurrence of a Change in Control, the Executive will vest in 100% of any outstanding and unvested performance-based stock awards held by the Executive at such time (including any outstanding and unvested portion of the PSOs) based upon actual performance through the date of such Change in Control (and based on the value of the Company’s common stock in connection with the Change in Control).
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4.4.4 Parachute Payment. If any payment or benefit Executive would receive pursuant to a Change in Control or otherwise (“Payment”) would (i) constitute a “parachute payment” within the meaning of Section 280G of the Code, and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then such Payment shall be reduced to the Reduced Amount. The “Reduced Amount” shall be either (x) the largest portion of the Payment that would result in no portion of the Payment being subject to the Excise Tax or (y) the largest portion, up to and including the total, of the Payment, whichever amount, after taking into account all applicable federal, state and local employment taxes, income taxes, and the Excise Tax (all computed at the highest applicable marginal rate), results in the Executive’s receipt, on an after-tax basis, of the greater amount of the Payment notwithstanding that all or some portion of the Payment may be subject to the Excise Tax. If a reduction in payments or benefits constituting “parachute payments” is necessary so that the Payment equals the Reduced Amount, reduction shall occur in the following order: reduction of cash payments; cancellation of accelerated vesting of stock awards; reduction of employee benefits. In the event that acceleration of vesting of stock award compensation is to be reduced, such acceleration of vesting shall be cancelled in the reverse order of the date of grant of Executive’s stock awards.
The accounting firm engaged by the Company for general audit purposes as of the day prior to the effective date of the Change in Control shall perform the foregoing calculations. If the accounting firm so engaged by the Company is serving as accountant or auditor for the individual, entity or group effecting the Change in Control, then the Company shall appoint a nationally recognized accounting firm to make the determinations required hereunder. The Company shall bear all expenses with respect to the determinations by such accounting firm required to be made hereunder.
The accounting firm engaged to make the determinations hereunder shall provide its calculations, together with detailed supporting documentation, to the Executive and the Company within 15 calendar days after the date on which the Executive’s right to a Payment is triggered (if requested at that time by the Executive or the Company) or such other time as requested by the Executive or the Company. Any good faith determinations of the accounting firm made hereunder shall be final, binding and conclusive upon the Executive and the Company.
4.4.5 Application of Section 409A. Notwithstanding anything to the contrary set forth herein, any payments and benefits provided under this Agreement (the “Severance Benefits”) that constitute “deferred compensation” within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) and the regulations and other guidance thereunder and any state law of similar effect (collectively “Section 409A”) that are payable upon termination of employment shall not commence in connection with Executive’s termination of employment unless and until Executive has also incurred a “separation from service” (as such term is defined in Treasury Regulation Section 1.409A-1(h) (“Separation From Service”)), unless the Company reasonably determines that such amounts may be provided to Executive without causing Executive to incur the additional 20% tax under Section 409A.
It is intended that each installment of the Severance Benefits payments provided for in this Agreement is a separate “payment” for purposes of Treasury Regulation Section 1.409A- 2(b)(2)(i). For the avoidance of doubt, it is intended that payments of the Severance Benefits set forth in this Agreement satisfy, to the greatest extent possible, the
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exemptions from the application of Section 409A provided under Treasury Regulation Sections 1.409A-1(b)(4), 1.409A-1(b)(5) and 1.409A-1(b)(9). However, if the Company (or, if applicable, the successor entity thereto) determines that the Severance Benefits constitute “deferred compensation” under Section 409A and Executive is, on the termination of Executive’s service, a “specified employee” of the Company or any successor entity thereto, as such term is defined in Section 409A(a)(2)(B)(i) of the Code, then, solely to the extent necessary to avoid the incurrence of the adverse personal tax consequences under Section 409A, the timing of the Severance Benefit payments shall be delayed until the earlier to occur of: (i) the date that is six months and one day after Executive’s Separation From Service or (ii) the date of Executive’s death (such applicable date, the “Specified Employee Initial Payment Date”), and the Company (or the successor entity thereto, as applicable) shall (A) pay to Executive a lump sum amount equal to the sum of the Severance Benefit payments that Executive would otherwise have received through the Specified Employee Initial Payment Date if the commencement of the payment of the Severance Benefits had not been so delayed pursuant to this Section and (B) commence paying the balance of the Severance Benefits in accordance with the applicable payment schedules set forth in this Agreement.
Except to the extent that payments may be delayed until the Specified Employee Initial Payment Date pursuant to the preceding paragraph, on the first regular payroll pay day following the effective date of the Release and Waiver, the Company will pay Executive the Severance Benefits that Executive would otherwise have received under the Agreement on or prior to such date but for the delay in payment related to the effectiveness of the Release and Waiver, with the balance of the Severance Benefits being paid as originally scheduled. All amounts payable under the Agreement will be subject to standard payroll taxes and deductions.
4.5 Definitions.
4.5.1 Cause. For purposes of this Agreement, “Cause” means that, in the reasonable determination of the Company, the Executive has:
(i) been indicted for or convicted of or pleaded guilty or no contest to any felony or crime involving dishonesty that is likely to inflict or has inflicted demonstrable and material injury on the business of the Company;
(ii) participated in any fraud against the Company;
(iii) willfully and materially breached a Company policy;
(iv) intentionally damaged any property of the Company thereby causing demonstrable and material injury to the business of the Company; or
(v) engaged in conduct that, in the reasonable determination of the Company, demonstrates gross unfitness to serve.
Notwithstanding the foregoing, Cause shall not exist based on conduct described in clause (iii) above unless the conduct described in such clause has not been cured within 15 days following the Executive’s receipt of written notice from the Company specifying the particulars of the conduct constituting Cause.
4.5.2 Change in Control. For purposes of this Agreement, “Change in Control” means the occurrence of any of the following:
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(i) the closing of an Ownership Change Event or a series of related Ownership Change Events (collectively, a “Transaction”) in which the stockholders of the Company immediately before the Transaction do not retain immediately after the Transaction, in substantially the same proportions as their ownership of shares of the Company’s voting stock immediately before the Transaction, direct or indirect beneficial ownership of more than fifty percent (50%) of the total combined voting power of the outstanding voting securities of the Company or such surviving entity immediately outstanding after the Transaction, or, in the case of an Ownership Change Event the entity to which the assets of the Company were transferred (the “Transferee”), as the case may be; or
(ii) the liquidation or dissolution of the Company.
For purposes of the preceding sentence, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting securities of one or more corporations or other business entities which own the Company or the Transferee, as the case may be, either directly or through one or more subsidiary corporations or other business entities. The Board shall have the right to determine whether multiple sales or exchanges of the voting securities in the Company or multiple Ownership Change Events are related, and its determination shall be final, binding and conclusive. The Board may also, but need not, specify that other transactions or events constitute a Change in Control.
4.5.3 Good Reason. “Good Reason” for the Executive to terminate the Executive’s employment hereunder shall mean the occurrence of any of the following events without the Executive’s consent:
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a material reduction (20% or more) by the Company of the Executive’s Base Salary as initially set forth herein or as the same may be increased from time to time; |
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a material reduction by the Company of the Executive’s management responsibilities; |
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(iii) |
a material breach of this Agreement by the Company;
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(iv) |
any requirement by the Company that the Executive relocate his primary residence to California or that the Executive perform work in California for more than six months in any one calendar year. |
provided however, that any resignation by the Executive due to any of the following conditions shall only be deemed for Good Reason if: (i) the Executive gives the Company written notice of the intent to terminate for Good Reason within 90 days following the first occurrence of the condition(s) that the Executive believes constitutes Good Reason, which notice shall describe such condition(s); (ii) the Company fails to remedy, if remediable, such condition(s) within 15 days following receipt of the written notice (the “Cure Period”) of such condition(s) from the Executive; and (iii) Executive actually resigns his employment within the first 15 days after expiration of the Cure Period.
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4.5.4 Ownership Change Event. For purposes of this Agreement, “Ownership Change Event” means the occurrence of any of the following with respect to the Company: (i) the direct or indirect sale or exchange in a single or series of related transactions by the stockholders of the Company of more than 50% of the voting stock of the Company; (ii) a merger or consolidation in which the Company is a party; or (iii) the sale, exchange, or transfer of all or substantially all of the assets of the Company.
5. ASSIGNMENT AND BINDING EFFECT.
This Agreement shall be binding upon and inure to the benefit of the Executive and the Executive’s heirs, executors, personal representatives, assigns, administrators and legal representatives. Because of the unique and personal nature of the Executive’s duties under this Agreement, neither this Agreement nor any rights or obligations under this Agreement shall be assignable by the Executive. This Agreement shall be binding upon and inure to the benefit of the Company and its successors, assigns and legal representatives.
6. CHOICE OF LAW.
This Agreement is made in California. This Agreement shall be construed and interpreted in accordance with the internal laws of the State of California.
7. INTEGRATION.
This Agreement (including Exhibit A), that certain Indemnification Agreement entered into with the Company as of February 22, 2023, and that certain Restricted Stock Unit Agreement, dated as of February 22, 2023 and relating to the award of 37,879 RSUs (the “Legacy RSU Grant”) contains the complete, final and exclusive agreement of the Parties relating to the terms and conditions of the Executive’s service on the Board, his employment and the termination of Executive’s employment, and supersedes all prior and contemporaneous oral and written employment agreements or arrangements between the Parties. To the extent this Agreement conflicts with the terms of the Company’s employee handbook, governing polices, or bylaws, this Agreement controls.
8. AMENDMENT.
This Agreement cannot be amended or modified except by a written agreement signed by the Executive and the Company.
9. WAIVER.
No term, covenant or condition of this Agreement or any breach thereof shall be deemed waived, except with the written consent of the Party against whom the wavier is claimed, and any waiver or any such term, covenant, condition or breach shall not be deemed to be a waiver of any preceding or succeeding breach of the same or any other term, covenant, condition or breach.
10. SEVERABILITY.
The finding by a court of competent jurisdiction of the unenforceability, invalidity or illegality of any provision of this Agreement shall not render any other provision of this Agreement unenforceable, invalid or illegal. Such court shall have the authority to modify or replace the invalid or unenforceable term or provision with a valid and enforceable term or
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provision which most accurately represents the Parties’ intention with respect to the invalid or unenforceable term or provision.
11. INTERPRETATION; CONSTRUCTION.
The headings set forth in this Agreement are for convenience of reference only and shall not be used in interpreting this Agreement. This Agreement has been drafted by legal counsel representing the Company, but the Executive has been encouraged to consult with, and has consulted with, the Executive’s own independent counsel and tax advisors with respect to the terms of this Agreement. The Parties acknowledge that each Party and its counsel has reviewed and revised, or had an opportunity to review and revise, this Agreement, and 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 Agreement.
12. REPRESENTATIONS AND WARRANTIES.
The Executive represents and warrants that the Executive is not restricted or prohibited, contractually or otherwise, from entering into and performing each of the terms and covenants contained in this Agreement, and that the Executive’s execution and performance of this Agreement will not violate or breach any other agreements between the Executive and any other person or entity.
13. COUNTERPARTS.
This Agreement may be executed in two counterparts, each of which shall be deemed an original, all of which together shall contribute one and the same instrument.
14. ARBITRATION.
To ensure the rapid and economical resolution of disputes that may arise in connection with the Executive’s employment with the Company, the Executive and the Company agree that any and all disputes, claims, or causes of action, in law or equity, arising from or relating to the Executive’s employment, or the termination of that employment, will be resolved pursuant to the Federal Arbitration Act and to the fullest extent permitted by law, by final, binding and confidential arbitration conducted by the Judicial Arbitration and Mediation Services (“JAMS”), or its successors, under the then current rules of JAMS for employment disputes; provided that the arbitrator shall: (i) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be permitted by law; and (ii) issue a written arbitration decision including the arbitrator’s essential findings and conclusions and a statement of the award. Both the Executive and the Company shall be entitled to all rights and remedies that either the Executive or the Company would be entitled to pursue in a court of law. The Company shall pay all fees, including the arbitrator’s fee. Nothing in this Agreement is intended to prevent either the Executive or the Company from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration.
15. TRADE SECRETS OF OTHERS.
It is the understanding of both the Company and the Executive that the Executive shall not divulge to the Company and/or its subsidiaries any confidential information or trade secrets belonging to others, including the Executive’s former employers, nor shall the Company and/or its Affiliates seek to elicit from the Executive any such information. Consistent with the
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foregoing, the Executive shall not provide to the Company and/or its Affiliates, and the Company and/or its Affiliates shall not request, any documents or copies of documents containing such information.
16. ADVERTISING WAIVER.
The Executive agrees to permit the Company and/or its Affiliates, and persons or other organizations authorized by the Company and/or its Affiliates, to use, publish and distribute advertising or sales promotional literature concerning the products and/or services of the Company and/or its Affiliates, or the machinery and equipment used in the provision thereof, in which the Executive’s name and/or pictures of the Executive taken in the course of the Executive’s provision of services to the Company and/or its Affiliates, appear. The Executive hereby waives and releases any claim or right the Executive may otherwise have arising out of such use, publication or distribution during the term of this Agreement.
