UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
or
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) |
(IRS Employer Identification No.) |
(Address of principal executive offices and Zip Code)
Registrant’s telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
|
Trading Symbol |
|
Name of each exchange on which registered |
|
|
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 |
|
☐ |
Accelerated filer |
|
☐ |
|
|
|
|
|
|
|
☒ |
Smaller reporting company |
|
||
|
|
|
|
|
|
Emerging growth company |
|
|
|
|
If an emerging growth company, indicate by check mark if the registrant has selected 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 $0.0001, outstanding as of May 2, 2023 was
TABLE OF CONTENTS
|
3 |
||
|
|
|
|
|
4 |
||
|
|
|
|
Item 1. |
|
4 |
|
|
|
|
|
|
Consolidated Balance Sheets – March 31, 2023 (unaudited) and December 31, 2022 |
|
4 |
|
|
|
|
|
Consolidated Statements of Operations for the three-months ended March 31, 2023 and 2022 (unaudited) |
|
5 |
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
7 |
|
|
|
|
|
|
Consolidated Statements of Cash Flows for the three-months ended March 31, 2023 and 2022 (unaudited) |
|
8 |
|
|
|
|
|
|
9 |
|
|
|
|
|
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|
31 |
|
|
|
|
Item 3. |
|
35 |
|
|
|
|
|
Item 4. |
|
35 |
|
|
|
|
|
|
37 |
||
|
|
|
|
Item 1. |
|
37 |
|
|
|
|
|
Item 1A |
|
37 |
|
|
|
|
|
Item 2. |
|
37 |
|
|
|
|
|
Item 3. |
|
37 |
|
|
|
|
|
Item 4. |
|
37 |
|
|
|
|
|
Item 5. |
|
37 |
|
|
|
|
|
Item 6. |
|
38 |
|
|
|
|
|
|
39 |
||
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future revenues; solvency; future industry market conditions; future changes in our capacity and operations; future operating and overhead costs; intellectual property; regulatory and related approvals; the conduct or outcome of pre-clinical or clinical (human) studies; operational and management restructuring activities (including implementation of methodologies and changes in the board of directors); future employment and contributions of personnel; effects on the global economy due to the COVID-19 pandemic, tax and rising interest rates; productivity, business process, rationalization, investment, acquisition and acquisition integrations, consulting, operational, tax, financial and capital projects and initiatives; inflationary pressures on the U.S. and global economy; changes in the legal or regulatory environment; and future working capital, costs, revenues, business opportunities, cash flows, margins, earnings and growth. These statements involve known and unknown risks, uncertainties and other important 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 the forward-looking statements.
In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential”, or “continue” or the negative of these terms or other similar expressions.
The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition, and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of important factors that could cause actual results to differ materially from those in the forward-looking statements, including the factors described under the sections in this Quarterly Report on Form 10-Q titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for our management to predict all risk factors and uncertainties.
You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.
3
PART I – Financial Information
Item 1. FINANCIAL STATEMENTS
AVITA MEDICAL, INC.
Consolidated Balance Sheets
(In thousands, except share and per share data)
(Unaudited)
|
|
As of |
|
|||||
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
ASSETS |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Marketable securities |
|
|
|
|
|
|
||
Accounts receivable, net |
|
|
|
|
|
|
||
BARDA receivables |
|
|
|
|
|
|
||
Prepaids and other current assets |
|
|
|
|
|
|
||
Inventory |
|
|
|
|
|
|
||
Total current assets |
|
|
|
|
|
|
||
Marketable securities long-term |
|
|
|
|
|
|
||
Plant and equipment, net |
|
|
|
|
|
|
||
Operating lease right-of-use assets |
|
|
|
|
|
|
||
Corporate-owned life insurance asset |
|
|
|
|
|
|
||
Intangible assets, net |
|
|
|
|
|
|
||
Other long-term assets |
|
|
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
||
LIABILITIES, NON-QUALIFIED DEFERRED COMPENSATION PLAN SHARE AWARDS AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
||
Accounts payable and accrued liabilities |
|
|
|
|
|
|
||
Accrued wages and fringe benefits |
|
|
|
|
|
|
||
Current non-qualified deferred compensation liability |
|
|
|
|
|
|
||
Other current liabilities |
|
|
|
|
|
|
||
Total current liabilities |
|
|
|
|
|
|
||
Non-qualified deferred compensation liability |
|
|
|
|
|
|
||
Contract liabilities |
|
|
|
|
|
|
||
Operating lease liabilities, long term |
|
|
|
|
|
|
||
Total liabilities |
|
|
|
|
|
|
||
Non-qualified deferred compensation plan share awards |
|
|
|
|
|
|
||
|
|
|
|
|
|
|||
Stockholders' equity: |
|
|
|
|
|
|
||
Common stock, $ |
|
|
|
|
|
|
||
Preferred stock, $ |
|
|
|
|
|
|
||
Company common stock held by the non-qualified deferred compensation plan ("NQDC Plan") |
|
|
( |
) |
|
|
( |
) |
Additional paid-in capital |
|
|
|
|
|
|
||
Accumulated other comprehensive income |
|
|
|
|
|
|
||
Accumulated deficit |
|
|
( |
) |
|
|
( |
) |
Total stockholders' equity |
|
|
|
|
|
|
||
Total liabilities, non-qualified deferred compensation plan share awards and stockholders' equity |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
The accompanying notes form part of the unaudited consolidated financial statements.
4
AVITA MEDICAL, INC.
Consolidated Statements of Operations
(In thousands, except share and per share data)
(Unaudited)
|
|
Three-Months Ended |
|
|||||
|
|
March 31, 2023 |
|
|
March 31, 2022 |
|
||
|
|
|
|
|
|
|
||
Revenues |
|
$ |
|
|
$ |
|
||
Cost of sales |
|
|
( |
) |
|
|
( |
) |
Gross profit |
|
|
|
|
|
|
||
BARDA income |
|
|
|
|
|
|
||
Operating expenses: |
|
|
|
|
|
|
||
Sales and marketing expenses |
|
|
( |
) |
|
|
( |
) |
General and administrative expenses |
|
|
( |
) |
|
|
( |
) |
Research and development expenses |
|
|
( |
) |
|
|
( |
) |
Total operating expenses |
|
|
( |
) |
|
|
( |
) |
Operating loss |
|
|
( |
) |
|
|
( |
) |
Interest expense |
|
|
( |
) |
|
|
- |
|
Other income |
|
|
|
|
|
|
||
Loss before income taxes |
|
|
( |
) |
|
|
( |
) |
Provision for income tax |
|
|
( |
) |
|
|
( |
) |
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Net loss per common share: |
|
|
|
|
|
|
||
Basic |
|
$ |
( |
) |
|
$ |
( |
) |
Diluted |
|
$ |
( |
) |
|
$ |
( |
) |
Weighted-average common shares: |
|
|
|
|
|
|
||
Basic |
|
|
|
|
|
|
||
Diluted |
|
|
|
|
|
|
||
The accompanying notes form part of the unaudited consolidated financial statements.
5
AVITA MEDICAL, INC.
Consolidated Statements of Comprehensive Loss
(In thousands)
(Unaudited)
|
|
Three-Months Ended |
|
|||||
|
|
March 31, 2023 |
|
|
March 31, 2022 |
|
||
|
|
|
|
|
|
|
||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Foreign currency translation gain/(loss) |
|
|
( |
) |
|
|
|
|
Net unrealized gain/(loss) on marketable securities, net of tax |
|
|
|
|
|
( |
) |
|
Comprehensive loss |
|
$ |
( |
) |
|
$ |
( |
) |
The accompanying notes form part of the unaudited consolidated financial statements.
6
AVITA MEDICAL, INC.
(In thousands, except shares)
(Unaudited)
|
|
Three-Months Ended March 31, 2023 |
|
|||||||||||||||||||||||||
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
Shares |
|
|
Amount |
|
|
Company common stock held by the NQDC Plan |
|
|
Additional |
|
|
Accumulated Other |
|
|
Accumulated |
|
|
Total |
|
|||||||
Balance at December 31, 2022 |
|
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
Stock-based compensation |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
||
Exercise of stock options |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|||
Company common stock held by the NQDC Plan |
|
|
|
|
|
- |
|
|
|
( |
) |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
||
Change in redemption value of share awards in NQDC plan |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
Other comprehensive gain |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Balance at March 31, 2023 |
|
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
|
|
Three-Months Ended March 31, 2022 |
|
|||||||||||||||||||||||||
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
Shares |
|
|
Amount |
|
|
Company common stock held by the NQDC Plan |
|
|
Additional |
|
|
Accumulated Other |
|
|
Accumulated |
|
|
Total |
|
|||||||
Balance at December 31, 2021 |
|
|
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
Stock-based compensation |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
||
Exercise of stock options |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|||
Vesting of restricted stock units |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Other comprehensive loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
Balance at March 31, 2022 |
|
|
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
The accompanying notes form part of the unaudited consolidated financial statements.