17. NON-SOLICIT.
During the term of this Agreement and for a period of 12 months thereafter, Executive will not, directly or indirectly, solicit for employment (including as an independent contractor) any officer or employee of the Company; provided, however, that the foregoing will not prevent indirect employment solicitations in response to general online advertisements or advertisements in periodicals such as newspapers and trade publications.
[Signature Page Follows.]
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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first above written.
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HERON THERAPEUTICS, INC. |
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/s/ Adam Morgan |
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Adam Morgan |
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Chairman |
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Dated: May 12, 2023 |
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EXECUTIVE: |
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/s/ Craig Collard |
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CRAIG COLLARD |
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Dated: May 12, 2023
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EXHIBIT A
RELEASE AND WAIVER OF CLAIMS
TO BE SIGNED AT TIME OF TERMINATION WITHOUT CAUSE OR
RESIGNATION FOR GOOD REASON
In consideration of the payments and other benefits set forth in Section 4.4 of the Executive Employment Agreement dated April 3, 2023, to which this form is attached, I, CRAIG COLLARD hereby furnish HERON THERAPEUTICS, INC. (the “Company”), with the following release and waiver (the “Release and Waiver”).
In exchange for the consideration provided to me by the Employment Agreement that I am not otherwise entitled to receive, I hereby generally and completely release the Company and its directors, officers, employees, stockholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, Affiliates, and assigns from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring prior to my signing this Release and Waiver. This general release includes, but is not limited to: (1) all claims arising out of or in any way related to my employment with the Company or the termination of that employment; (2) all claims related to my compensation or benefits from the Company, including, but not limited to, salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership interests in the Company; (3) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing; (4) all tort claims, including, but not limited to, claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (5) all federal, state, and local statutory claims, including, but not limited to, claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the federal Age Discrimination in Employment Act of 1967 (as amended) (“ADEA”), and the California Fair Employment and Housing Act (as amended).
I also acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows:
“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS THAT THE CREDITOR OR RELEASING PARTY DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE AND THAT, IF KNOWN BY HIM OR HER, WOULD HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR OR RELEASED PARTY.”
I hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to any claims I may have against the Company.
I acknowledge that, among other rights, I am waiving and releasing any rights I may have under ADEA, that this Release and Waiver is knowing and voluntary, and that the consideration given for this Release and Waiver is in addition to anything of value to which I was already entitled as an executive of the Company. If I am 40 years of age or older upon execution of this Release and Waiver, I further acknowledge that I have been advised, as required by the Older Workers Benefit Protection Act, that: (a) the release and waiver granted herein does not relate to
claims under the ADEA which may arise after this Release and Waiver is executed; (b) I should consult with an attorney prior to executing this Release and Waiver; (c) I have twenty-one (21) days in which to consider this Release and Waiver (although I may choose voluntarily to execute this Release and Waiver earlier); (d) I have seven (7) days following the execution of this Release and Waiver to revoke my consent to this Release and Waiver; and (e) this Release and Waiver shall not be effective until the eighth day after I execute this Release and Waiver and the revocation period has expired (the “Effective Date”).
I understand that nothing in this Release and Waiver prevents me from filing a charge with the Equal Employment Opportunity Commission (“EEOC”), the National Labor Relations Board (“NLRB”), the California Department of Fair Employment and Housing (“DFEH”), or any other federal, state or local government agency, or otherwise cooperating with or providing information to any such agencies. However, this Release and Waiver does prohibit me from obtaining any personal or monetary relief for yourself based on such a charge or based on my providing information to or cooperating with the EEOC, NLRB, DFEH, or any other federal, state, or local government agency.
I understand that among other things, I must not use or disclose any confidential or proprietary information of the Company and I must immediately return all Company property and documents (including all embodiments of proprietary information) and all copies thereof in my possession or control. However, I understand that nothing in this Release and Waiver prevents me from discussing or disclosing information about unlawful acts in the workplace, such as harassment or discrimination or any other conduct that I have reason to believe is unlawful.
This Release and Waiver constitutes the complete, final and exclusive embodiment of the entire agreement between the Company and me with regard to the subject matter hereof. I am not relying on any promise or representation by the Company that is not expressly stated herein. This Release and Waiver may only be modified by a writing signed by both me and a duly authorized officer of the Company.
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CRAIG COLLARD |
Exhibit 10.3
HERON THERAPEUTICS, INC.
MANAGEMENT RETENTION AGREEMENT
This Management Retention Agreement (this “Agreement”) is dated as of June 6, 2023 (the “Effective Date”), by and between William Forbes (“Employee”) and Heron Therapeutics, Inc., a Delaware corporation (the “Company”). This Agreement is intended to provide Employee with certain benefits described herein upon the occurrence of specific events. The Company and the Employee may each be referred to herein as a “Party” and, collectively, as the “Parties”.
RECITALS
A. The Company’s Board of Directors believes it is in the best interests of the Company and its shareholders to retain Employee and provide incentives to Employee to continue in the service of the Company.
B. The Board of Directors further believes that it is imperative to provide Employee with certain benefits upon Employee’s Involuntary Termination or a Change of Control, which benefits are intended to provide Employee with financial security and provide sufficient income and encouragement to Employee to remain employed with the Company, notwithstanding the possibility of a Change of Control.
C. To accomplish the foregoing objectives, the Board of Directors has directed the Company, upon execution of this Agreement by Employee, to agree to the terms provided in this Agreement.
NOW THEREFORE, in consideration of the foregoing and the mutual covenants and premises contained in this Agreement, the receipt and sufficiency of which are hereby expressly acknowledged, the Parties agree as follows:
AGREEMENT
1. At-Will Employment. The Company and Employee acknowledge that Employee’s employment is and shall continue to be at-will, as defined under applicable law, and that Employee’s employment with the Company may be terminated by either Party at any time for any or no reason. If Employee’s employment terminates for any reason, Employee shall not be entitled to any payments, benefits, damages, award or compensation other than as provided in this Agreement or otherwise agreed to by the Company. The terms of this Agreement shall terminate upon the earlier of: (i) the date on which Employee ceases to be employed as a corporate officer of the Company, other than as a result of an Involuntary Termination; or (ii) the date that all obligations of the Parties hereunder have been satisfied. A termination of the terms of this Agreement pursuant to the preceding sentence shall be effective for all purposes, except that such termination shall not affect the payment or provision of compensation or benefits on account of a termination of employment occurring prior to the termination of the terms of this Agreement. The rights and duties created by this Section 1 are contingent upon Employee’s release of claims against the Company (at the time of termination in a form reasonably satisfactory to the Company)
and may not be modified in any way except by a written agreement executed by an officer of the Company upon direction from the Board of Directors.
2. Benefits Upon Termination of Employment.
(a) Severance Upon Involuntary Termination. In the event that Employee suffers an Involuntary Termination at any time under circumstances other than as covered in paragraph 2(b) below, then in addition to all base salary and accrued and unused vacation benefits earned through the date of termination at the rate in effect at the time of termination, less standard deductions and withholdings, Employee will be entitled to receive severance benefits as follows (less standard deductions and withholdings): (i) an amount equal to twelve (12) months (the “Severance Period”) of the monthly base salary which Employee was receiving immediately prior to the Involuntary Termination payable in a lump sum on the first payroll date following the date the Release (as described in Section 4(b) becomes effective and irrevocable; (ii) an amount equal to the average bonus paid by the Company to Employee for services during each of the three 12-month periods (or such shorter period of time during which Employee was eligible for a bonus) prior to the Involuntary Termination date, payable in a lump sum on the first payroll date following the date the Release (as described in Section 4(b) becomes effective and irrevocable; and (iii) reimbursement for or continuation of payment by the Company of its portion of the health insurance benefits provided to Employee immediately prior to the Involuntary Termination pursuant to the terms of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”) or other applicable law through the earlier of the end of the Severance Period or the date upon which Employee is no longer eligible for such COBRA or other benefits under applicable law. In addition, on the date of such Involuntary Termination, Employee’s stock options, restricted stock and other equity awards shall immediately vest, become exercisable and/or the restrictions thereon lapse with respect to that number of shares of Company common stock that otherwise would have vested during the Severance Period had Employee’s employment continued. Employee’s stock options, restricted stock and other equity awards shall otherwise be subject to the terms of the plan and option or award agreement pursuant to which such options and other equity awards were granted.
(b) Severance Upon a Change in Control. In the event that Employee suffers an Involuntary Termination within three (3) months prior to or eighteen (18) months following the effective date of a Change of Control, then in addition to all base salary and accrued and unused vacation benefits earned through the date of termination at the rate in effect at the time of termination, less standard deductions and withholdings, Employee will be entitled to receive severance benefits as follows (less standard deductions and withholdings): (i) an amount equal to twelve (12) months (the “Change of Control Severance Period”) of the greater of (A) the monthly base salary which Employee was receiving immediately prior to the Involuntary Termination or (B) the monthly base salary which Employee was receiving immediately prior to the Change of Control, in each case, payable in a lump sum on the first payroll date following the date the Release (as described in Section 4(b) becomes effective and irrevocable; (ii) an amount equal to the average bonus paid by the Company to Employee for services during each of the three 12-month periods (or such shorter period of time during which Employee was eligible for a bonus) prior to the Involuntary Termination date, payable in a lump sum on the first payroll date following the date the Release (as described in Section 4(b) becomes effective and irrevocable; and (iii) reimbursement for or continuation of payment by the Company of its portion of the health insurance benefits provided to Employee immediately prior to the Involuntary Termination pursuant to the terms of COBRA or other applicable law through the earlier of the end of the
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Change of Control Severance Period or the date upon which Employee is no longer eligible for such COBRA or other benefits under applicable law. In addition, on the date of such Involuntary Termination, Employee’s stock options, restricted stock and other equity awards shall immediately vest, become exercisable and/or the restrictions thereon lapse with respect to one hundred percent (100%) of the shares of Company common stock subject thereto. Employee’s stock options, restricted stock and other equity awards shall otherwise be subject to the terms of the plan and option or award agreement pursuant to which such options and other equity awards were granted.
(c) Termination for Cause. Notwithstanding any other provision of this Agreement to the contrary, if Employee’s employment is terminated for Cause at any time, then Employee shall not be entitled to receive payment of any severance benefits, or any continuation or acceleration of stock option vesting or relinquishment of forfeiture and transfer restrictions on restricted stock awards. Employee will receive payment(s) for all base salary and accrued and unused vacation benefits earned through the date of termination at the rate in effect at the time of termination, less standard deductions and withholdings.
(d) Voluntary Resignation; Death, Disability. If Employee voluntarily resigns from the Company under circumstances which do not constitute an Involuntary Termination, or if Employee’s employment terminates as a result of Employee’s death or permanent disability, then Employee shall not be entitled to receive payment of any severance benefits, or option acceleration, or relinquishment of forfeiture and transfer restrictions. Employee (or Employee’s estate or beneficiary, as applicable) will receive payment(s) for all base salary and accrued and unused vacation benefits earned through the date of termination at the rate in effect at the time of termination, less standard deductions and withholdings.
3. Definition of Terms. The following terms referred to in this Agreement shall have the following meanings:
(a) “Affiliate” means, with respect to any specific entity, any other entity that, now or in the future, directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with such specified entity.
(b) “Cause” means any of the following: (i) Employee’s theft, dishonesty, willful misconduct, breach of fiduciary duty for personal profit, or falsification of any Company or Affiliate documents or records; (ii) Employee’s material failure to abide by a Company’s or Affiliate’s code of conduct or other policies (including without limitation, policies relating to confidentiality and reasonable workplace conduct); (iii) Employee’s unauthorized use, misappropriation, destruction or diversion of any tangible or intangible asset or corporate opportunity of the Company or an Affiliate (including, without limitation, Employee’s improper use or disclosure of confidential or proprietary information); (iv) any intentional act by Employee which has a material detrimental effect on the Company or an Affiliate’s reputation or business; (v) Employee’s repeated failure or inability to perform any reasonable assigned duties after written notice from the Company or an Affiliate (including, without limitation, habitual absence from work for reasons other than illness), and a reasonable opportunity to cure, such failure or inability; (vi) any material breach by Employee of any employment or service agreement between Employee and the Company or an Affiliate, which breach is not cured pursuant to the terms of such agreement; or (vii) Employee’s conviction (including any plea of guilty or nolo contendere) of any criminal act involving fraud, dishonesty, misappropriation or moral turpitude, or which impairs Employee’s ability to perform his or her duties with the Company or an Affiliate.
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(c) “Change in Control” means the occurrence of an Ownership Change Event or a series of related Ownership Change Events (collectively, a “Transaction”) in which the stockholders of the Company immediately before the Transaction do not retain immediately after the Transaction, in substantially the same proportions as their ownership of shares of the Company’s voting stock immediately before the Transaction, direct or indirect beneficial ownership of more than fifty percent (50%) of the total combined voting power of the outstanding voting securities of the Company or such surviving entity immediately outstanding after the Transaction, or, in the case of an Ownership Change Event the entity to which the assets of the Company were transferred (the “Transferee”), as the case may be.
For purposes of the preceding sentence, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting securities of one or more corporations or other business entities which own the Company or the Transferee, as the case may be, either directly or through one or more subsidiary corporations or other business entities. The Board shall have the right to determine whether multiple sales or exchanges of the voting securities in the Company or multiple Ownership Change Events are related, and its determination shall be final, binding and conclusive. The Board may also, but need not, specify that other transactions or events constitute a Change in Control.
(d) “Involuntary Termination” shall include any termination by the Company other than for Cause and Employee’s voluntary termination within sixty days following the occurrence of any of the following events without Employee’s written consent: (i) a material reduction or change in job duties, responsibilities and requirements inconsistent with Employee’s position with the Company and Employee’s prior duties, responsibilities and requirements or a material negative change in Employee’s reporting relationship; (ii) a material reduction of Employee’s base compensation (other than in connection with a general decrease in base salaries for officers of the Company or successor corporation generally); or (iii) Employee’s refusal to relocate to a facility or location more than forty miles from the Company’s current location, provided that Employee will not resign due to such change, reduction or relocation without first providing the Company with written notice of the event or events constituting the grounds for his voluntary resignation within thirty days of the initial existence of such grounds and a reasonable cure period of not less than thirty days following the date of such notice.
(e) “Ownership Change Event” means the occurrence of any of the following with respect to the Company: (i) the direct or indirect sale or exchange in a single or series of related transactions by the stockholders of the Company of more than fifty percent (50%) of the voting stock of the Company; (ii) a merger or consolidation in which the Company is a party; or (iii) the sale, exchange, or transfer of all or substantially all of the assets of the Company.
4. Limitation and Conditions on Payments.
(a) Parachute Payments. In the event that the severance and other benefits provided for in this Agreement to the Employee: (i) constitute “parachute payments” within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”); and (ii) but for this Section, would be subject to the excise tax imposed by Section 4999 of the Code, then the Employee’s severance benefits under Sections 2(a) and 2(b) shall be payable either:
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(i) in full; or
(ii) as to such lesser amount which would result in no portion of such severance benefits being subject to excise tax under Section 4999 of the Code, whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the excise tax imposed by Section 4999, results in the receipt by the Employee on an after-tax basis, of the greatest amount of severance benefits under Section 2(a) and 2(b), notwithstanding that all or some portion of such severance benefits may be taxable under Section 4999 of the Code. Any determination required under this Section 4 shall be made in writing by independent public accountants selected by the Company (the “Accountants”), whose determination shall be conclusive and binding upon the Employee and the Company for all purposes. For purposes of making the calculations required by this Section 4, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Section 280G and 4999 of the Code. The Company and the Employee shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this Section. The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this Section 4. Any reduction in severance benefits required by this Section 4 shall occur in a manner necessary to provide the service provider with the greatest economic benefit. If more than one manner of reduction of severance benefits necessary to arrive at the reduced amount yields the greatest economic benefit to the service provider, the payments and benefits shall be reduced pro rata.
(b) Release Prior to Receipt of Benefits. Prior to the receipt of any benefits under this Agreement, Employee shall execute a release of claims agreement in the form provided by the Company (the “Release”) and such Release shall become effective and irrevocable not later than fifty-two (52) days following Employee’s employment termination. Such Release shall specifically relate to all of Employee’s rights and claims in existence at the time of such execution and shall confirm Employee’s obligations under the Company’s standard form of proprietary information agreement. In no event will severance benefits be provided to Employee until the Release becomes effective. In the event severance payments are delayed because of the effective date of the Release, the Company will pay Employee the severance payments, that Employee would otherwise have received under Section 2(a) on or prior to the effective date of the Release, on the first regular payroll pay day following the effective date of the Release, with the balance of the payments being paid as originally scheduled.
(c) Cooperation. As a condition to the receipt of benefits under this Agreement, Employee agrees to be reasonably available to answer questions and provide information requested by the Company relating the transition of Employee’s role to Employee’s successor. In addition, as a condition to the receipt of benefits under this Agreement, Employee agrees to reasonably cooperate (with due regard given to Employee’s other commitments), (i) with the Company in the defense of any legal matter not adverse to Employee and involving any matter that arose during Employee’s employment with the Company or any of its affiliates; and (ii) with all government authorities on matters pertaining to any investigation, litigation or administrative proceeding
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pertaining to the Company or any of its affiliates, in each case, relating to Employee’s employment period and not adverse to Employee. The Company will reimburse Employee for any reasonable travel and out-of-pocket costs and expenses incurred by Employee in providing such cooperation.
(d) Return of Company Property. Prior to the receipt of any benefits under this Agreement, Employee shall return all property belonging to the Company or its affiliates (including, but not limited to, any Company-provided laptops, computers, cell phones, wireless electronic mail devices or other equipment, or documents and property belonging to the Company). Employee may retain your address books (including as electronic files) provided that such items only include contact information.
5. Section 409A. All severance payments to be made upon a termination of employment under this Agreement may be made only upon a “separation of service” within the meaning of Section 409A of the Code and the Department of Treasury regulations and other guidance promulgated thereunder. Notwithstanding any provision to the contrary in this Agreement, if Employee is deemed by the Company at the time of Employee’s separation from service to be a “specified employee” for purposes of Code Section 401A(a)(2)(B)(i), to the extent delayed commencement of any portion of the benefits to which Employee is entitled under this Agreement is required in order to avoid a prohibited distribution under Code Section 409A(a)(2)(B)(i), such portion of Employee’s benefits shall not be provided to Employee prior to the earlier of (i) the expiration of the six-month period measured from the date of Employee’s “separation of service” with the Company or (ii) the date of Employee’s death. Upon the first business day following the expiration of the applicable Code Section 409A(a)(2)(B)(i) period, all payments deferred pursuant to this Section 5 shall be paid in a lump sum to Employee, and any remaining payments due under the Agreement shall be paid as otherwise provided herein. For purposes of Code Section 409A (including, without limitation, for purposes of Treasury Regulation Section 1.409A-2(b)(2)(iii)), Employee’s right to receive installment payments under this Agreement shall be treated as a right to receive a series of separate payments and, accordingly, each installment payment hereunder shall at all times be considered a separate and distinct payment. It is intended that none of the severance payments and benefits to be provided hereunder will be subject to Section 409A of the Code and any ambiguities herein will be interpreted to be so exempt. Employee and the Company agree to work together in good faith to consider amendments to this Agreement and to take such reasonable actions which are necessary, appropriate or desirable to avoid imposition of any additional tax or income recognition prior to actual payment to Employee under Section 409A of the Code. Notwithstanding anything to the contrary contained herein, to the extent that any amendment to this Agreement with respect to the payment of any severance payments or benefits would constitute under Code Section 409A a delay in a payment or a change in the form of payment, then such amendment must be done in a manner that complies with Code Section 409A(a)(4)(C).
6. Conflicts. Employee represents that Employee’s performance of all the terms of this Agreement will not breach any other agreement to which Employee is a party. Employee has not, and will not during the term of this Agreement, enter into any oral or written agreement in conflict with any of the provisions of this Agreement. Employee further represents that Employee is entering into or has entered into an employment relationship with the Company of Employee’s own free will and that Employee has not been solicited as an employee in any way by the Company.
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7. Successors. Any successor to the Company (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company’s business and/or assets shall assume the obligations under this Agreement and agree expressly to perform the obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession. The terms of this Agreement and all of Employee’s rights hereunder and thereunder shall inure to the benefit of, and be enforceable by, Employee’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.
8. Notice. Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by U.S. registered or certified mail, return receipt requested and postage prepaid. Mailed notices to Employee shall be addressed to Employee at the home address which Employee most recently communicated to the Company in writing. In the case of the Company, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its Secretary.
9. Miscellaneous Provisions.
(a) No Duty to Mitigate. Employee shall not be required to mitigate the amount of any payment contemplated by this Agreement (whether by seeking new employment or in any other manner), nor shall any such payment be reduced by any earnings that Employee may receive from any other source.
(b) Waiver. No provision of this Agreement shall be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by Employee and by an authorized officer of the Company (other than Employee). No waiver by either Party of any breach of, or of compliance with, any condition or provision of this Agreement by the other Party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time.
(c) Whole Agreement. No agreements, representations or understandings (whether oral or written and whether express or implied) which are not expressly set forth in this Agreement have been made or entered into by either Party with respect to the subject matter hereof. This Agreement supersedes any agreement of the same title and concerning similar subject matter dated prior to the Effective Date, and by execution of this Agreement both Parties agree that any such predecessor agreement shall be deemed null and void.
(d) Choice of Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of California without reference to conflict of laws provisions.
(e) Severability. If any term or provision of this Agreement or the application thereof to any circumstance shall, in any jurisdiction and to any extent, be invalid or unenforceable, such term or provision shall be ineffective as to such jurisdiction to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable the remaining terms and provisions of this Agreement or the application of such terms and provisions to circumstances other than those as to which it is held invalid or unenforceable, and a suitable and equitable term
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or provision shall be substituted therefore to carry out, insofar as may be valid and enforceable, the intent and purpose of the invalid or unenforceable term or provision.
(f) Arbitration. Any dispute or controversy arising under or in connection with this Agreement may be settled at the option of either Party by binding arbitration in the County of San Diego, California, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator’s award in any court having jurisdiction. Punitive damages shall not be awarded.
(g) Legal Fees and Expenses. The Parties shall each bear their own expenses, legal fees and other fees incurred in connection with this Agreement.
(h) No Assignment of Benefits. The rights of any person to payments or benefits under this Agreement shall not be made subject to option or assignment, either by voluntary or involuntary assignment or by operation of law, including (without limitation) bankruptcy, garnishment, attachment or other creditor’s process, and any action in violation of this Section 9(h) shall be void.
(i) Employment Taxes. All payments made pursuant to this Agreement will be subject to withholding of applicable income and employment taxes.
(j) Assignment by Company. The Company may assign its rights under this Agreement to an Affiliate, and an Affiliate may assign its rights under this Agreement to another Affiliate of the Company or to the Company. In the case of any such assignment, the term “Company” when used in a section of this Agreement shall mean the corporation that actually employs the Employee. Because of the unique and personal nature of the Employee’s duties under this Agreement, neither this Agreement nor any rights or obligations under this Agreement are assignable or delegable by the Employee. This Agreement shall be binding upon and inure to the benefit of the (i) Company and its successors, assigns and legal representatives and (ii) Employee and his or her heirs, executors, personal representatives, administrators and legal representatives.
[Signature page follows]
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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the Effective Date.
HERON THERAPEUTICS, INC.
By: /s/ Craig Collard
Name: Craig Collard
Title: Chief Executive Officer
EMPLOYEE
By: /s/ William Forbes
Name: William Forbes
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Exhibit 10.4
HERON THERAPEUTICS, INC.
MANAGEMENT RETENTION AGREEMENT
This Management Retention Agreement (this “Agreement”) is dated as of June 16, 2023 (the “Effective Date”), by and between Ira Duarte (“Employee”) and Heron Therapeutics, Inc., a Delaware corporation (the “Company”). This Agreement is intended to provide Employee with certain benefits described herein upon the occurrence of specific events. The Company and the Employee may each be referred to herein as a “Party” and, collectively, as the “Parties”.
RECITALS
A. The Company’s Board of Directors believes it is in the best interests of the Company and its shareholders to retain Employee and provide incentives to Employee to continue in the service of the Company.
B. The Board of Directors further believes that it is imperative to provide Employee with certain benefits upon Employee’s Involuntary Termination or a Change of Control, which benefits are intended to provide Employee with financial security and provide sufficient income and encouragement to Employee to remain employed with the Company, notwithstanding the possibility of a Change of Control.
C. To accomplish the foregoing objectives, the Board of Directors has directed the Company, upon execution of this Agreement by Employee, to agree to the terms provided in this Agreement.
NOW THEREFORE, in consideration of the foregoing and the mutual covenants and premises contained in this Agreement, the receipt and sufficiency of which are hereby expressly acknowledged, the Parties agree as follows:
AGREEMENT
1. At-Will Employment. The Company and Employee acknowledge that Employee’s employment is and shall continue to be at-will, as defined under applicable law, and that Employee’s employment with the Company may be terminated by either Party at any time for any or no reason. If Employee’s employment terminates for any reason, Employee shall not be entitled to any payments, benefits, damages, award or compensation other than as provided in this Agreement or otherwise agreed to by the Company. The terms of this Agreement shall terminate upon the earlier of: (i) the date on which Employee ceases to be employed as a corporate officer of the Company, other than as a result of an Involuntary Termination; or (ii) the date that all obligations of the Parties hereunder have been satisfied. A termination of the terms of this Agreement pursuant to the preceding sentence shall be effective for all purposes, except that such termination shall not affect the payment or provision of compensation or benefits on account of a termination of employment occurring prior to the termination of the terms of this Agreement. The rights and duties created by this Section 1 are contingent upon Employee’s release of claims against the Company (at the time of termination in a form reasonably satisfactory to the Company)
and may not be modified in any way except by a written agreement executed by an officer of the Company upon direction from the Board of Directors.