7
AVITA Medical, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
|
|
Three-Months Ended |
|
|||||
|
|
March 31, 2023 |
|
|
March 31, 2022 |
|
||
Cash flow from operating activities: |
|
|
|
|
|
|
||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Stock-based compensation |
|
|
|
|
|
|
||
Non-cash lease expense |
|
|
|
|
|
|
||
Remeasurement and foreign currency transaction (gain)/loss |
|
|
( |
) |
|
|
|
|
Excess and obsolete inventory related charges |
|
|
|
|
|
|
||
BARDA deferred costs |
|
|
( |
) |
|
|
|
|
Contract cost amortization |
|
|
|
|
|
|
||
Provision for doubtful accounts |
|
|
|
|
|
|
||
Amortization of (premium)/discount of marketable securities |
|
|
( |
) |
|
|
|
|
Non-cash changes in the fair value of NQDC plan |
|
|
|
|
|
- |
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
||
Trade and other receivables |
|
|
( |
) |
|
|
( |
) |
BARDA receivables |
|
|
|
|
|
( |
) |
|
Prepaids and other current assets |
|
|
|
|
|
|
||
Inventory |
|
|
( |
) |
|
|
|
|
Operating lease liability |
|
|
( |
) |
|
|
( |
) |
Corporate-owned life insurance asset |
|
|
( |
) |
|
|
- |
|
Other long-term assets |
|
|
( |
) |
|
|
( |
) |
Accounts payable and accrued expenses |
|
|
|
|
|
( |
) |
|
Accrued wages and fringe benefits |
|
|
( |
) |
|
|
( |
) |
Current non-qualified deferred compensation liability |
|
|
|
|
|
- |
|
|
Other current liabilities |
|
|
|
|
|
|
||
Non-qualified deferred compensation plan liability |
|
|
( |
) |
|
|
- |
|
Contract liabilities |
|
|
( |
) |
|
|
( |
) |
Other long-term liabilities |
|
|
- |
|
|
|
|
|
Net cash used in operations |
|
|
( |
) |
|
|
( |
) |
Cash flows from investing activities: |
|
|
|
|
|
|
||
Purchase of marketable securities |
|
|
( |
) |
|
|
( |
) |
Maturities of marketable securities |
|
|
|
|
|
|
||
Cash paid for property and equipment |
|
|
( |
) |
|
|
( |
) |
Cash paid for patent filing fees |
|
|
( |
) |
|
|
( |
) |
Net cash provided/(used) in investing activities |
|
|
|
|
|
( |
) |
|
Cash flow from financing activities: |
|
|
|
|
|
|
||
Proceeds from exercise of stock options |
|
|
|
|
|
|
||
Net cash provided by financing activities |
|
|
|
|
|
|
||
Effect of foreign exchange rate on cash and restricted cash |
|
|
|
|
|
( |
) |
|
Net increase/(decrease) in cash and cash equivalents and restricted cash |
|
|
|
|
|
( |
) |
|
Cash and cash equivalents and restricted cash beginning of the period |
|
|
|
|
|
|
||
Cash and cash equivalents and restricted cash end of the period |
|
$ |
|
|
$ |
|
||
Supplemental Disclosure of Cash Flow Information |
|
|
|
|
|
|
||
Cash paid for income taxes |
|
$ |
|
|
$ |
- |
|
|
Cash paid for interest |
|
$ |
|
|
$ |
- |
|
|
Plant and equipment purchases not yet paid |
|
$ |
|
|
$ |
|
||
The accompanying notes form part of the unaudited consolidated financial statements.
8
AVITA MEDICAL, INC.
Notes to Consolidated Financial Statements
(Unaudited)
1. The Company
Nature of the Business
AVITA Medical, Inc. and its subsidiaries (collectively, “AVITA Medical”, “we”, “our”, “us”, or “Company”), is a regenerative medicine company leading the development and commercialization of devices and autologous cellular therapies for skin restoration. The Company’s RECELL® System technology platform harnesses the regenerative properties of a patient’s own skin to create Spray-On Skin™ cells. In September 2018, the United States Food & Drug Administration (“FDA”) granted premarket approval (“PMA”) to the RECELL System for use in the treatment of acute thermal burns in patients eighteen years and older. Following receipt of our original PMA, we commenced commercialization of the RECELL System in January 2019 in the United States. In June 2021, the FDA approved expanded use of the RECELL System in combination of meshed autografting for acute full-thickness thermal wounds in pediatric and adult patients. In February 2022, the FDA approved a PMA supplement for the RECELL Autologous Cell Harvesting Device, an enhanced ease-of-use device aimed at providing clinicians a more efficient user experience and simplified workflow. In addition, the FDA has granted the Company Investigational Device Exemptions (“IDEs”), which enabled the Company to conduct pivotal clinical trials to further expand the indications of the RECELL System to include soft tissue repair and vitiligo. Enrollment of those clinical studies is complete, with topline results announced for both the soft tissue repair and vitiligo trials. Results from those studies are intended to support the Company’s pursuit of FDA approval to market the RECELL System in the United States for those indications. In December 2022, the Company submitted a PMA supplement for soft tissue repair and a PMA application for vitiligo. In April 2023, the Company confirmed that its automated cell disaggregation device, RECELL GO™, maintains the FDA Breakthrough Device designation for the treatment of acute wounds. The Company plans to submit a PMA supplement application for RECELL GO by June 30, 2023.
In February 2019, we entered into a collaboration with COSMOTEC Company Ltd ("COSMOTEC"), an M3 Group company, to market and distribute the RECELL System in Japan. Under the terms of the agreement, the Company will supply the RECELL product, and COSMOTEC will be the sole distributor of the product in Japan. We worked with COSMOTEC to advance our application for approval of the RECELL System in Japan pursuant to Japan’s Pharmaceuticals and Medical Devices Act (“PMDA”). In February 2022, COSMOTEC’s application for regulatory approval was approved by the PMDA with labeling for burns only. In September 2022, COSMOTEC commercially launched RECELL in Japan following Japan’s Ministry of Health, Labor, and Welfare approval of reimbursement pricing. COSMOTEC is evaluating whether to submit a further application for soft tissue repair and vitiligo indications.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The information included in this quarterly report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year-ended December 31, 2022 filed with the SEC on February 23, 2023 (United States) and the Australian Securities Exchange ("ASX") on February 24, 2023 (Australia) (the “Annual Report").
There have been no changes to the Company’s significant accounting policies as described in the Annual Report on Form 10-K that have had a material impact on the Company’s consolidated financial statements. See the summary of the Company’s significant accounting policies set forth in the notes to its consolidated financial statements included in the Annual Report.
9
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated upon consolidation.
Reclassification of prior year presentation
Certain prior year amounts within Other current liabilities have been reclassified to Current non-qualified deferred compensation liability, in the Consolidated Balance Sheets for consistency with current period presentation. These reclassifications had no effect on the reported results of operations or financial position.
Use of Estimates
The preparation of the accompanying consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts (including doubtful accounts, carrying value of long-lived assets, the useful lives of long-lived assets, accounting for marketable securities, income taxes, stock-based compensation, and the stand-alone selling price for the BARDA contract) and related disclosures. Estimates have been prepared on the basis of the current and available information. However, actual results could differ from estimated amounts.
Foreign Currency Translation and Foreign Currency Transactions
The financial position and results of operations of the Company’s operating non-U.S. subsidiaries are generally determined using the respective local currency as the functional currency of that subsidiary. Assets and liabilities of these subsidiaries are translated at the exchange rate in effect at each period end. Income statement accounts are translated at the average rate of exchange prevailing during the period. Adjustments arising from the use of differing exchange rates from period to period are included in accumulated other comprehensive gain (loss) in stockholders’ equity. Gains and losses resulting from foreign currency transactions are included in general and administrative expenses and were a gain of $
The Company’s non-operating subsidiaries that use the U.S. dollar as their functional currency remeasure monetary assets and liabilities at exchange rates in effect at the end of each period and nonmonetary assets and liabilities at historical rates. Gains and losses resulting from these remeasurements and foreign currency transactions are included in general and administrative expenses. During the three-months ended March 31, 2023 and 2022, the Company recorded a loss of $
Comprehensive Loss
The components of comprehensive loss consist of net loss, foreign currency translation adjustments from its subsidiaries not using the U.S. dollar as their functional currency and unrealized gains and losses in investments available for sale. The Company did not have reclassifications from other comprehensive loss to net loss during the three-months ended March 31, 2023 and 2022.
Revenue Recognition
The Company recognizes revenue when its customers obtain control of promised goods or services, in an amount that reflects the consideration which the Company expects to be entitled in exchange for those goods or services.
To determine revenue recognition for arrangements that are within the scope of Accounting Standard Codification (“ASC”) Topic 606, Revenue Recognition, the Company performs the following five steps:
In order for an arrangement to be considered a contract, it must be probable that the Company will collect the consideration to which it is entitled for goods or services to be transferred. Once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised with each contract, determines whether those are performance obligations and the related transaction price. The Company then recognizes the sale of goods based on the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied.
10
The Company’s revenue consists primarily of the sale of the RECELL System to hospitals or other treatment centers and to BARDA (collectively, “customers”), predominately in the United States. The Company evaluated the BARDA contract and concluded that a portion of the arrangement, such as the procurement of the RECELL system and the emergency preparedness, represents a transaction with a customer and as such are in the scope of ASC 606. Amounts received from BARDA for the research and development of the Company’s product are classified as BARDA income in the Consolidated Statements of Operations and are accounted for under IAS 20 by analogy. For further details refer to BARDA Income and Receivables below.