2. Benefits Upon Termination of Employment.
(a) Severance Upon Involuntary Termination. In the event that Employee suffers an Involuntary Termination at any time under circumstances other than as covered in paragraph 2(b) below, then in addition to all base salary and accrued and unused vacation benefits earned through the date of termination at the rate in effect at the time of termination, less standard deductions and withholdings, Employee will be entitled to receive severance benefits as follows (less standard deductions and withholdings): (i) an amount equal to twelve (12) months (the “Severance Period”) of the monthly base salary which Employee was receiving immediately prior to the Involuntary Termination payable in a lump sum on the first payroll date following the date the Release (as described in Section 4(b) becomes effective and irrevocable; (ii) an amount equal to the average bonus paid by the Company to Employee for services during each of the three 12-month periods (or such shorter period of time during which Employee was eligible for a bonus) prior to the Involuntary Termination date, payable in a lump sum on the first payroll date following the date the Release (as described in Section 4(b) becomes effective and irrevocable; and (iii) reimbursement for or continuation of payment by the Company of its portion of the health insurance benefits provided to Employee immediately prior to the Involuntary Termination pursuant to the terms of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”) or other applicable law through the earlier of the end of the Severance Period or the date upon which Employee is no longer eligible for such COBRA or other benefits under applicable law. In addition, on the date of such Involuntary Termination, Employee’s stock options, restricted stock and other equity awards shall immediately vest, become exercisable and/or the restrictions thereon lapse with respect to that number of shares of Company common stock that otherwise would have vested during the Severance Period had Employee’s employment continued. Employee’s stock options, restricted stock and other equity awards shall otherwise be subject to the terms of the plan and option or award agreement pursuant to which such options and other equity awards were granted.
(b) Severance Upon a Change in Control. In the event that Employee suffers an Involuntary Termination within three (3) months prior to or eighteen (18) months following the effective date of a Change of Control, then in addition to all base salary and accrued and unused vacation benefits earned through the date of termination at the rate in effect at the time of termination, less standard deductions and withholdings, Employee will be entitled to receive severance benefits as follows (less standard deductions and withholdings): (i) an amount equal to twelve (12) months (the “Change of Control Severance Period”) of the greater of (A) the monthly base salary which Employee was receiving immediately prior to the Involuntary Termination or (B) the monthly base salary which Employee was receiving immediately prior to the Change of Control, in each case, payable in a lump sum on the first payroll date following the date the Release (as described in Section 4(b) becomes effective and irrevocable; (ii) an amount equal to the average bonus paid by the Company to Employee for services during each of the three 12-month periods (or such shorter period of time during which Employee was eligible for a bonus) prior to the Involuntary Termination date, payable in a lump sum on the first payroll date following the date the Release (as described in Section 4(b) becomes effective and irrevocable; and (iii) reimbursement for or continuation of payment by the Company of its portion of the health insurance benefits provided to Employee immediately prior to the Involuntary Termination pursuant to the terms of COBRA or other applicable law through the earlier of the end of the
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Change of Control Severance Period or the date upon which Employee is no longer eligible for such COBRA or other benefits under applicable law. In addition, on the date of such Involuntary Termination, Employee’s stock options, restricted stock and other equity awards shall immediately vest, become exercisable and/or the restrictions thereon lapse with respect to one hundred percent (100%) of the shares of Company common stock subject thereto. Employee’s stock options, restricted stock and other equity awards shall otherwise be subject to the terms of the plan and option or award agreement pursuant to which such options and other equity awards were granted.
(c) Termination for Cause. Notwithstanding any other provision of this Agreement to the contrary, if Employee’s employment is terminated for Cause at any time, then Employee shall not be entitled to receive payment of any severance benefits, or any continuation or acceleration of stock option vesting or relinquishment of forfeiture and transfer restrictions on restricted stock awards. Employee will receive payment(s) for all base salary and accrued and unused vacation benefits earned through the date of termination at the rate in effect at the time of termination, less standard deductions and withholdings.
(d) Voluntary Resignation; Death, Disability. If Employee voluntarily resigns from the Company under circumstances which do not constitute an Involuntary Termination, or if Employee’s employment terminates as a result of Employee’s death or permanent disability, then Employee shall not be entitled to receive payment of any severance benefits, or option acceleration, or relinquishment of forfeiture and transfer restrictions. Employee (or Employee’s estate or beneficiary, as applicable) will receive payment(s) for all base salary and accrued and unused vacation benefits earned through the date of termination at the rate in effect at the time of termination, less standard deductions and withholdings.
3. Definition of Terms. The following terms referred to in this Agreement shall have the following meanings:
(a) “Affiliate” means, with respect to any specific entity, any other entity that, now or in the future, directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with such specified entity.
(b) “Cause” means any of the following: (i) Employee’s theft, dishonesty, willful misconduct, breach of fiduciary duty for personal profit, or falsification of any Company or Affiliate documents or records; (ii) Employee’s material failure to abide by a Company’s or Affiliate’s code of conduct or other policies (including without limitation, policies relating to confidentiality and reasonable workplace conduct); (iii) Employee’s unauthorized use, misappropriation, destruction or diversion of any tangible or intangible asset or corporate opportunity of the Company or an Affiliate (including, without limitation, Employee’s improper use or disclosure of confidential or proprietary information); (iv) any intentional act by Employee which has a material detrimental effect on the Company or an Affiliate’s reputation or business; (v) Employee’s repeated failure or inability to perform any reasonable assigned duties after written notice from the Company or an Affiliate (including, without limitation, habitual absence from work for reasons other than illness), and a reasonable opportunity to cure, such failure or inability; (vi) any material breach by Employee of any employment or service agreement between Employee and the Company or an Affiliate, which breach is not cured pursuant to the terms of such agreement; or (vii) Employee’s conviction (including any plea of guilty or nolo contendere) of any criminal act involving fraud, dishonesty, misappropriation or moral turpitude, or which impairs Employee’s ability to perform his or her duties with the Company or an Affiliate.
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(c) “Change in Control” means the occurrence of an Ownership Change Event or a series of related Ownership Change Events (collectively, a “Transaction”) in which the stockholders of the Company immediately before the Transaction do not retain immediately after the Transaction, in substantially the same proportions as their ownership of shares of the Company’s voting stock immediately before the Transaction, direct or indirect beneficial ownership of more than fifty percent (50%) of the total combined voting power of the outstanding voting securities of the Company or such surviving entity immediately outstanding after the Transaction, or, in the case of an Ownership Change Event the entity to which the assets of the Company were transferred (the “Transferee”), as the case may be.
For purposes of the preceding sentence, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting securities of one or more corporations or other business entities which own the Company or the Transferee, as the case may be, either directly or through one or more subsidiary corporations or other business entities. The Board shall have the right to determine whether multiple sales or exchanges of the voting securities in the Company or multiple Ownership Change Events are related, and its determination shall be final, binding and conclusive. The Board may also, but need not, specify that other transactions or events constitute a Change in Control.
(d) “Involuntary Termination” shall include any termination by the Company other than for Cause and Employee’s voluntary termination within sixty days following the occurrence of any of the following events without Employee’s written consent: (i) a material reduction or change in job duties, responsibilities and requirements inconsistent with Employee’s position with the Company and Employee’s prior duties, responsibilities and requirements or a material negative change in Employee’s reporting relationship; (ii) a material reduction of Employee’s base compensation (other than in connection with a general decrease in base salaries for officers of the Company or successor corporation generally); or (iii) Employee’s refusal to relocate to a facility or location more than forty miles from the Company’s current location, provided that Employee will not resign due to such change, reduction or relocation without first providing the Company with written notice of the event or events constituting the grounds for his voluntary resignation within thirty days of the initial existence of such grounds and a reasonable cure period of not less than thirty days following the date of such notice.
(e) “Ownership Change Event” means the occurrence of any of the following with respect to the Company: (i) the direct or indirect sale or exchange in a single or series of related transactions by the stockholders of the Company of more than fifty percent (50%) of the voting stock of the Company; (ii) a merger or consolidation in which the Company is a party; or (iii) the sale, exchange, or transfer of all or substantially all of the assets of the Company.
4. Limitation and Conditions on Payments.
(a) Parachute Payments. In the event that the severance and other benefits provided for in this Agreement to the Employee: (i) constitute “parachute payments” within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”); and (ii) but for this Section, would be subject to the excise tax imposed by Section 4999 of the Code, then the Employee’s severance benefits under Sections 2(a) and 2(b) shall be payable either:
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(i) in full; or
(ii) as to such lesser amount which would result in no portion of such severance benefits being subject to excise tax under Section 4999 of the Code, whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the excise tax imposed by Section 4999, results in the receipt by the Employee on an after-tax basis, of the greatest amount of severance benefits under Section 2(a) and 2(b), notwithstanding that all or some portion of such severance benefits may be taxable under Section 4999 of the Code. Any determination required under this Section 4 shall be made in writing by independent public accountants selected by the Company (the “Accountants”), whose determination shall be conclusive and binding upon the Employee and the Company for all purposes. For purposes of making the calculations required by this Section 4, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Section 280G and 4999 of the Code. The Company and the Employee shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this Section. The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this Section 4. Any reduction in severance benefits required by this Section 4 shall occur in a manner necessary to provide the service provider with the greatest economic benefit. If more than one manner of reduction of severance benefits necessary to arrive at the reduced amount yields the greatest economic benefit to the service provider, the payments and benefits shall be reduced pro rata.
(b) Release Prior to Receipt of Benefits. Prior to the receipt of any benefits under this Agreement, Employee shall execute a release of claims agreement in the form provided by the Company (the “Release”) and such Release shall become effective and irrevocable not later than fifty-two (52) days following Employee’s employment termination. Such Release shall specifically relate to all of Employee’s rights and claims in existence at the time of such execution and shall confirm Employee’s obligations under the Company’s standard form of proprietary information agreement. In no event will severance benefits be provided to Employee until the Release becomes effective. In the event severance payments are delayed because of the effective date of the Release, the Company will pay Employee the severance payments, that Employee would otherwise have received under Section 2(a) on or prior to the effective date of the Release, on the first regular payroll pay day following the effective date of the Release, with the balance of the payments being paid as originally scheduled.
(c) Cooperation. As a condition to the receipt of benefits under this Agreement, Employee agrees to be reasonably available to answer questions and provide information requested by the Company relating the transition of Employee’s role to Employee’s successor. In addition, as a condition to the receipt of benefits under this Agreement, Employee agrees to reasonably cooperate (with due regard given to Employee’s other commitments), (i) with the Company in the defense of any legal matter not adverse to Employee and involving any matter that arose during Employee’s employment with the Company or any of its affiliates; and (ii) with all government authorities on matters pertaining to any investigation, litigation or administrative proceeding
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pertaining to the Company or any of its affiliates, in each case, relating to Employee’s employment period and not adverse to Employee. The Company will reimburse Employee for any reasonable travel and out-of-pocket costs and expenses incurred by Employee in providing such cooperation.
(d) Return of Company Property. Prior to the receipt of any benefits under this Agreement, Employee shall return all property belonging to the Company or its affiliates (including, but not limited to, any Company-provided laptops, computers, cell phones, wireless electronic mail devices or other equipment, or documents and property belonging to the Company). Employee may retain your address books (including as electronic files) provided that such items only include contact information.
5. Section 409A. All severance payments to be made upon a termination of employment under this Agreement may be made only upon a “separation of service” within the meaning of Section 409A of the Code and the Department of Treasury regulations and other guidance promulgated thereunder. Notwithstanding any provision to the contrary in this Agreement, if Employee is deemed by the Company at the time of Employee’s separation from service to be a “specified employee” for purposes of Code Section 401A(a)(2)(B)(i), to the extent delayed commencement of any portion of the benefits to which Employee is entitled under this Agreement is required in order to avoid a prohibited distribution under Code Section 409A(a)(2)(B)(i), such portion of Employee’s benefits shall not be provided to Employee prior to the earlier of (i) the expiration of the six-month period measured from the date of Employee’s “separation of service” with the Company or (ii) the date of Employee’s death. Upon the first business day following the expiration of the applicable Code Section 409A(a)(2)(B)(i) period, all payments deferred pursuant to this Section 5 shall be paid in a lump sum to Employee, and any remaining payments due under the Agreement shall be paid as otherwise provided herein. For purposes of Code Section 409A (including, without limitation, for purposes of Treasury Regulation Section 1.409A-2(b)(2)(iii)), Employee’s right to receive installment payments under this Agreement shall be treated as a right to receive a series of separate payments and, accordingly, each installment payment hereunder shall at all times be considered a separate and distinct payment. It is intended that none of the severance payments and benefits to be provided hereunder will be subject to Section 409A of the Code and any ambiguities herein will be interpreted to be so exempt. Employee and the Company agree to work together in good faith to consider amendments to this Agreement and to take such reasonable actions which are necessary, appropriate or desirable to avoid imposition of any additional tax or income recognition prior to actual payment to Employee under Section 409A of the Code. Notwithstanding anything to the contrary contained herein, to the extent that any amendment to this Agreement with respect to the payment of any severance payments or benefits would constitute under Code Section 409A a delay in a payment or a change in the form of payment, then such amendment must be done in a manner that complies with Code Section 409A(a)(4)(C).
6. Conflicts. Employee represents that Employee’s performance of all the terms of this Agreement will not breach any other agreement to which Employee is a party. Employee has not, and will not during the term of this Agreement, enter into any oral or written agreement in conflict with any of the provisions of this Agreement. Employee further represents that Employee is entering into or has entered into an employment relationship with the Company of Employee’s own free will and that Employee has not been solicited as an employee in any way by the Company.
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7. Successors. Any successor to the Company (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company’s business and/or assets shall assume the obligations under this Agreement and agree expressly to perform the obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession. The terms of this Agreement and all of Employee’s rights hereunder and thereunder shall inure to the benefit of, and be enforceable by, Employee’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.
8. Notice. Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by U.S. registered or certified mail, return receipt requested and postage prepaid. Mailed notices to Employee shall be addressed to Employee at the home address which Employee most recently communicated to the Company in writing. In the case of the Company, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its Secretary.
9. Miscellaneous Provisions.
(a) No Duty to Mitigate. Employee shall not be required to mitigate the amount of any payment contemplated by this Agreement (whether by seeking new employment or in any other manner), nor shall any such payment be reduced by any earnings that Employee may receive from any other source.
(b) Waiver. No provision of this Agreement shall be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by Employee and by an authorized officer of the Company (other than Employee). No waiver by either Party of any breach of, or of compliance with, any condition or provision of this Agreement by the other Party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time.
(c) Whole Agreement. No agreements, representations or understandings (whether oral or written and whether express or implied) which are not expressly set forth in this Agreement have been made or entered into by either Party with respect to the subject matter hereof. This Agreement supersedes any agreement of the same title and concerning similar subject matter dated prior to the Effective Date, and by execution of this Agreement both Parties agree that any such predecessor agreement shall be deemed null and void.
(d) Choice of Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of California without reference to conflict of laws provisions.
(e) Severability. If any term or provision of this Agreement or the application thereof to any circumstance shall, in any jurisdiction and to any extent, be invalid or unenforceable, such term or provision shall be ineffective as to such jurisdiction to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable the remaining terms and provisions of this Agreement or the application of such terms and provisions to circumstances other than those as to which it is held invalid or unenforceable, and a suitable and equitable term
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or provision shall be substituted therefore to carry out, insofar as may be valid and enforceable, the intent and purpose of the invalid or unenforceable term or provision.
(f) Arbitration. Any dispute or controversy arising under or in connection with this Agreement may be settled at the option of either Party by binding arbitration in the County of San Diego, California, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator’s award in any court having jurisdiction. Punitive damages shall not be awarded.
(g) Legal Fees and Expenses. The Parties shall each bear their own expenses, legal fees and other fees incurred in connection with this Agreement.
(h) No Assignment of Benefits. The rights of any person to payments or benefits under this Agreement shall not be made subject to option or assignment, either by voluntary or involuntary assignment or by operation of law, including (without limitation) bankruptcy, garnishment, attachment or other creditor’s process, and any action in violation of this Section 9(h) shall be void.
(i) Employment Taxes. All payments made pursuant to this Agreement will be subject to withholding of applicable income and employment taxes.
(j) Assignment by Company. The Company may assign its rights under this Agreement to an Affiliate, and an Affiliate may assign its rights under this Agreement to another Affiliate of the Company or to the Company. In the case of any such assignment, the term “Company” when used in a section of this Agreement shall mean the corporation that actually employs the Employee. Because of the unique and personal nature of the Employee’s duties under this Agreement, neither this Agreement nor any rights or obligations under this Agreement are assignable or delegable by the Employee. This Agreement shall be binding upon and inure to the benefit of the (i) Company and its successors, assigns and legal representatives and (ii) Employee and his or her heirs, executors, personal representatives, administrators and legal representatives.
[Signature page follows]
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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the Effective Date.
HERON THERAPEUTICS, INC.
By: /s/ Craig Collard
Name: Craig Collard
Title: Chief Executive Officer
EMPLOYEE
By: /s/ Ira Duarte
Name: Ira Duarte
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Exhibit 10.10
Execution Version
Working capital FACILITY AGREEMENT
THIS WORKING CAPITAL FACILITY AGREEMENT is made and dated as of August 9, 2023 and is entered into by and among HERON THERAPEUTICS, INC., a Delaware corporation (“Company”), and each of its Qualified Subsidiaries from time to time party hereto (together with Company, individually or collectively, as the context may require, “Borrower”), the several banks and other financial institutions or entities from time to time party hereto (each, a “Lender”, and collectively “Lenders”) and HERCULES CAPITAL, INC., a Maryland corporation, in its capacity as administrative agent and collateral agent for itself and Lenders (in such capacity, including any successors or assigns, “Agent”).
RECITALS
A. Borrower has requested Lenders make available to Borrower up to three (3) tranches of term loans in an aggregate principal amount of up to Fifty Million Dollars ($50,000,000) (collectively, the “Term Loans”); and
B. Lenders are willing to make the Term Loans on the terms and conditions set forth in this Agreement.
AGREEMENT
NOW, THEREFORE, Borrower, Agent and Lenders agree as follows:
“25% Revenue Limitation” means, as of any date of determination, a limit that is exceeded if the Outstanding Loan Amount as of such date exceeds 25% of Net Product Sales.
“Account Control Agreement(s)” means any agreement entered into by and among Agent, Borrower and a third-party bank or other institution (including a Securities Intermediary) in which Borrower maintains a Deposit Account or an account holding Investment Property and which perfects Agent’s first priority security interest in the subject account or accounts.
“ACH Authorization” means the ACH Debit Authorization Agreement in substantially the form of Exhibit H, which account numbers shall be redacted for security purposes if and when filed publicly by Borrower.
“Acquisition” means any transaction or series of related transactions for the purpose of or resulting, directly or indirectly, in (a) the acquisition of all or substantially all of the assets of a Person, or of any business, line of business or division or other unit of operation of a Person, (b) the acquisition of fifty percent (50%) or more of the Equity Interests of any Person, whether or not involving a merger, consolidation or similar transaction with such other Person, or otherwise causing any Person to become a Subsidiary of Borrower, or (c) the acquisition of, or the right to use, develop or sell (in each case, including
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through licensing (other than “off-the-shelf” licenses)), any product, product line or intellectual property of or from any other Person.
“Advance(s)” means a Term Loan Advance.
“Advance Date” means the funding date of any Advance.
“Advance Request” means a request for an Advance submitted by Borrower to Agent in substantially the form of Exhibit A, which account numbers shall be redacted for security purposes if and when filed publicly by Borrower.
“Affiliate” means (a) any Person that directly or indirectly controls, is controlled by, or is under common control with the Person in question, (b) any Person directly or indirectly owning, controlling or holding with power to vote twenty percent (20%) or more of the outstanding voting securities of another Person, or (c) any Person twenty percent (20%) or more of whose outstanding voting securities are directly or indirectly owned, controlled or held by another Person with power to vote such securities. As used in this definition, the term “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise.
“Agreement” means this Working Capital Facility Agreement, as amended, restated, amended and restated, supplemented or otherwise modified from time to time.
“Anti-Corruption Laws” means all laws, rules, and regulations of any jurisdiction applicable to Borrower or any of its Affiliates from time to time concerning or relating to bribery or corruption, including without limitation the United States Foreign Corrupt Practices Act of 1977, as amended, the UK Bribery Act 2010 and other similar legislation in any other jurisdictions.
“Anti‑Terrorism Laws” means any laws, rules, regulations or orders relating to terrorism or money laundering, including without limitation Executive Order No. 13224 (effective September 24, 2001), the USA PATRIOT Act, the laws comprising or implementing the Bank Secrecy Act, and the laws administered by OFAC.
“Bankruptcy Code” means the federal bankruptcy law of the United States as from time to time in effect, currently as Title 11 of the United States Code. Section references to current sections of the Bankruptcy Code shall refer to comparable sections of any revised version thereof if section numbering is changed.
“Blocked Person” means any Person: (a) listed in the annex to, or is otherwise subject to the provisions of, Executive Order No. 13224, (b) a Person owned or controlled by, or acting for or on behalf of, any Person that is listed in the annex to, or is otherwise subject to the provisions of, Executive Order No. 13224, (c) a Person with which any Lender is prohibited from dealing or otherwise engaging in any transaction by any Anti-Terrorism Law, (d) a Person that commits, threatens or conspires to commit or supports “terrorism” as defined in Executive Order No. 13224, or (e) a Person that is named a “specially designated national” or “blocked person” on the most current list published by OFAC or other similar list.
“Board of Directors” means, with respect to any Person that is a corporation, its board of directors, with respect to any Person that is a limited liability company, its board of managers, board of members or similar governing body, and with respect to any other Person that is another form of a legal entity, such Person’s governing body in accordance with its Organizational Documents.
“Borrower Products” means all products, software, service offerings, technical data or technology that are currently being designed, developed, tested, manufactured, marketed, advertised,
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licensed, distributed, promoted or sold by Borrower or any of its Subsidiaries or which Borrower or any of its Subsidiaries intends to designed, develop, test, manufacture, market, advertise, promote, sell, license, or distribute in the future.
“Borrower’s Books” means Borrower’s or any of its Subsidiaries’ books and records including ledgers, federal, state, local and foreign tax returns, records regarding Borrower’s or its Subsidiaries’ assets or liabilities, the Collateral, business operations or financial condition, and all computer programs or storage or any equipment containing such information.
“Business Day” means any day other than Saturday, Sunday and any other day on which banking institutions in the State of California are closed for business.
“Capitalized PIK Interest” means, with respect to any Term Loan Advance, paid-in-kind interest thereon that has been capitalized and added to the principal of such Term Loan Advance pursuant to Section 2.2(d)(ii).
“Cash” means all cash, cash equivalents and liquid funds.
“CFC” means a “controlled foreign corporation” within the meaning of section 957(a) of the Code.
“Change in Control” means (a) at any time, any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of Securities Exchange Act of 1934, as amended), shall become, or obtain rights (whether by means of warrants, options or otherwise) to become, the “beneficial owner” (as defined in Rules 13(d)-3 and 13(d)‑5 under Securities Exchange Act of 1934, as amended), directly or indirectly, of more than fifty percent (50.0%) of the ordinary voting power for the election of directors, partners, managers and members, as applicable, of Company (determined on a fully diluted basis); (b) at any time, Company shall cease to own and control, of record and beneficially, directly or indirectly, free and clear of all Liens (other than Permitted Liens), one hundred percent (100.0%) of the Equity Interests of each Subsidiary of Company (other than as a result of a Permitted Transfer or a transaction permitted under Section 7.9); or (c) the occurrence of a “change of control”, “fundamental change”, “make-whole fundamental change” or any comparable term under and as defined in any Permitted Convertible Debt Document.
“Charter” means, with respect to any Person, such Person’s incorporation, formation or equivalent documents, as in effect from time to time.
“Closing Date” means the date of this Agreement.
“Code” means the U.S. Internal Revenue Code of 1986, as amended.
“Collateral Claim” means any and all present and future “claims” (used in its broadest sense, as contemplated by and defined in Section 101(5) of the Bankruptcy Code, but without regard to whether such claim would be disallowed under the Bankruptcy Code) of a Lender now or hereafter arising or existing under or relating to this Agreement and related Loan Documents, whether joint, several, or joint and several, whether fixed or indeterminate, due or not yet due, contingent or non-contingent, matured or unmatured, liquidated or unliquidated, or disputed or undisputed, whether under a guaranty or a letter of credit, and whether arising under contract, in tort, by law, or otherwise, any interest or fees thereon (including interest or fees that accrue after the filing of a petition by or against Borrower under the Bankruptcy Code, irrespective of whether allowable under the Bankruptcy Code), any costs of Enforcement Actions, including reasonable attorneys’ fees and costs, and any prepayment or termination premiums.
“Common Stock” means the Common Stock, $0.01 par value per share, of Company.
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“Compliance Certificate” means a certificate in the form attached hereto as Exhibit E.
“Contingent Obligation” means, as applied to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to (i) any Indebtedness, lease (excluding operating leases of real property), dividend, letter of credit or other obligation of another Person, including 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; (ii) any obligations with respect to undrawn letters of credit, corporate credit cards or merchant services issued for the account of that Person; and (iii) 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, without duplication of the primary obligation, 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. Notwithstanding the foregoing, no obligation in respect of a Permitted Bond Hedge Transaction or a Permitted Warrant Transaction shall be deemed to be a Contingent Obligation.
“Copyright License” means any written agreement granting any right to use any Copyright or Copyright registration, now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest.