Revenues for commercial customers (hospitals, treatment centers and COSMOTEC) are recognized as control of the product is transferred to customers, at an amount that reflects the consideration expected to be received in exchange for the product. Revenues are recognized net of volume discounts. As such, revenue is recognized only to the extent a significant reversal of revenues is not expected to occur in subsequent periods. For the Company’s contracts that have an original duration of one year or less, the Company elected the practical expedient applicable to such contracts and does not consider the time value of money. Further, because of the short duration of these contracts, the Company has not disclosed the transaction price for the remaining performance obligations as of each reporting period or when the Company expects to recognize this revenue. The Company has further applied the practical expedient to exclude sales tax in the transaction price and expense contract fulfillment costs such as commissions and shipping and handling expenses as incurred.
The total transaction price for the portion of the BARDA contract that is within the scope of ASC 606, was determined to be $
The Company’s performance obligations are either satisfied at a point in time or over time as services are provided. The product procurement performance obligation is satisfied at a point in time, upon transfer of control of the product. As such, the related revenue for these performance obligations is recognized at a point in time as revenue within the Company’s Consolidated Statement of Operations. In addition to guidance under ASC 606, the Company recognizes revenue from the sales of RECELL product to BARDA for placement into vaccine stockpiles in accordance with SEC Interpretation, Commission Guidance regarding Accounting for Sale of Vaccines and BioTerror Countermeasures to the Federal Government for Placement into the Pediatric Vaccine Stockpile or the Strategic National Stockpile (SNS). Under this guidance, revenue is recognized when product is placed in the BARDA vendor-managed inventory as control of the product has been transferred to the customer at the time of delivery to the VMI. RECELL units that have been delivered to BARDA have a product replacement obligation at
11
Contract Liabilities
The Company receives payments from customers based on contractual terms. Trade receivables are recorded when the right to consideration becomes unconditional. The Company satisfies its performance obligation on product sales when the products are shipped or delivered, depending on the terms of the sale. Payment terms on invoiced amounts are typically -
Cost of Sales
Cost of sales related to products includes costs to manufacture or purchase, package, and ship the Company’s products. Costs also include relevant production overhead and depreciation and amortization. These costs are recognized when control of the product is transferred to the customer and revenue is recognized.
Income Taxes
Income taxes are accounted for using the liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income or loss in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that a portion of the deferred tax asset will not be realized. We recognize interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying Consolidated Statement of Operations. Accrued interest and penalties are included on the related tax liability line in the Consolidated Balance Sheets.
The Company reviews its uncertain tax positions regularly. An uncertain tax position represents the Company’s expected treatment of a tax position taken in a filed return or planned to be taken in a future tax return or claim that has not been reflected in measuring income tax expense for financial reporting purposes. The Company recognizes the tax benefit from an uncertain tax position when it is more-likely-than-not that the position will be sustained upon examination on the basis of the technical merits or the statute of limitations for the relevant taxing authority to examine and challenge the tax position has expired.
Cash and Cash Equivalents
Cash and Cash Equivalents consists of cash held at deposit institutions and cash equivalents. Cash equivalents consist of short-term highly liquid investments with original maturities of three months or less from the date of purchase and consist primarily of money market funds. The Company holds cash at deposit institutions in the amount of $
Silicon Valley Bank Failure
On March 10, 2023, Silicon Valley Bank failed and was taken into receivership by the Federal Deposit Insurance Corporation ("FDIC"). The Company's cash deposits were in excess of federally insured limits with Silicon Valley Bank as of March 10, 2023. However, on March 12, 2023, the federal government announced they will back all customer deposits at Silicon Valley Bank. The Company did not encounter any loss of cash or assets as a result of the bank failure. Subsequent to the bank failure, the Company established a commercial banking relationship with Bank of America. Cash equivalents and marketable securities were held by US Bank and were not impacted by the collapse of Silicon Valley Bank.
Concentrations
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, marketable securities, trade receivables, BARDA receivables and other receivables. As of March 31, 2023 and December 31, 2022, substantially all of the Company’s cash was deposited in accounts at financial institutions, and amounts may exceed federally insured limits and subject to the risk of bank failure.
12
As of March 31, 2023
|
|
As of |
|
|||||
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
BARDA procurement and emergency preparedness services |
|
$ |
|
|
$ |
|
||
BARDA expense reimbursements |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
Marketable Securities
All marketable securities, which consist of corporate debt securities, U.S government agency obligations, U.S treasury and commercial paper are denominated in U.S. dollars, have been classified as “available for sale”, and are carried at fair value. Unrealized gains and losses, net of any related tax effects, are excluded from earnings and are included in other comprehensive income (loss) and reported as a separate component of stockholders equity until realized. Realized gains and losses on marketable securities are included in Other income in the accompanying Consolidated Statements of Operations. The cost of any marketable securities sold is based on the specific identification method. The amortized cost of marketable securities is adjusted for amortization of premiums and accretion of discounts to maturity. Interest on marketable securities is included in other income. In accordance with the Company’s investment policy, management invests to diversify credit risk and only invests in securities with high credit quality, including U.S. government securities, and the maximum final maturity from the date of purchase is
If necessary, the Company will recognize an allowance for credit losses on available-for-sale debt securities on an individual basis, and will no longer consider other than-temporary impairment or immediately reduce the cost basis of the investment provided that it is more likely than not that the security will be held to recovery or maturity. Further, the Company will recognize any improvements in estimated credit losses on available-for-sale debt securities immediately in earnings and reduce the existing allowance for credit losses. The Company will disaggregate its available-for-sale debt securities into the following categories: commercial paper, corporate debt, government and agency securities, asset backed securities and money market funds. The Company’s corporate bonds are comprised of predominantly high-grade corporate bonds while its government and agency securities are U.S. treasury bonds, and U.S. agency bonds. The Company has analyzed both corporate bonds and government and agency securities and identified that both types of securities have similar risk characteristics in that they are traded infrequently and have contractual interest rates and maturity dates.
To evaluate for impairment, management reviews credit rating changes, securities trends, interest rate movements and unrealized loss at the security level of the Company’s available for sale debt securities. If any of these give rise to a potential credit concern, the Company performs a discounted cash flow analysis to determine the credit portion of the impairment. The discounted cash flow analysis will be performed either internally or through the assistance of a qualified third party. Once the credit component of the impairment is determined, the Company will record the impaired amount as an allowance to the available-for-sale debt securities balance and as a charge to Other income in the accompanying Consolidated Statements of Operations, not to exceed the amount of the unrealized loss. The Company assesses expected credit losses at the end of each reporting period and adjusts the allowance through other income.
13
BARDA Income and Receivables
The Company was awarded the Biomedical Advance Research and Development Authority ("BARDA") grant in September 2015. Under this grant BARDA supports the Company’s research and development for the Company’s product, including the ongoing U.S. clinical regulatory program targeted towards FDA PMA, our compassionate use program, clinical and health economics research, and U.S. pediatric burn programs. Currently, the BARDA contract is supporting the Company's clinical trial in soft-tissue reconstruction.
Consideration received under the BARDA grant is earned and recognized under a cost-plus-fixed-fee arrangement in which the Company is reimbursed for direct costs incurred plus allowable indirect costs and a fixed-fee earned. Billings under the contracts are based on approved provisional indirect billing rates, which permit recovery of fringe benefits, general and administrative expenses and a fixed fee.
The Company has concluded that grants under the BARDA grant are not within the scope of ASC 606, as they do not meet the definition of a contract with a “customer.” The Company has further concluded that Subtopic 958-605, Not-for-Profit-Entities-Revenue Recognition also does not apply, as the Company is a business entity and the grants are with governmental agencies or units. With respect to the BARDA grant, we considered the guidance in IAS 20, Accounting for Government Grants and Disclosure of Government Assistance, by analogy. BARDA income and related receivables are recognized when there is reasonable assurance that the grant will be received, and all attaching conditions have been complied with. When the grant relates to an expense item, the grant received is recognized as income over the period when the expense was incurred.
Leases
The Company has operating leases for corporate office space, manufacturing and a warehouse facility. The Company’s operating leases have remaining lease terms of
Right-of-use (“ROU”) assets represent the Company’s right to control an underlying asset for the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the Company’s leases do not provide an explicit rate, the Company used its incremental borrowing rate (“IBR”) based on the information available at the commencement date in determining the discount rate used to present value lease payments. In determining the IBR, the Company considered its credit rating and current market interest rates. The IBR used approximates the interest that the Company would be required to pay for a collateralized loan over a similar term. The Company’s leases typically do not include any residual value guarantees or asset retirement obligations.
The Company’s lease terms are only for periods in which it has enforceable rights. A lease is no longer enforceable when both the lessee and the lessor each have the right to terminate the lease without permission from the other party with no more than an insignificant penalty. The Company has options to renew some of these leases for
The Company has lease agreements with lease and non-lease components, which are accounted for as a single lease component for all underlying asset classes. Some leases require variable payments for common area maintenance, property taxes, parking, insurance and other variable costs. The variable portion of lease payments is not included in operating lease assets or liabilities. Variable lease costs are expensed when incurred.
Stock-Based Compensation
The Company records compensation expense for stock options based on the fair market value of the awards on the date of grant. The fair value of stock-based compensation awards is amortized over the vesting period of the award. Compensation expense for performance-based awards is evaluated based on the number of shares ultimately expected to vest, estimated at each grant date based on management’s expectations regarding the relevant performance criteria, if any. The Black-Scholes option pricing model and Monte Carlo Simulation were used to estimate the fair value of the time-based and performance-based options, respectively. Under ASU 2016-09, Compensation – Stock Compensation (“ASC 718”) Improvements to Employee Share-Based Payment Accounting, the Company elected to account for forfeitures as they occur.