“Copyrights” means all copyrights, whether registered or unregistered, held pursuant to the laws of the United States of America, any State thereof, or of any other country.
“Default” means any event, circumstance or condition that has occurred or exists, that would, with the passage of time or the requirement that notice be given or both, become an Event of Default.
“Deposit Accounts” means any “deposit accounts”, as such term is defined in the UCC, and includes any checking account, savings account, or certificate of deposit.
“Division” means, in reference to any Person which is an entity, the division of such Person into two (2) or more separate Persons, with the dividing Person either continuing or terminating its existence as part of such division, including, without limitation, as contemplated under Section 18-217 of the Delaware Limited Liability Company Act for limited liability companies formed under Delaware law, Section 17-220 of the Delaware Revised Uniform Limited Partnership Act for limited partnerships formed under Delaware law, or any analogous action taken pursuant to any other applicable law with respect to any corporation, limited liability company, partnership or other entity.
“Domestic Subsidiary” means any Subsidiary organized under the laws of the United States of America, any State thereof, the District of Columbia, or any other jurisdiction within the United States of America.
“Due Diligence Fee” means a fee in an amount equal to Forty Thousand Dollars ($40,000), which fee has been paid to Agent and received by Agent prior to the Closing Date and shall be deemed fully earned on such date regardless of the early termination of this Agreement.
“Enforcement Action” means, with respect to any Lender and with respect to any Collateral Claim of such Lender or any item of Collateral in which such Lender has or claims a security interest lien or right of offset, any action, whether judicial or nonjudicial, to repossess, collect, accelerate, offset, recoup,
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give notification to third parties with respect to, sell, dispose of, foreclose upon, give notice of sale, disposition, or foreclosure with respect to, or obtain equitable or injunctive relief with respect to, such Collateral Claim or Collateral. The filing, or the joining in the filing, by any Lender of an involuntary bankruptcy or Insolvency Proceeding against Borrower also is an Enforcement Action.
“Equity Interests” means, with respect to any Person, the capital stock, partnership or limited liability company interest, or other equity securities or equity ownership interests of such Person.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated thereunder.
“Foreign Subsidiary” means a Subsidiary other than any Domestic Subsidiary.
“FSHCO” shall mean any Subsidiary substantially all of the assets of which (directly or through one or more disregarded entities for U.S. federal income tax purposes) consist of Indebtedness and/or Equity Interests (including, for this purpose, any debt or other instrument treated as equity for U.S. federal income tax purposes) of one or more Foreign Subsidiaries that are CFCs.
“GAAP” means generally accepted accounting principles in the United States of America, as in effect from time to time.
“Governmental Authority” means any federal, state, municipal, national or other government, governmental department, commission, board, bureau, court, agency or instrumentality or political subdivision thereof (including the FDA) or any entity or officer exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to any government or any court, in each case whether associated with a state or locality of the United States, the United States, or a foreign government.
“Guarantor” means any Subsidiary of Borrower that enters into a Guaranty.
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“Guaranty” means a guaranty with respect to the Secured Obligations, in form and substance reasonably satisfactory to Agent that may be entered into from time to time, as the same may from time to time be amended, restated, modified or otherwise supplemented.
“Healthcare Laws” means all health care laws applicable to Borrower or any Subsidiary and to the ownership, testing, development, sale, marketing, manufacture, packaging, processing, use, distribution, storage, import, export or disposal of Borrower’s or any Subsidiary’s products or product candidates, including but not limited to, the Federal Food, Drug, and Cosmetic Act (21 U.S.C. Section 301 et seq.), the Public Health Service Act (42 U.S.C. Section 201 et seq.), the Anti-Kickback Statute (42 U.S.C. Section 1320a-7b(b)), the Civil Monetary Penalties Law (42 U.S.C. § 1320a-7a), the Physician Payments Sunshine Act (42 U.S.C. § 1320a-7h), the Civil False Claims Act (31 U.S.C. Section 3729 et seq.), the criminal False Claims Law (42 U.S.C. § 1320a-7b(a)), all criminal laws relating to health care fraud and abuse, including but not limited to 18 U.S.C. §§ 286, 287, 1035, 1347, 1349 and the health care fraud criminal provisions under HIPAA (42 U.S.C. Section 1320d et seq.), the exclusion laws (42 U.S.C. § 1320a-7), HIPAA and similar state and foreign privacy and data security laws such as the European Union General Data Protection Regulation, Medicare (Title XVIII of the Social Security Act), Medicaid (Title XIX of the Social Security Act), any other health care law governing or pertaining to a government healthcare program, including the collection and reporting requirements, and the processing of any applicable rebate, chargeback or adjustment, under applicable rules and regulations relating to the Medicaid Drug Rebate Program (42 U.S.C. § 1396r-8) and any state supplemental rebate program, Medicare average sales price reporting (42 U.S.C. § 1395w-3a), the Public Health Service Act (42 U.S.C. § 256b), the VA Federal Supply Schedule (38 U.S.C. § 8126) or under any state pharmaceutical assistance program or U.S. Department of Veterans Affairs agreement, and any successor government programs, and any and all other comparable state, local, federal or foreign health care laws and the regulations promulgated pursuant to such laws, each as amended from time to time.
“HIPAA” means the U.S. Health Insurance Portability and Accountability Act of 1996 (42 U.S.C. § 1320d et seq.) as amended by the Health Information Technology for Economic and Clinical Health Act (42 U.S.C. § 17921 et seq.), and all regulations promulgated thereunder.
“Immaterial Subsidiary” means, as of any date of determination, any Subsidiary if and for so long as such Subsidiary (a) does not have (i) individually, (x) trailing twelve months’ revenue exceeding two and one-half percent (2.5%) of the trailing twelve months’ revenue of Borrower and its Subsidiaries (determined on a consolidated basis and in accordance with GAAP) or (y) total assets exceeding a book value of two and one-half percent (2.5%) of the consolidated total assets of Borrower and its Subsidiaries (determined on a consolidated basis and in accordance with GAAP, excluding any intercompany items in the ordinary course of business) and (ii) together with all other Immaterial Subsidiaries in the aggregate, (x) trailing twelve months’ revenue exceeding five percent (5%) of the trailing twelve months’ revenue of the Borrower and its Subsidiaries (determined on a consolidated basis and in accordance with GAAP, excluding any intercompany items in the ordinary course of business) or (y) total assets exceeding a book value of five percent (5%) of the consolidated total assets of the Borrower and its Subsidiaries (determined on a consolidated basis and in accordance with GAAP) and (b) does not own any Intellectual Property material to the business of Borrower and its Subsidiaries; provided, that any Subsidiary would be a Material Subsidiary to the extent the above required terms are not satisfied; provided, further, that the Borrower may designate any Immaterial Subsidiary as a Material Subsidiary in order to cause the above required terms to be satisfied.
“Indebtedness” means indebtedness of any kind, including (a) all indebtedness for borrowed money or the deferred purchase price of property or services (excluding trade credit entered into in the ordinary course of business and not past ninety (90) days due), including 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, (d) all equity securities of any Person
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subject to repurchase or redemption other than at the sole option of such Person, (e) “earnouts”, purchase price adjustments, profit sharing arrangements, deferred purchase money amounts and similar payment obligations or continuing obligations of any nature arising out of purchase and sale contracts, (f) obligations arising under bonus, deferred compensation, incentive compensation or similar arrangements (other than those arising in the ordinary course of business), (g) non-contingent obligations to reimburse any bank or Person in respect of amounts paid under a letter of credit, banker’s acceptance or similar instrument, and (h) all Contingent Obligations. Notwithstanding the foregoing, no obligation in respect of a Permitted Bond Hedge Transaction or a Permitted Warrant Transaction shall be deemed to be Indebtedness.
“Insolvency Proceeding” means any proceeding by or against any Person under the United States Bankruptcy Code, or any other bankruptcy, liquidation, moratorium, receivership, or insolvency law, including assignments for the benefit of creditors, compositions, extensions generally with its creditors, or proceedings seeking reorganization, administration, arrangement, receivership or other similar relief proceedings in the applicable jurisdiction from time to time in effect and affecting the rights of creditors generally.
“Intellectual Property” means all of Borrower’s Copyrights; Trademarks; Patents; Licenses; trade secrets and inventions; mask works; Borrower’s applications therefor and reissues, extensions, or renewals thereof; and Borrower’s goodwill associated with any of the foregoing, together with Borrower’s rights to sue for past, present and future infringement of Intellectual Property and the goodwill associated therewith.
“Intellectual Property Security Agreement” means the Intellectual Property Security Agreement dated as of the Closing Date between Borrower and Agent, as the same may from time to time be amended, restated, modified or otherwise supplemented.
“Investment” means (a) any beneficial ownership (including stock, partnership interests, limited liability company interests, or other equity securities or ownership interests) of or in any Person, (b) any loan, advance or capital contribution to any Person, (c) any Acquisition, or (d) other transfers on behalf of or in connection with any equity ownership or similar transfers.
“IRS” means the U.S. Internal Revenue Service.
“Joinder Agreements” means for each Subsidiary required to join as a Borrower or as a Guarantor pursuant to Section 7.13, a completed and executed Joinder Agreement in substantially the form attached hereto as Exhibit F.
“License” means any Copyright License, Patent License, Trademark License or other Intellectual Property license of rights or interests.
“Lien” means any mortgage, deed of trust, pledge, hypothecation, assignment for security, security interest, encumbrance, levy, lien or charge of any kind, whether voluntarily incurred or arising by operation of law or otherwise, against any property, any conditional sale or other title retention agreement, and any lease in the nature of a security interest.
“Loan” means the Advances made under this Agreement.
“Loan Documents” means this Agreement, the promissory notes (if any), the ACH Authorization, the Account Control Agreements, any Joinder Agreement, all UCC Financing Statements,
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any Guaranty, any Warrant, the Pledge Agreement, the Intellectual Property Security Agreement and any other documents executed in connection with the Secured Obligations or the transactions contemplated hereby, as the same may from time to time be amended, modified, supplemented or restated.
“Loan Party” means Borrower or any Guarantor.
“Market Capitalization” means, for any given date of determination with respect to Company, an amount equal to (a) the average of the daily volume weighted average price of Company’s Common Stock as reported for each of the five (5) Trading Days preceding such date of determination multiplied by (b) the total number of issued and outstanding shares of Company’s Common Stock that are issued and outstanding on the date of the determination and listed on the Principal Stock Exchange, subject to appropriate adjustment for any stock dividend, stock split, stock combination, reclassification or other similar transaction during the applicable calculation period.
“Market Disruption Event” means any of the following events: (a) any suspension of, or limitation imposed on, trading by the Principal Stock Exchange in shares of Company’s Common Stock during any period or periods aggregating one hour or longer and whether by reason of movements in price exceeding limits permitted by the Principal Stock Exchange or otherwise relating to Company’s Common Stock; or (b) the failure to open of the exchange or quotation system on which Company’s Common Stock are traded or the closure of such exchange or quotation system prior to its respective scheduled closing time for the regular trading session on such day (without regard to after hours or other trading outside the regular trading session hours).
“Material Adverse Effect” means a material adverse effect upon: (i) the business, operations, properties, assets or financial condition of the Loan Parties and their respective Subsidiaries taken as a whole; or (ii) the ability of Borrower to perform or pay the Secured Obligations in accordance with the terms of the Loan Documents, or the ability of Agent or Lenders to enforce any of its rights or remedies with respect to the Secured Obligations; or (iii) the Collateral or Agent’s Liens on the Collateral or the priority of such Liens.
“Material Agreement” means (i) any license, agreement or other contractual arrangement involving the receipt or payment of amounts in the aggregate exceeding One Million Dollars ($1,000,000) per fiscal year, (ii) any Permitted Convertible Debt Document or (iii) any “material agreement”, “material contract” or any comparable term under and as defined in any Permitted Convertible Debt Document.
“Material Subsidiary” means any Subsidiary that is not an Immaterial Subsidiary.
“Maximum Term Loan Amount” means Fifty Million Dollars ($50,000,000).
“Net Product Sales” means, as of any date of determination, the aggregate amount of Borrower’s “net product sales” (as set forth in Borrower’s condensed consolidated statements of operations and comprehensive loss contained in its audited or unaudited financial statements filed with the SEC on Form 10-K or Form 10-Q) for the most recently ended period of four consecutive fiscal quarters.
“Non-Disclosure Agreement” means that certain Non-Disclosure Agreement/Confidentiality Agreement by and between Borrower and Agent dated as of March 31, 2023.
“OFAC” means the U.S. Department of Treasury Office of Foreign Assets Control.
“OFAC Lists” means, collectively, the Specially Designated Nationals and Blocked Persons List maintained by OFAC pursuant to Executive Order No. 13224, 66 Fed. Reg. 49079 (Sept. 25, 2001) and/or any other list of terrorists or other restricted Persons maintained pursuant to any of the rules and regulations of OFAC or pursuant to any other applicable Executive Orders.