14
The following assumptions were used in the valuation of stock options.
Segment Reporting
Non-Qualified Deferred Compensation Plan Liability and Corporate-Owned Life Insurance Asset
Rabbi Trust
During April 2022, we established a rabbi trust for a select group of participants in which share awards granted under the 2020 Omnibus Incentive Plan (“2020 Plan”) and deferred under the NQDC plan may be deposited. In addition to the deferral of shares, the rabbi trust holds the assets in the COLI for the NQDC plan. The rabbi trust is an irrevocable trust and no portion of the trust fund may be used for any purpose other than the delivery of those assets to the participants. The assets held in the rabbi trust are subject to the claims of our general creditors in the event of bankruptcy or insolvency. The value of the assets of the rabbi trust is consolidated into our financial statements.
The NQDC plan permits diversification of vested shares (common stock) into other equity securities subject to a six-month and one day holding period subsequent to vesting. Per ASC 710-10-25-15, accounting for deferred common stock will be under plan
15
type C or D. Accounting will depend on whether or not the employee has diversified the common stock. Under Plan type C, diversification is permitted but the employee has not diversified. Under Plan type D, diversification is permitted and the employee has diversified.
For common stock that have not been diversified, the employer stock held in the rabbi trust is classified in a manner similar to treasury stock and presented separately on the Consolidated Balance Sheets as Company common stock held by the non-qualified deferred compensation plan. Common stock will be recorded at fair value of the stock at the time it vested, subsequent changes in the value of the common stock will not be recognized. The deferred compensation obligation is measured independently at fair value of the common stock with a corresponding charge or credit to compensation cost. The fair value is calculated as the product of the common stock and the closing price of the stock each reporting period.
Under plan type D, the accounting for the assets held by the rabbi trust are subject to the accounting pronouncements under applicable U.S. GAAP for each asset type. As diversified common stock will be invested in mutual funds, assets held by the rabbi trust will be subject to accounting in ASC 321 - Investments - Equity Securities. The deferred compensation obligation is measured independently at fair value of the underlying assets. As of March 31, 2023, none of the deferred common stock has been diversified.
Non-Qualified Deferred Compensation Stock Awards
In accordance with ASC 718, Compensation — Stock Compensation, the deferred RSU awards under the NQDC plan are classified as an equity instrument and changes in fair value of the amount owed to the participant are not recognized. As the plan permits diversification, presentation outside of permanent equity in accordance with ASR 268, Redeemable Preferred Stock is appropriate. The redemption amounts are based on the vested percentage and are recorded outside of equity as Non-qualified deferred compensation share awards on the Consolidated Balance Sheets. Deferred awards will be presented outside of permanent equity until the awards are vested. For further details refer to Note 18.
3. Accounting Standards Update
Recent Accounting Pronouncements Not Yet Adopted
All newly issued but not yet effective accounting pronouncements have been deemed to be not applicable or immaterial to the Company.
4. Marketable Securities
The following table summarizes the amortized cost and estimated fair values of debt securities available for sale:
|
|
As of March 31, 2023 |
|
|||||||||||||
|
|
Amortized |
|
|
Gross |
|
|
Gross |
|
|
Carrying |
|
||||
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
$ |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
||
Current marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. Treasury securities |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Commercial paper |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
||
Corporate debt securities |
|
|
|
|
|
- |
|
|
|
( |
) |
|
|
|
||
U.S. Government agency obligations |
|
|
|
|
|
|
|
|
- |
|
|
|
|
|||
Total current marketable securities |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Long-term marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Asset backed securities |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
U.S. Treasury securities |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
||
Total long-term marketable securities |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
16
|
|
As of December 31, 2022 |
|
|||||||||||||
|
|
Amortized |
|
|
Gross |
|
|
Gross |
|
|
Carrying |
|
||||
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
$ |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
||
Current marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. Treasury securities |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Commercial paper |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
||
Corporate debt securities |
|
|
|
|
|
- |
|
|
|
( |
) |
|
|
|
||
U.S. Government agency obligations |
|
|
|
|
|
- |
|
|
|
( |
) |
|
|
|
||
Total current marketable securities |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Long-term marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Asset backed securities |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
U.S. Treasury securities |
|
|
|
|
|
- |
|
|
|
( |
) |
|
|
|
||
U.S Government agency obligations |
|
|
|
|
|
- |
|
|
|
( |
) |
|
|
|
||
Total long-term marketable securities |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
The maturities of debt securities available for sale are summarized in the following table using contractual maturities. Actual maturities may differ from contractual maturities due to obligations that are called or prepaid.
|
|
As of March 31, 2023 |
|
|
As of December 31, 2022 |
|
||||||||||
(in thousands) |
|
Amortized |
|
|
Carrying |
|
|
Amortized |
|
|
Carrying |
|
||||
Due in one year or less |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Due after one year through three years |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Gross unrealized gains and losses on the Company’s marketable securities were an unrealized gain of $
5. Fair Value Measurements
The authoritative guidance on fair value measurements establishes a framework with respect to measuring assets and liabilities at fair value on a recurring basis and non-recurring basis. Under the framework, fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, as of the measurement date. The framework also establishes a three-tier hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability and are developed based on the best information available in the circumstances. The hierarchy consists of the following three levels:
Level 1: Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the measurement date.
Level 2: Inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3: Inputs are unobservable inputs for the asset or liability.
17
The following tables present information about the Company’s financial assets measured at fair value on a recurring basis, based on the three-tier fair value hierarchy:
|
|
As of March 31, 2023 |
|
|||||||||||||
(in thousands) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
$ |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
||
Current marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. Treasury securities |
|
$ |
- |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
||
Commercial paper |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Corporate debt securities |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
U.S. Government agency obligations |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Total current marketable securities |
|
$ |
- |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
||
Long-term marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Asset backed securities |
|
$ |
- |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
||
U.S. Treasury securities |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Total long-term marketable securities |
|
$ |
- |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
||
Total marketable securities and cash equivalents |
|
$ |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
|||
|
|
As of December 31, 2022 |
|
|||||||||||||
(in thousands) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
$ |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
||
Current marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. Treasury securities |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Commercial paper |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Corporate debt securities |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
U.S. Government agency obligations |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Total current marketable securities |
|
$ |
- |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
||
Long-term marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Asset backed securities |
|
$ |
- |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
||
U.S. Treasury securities |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
U.S. Government agency obligations |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Total long-term marketable securities |
|
$ |
- |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
||
Total marketable securities and cash equivalents |
|
$ |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
|||
The Company’s Level 1 assets include money market instruments and are valued based upon observable market prices. Level 2 assets consist of commercial paper, U.S Government agency obligations, corporate debt securities, asset backed securities and U.S Treasury securities. Level 2 securities are valued based upon observable inputs that include reported trades, broker/dealer quotes, bids and offers. As of March 31, 2023 and December 31, 2022, the Company had no investments that were measured using unobservable (Level 3) inputs. There were no transfers between fair value measurement levels as of March 31, 2023 or December 31, 2022.
6. Revenues
Revenues
The Company’s revenue consists of sale of the RECELL System to hospitals, treatment centers and COSMOTEC (“commercial customers”) and to BARDA (collectively “customers”), predominately in the United States. In addition, the Company records service revenue for the emergency preparedness services provided to BARDA.
Performance Obligations
For commercial contracts, we identified the hospital or treatment center as the customer in Step 1 of the 5-step model of ASC 606 and have determined a contract exists with those customers. As these contracts typically have a single performance obligation (i.e. product delivery), no allocation of the transaction price is required in Step 4 of the model. Control of the product is transferred to the
18
customer at a point in time, at the point in time at which the goods are either shipped or delivered to our customers’ facilities, depending on the terms of the contract. The transaction price is stated within the contract and is therefore fixed consideration. The transaction price does not include the sales tax that is imposed by governmental authorities.
Remaining Performance Obligations
Revenues from remaining performance obligations are calculated as the dollar value of the remaining performance obligations on executed contracts. The estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) pursuant to the Company’s existing customer agreements is $
Variable Consideration
The Company evaluates its contracts with customers for forms of variable consideration, which may require an adjustment to the transaction price based on their estimated impact. For commercial customers, revenue from the sale of goods is recognized net of volume discounts. The Company uses the expected value method when estimating variable consideration. Revenue is only recognized to the extent that it is probable that a significant reversal will not occur. Variable consideration under the BARDA contract is not material to the consolidated financial statements.
Contract Assets and Contract Liabilities
Contract assets include amounts related to the Company’s contractual right to consideration for both completed and partially completed performance for which the Company does not have the right to payment. As of the period ended March 31, 2023 and December 31, 2022, the Company does
Contract liabilities are recorded when the Company receives payment prior to satisfying its obligation to transfer goods to a customer. The Company had $
The balance relates to the unsatisfied performance obligation for emergency preparedness under the BARDA contract and COSMOTEC. The performance obligation will be satisfied, and revenue will be recognized over time over the term of the contract. For the three-months ended March 31, 2023 and 2022, the Company recognized $
19
Cost to Obtain and Fulfill a Contract
Commercial contract fulfillment costs include commissions and shipping expenses. The Company has opted to immediately expense the incremental cost of obtaining a contract when the underlying related asset would have been amortized over one year or less. The Company generally does not incur costs to obtain new contracts.
BARDA Contract Costs
Cost to fulfill the BARDA emergency preparedness performance obligation, which primarily consist of billed costs to BARDA incurred in connection with the emergency deployment services, are incremental and expected to be recovered. Costs are capitalized and amortized on a straight-line basis over the term of the contract. As of March 31, 2023, and December 31, 2022, the Company had $
Disaggregated Revenue
The Company disaggregates revenue from contracts with customers into geographical regions and by customer type. As noted in the segment footnote, the Company’s business consists of one reporting segment. A reconciliation of disaggregated revenue by geographical region and customer type is provided in Segment Note 12.
7. Leases
During February 2023, the Company remeasured the lease liability for an office lease due to a change in the lease term. As a result of the remeasurement of the lease liability, there was an increase of approximately $
The following table sets forth the Company’s operating lease expenses which are included in General and administrative expenses in the Consolidated Statements of Operations (in thousands):
|
|
Three-Months Ended |
|
|||||
|
|
March 31, 2023 |
|
|
March 31, 2022 |
|
||
Operating lease cost |
|
$ |
|
|
$ |
|
||
Variable lease cost |
|
|
|
|
|
|
||
Total lease cost |
|
$ |
|
|
$ |
|
||
Supplemental cash flow information related to operating leases for the three-months ended March 31, 2023 and 2022 was as follows (in thousands):
|
|
Three-Months Ended |
|
|||||
|
|
March 31, 2023 |
|
|
March 31, 2022 |
|
||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
||
Operating cash outflows from operating leases |
|
$ |
|
|
$ |
|
||
20
Supplemental balance sheet information, as of March 31, 2023 and December 31, 2022 related to operating leases was as follows (in thousands, except for Operating lease weighted average remaining lease term and operating lease weighted average discount rate):
|
|
As of |
|
|||||
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Reported as: |
|
|
|
|
|
|
||
Operating lease right-of-use assets |
|
$ |
|
|
$ |
|
||
Total right-of-use assets |
|
$ |
|
|
$ |
|
||
: |
|
|
|
|
|
|
||
Operating lease liabilities, short-term |
|
$ |
|
|
$ |
|
||
Operating lease liabilities, long term |
|
|
|
|
|
|
||
Total operating lease liabilities |
|
$ |
|
|
$ |
|
||
Operating lease weighted average remaining lease term (years) |
|
|
|
|
|
|
||
Operating lease weighted average discount rate |
|
|
% |
|
|
% |
||
As of March 31, 2023, maturities of the Company’s operating lease liabilities are as follows (in thousands):
|
|
|
|
Operating Leases |
|
|
Remainder of 2023 |
|
|
|
$ |
|
|
2024 |
|
|
|
|
|
|
2025 |
|
|
|
|
|
|
2026 |
|
|
|
|
|
|
Total lease payments |
|
|
|
|
|
|
Less imputed interest |
|
|
|
|
( |
) |
Total operating lease liabilities |
|
|
|
$ |
|
|
8. Inventory
The composition of inventory is as follows (in thousands):
|
|
As of |
|
|||||
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Raw materials |
|
$ |
|
|
$ |
|
||
Work in process |
|
|
|
|
|
|
||
Finished goods |
|
|
|
|
|
|
||
Total inventory |
|
$ |
|
|
$ |
|
||
The Company has reduced the carrying value of its inventories to reflect the lower of cost or net realizable value. Charges for estimated excess and obsolescence are recorded in Cost of sales in the Consolidated Statements of Operations and were $
21
9. Intangible Assets
The composition of intangible assets, net is as follows (in thousands):
|
|
|
|
|
As of March 31, 2023 |
|
|
As of December 31, 2022 |
|
|
|||||||||||||||||||
|
|
Weighted |
|
|
Gross |
|
|
Accumulated |
|
|
Net |
|
|
Gross |
|
|
Accumulated |
|
|
Net |
|
|
|||||||
Patent 1 |
|
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
|||||
Patent 2 |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|||||
Patent 3 |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|||||
Patent 5 |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|||||
Patent 6 |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|||||
Patent 7 |
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|||||
Patent 8 |
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|||||
Patent 10 |
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|||||
Patent 11 |
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|||||
Trademarks |
|
Indefinite |
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|||||
Total intangible assets |
|
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
|||||
During the three-months ended March 31, 2023 and 2022, the Company did not identify any events or changes in circumstances that indicated that the carrying value of its intangibles may not be recoverable. As such, there was
The Company expects the future amortization of amortizable intangible assets held at March 31, 2023 to be as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Estimated |
|
||
Remainder of 2023 |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thereafter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
22
10. Plant and Equipment
The composition of property, plant and equipment, net is as follows (in thousands):
|
|
|
|
As of |
|
|||||
|
|
Useful Lives |
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Computer equipment |
|
|
$ |
|
|
$ |
|
|||
Computer software |
|
|
|
|
|
|
|
|||
Construction in progress |
|
|
|
|
|
|
|
|
||
Furniture and fixtures |
|
|
|
|
|
|
|
|||
Laboratory equipment |
|
|
|
|
|
|
|
|||
Leasehold improvements |
|
|
|
|
|
|
|
|||
RECELL Moulds |
|
|
|
|
|
|
|
|||
Less: accumulated amortization and depreciation |
|
|
|
|
( |
) |
|
|
( |
) |
Total plant and equipment, net |
|
|
|
$ |
|
|
$ |
|
||
Depreciation expense related to plant and equipment for the three-months ended March 31, 2023 and 2022 was $
11. Other Current and Long-Term Assets and Liabilities
Prepaids and other current assets consisted of the following (in thousands):
|
|
As of |
|
|||||
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Prepaid expenses |
|
$ |
|
|
$ |
|
||
Lease deposits |
|
|
|
|
|
|
||
Accrued investment income |
|
|
|
|
|
|
||
BARDA contract costs |
|
|
|
|
|
|
||
Other receivables |
|
|
|
|
|
|
||
Total prepaids and other current assets |
|
$ |
|
|
$ |
|
||
Prepaid expenses primarily consist of prepaid benefits and insurance.
Other long-term assets consisted of the following (in thousands):
|
|
As of |
|
|||||
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Long-term lease deposits |
|
$ |
|
|
$ |
|
||
Long-term prepaids |
|
|
|
|
|
|
||
Total other long-term assets |
|
$ |
|
|
$ |
|
||
Other current liabilities consisted of the following (in thousands):
|
|
As of |
|
|||||
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Operating lease liability |
|
$ |
|
|
$ |
|
||
BARDA deferred costs |
|
|
|
|
|
|
||
BARDA deferred revenue |
|
|
|
|
|
- |
|
|
Other current liabilities |
|
|
|
|
|
|
||
Total other current liabilities |
|
$ |
|
|
$ |
|
||
23
12. Reporting Segment and Geographic Information
The Company views its operations and manages its business in
Revenue by region for the three-months ended March 31, 2023, and 2022 were as follows (in thousands):
|
|
Three-Months Ended |
|
|||||
|
|
March 31, 2023 |
|
|
March 31, 2022 |
|
||
Revenue: |
|
|
|
|
|
|
||
United States |
|
$ |
|
|
$ |
|
||
Foreign: |
|
|
|
|
|
|
||
Japan |
|
|
|
|
|
- |
|
|
Australia |
|
|
|
|
|
|
||
United Kingdom |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
Revenue and cost of sales by customer type for the three-months ended March 31, 2023, and 2022 were as follows (in thousands):
|
|
Three-Months Ended |
|
|||||
|
|
March 31, 2023 |
|
|
March 31, 2022 |
|
||
Revenue: |
|
|
|
|
|
|
||
Commercial sales |
|
$ |
|
|
$ |
|
||
BARDA: |
|
|
|
|
|
|
||
Services for emergency preparedness |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
|
|
Three-Months Ended |
|
|||||
|
|
March 31, 2023 |
|
|
March 31, 2022 |
|
||
Cost of sales |
|
|
|
|
|
|
||
Commercial cost |
|
$ |
|
|
$ |
|
||
BARDA: |
|
|
|
|
|
|
||
Product cost |
|
|
( |
) |
|
|
( |
) |
Emergency preparedness service cost |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
13. Contingencies
The Company is subject to certain contingencies arising in the ordinary course of business. The Company records accruals for these contingencies to the extent that a loss is both probable and reasonably estimable. If some amount within a range of loss appears to be a better estimate than any other amount within the range, that amount is accrued. Alternatively, when no amount within a range of loss appears to be a better estimate than any other amount, the lowest amount in the range is accrued. The Company expenses legal costs associated with loss contingencies as incurred. As of March 31, 2023 and December 31, 2022, the Company did
24
14. Common and Preferred Stock
The Company’s CHESS Depositary Interests (“CDIs”) are quoted on the ASX under the ticker code, “AVH”. The Company’s shares of common stock are quoted on the Nasdaq Capital Market (“Nasdaq”) under the ticker code, “RCEL”.