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“Organizational Documents” means with respect to any Person, such Person’s Charter, and (a) if such Person is a corporation, its bylaws, (b) if such Person is a limited liability company, its limited liability company agreement (or similar agreement), and (c) if such Person is a partnership, its partnership agreement (or similar agreement), each of the foregoing with all current amendments or modifications thereto.
“Outstanding Loan Amount” means, as of any date of determination, the aggregate outstanding principal balance of Term Loan Advances hereunder (including, for the avoidance of doubt, all Capitalized PIK Interest thereon).
“Patent License” means any written agreement granting any right with respect to any invention on which a Patent is in existence or a Patent application is pending, in which agreement Borrower now holds or hereafter acquires any interest.
“Patents” means all letters patent of, or rights corresponding thereto, in the United States of America or in any other country, all registrations and recordings thereof, and all applications for letters patent of, or rights corresponding thereto, in the United States of America or any other country.
“Perfection Certificate” means a completed certificate entitled “Perfection Certificate”, dated as of the Closing Date, delivered by Company to Agent and Lenders, signed by Company (as amended pursuant to the terms of this Agreement).
“Permits” means all certifications, registrations, licenses, permits, franchises, approvals, orders, clearances, exemptions, authorizations or consents of any Governmental Entity, necessary for or used in the conduct or operation Borrower’s or any Subsidiary’s business.
“Permitted Acquisitions” means any Acquisition of a business or Person or product engaged in a line of business similar, related or complementary to that of the Borrower and its Subsidiaries, which Acquisition shall be subject to the reasonable consent of, and on terms reasonably acceptable to, Agent.
“Permitted Bond Hedge Transaction” means any call or capped call option (or substantively equivalent derivative transaction) relating to the common stock (or other securities or property following a merger event or other change of the common stock) purchased by Company in connection with the issuance of any Permitted Convertible Debt and as may be amended in accordance with its terms; provided that (x) the net purchase price of any such call option transaction less the amount received by Company in respect of any Permitted Warrant Transaction in connection with such issuance of Permitted Convertible Debt shall not exceed 20 % of the gross proceeds to Company from such issuance of Permitted Convertible Debt and (y) the terms, conditions and covenants of each such call option transaction are customary for agreements of such type, as determined in good faith by Company’s Board of Directors.
“Permitted Convertible Debt” means (x) Indebtedness of Company in respect of the Senior Unsecured Convertible Notes and (y) any other Indebtedness of Company that is convertible into a fixed number (subject to customary anti-dilution adjustments, “make-whole” increases and other customary changes thereto) of shares of Common Stock (or other securities or property following a merger event or other change of the Common Stock), cash or any combination thereof (with the amount of such cash or such combination determined by reference to the market price of such Common Stock or such other securities); provided, that, with respect to any Indebtedness described in the foregoing clause (y), (i) such Indebtedness shall (a) have no scheduled amortization or principal payments, mandatory redemptions or other required payments of principal prior to the date that is one hundred eighty (180) days after the Term Loan Maturity Date, other than customary payments upon a “change of control”, “fundamental change” or any comparable term under and as defined in the Permitted Convertible Debt Document applicable thereto (it being understood that a holder’s option to convert any such Indebtedness into Common Stock (and Cash
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in lieu of fractional shares) shall not be considered a required mandatory redemption or payment of principal), (b) be unsecured and/or subordinated to the Secured Obligations, (c) not be guaranteed by any Subsidiary of Company that is not a Borrower or a Guarantor, (d) shall not contain any terms that are unusual or not customary for underwritten offerings of senior convertible notes as determined in good faith by the Company’s Board of Directors and (e) be Indebtedness of Company and not of any Subsidiary thereof, (ii) the incurrence of such Indebtedness shall be subject to the absence of any Default or Event of Default immediately before and immediately after giving effect thereto and (iii) any cross-default or cross-acceleration event of default (each howsoever defined) provision contained therein that relates to indebtedness or other payment obligations of a Loan Party (any such indebtedness or other payment obligations, a “Cross-Default Reference Obligation”) contains a cure period of at least thirty (30) calendar days (after written notice to the issuer of such Indebtedness by the trustee or to such issuer and such trustee by holders of at least 25% in aggregate principal amount of such Indebtedness then outstanding) before a default, event of default, acceleration or other event or condition under such Cross-Default Reference Obligation results in an event of default under such cross-default or cross-acceleration provision.
“Permitted Convertible Debt Documents” means, (x) with respect to the Senior Unsecured Convertible Notes, the Senior Unsecured Convertible Notes Purchase Agreement and (y) with respect to any other Permitted Convertible Debt, the indenture or other definitive document(s) governing such Permitted Convertible Debt, as amended, restated, amended and restated, supplemented or otherwise modified from time to time in accordance with the terms hereof.
“Permitted Indebtedness” means:
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“Permitted Investment” means:
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“Permitted Liens” means:
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“Permitted Transfers” means:
“Permitted Warrant Transactions” means any call option, warrant or right to purchase (or substantively equivalent derivative transaction) relating to common stock (or other securities or property following a merger event or other change of the common stock) and/or cash (in an amount determined by reference to the price of such common stock) sold by Company substantially concurrently with any purchase by Company of a related Permitted Bond Hedge Transaction and as may be amended in accordance with its terms; provided that the terms, conditions and covenants of each such call option transaction are customary for agreements of such type, as determined in good faith by Borrower’s Board of Directors.
“Person” means any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, institution, other entity or government.
“Pledge Agreement” means the Pledge Agreement dated as of the Closing Date between Borrower and Agent, as the same may from time to time be amended, restated, modified or otherwise supplemented.
“Principal Stock Exchange” means the NASDAQ or, if Company’s Common Stock are not listed on the NASDAQ, the principal national securities exchange or public quotation system on which Company’s Common Stock are then listed for trading or quoted.
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“Qualified Cash” means an amount equal to (a) the amount of Borrower’s Cash held in accounts subject to an Account Control Agreement in favor of Agent, minus (b) the Qualified Cash A/P Amount.
“Qualified Cash A/P Amount” means the amount of Borrower’s accounts payable under GAAP not paid after the 90th day following the invoice for such account payable.
“Qualified Subsidiary” means any Material Subsidiary.
“Receivables” means (i) all of Borrower’s Accounts, Instruments, Documents, Chattel Paper, Supporting Obligations, letters of credit, proceeds of any letter of credit, and Letter of Credit Rights, and (ii) all customer lists, software, and business records related thereto.
“Redemption Conditions” means, with respect to any redemption or other cash principal payment by Borrower of any Permitted Convertible Debt, satisfaction of each of the following events: (a) no Default or Event of Default shall exist or result therefrom, and (b) both immediately before and at all times after such redemption, Borrower’s Qualified Cash shall be no less than 150% of the Secured Obligations.
“Required Lenders” means at any time, the holders of more than fifty percent (50%) of the sum of the aggregate unpaid principal amount of the Term Loans then outstanding.
“Restricted License” means any material License or other agreement with respect to which Borrower is the licensee (a) that prohibits or otherwise restricts Borrower from granting a security interest in Borrower’s interest in such License or agreement or any other property, or (b) for which a default under or termination of could interfere with Agent’s right to sell any Collateral.
“Sanctioned Country” means, at any time, a country or territory which is the subject or target of any Sanctions.
“Sanctioned Person” means, at any time, (a) any Person listed in any Sanctions-related list of designated Persons maintained by the Office of Foreign Assets Control of the U.S. Department of the Treasury or the U.S. Department of State, or by the United Nations Security Council, the European Union or any EU member state, (b) any Person operating, organized or resident in a Sanctioned Country or (c) any Person controlled by any such Person.
“Sanctions” means economic or financial sanctions or trade embargoes imposed, administered or enforced from time to time by (a) the U.S. government, including those administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury or the U.S. Department of State, or (b) the United Nations Security Council, the European Union or His Majesty’s Treasury of the United Kingdom.
“SBA Funding Date” means each date on which a Lender which is an SBIC funds any portion of the Term Loans.
“SEC” means the U.S. Securities and Exchange Commission.
“Secured Obligations” means Borrower’s obligations under this Agreement and any Loan Document (other than the Warrant), including any obligation to pay any amount now owing or later arising.
“Senior Unsecured Convertible Notes” means the 1.5% Convertible Senior Notes due May 24, 2026 issued by Borrower under the Senior Unsecured Convertible Note Purchase Agreement.
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“Senior Unsecured Convertible Note Purchase Agreement” means that certain Note Purchase Agreement, dated as of May 24, 2021, by and among Company, the purchasers from time to time party thereto and Baker Bros. Advisors LP, as agent for the purchasers, as amended, restated, supplemented or otherwise modified and in effect on the Closing Date and as further amended, restated, amended and restated, supplemented or otherwise modified from time to time in accordance with the terms hereof.
“Subordinated Indebtedness” means Indebtedness subordinated to the Secured Obligations in amounts and on terms and conditions satisfactory to Agent in its sole discretion and subject to a subordination agreement in form and substance satisfactory to Agent in its sole discretion.
“Subsequent Financing” means the consummation of the issuance and sale, after the Closing Date, of any equity securities (including any securities convertible into equity securities) of Borrower in a private placement marketed to multiple investors.
“Subsidiary” means an entity, whether a corporation, partnership, limited liability company, joint venture or otherwise, in which Company owns or controls, either directly or indirectly, fifty percent (50%) or more of the outstanding voting securities, including each entity listed on Schedule 1.
“Taxes” means all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.
“Term Commitment” means as to any Lender, the obligation of such Lender, if any, to make a Term Loan Advance to Borrower in a principal amount not to exceed the amount set forth under the heading “Term Commitment” opposite such Lender’s name on Schedule 1.1.
“Term Loan” means any Term Loan Advance made under this Agreement.
“Term Loan Advance” means the Tranche 1A Advance, each Tranche 1B Advance, each Tranche 1C Advance and any other funds advanced under Section 2.2(a).
“Term Loan Cash Interest Rate” means, for any day, a floating per annum rate of interest equal to the greater of (a) 9.95% and (b) the sum of (i) 9.95% plus (ii)(x) the prime rate as reported in The Wall Street Journal minus (y) 8.25%.
“Term Loan Maturity Date” means the earlier of (x) September 1, 2027 and (y) solely to the extent that any Senior Unsecured Convertible Note remains outstanding on such date, the date that is ninety-one (91) days prior to the stated maturity date of the Senior Unsecured Convertible Notes; provided, that, in each case of the foregoing clauses (x) and (y), if such day is not a Business Day, the Term Loan Maturity Date shall be the immediately preceding Business Day.
“Term Loan PIK Interest Rate” means per annum rate of interest equal to 1.50%.
“Trademark License” means any written agreement granting any right to use any Trademark or Trademark registration, now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest.
“Trademarks” means all trademarks (registered, common law or otherwise) and any applications in connection therewith, including registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States of America, any State thereof or any other country or any political subdivision thereof.
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“Trading Day” means any day on which (a) there is no Market Disruption Event and (b) the Principal Stock Exchange is open for trading; provided that a “Trading Day” only includes those days that have a scheduled closing time of 4:00 p.m. (Eastern time) or the then standard closing time for regular trading on the relevant exchange or trading system.
“Tranche” means the Tranche 1A Advance, Tranche 1B Advance and/or the Tranche 1C Advance, as applicable.
“Tranche 1A Commitment” means as to any Lender, the obligation of such Lender, if any, to make a Term Loan Advance to Borrower in a principal amount not to exceed the amount set forth under the heading Tranche 1A Commitment opposite such Lender’s name on Schedule 1.1. The aggregate amount of the Lenders’ Tranche 1A Commitments as of the Closing Date is Twenty-Five Million Dollars ($25,000,000).
“Tranche 1B Availability Period” means the period commencing on the Closing Date and continuing through December 15, 2024; provided that no Tranche 1B Advance shall be made during the occurrence and continuance of an Event of Default.
“Tranche 1B Commitment” means as to any Lender, the obligation of such Lender, if any, to make a Term Loan Advance to Borrower in a principal amount not to exceed the amount set forth under the heading Tranche 1B Commitment opposite such Lender’s name on Schedule 1.1. The aggregate amount of the Lenders’ Tranche 1B Commitments as of the Closing Date is Five Million Dollars ($5,000,000).
“Tranche 1C Availability Period” means the period (i) commencing on the earlier of (x) the date on which the Tranche 1B Commitments have been fully funded and (y) December 16, 2024 and (ii) continuing through December 15, 2025; provided that no Tranche 1C Advance shall be made during the occurrence and continuance of an Event of Default.
“Tranche 1C Commitment” means as to any Lender, the obligation of such Lender, if any, to make a Term Loan Advance to Borrower in a principal amount not to exceed the amount set forth under the heading Tranche 1C Commitment opposite such Lender’s name on Schedule 1.1. The aggregate amount of the Lenders’ Tranche 1C Commitments as of the Closing Date is Twenty Million Dollars ($20,000,000).