The Company is authorized to issue
15. Stock-Based Payment Plans
Overview of Employee Stock-Based Compensation Plans
Our former parent company, AVITA Medical Pty Limited, adopted the Employee Share Plan and the Incentive Option Plan (collectively, the “2016 Plans”). Upon completion of the redomiciliation of AVITA Medical from Australia to the United States (“Redomiciliation”), the 2016 Plans were terminated with respect to future grants and accordingly, there are no more shares available to be issued under the 2016 Plans. In addition, upon completion of the Redomiciliation, the Company had an implicit consolidation or
The 2020 Plan provides for the grant of the following Grants: (a) Incentive Stock Options, (b) Nonstatutory Stock Options, (c) Stock Appreciation Rights, (d) Restricted Stock Grants, (e) Restricted Stock Unit Grants, (f) Performance Grants, and (g) Other Grants. The 2020 Plan will be administered by the Compensation Committee or by the Board acting as the Compensation Committee. Subject to the general purposes, terms and conditions of the 2020 Plan, applicable law and any charter adopted by the Board governing the actions of the Compensation Committee, the Compensation Committee will have full power to implement and carry out the 2020 Plan. Without limitation, the Compensation Committee will have the authority to interpret the plan, approve persons to receive grants, determine the terms and number of shares of the grants, determine vesting and exercisability of grants, and make all other determinations necessary or advisable in connection with the administration of this Plan.
The contractual term of stock option awards granted under the 2020 Plan is
Stock-Based Payment Expenses
Stock-based payment transactions are recognized as compensation expense based on the fair value of the instrument on the date of grant. The Company uses the graded-vesting method to recognize compensation expense. Compensation cost is reduced for forfeitures as they occur in accordance with ASU 2016-09, simplifying the Accounting for Share-Based Payment ("ASU 2016-09"). During the three-months ended March 31, 2023, and 2022, the Company recorded stock-based compensation expense of $
25
The Company has included stock-based compensation expense as part of operating expenses in the accompanying Consolidated Statements of Operations as follows:
|
|
Three-Months Ended |
|
|||||
(In thousands) |
|
March 31, 2023 |
|
|
March 31, 2022 |
|
||
Sales and marketing expenses |
|
$ |
|
|
$ |
|
||
General and administrative expenses |
|
|
|
|
|
|
||
Research and development expenses |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
A summary of share option activity as of March 31, 2023, and changes during the period ended is presented below:
|
Service Only Share Options |
|
|
Performance Based Share Options |
|
|
Total Share Options |
|
|||
Outstanding shares at December 31, 2022 |
|
|
|
|
|
|
|
|
|||
Granted |
|
|
|
|
- |
|
|
|
|
||
Exercised |
|
( |
) |
|
|
- |
|
|
|
( |
) |
Expired |
|
( |
) |
|
|
- |
|
|
|
( |
) |
Forfeited |
|
( |
) |
|
|
- |
|
|
|
( |
) |
Outstanding shares at March 31, 2023 |
|
|
|
|
|
|
|
|
|||
Exercisable at March 31, 2023 |
|
|
|
|
|
|
|
|
|||
Restricted Stock Units
Restricted stock units (“RSUs”) are granted to executives as part of their long-term incentive compensation. RSUs granted as a result of stockholder approval at the December 22, 2021 Annual Meeting of Stockholders and December 14, 2022 Annual Meeting of Stockholders arise out of contracts between the Company and the holders of such securities. These RSU awards were approved by the Compensation Committee. All RSU awards vest in accordance with the tenure or performance conditions as determined by the Compensation Committee and set out in the contracts between the Company and the holders of such securities. The grant date fair value is determined based on the price of the Company stock price on the date of grant (stock price determined on Nasdaq).
A summary of the status of the Company’s unvested RSUs as of March 31, 2023, and changes that occurred during the year is presented below:
Unvested Shares |
Tenure-Based RSUs |
|
|
Performance |
|
|
Total RSUs |
|
|||
Unvested RSUs outstanding at December 31, 2022 |
|
|
|
|
|
|
|
|
|||
Granted |
|
- |
|
|
|
- |
|
|
|
- |
|
Vested |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Forfeited |
|
( |
) |
|
|
- |
|
|
|
( |
) |
Unvested RSUs outstanding at March 31, 2023 |
|
|
|
|
|
|
|
|
|||
2021 Annual Meeting Awards
Awards to the Board of Directors under the 2021 Annual Meeting Awards
The Board of Director awards that were granted in 2021 consist of an aggregate
26
2022 Annual Meeting Awards
Awards to the CEO under the 2022 Annual Meeting Awards
On December 12, 2022, the CEO was issued an aggregate
Awards to the Board of Directors under the 2022 Annual Meeting Awards
The Board of Director awards consist of an aggregate
16. Income Taxes
At December 31, 2022, the Company and its subsidiaries had net operating loss carryforwards for federal, state, United Kingdom, and Australian income tax purposes of $
In assessing the recoverability of its deferred tax assets, the Company considers whether it is more likely than not that its deferred assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in those periods in which temporary differences become deductible and/or net operating losses can be utilized. The Company considers all positive and negative evidence when determining the amount of the net deferred tax assets that are more likely than not to be realized. This evidence includes, but is not limited to, historical earnings, scheduled reversal of taxable temporary differences, tax planning strategies and projected future taxable income. Based upon the weight of available evidence including the uncertainty regarding the Company’s ability to utilize certain net operating losses and tax credits in the future, the Company has established a valuation allowance against its net deferred tax assets of $
The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements related to a particular tax position are measured based on the largest benefit that has a greater than
The Company has
The Company files income tax returns in the U.S. federal, California and certain other state and foreign jurisdictions. The Company remains subject to income tax examinations for its U.S. federal and state income taxes generally for fiscal years ended June 30, 2006 and forward. The Company also remains subject to income tax examinations for international income taxes for fiscal years ended June 30, 2018 through December 31, 2021, and for certain other U.S. state and local income taxes generally for the fiscal years ended June 30, 2018 through December 31, 2021.
27
17. Net Loss per Share
The following is a reconciliation of the basic and diluted loss per share computations:
|
|
Three-Months Ended |
|
|||||
|
|
March 31, 2023 |
|
|
March 31, 2022 |
|
||
|
|
(in thousands, except per share amounts) |
|
|||||
Net Loss |
|
$ |
( |
) |
|
$ |
( |
) |
Weighted-average common shares—outstanding, basic |
|
|
|
|
|
|
||
Weighted-average common shares—outstanding, diluted |
|
|
|
|
|
|
||
Net loss per common share, basic |
|
$ |
( |
) |
|
$ |
( |
) |
Net loss per common share, diluted |
|
$ |
( |
) |
|
$ |
( |
) |
The Company’s basic net loss per share is calculated by dividing the net loss by the weighted-average number of shares of common stock outstanding for the relevant period. In accordance with ASC 710-10,
18. Retirement Plans
The Company offers a 401(k) retirement savings plan (the “401(k) Plan”) for its employees, including its executive officers, who satisfy certain eligibility requirements. The Internal Revenue Code of 1986, as amended, allows eligible employees to defer a portion of their compensation, within prescribed limits, on a pre-tax basis through contributions to the 401(k) Plan. The Company matches contributions to the 401(k) Plan based on the amount of salary deferral contributions the participant makes to the 401(k) Plan. The Company will match up to
Non-Qualified Deferred Compensation Plan
The Company’s NQDC plan, which became effective on October 2021, allows for eligible management and highly compensated key employees to elect to defer a portion of their salary, bonus and RSU awards to later years. Cash deferrals are immediately vested and are subject to investment risk and a risk of forfeiture under certain circumstances. RSU deferrals are subject to the vesting conditions of the award. Once RSUs vest, subject to a six-month and one day holding period, employees are allowed to diversify the common stock into other investment options offered by the plan. For cash deferrals, the Company matches
28
The fair values of the Company’s deferred compensation plan assets and liability are included in the table below. For additional information on the fair value hierarchy and the inputs used to measure fair value, see Note 5, Fair Value Measurements.
|
|
Fair Value as of March 31, 2023 |
|
Fair Value as of December 31, 2022 |
|
||||||||||||||||||||||||||
(in thousands) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||||||
Corporate-owned life insurance policies (1) |
|
$ |
- |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
$ |
- |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
||||
Non-qualified deferred compensation plan liability |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||||
Rabbi Trust
During April 2022, we established a rabbi trust to hold the assets of the NQDC plan. The rabbi trust holds the COLI asset and the common stock from deferred RSU awards that have vested. The NQDC permits diversification of fully vested shares into other equity securities subject to a six month and one day holding period. In accordance with ASR 268, Redeemable Preferred Stock, and ASC 718, Compensation — Stock Compensation, prior to vesting, the deferred share awards are classified as an equity instrument and changes in fair value of the amount owed to the participant are not recognized. The redemption amounts of the deferred awards are based on the vested percentage and are recorded outside of permanent equity as Non-qualified deferred compensation share awards on the Consolidated Balance Sheets. As of March 31, 2023, a total of
The following table summarizes the eligible share award activity as of March 31, 2023 and December 31, 2022 (in thousands):
|
|
As of |
|
|||||
(in thousands) |
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Non-qualified deferred compensation share awards: |
|
|
|
|
|
|
||
Balance at inception/beginning of period |
|
$ |
|
|
$ |
- |
|
|
Change in classification of deferred compensation share awards |
|
|
- |
|
|
|
|
|
Stock-based compensation expense |
|
|
|
|
|
|
||
Change in redemption value |
|
|
|
|
|
|
||
Vesting of share awards held by NDQC |
|
|
( |
) |
|
|
( |
) |
Ending Balance |
|
$ |
|
|
$ |
|
||
29
19. Subsequent Events
The Company has evaluated subsequent events through the filing of this Quarterly Report on Form 10-Q and determined that there have been no events that have occurred that would require adjustments to our disclosures in the consolidated financial statements, except as noted below.
At-the-Market Offering
On April 14, 2023, the Company entered into an Sales Agreement (the “Sales Agreement”) with Cowen and Company, LLC, under which the Company may offer and sell, from time to time, up to
New Office Lease
During May 2023, the Company executed new office space in Irvine, California. The lease is for a term of
30
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 in conjunction with our unaudited consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q.
Our actual results and timing of certain events may differ materially from the results discussed, projected, anticipated, or indicated in any forward-looking statements. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q. In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements contained in this Quarterly Report on Form 10-Q, they may not be predictive of results or developments in future periods.
The following information and any forward-looking statements should be considered in light of factors discussed elsewhere in this Quarterly Report on Form 10-Q, including those risks identified under Part II, Item 1A. Risk Factors.
We caution readers not to place undue reliance on any forward-looking statements made by us, which speak only as of the date they are made. We disclaim any obligation, except as specifically required by law and the rules of the SEC and the ASX, to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.
Overview
AVITA Medical, Inc. is a regenerative medicine company leading the development and commercialization of devices and autologous cellular therapies for skin restoration. Our patented and proprietary RECELL® System technology platform harnesses the regenerative properties of a patient’s own skin to create Spray-On Skin™ Cells, an autologous skin cell suspension that is sprayed onto the patient to regenerate natural healthy skin.
Our objective is to become the leading provider of regenerative medicine addressing unmet medical needs in burn injuries, trauma injuries, and in dermatological and aesthetics indications, such as vitiligo. To achieve this objective, we plan to:
31
Business Environment and Current Trends
The outbreak of the global pandemic and the associated response measures implemented by governments and businesses around the world, as well as subsequent accelerated and robust recovery in global business activity, have increased uncertainty in the business environment. These macroeconomic environment implications, including supply chain shortages, increased cost of healthcare, increased inflation rates, competitive and tight labor market, and other related global economic conditions and geopolitical conditions, remain unknown. Additionally, there have been various economic indicators that the United States economy may be entering a recession in upcoming quarters. If these conditions continue or worsen, they could adversely impact our future operating results. An economic recession could potentially impact the general business environment and the capital markets, which may have a material negative impact on our financial results.
Changes in reimbursement rates by third party payors, may place additional financial pressure on hospitals and the broader healthcare system. Healthcare institutions may take actions to mitigate any persistent pressures on their budgets and such actions could impact the future demand for our products. Geopolitical conditions may also impact our operations. Although we do not have operations in Russia or Ukraine, the continuation of the Russia-Ukraine military conflict and/or an escalation of the conflict beyond its current scope may further weaken the global economy and could result in additional inflationary pressures and supply chain constraints.
Corporate History
The Company began as a laboratory spin-off in the Australian State of Western Australia. The Company's former parent company, Clinical Cell Culture (“C3”), was formed under the laws of the Commonwealth of Australia in December 1992 and changed its name to AVITA Medical Ltd in 2008 ("AVITA Australia"). AVITA Australia’s ordinary shares originally began trading in Australia on the Australian Securities Exchange (“ASX”) on August 9, 1993. AVITA Australia's American Depositary Shares (“ADSs”) traded over the counter on the OTCQX under the ticker symbol “AVMXY” from May 14, 2012, through September 30, 2019, and its ADSs began trading on the Nasdaq Capital Market on October 1, 2019, under the ticker symbol “RCEL”.
On June 29, 2020, AVITA Australia implemented a statutory scheme of arrangement under Australian law to effect a redomiciliation of AVITA Medical from Australia to the United States (the “Redomiciliation”). The Redomiciliation was approved by stockholders on June 15, 2020 and approved by the Federal Court of Australia on June 22, 2020. Pursuant to the Redomiciliation, all ordinary shares in AVITA Australia were exchanged for shares of common stock in the Company (AVITA Medical, Inc.). As a result, the Company became the sole stockholder of AVITA Australia.
The Company’s CHESS Depositary Interests (“CDIs”) are quoted on the ASX under AVITA Australia’s former ASX ticker code, “AVH”. The Company’s shares of common stock are quoted on Nasdaq under AVITA Australia's former Nasdaq ticker code, “RCEL”. One share of common stock on Nasdaq is equivalent to five CDIs on the ASX.
On November 8, 2021, the Company changed its fiscal year-end from June 30th to December 31st. The decision to change the fiscal year-end to a calendar year end was to align our reporting cycle more closely with how we manage our business.
32
Results of Operations for the three-months ended March 31, 2023 compared to the three-months ended March 31, 2022.
The table below summarizes the results of our continuing operations for each of the periods presented (in thousands).
|
|
Three-Months Ended |
|
|
$ |
|
|
% |
|
|||||||
Statement of Operations Data: |
|
March 31, 2023 |
|
|
March 31, 2022 |
|
|
Change |
|
|
Change |
|
||||
Revenues |
|
$ |
10,550 |
|
|
$ |
7,539 |
|
|
|
3,011 |
|
|
|
40 |
% |
Cost of sales |
|
|
(1,667 |
) |
|
|
(1,778 |
) |
|
|
111 |
|
|
|
6 |
% |
Gross profit |
|
|
8,883 |
|
|
|
5,761 |
|
|
|
3,122 |
|
|
|
54 |
% |
BARDA income |
|
|
627 |
|
|
|
734 |
|
|
|
(107 |
) |
|
|
(15 |
)% |
Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Sales and marketing expenses |
|
|
(6,540 |
) |
|
|
(4,828 |
) |
|
|
(1,712 |
) |
|
|
(35 |
)% |
General and administrative expenses |
|
|
(8,295 |
) |
|
|
(7,534 |
) |
|
|
(761 |
) |
|
|
(10 |
)% |
Research and development expenses |
|
|
(4,586 |
) |
|
|
(3,620 |
) |
|
|
(966 |
) |
|
|
(27 |
)% |
Total operating expenses |
|
|
(19,421 |
) |
|
|
(15,982 |
) |
|
|
(3,439 |
) |
|
|
(22 |
)% |
Operating loss |
|
|
(9,911 |
) |
|
|
(9,487 |
) |
|
|
(424 |
) |
|
|
(4 |
)% |
Interest expense |
|
|
(4 |
) |
|
|
- |
|
|
|
(4 |
) |
|
|
(100 |
)% |
Other income |
|
|
725 |
|
|
|
28 |
|
|
|
697 |
|
|
|
2489 |
% |
Loss before income taxes |
|
|
(9,190 |
) |
|
|
(9,459 |
) |
|
|
269 |
|
|
|
3 |
% |
Provision for income tax |
|
|
(30 |
) |
|
|
(4 |
) |
|
|
(26 |
) |
|
|
(650 |
)% |
Net loss |
|
$ |
(9,220 |
) |
|
$ |
(9,463 |
) |
|
|
243 |
|
|
|
3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total net revenues increased by 40%, or $3.0 million, to $10.6 million, compared to $7.5 million in the corresponding period in the prior year. Our commercial revenue, which excludes BARDA revenue, was $10.5 million in the three-months ended March 31, 2023, an increase of $3.1 million, or 40%, compared to $7.4 million in the corresponding period in the prior year. The growth in commercial revenues was largely driven by deeper penetration within individual customer accounts along with the commencement of commercial sales with our partner COSMOTEC in Japan.
Gross profit margin increased by 8% to 84% compared to 76% in the corresponding period in the prior year. The increase in gross profit margin is largely driven by increased production and lower shipping costs.
BARDA income decreased by 15%, or $0.1 million, to $0.6 million, compared to $0.7 million for the corresponding period in the prior year. BARDA income consisted of funding from the Biomedical Advanced Research and Development Authority, under the Assistant Secretary for Preparedness and Response, within the U.S. Department of Health and Human Services, under ongoing USG Contract No. HHSO100201500028C. BARDA income decreased as reimbursed clinical trial expenditures decreased in the current period as soft tissue and pediatrics trial participants largely completed follow-up in 2022.
Total operating expenses increased by 22% or $3.4 million to $19.4 million, compared with $16.0 million in the corresponding period in the prior year.
Sales and marketing expenses increased by 35%, or $1.7 million, to $6.5 million, compared to $4.8 million incurred in the corresponding period in the prior year. Higher costs in the current year were primarily attributed to higher salaries and benefits and commissions. The increase in salaries and benefits were primarily a result for the preparation of the commercial launch of soft tissue in July 2023. Higher commissions were directly associated with the increase in revenues.
General and administrative expenses increased by 10%, or $0.8 million, to $8.3 million, compared to $7.5 million incurred in the same period in the prior year. The increase was attributable to deferred compensation expense, severance costs and higher professional fees, partially offset by lower stock-based compensation. Increased deferred compensation expense is driven by our deferred compensation liability which generally tracks the movements in the stock market. Severance costs in the current year were due to the termination of two former executive officers. Lower stock based compensation in the current year is due to the acceleration of expense for certain performance milestones being met in the prior year, partially offset by the current period acceleration related to the termination of the two former executive officers.
Research and development expenses increased by 27%, or $1.0 million, to $4.6 million, compared to $3.6 million incurred in the same period in the prior year. The increase was a result of ongoing development of the next generation RECELL GO for preparation of Spray-On Skin Cells and additional costs associated with the deployment of a team of Medical Science Liaisons ("MSLs"). Higher costs associated with RECELL GO are driven by the planned FDA submission in June 2023. The increase in costs for MSLs is in anticipation of our soft tissue launch in July 2023. The increase was partially offset by lower clinical trial expenses for
33
vitiligo, soft tissue and pediatrics as trial participants largely completed follow-up in 2022 reducing the associated expenditure in the current period.