“UCC” means the Uniform Commercial Code as the same is, from time to time, in effect in the State of California; provided, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection or priority of, or remedies with respect to, Agent’s Lien on any Collateral is governed by the Uniform Commercial Code as the same is, from time to time, in effect in a jurisdiction other than the State of California, then the term “UCC” shall mean the Uniform Commercial Code as in effect, from time to time, in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection, priority or remedies and for purposes of definitions related to such provisions.
“U.S. Person” means any Person that is a “United States person” as defined in Section 7701(a)(30) of the Code.
“Warrant” means any warrant entered into in connection with the Loan, as may be amended, restated or modified from time to time.
Defined Term |
Section |
1940 Act |
5.6(b) |
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Affected Lender |
Addendum 3 |
Agent |
Preamble |
Assignee |
11.14 |
Borrower |
Preamble |
Claims |
11.11(a) |
Collateral |
3.1 |
Company |
Preamble |
Confidential Information |
11.13 |
End of Term Charge |
2.6 |
Event of Default |
9 |
Financial Statements |
7.1 |
Indemnified Person |
6.3 |
Lenders |
Preamble |
Liabilities |
6.3 |
Maximum Rate |
2.3 |
Participant Register |
11.8 |
Payment Date |
2.2(e) |
Prepayment Charge |
2.5 |
Publicity Materials |
11.19 |
Register |
11.7 |
SBA |
7.16 |
SBIC |
7.16 |
SBIC Act |
7.16 |
Rights to Payment |
3.1 |
Tranche 1A Advance |
2.2(a)(i) |
Tranche 1B Advance |
2.2(a)(ii) |
Tranche 1C Advance |
2.2(a)(ii) |
Transfer |
7.8 |
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19
|
20
|
21
|
22
|
23
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The obligations of Lenders to make the Loan hereunder are subject to the satisfaction by Borrower of the following conditions:
24
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25
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Borrower represents and warrants that:
26
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27
|
28
|
29
|
30
|
31
|
32
|
Borrower agrees as follows:
33
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34
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Borrower shall not (without the consent of Agent, such consent not to be unreasonably withheld or delayed), make any change in its (a) accounting policies or reporting practices, except as acceptable under GAAP or (b) fiscal years or fiscal quarters. The fiscal year of Borrower shall end on December 31.
The executed Compliance Certificate, and all Financial Statements required to be delivered hereunder shall be sent via e-mail to financialstatements@htgc.com with a copy to lmcguire@htgc.com; joleary@htgc.com; cbarnes@htgc.com; mmcmahon@htgc.com; and sperkins@htgc.com; provided, that if e-mail is not available or sending such Financial Statements via e-mail is not possible, they shall be faxed to Agent at: (650) 473-9194, attention Account Manager: Heron Therapeutics.
Notwithstanding the foregoing, documents required to be delivered under Sections 7.1(a), (b), (c) or (f) (to the extent any such documents are included in materials otherwise filed with the SEC) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date on which Borrower emails a link thereto to Agent; provided that Borrower shall directly provide Agent all Financial Statements required to be delivered pursuant to Section 7.1(b) and (c) hereunder.
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Notwithstanding anything to the contrary in the foregoing, the issuance of, performance of obligations under (including any payments of interest), and conversion, exercise, repurchase, payment (including, for the avoidance of doubt, any required repurchase in connection with the payment of Permitted Convertible Debt upon satisfaction of any condition related to the stock price of Borrower’s common stock), settlement or early termination or cancellation of (whether in whole or in part and including by netting or set-off) (in each case, whether in cash, common stock of Borrower or, following a merger event or other change of the common stock of Borrower, other securities or property), or the satisfaction of any condition that would permit or require any of the foregoing with respect to, any Permitted Convertible Debt, shall not constitute a prepayment of Indebtedness by Borrower for the purposes of this Section 7.4; provided that, to the extent the aggregate amount of cash payable upon conversion or payment of any Permitted Convertible Debt (excluding any required payment of interest with respect to such Permitted Convertible Debt and excluding any payment of cash in lieu of a fractional share due upon conversion thereof) exceeds the sum of (a) the aggregate principal amount thereof and (b) the aggregate amount received by Borrower pursuant to an exercise or early unwind or settlement of a corresponding portion of the Permitted Bond Hedge Transactions relating to such Permitted Convertible Debt (including, for the avoidance of doubt, the case where there is no Permitted Bond Hedge Transaction relating to such Permitted Convertible Debt), the payment of such excess cash shall not be permitted by the preceding sentence; provided further that principal payments in cash (other than cash in lieu of
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fractional shares) shall only be allowed if the Redemption Conditions are satisfied in respect of such payment and at all times after such payment.
Notwithstanding the foregoing, Borrower may (a) pay the purchase price of any Permitted Bond Hedge Transaction or (b) settle, unwind or terminate all or any portion of any Permitted Warrant Transaction by (i) set-off against the concurrent settlement, unwind or other termination of all or any portion of any related Permitted Bond Hedge Transaction or (ii) delivery of common stock.
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38
|
39
|
40
|
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Notwithstanding anything to the contrary in this Section 7, and for the avoidance of doubt, neither Section 7.6 nor Section 7.7 shall not prohibit the conversion by holders of (including any cash payment upon conversion), or required payment of any principal or premium on (including, for the avoidance of doubt, in respect of a required repurchase in connection with the payment of Permitted Convertible Debt upon satisfaction of any condition related to the stock price of Borrower’s common stock) or required payment of any interest with respect to, any Permitted Convertible Debt in each case, in accordance with the terms of the indenture or other instrument governing such Permitted Convertible Debt; provided that, to the extent the aggregate amount of cash payable upon conversion or payment of any Permitted Convertible Debt (excluding any required payment of interest with respect to such Permitted Convertible Debt and excluding any payment of cash in lieu of a fractional share due upon conversion thereof) exceeds the sum of (a) the aggregate principal amount thereof and (b) the aggregate amount received by Borrower pursuant to an exercise or early unwind or settlement of a corresponding portion of the Permitted Bond Hedge Transactions relating to such Permitted Convertible Debt (including, for the avoidance of doubt, the case where there is no Permitted Bond Hedge Transaction relating to such Permitted Convertible Debt), the payment of such excess cash shall not be permitted by the preceding sentence; provided further that principal payments in cash (other than cash in lieu of fractional shares) shall only be allowed if the Redemption Conditions are satisfied in respect of such payment and at all times after such payment.
Notwithstanding anything to the contrary in this Section 7, none of Section 7.4, 7.6, 7.7 nor 7.8 shall not prohibit the repurchase, exchange or inducement of the conversion of Permitted Convertible Debt by delivery of shares of common stock and/or a different series of Permitted Convertible Debt and/or by payment of cash (in an amount that does not exceed the proceeds received by Borrower from the substantially concurrent issuance of common stock and/or such different series of Permitted Convertible Debt minus the net cost of any Permitted Bond Hedge Transactions and/or Permitted Warrant Transactions plus the net cash proceeds, if any, received by Borrower pursuant to the related exercise or early unwind or termination of the related Permitted Bond Hedge Transactions and Permitted Warrant Transactions, if any, pursuant to the immediately following proviso); provided that, substantially concurrently with, or a commercially reasonable period of time before or after, the related settlement date for the Permitted Convertible Debt that is so repurchased, exchanged or converted, Borrower shall exercise or unwind or terminate early (whether in cash, shares or any combination thereof) the portion of the Permitted Bond Hedge Transactions and Permitted Warrant Transactions, if any, corresponding to such Permitted Convertible Debt that are so repurchased, exchanged or converted.
The occurrence of any one or more of the following events shall be an “Event of Default”:
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Agent shall be deemed to have acted reasonably in the custody, preservation and disposition of any of the Collateral if it complies with the obligations of a secured party under the UCC.
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HERCULES CAPITAL, INC.
Legal Department
Attention: Chief Legal Officer and Lake McGuire
400 Hamilton Avenue, Suite 310
Palo Alto, CA 94301
email: legal@htgc.com; lmcguire@htgc.com
Telephone: 650-289-3060
HERCULES CAPITAL IV L.P.
Legal Department
Attention: Chief Legal Officer and Lake McGuire
400 Hamilton Avenue, Suite 310
Palo Alto, CA 94301
email: legal@htgc.com; lmcguire@htgc.com
Telephone: 650-289-3060
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HERON THERAPEUTICS, INC.
Attention: Chief Financial Officer
4242 Campus Point Court, Suite 200
San Diego, CA 92121
email: iduarte@herontx.com
Telephone: 858-251-4400
With a copy to:
Attention: Legal Department
4242 Campus Point Court, Suite 200
San Diego, CA 92121
email: legal@herontx.com
Telephone: 858-251-4400
or to such other address as each party may designate for itself by like notice.
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(SIGNATURES TO FOLLOW)
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IN WITNESS WHEREOF, Borrower, Agent and Lenders have duly executed and delivered this Working Capital Facility Agreement as of the day and year first above written.
BORROWER:
HERON THERAPEUTICS, INC.
By: /s/ Ira Duarte
Name: Ira Duarte
Title: Executive Vice President, Chief Financial Officer
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Accepted in Palo Alto, California:
AGENT:
HERCULES CAPITAL, INC.
By: /s/ Prentis Robinson III
Name: Prentis Robinson III
Title: Associate General Counsel
LENDERS:
HERCULES CAPITAL, INC.
By: /s/ Prentis Robinson III
Name: Prentis Robinson III
Title: Associate General Counsel
HERCULES CAPITAL IV, L.P.,
a Delaware limited partnership
By: Hercules Technology SBIC
Management, LLC, its General Partner
By: Hercules Capital, Inc., its Manager
By: /s/ Prentis Robinson III
Name: Prentis Robinson III
Title: Associate General Counsel
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HERCULES PRIVATE GLOBAL VENTURE GROWTH FUND I L.P.
By: Hercules Adviser LLC, its Investment Adviser
By: /s/ Prentis Robinson III
Name: Prentis Robinson III
Title: Authorized Signatory
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Table of Addenda, Exhibits and Schedules
Addendum 1: Taxes; Increased Costs
Addendum 2: SBA Provisions
Addendum 3: Agent and Lender Terms
Exhibit A: Advance Request
Attachment to Advance Request
Exhibit B: Name, Locations, and Other Information for Borrower
Exhibit C: Borrower’s Patents, Trademarks, Copyrights and Licenses
Exhibit D: Borrower’s Deposit Accounts and Investment Accounts
Exhibit E: Compliance Certificate
Exhibit F: Joinder Agreement
Exhibit G: [Reserved.]
Exhibit H: ACH Debit Authorization Agreement
Exhibit I: [Reserved.]
Exhibit J-1: Form of U.S. Tax Compliance Certificate (For Foreign Lenders That Are Not Partnerships For U.S. Federal Income Tax Purposes)
Exhibit J-2: Form of U.S. Tax Compliance Certificate (For Foreign Participants That Are Not Partnerships For U.S. Federal Income Tax Purposes)
Exhibit J-3: Form of U.S. Tax Compliance Certificate (For Foreign Participants That Are Partnerships For U.S. Federal Income Tax Purposes)
Exhibit J-4: Form of U.S. Tax Compliance Certificate (For Foreign Lenders That Are Partnerships For U.S. Federal Income Tax Purposes)
Schedule 1.1 Commitments
Schedule 1 Subsidiaries
Schedule 1A Existing Permitted Indebtedness
Schedule 1B Existing Permitted Investments
Schedule 1C Existing Permitted Liens
Schedule 5.3 Consents, Etc.
Schedule 5.8 Tax Matters
Schedule 5.9 Intellectual Property Claims
Schedule 5.10 Intellectual Property
Schedule 5.11 Borrower Products
Schedule 5.13 Employee Loans
Schedule 5.14 Capitalization
Schedule 5.17 Commercial Tort Claims
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Schedule 7.23 Affiliate Transactions
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EXHIBIT 31.1
SECTION 302 CERTIFICATION
I, Craig Collard, certify that:
Date: August 14, 2023 |
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/s/ Craig Collard |
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Craig Collard |
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Chief Executive Officer (As Principal Executive Officer) |
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EXHIBIT 31.2
SECTION 302 CERTIFICATION
I, Ira Duarte, certify that:
Date: August 14, 2023 |
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/s/ Ira Duarte |
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Ira Duarte |
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Executive Vice President, Chief Financial Officer |
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(As Principal Financial Officer) |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Each of the undersigned, in their capacity as Principal Executive Officer and Principal Financial Officer, respectively, of Heron Therapeutics, Inc. (the “Registrant”), hereby certifies, for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of his or her knowledge that:
Dated: August 14, 2023 |
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/s/ Craig Collard |
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Craig Collard |
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Chief Executive Officer |
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(As Principal Executive Officer) |
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/s/ Ira Duarte |
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Ira Duarte |
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Executive Vice President, Chief Financial Officer |
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(As Principal Financial Officer) |
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This certification accompanies the Report to which it relates, is not deemed to be filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Heron Therapeutics, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Report), irrespective of any general incorporation language contained in such filing.
Note: A signed original of this written statement required by Section 906 has been provided to Heron Therapeutics, Inc. and will be retained by Heron Therapeutics, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.