Liquidity and Capital Resources
Overview
We expect to utilize cash reserves until U.S. sales of our products reach a level sufficient to fund ongoing operations. AVITA Medical has historically funded its research and development activities, and more recently its substantial investment in sales and marketing activities, through raising capital by issuing securities, and it is expected that similar funding will be obtained to provide working capital if and when required. As of March 31, 2023, the Company had approximately $28.1 million in cash and cash equivalents and $49.6 million in marketable securities and believes it has sufficient cash reserves to fund operations for the next 12-months. If the Company is unable to raise capital in the future, the Company may need to curtail expenditures by scaling back certain research and development or other programs.
Financing Activities
On March 1, 2021, the Company issued 3,214,250 shares of common stock at an offering price of $21.50 per share in a registered underwritten offering. The gross proceeds from the offering were approximately $69.1 million. AVITA Medical also benefits from cash inflows from the BARDA contract (discussed earlier in this Annual Report). We entered into the contract on September 29, 2015, and the scope has expanded through a number of amendments to the contract. The current contract period continues to December 31, 2023, with the option by BARDA to terminate earlier. The contract provided funding for the development of the RECELL System. The contract will continue to provide funding for future use of the product as a medical countermeasure to assist disaster preparedness and response in the U.S. for mass casualty events involving burn injuries.
Under the contract, BARDA has provided funding and technical support for the development of the RECELL System. BARDA funded the completion of two randomized, controlled pivotal clinical trials, as well as Compassionate Use and Continued Access programs, and development of the health economic model demonstrating the cost savings associated with the RECELL System. BARDA exercised a contract option to fund a randomized, controlled clinical trial for a pediatric early intervention study which commenced enrollment in March 2020, and closed to enrollment in June 2021, subsequent to FDA-approval of an expanded RECELL indication for use that includes treatment of pediatric patients. Currently, the BARDA contract is supporting the Company’s clinical trial in soft-tissue repair. Also included in the BARDA contract was a provision for procurement of the RECELL System under a vendor-managed inventory system to bolster emergency preparedness in the amount of $7.6 million. Further, BARDA expanded the awarded contract to provide supplemental funding of $1.6 million to support the logistics of emergency deployment of RECELL Systems for use in mass casualty or other emergency situations. We are contracted to manage this inventory of product until the federal government requests shipment or at contract termination on December 31, 2023.
On April 14, 2023, the Company entered into a Sales Agreement with Cowen and Company, LLC pursuant to which the Company may sell from time-to-time up to 3,799,164 shares of its common stock (the “2023 ATM Program”). The Company has not made any sales under the 2023 ATM Program, but anticipates that any proceeds from sales under the 2023 ATM Program will be used for general corporate purposes including our product development pipeline and to pursue approvals of our products for additional indications, which may include licensing arrangements.
Given the above, we believe there is presently sufficient working capital to support our committed research and development programs and other activities over the next twelve months and the Company believes it has the ability to realize its assets and pay its liabilities and commitments in the normal course of business.
The following table summarizes our cash flows for the periods presented (in thousands):
|
|
|
|
|
|
|
||
|
|
Three-Months Ended |
|
|||||
(In Thousands) |
|
March 31, 2023 |
|
|
March 31, 2022 |
|
||
Net cash used in operations |
|
$ |
(9,073 |
) |
|
$ |
(9,370 |
) |
Net cash provided/(used) in investing activities |
|
|
18,787 |
|
|
|
(22,601 |
) |
Net cash provided by financing activities |
|
|
171 |
|
|
|
1 |
|
Effect of foreign exchange rate on cash and cash equivalents and restricted cash |
|
|
1 |
|
|
|
(6 |
) |
Net increase/(decrease) in cash and cash equivalents and restricted cash |
|
|
9,886 |
|
|
|
(31,976 |
) |
Cash and cash equivalents and restricted cash at beginning of year |
|
|
18,164 |
|
|
|
55,712 |
|
Cash and cash equivalents and restricted cash at end of year |
|
|
28,050 |
|
|
|
23,736 |
|
34
Net cash used in operating activities was $9.1 million and $9.4 million during the three-months ended March 31, 2023, and 2022, respectively. The decrease in net cash used in operations was primarily resulted from a decrease in net loss compared to the prior year.
Net cash provided by investing activities was $18.8 million and net cash used in investing was $22.6 million during the three-months ended March 31, 2023 and 2022, respectively. The increase in cash provided by investing activities is primarily attributable to our maturities of marketable securities, whereas in the prior year we purchased marketable securities.
Net cash provided by financing activities was $0.2 million and $1 thousand during the three-months ended March 31, 2023, and 2022, respectively. The increase in cash provided by financing activities is related to proceeds from the exercises of stock options.
Capital Management and Material Cash Requirements
We aim to manage capital so that the Company continues as a going concern while also maintaining optimal returns to stockholders and benefits for other stakeholders. We also aim to maintain a capital structure that ensures the lowest cost of capital available to the Company. We regularly review the Company’s capital structure and seek to take advantage of available opportunities to improve outcomes for the Company and its stockholders.
For the three-months ended March 31, 2023, there were no dividends paid and we have no plans to commence the payment of dividends. We have no purchase commitments or long-term contractual obligations or purchase commitments, except for lease obligations as of March 31, 2023. Refer to Note 7 of our Consolidated Financial Statements for further details on our lease obligations. In addition, we have no off-balance sheet arrangements (as defined in the rules and regulations of the SEC) that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors. We have no committed plans to issue further shares on the market but will continue to assess market conditions and the Company’s cash flow requirements to ensure the Company is appropriately funded in order to pursue its various opportunities.
There is no significant external borrowing at the reporting date. Neither the Company nor any of the subsidiaries are subject to externally imposed capital requirement.
Critical Accounting Estimates
There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in the Company’s Annual Report on Form 10-K for the year-ended December 31, 2022.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, we are not required to provide the information required by this Item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and our Chief Financial Officer evaluated, with the participation of our management, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. As of March 31, 2023, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures, as defined in Securities Exchange Act Rule 13a-15(e) and 15d-15(e), were effective.
Our disclosure controls and procedures have been formulated to ensure (i) that information that we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 was recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) that the information required to be disclosed by us is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
35
Changes in Internal Controls over Financial Reporting
There was no change in our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the first quarter of fiscal year 2023 covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
36
Part II - Other Information
Item 1. LEGAL PROCEEDINGS
We are not currently a party to any pending legal proceedings that we believe will have a material adverse effect on our business or financial condition. We may, however, be subject to various claims and legal actions arising in the ordinary course of business from time to time.
Item 1A. RISK FACTORS
In addition to the risk factor set forth below and the other information set forth in this report, you should carefully consider the factors discussed under Part I, Item 1A, “Risk Factors” in the Company’s Annual Report on Form 10-K for the year-ended December 31, 2022 (the “2022 Annual Report”). These factors could materially adversely affect our business, financial condition, liquidity, results of operations and capital position, and could cause our actual results to differ materially from our historical results or the results contemplated by the forward-looking statements contained in this report. Except as disclosed below, there have been no material changes to the risk factors described in Part I, Item 1A, “Risk Factors,” included in our 2022 Annual Report.
The Company's cash, cash equivalents and marketable securities could be adversely affected by bank failures or other events affecting financial institutions and could adversely affect our liquidity and financial performance.
We regularly maintain domestic cash deposits in Federal Deposit Insurance Corporation (“FDIC”) insured banks, which exceed the FDIC insurance limits. We also maintain cash deposits in foreign banks where we operate, some of which are not insured or are only partially insured by the FDIC or other similar agencies. The failure or rumored failure of a bank, or events involving limited liquidity, defaults, non-performance, bankruptcy, receivership or other adverse developments in the financial or credit markets impacting financial institutions, may lead to disruptions in access to our bank deposits. These disruptions may adversely impact our liquidity and financial performance. There can be no assurance that our deposits in excess of the FDIC or other comparable insurance limits will be backstopped by the U.S. or applicable foreign government, or that any bank or financial institution with which we do business will be able to obtain needed liquidity from other banks, government institutions or by acquisition in the event of a failure or liquidity crisis. As such, those funds in bank deposit accounts in excess of the standard FDIC insurance limits are uninsured and subject to the risk of bank failure.
Currently, the Company has full access to all funds in deposit accounts or other money management arrangements. The failure of any bank in which the Company deposits its funds could reduce the amount of cash the Company has available for its operations or delay its ability to access such funds. In the event of such failure, the Company may experience delays or other issues in meeting its financial obligations, the Company’s ability to access its cash and cash equivalents may be threatened and could have a material adverse effect on the Company’s business and financial condition.
Future adverse developments with respect to specific financial institutions or the broader financial services industry may also lead to market-wide liquidity shortages.
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
37
Item 6. EXHIBITS
(a) The following exhibits are filed as part of the Quarterly Report on Form 10-Q:
Exhibit No. |
|
Description |
|
|
|
2.1 |
|
|
|
|
|
3.1 |
|
|
|
|
|
3.2 |
|
|
|
|
|
3.3 |
|
|
|
|
|
10.1 |
|
|
|
|
|
10.2 |
|
|
|
|
|
10.3 |
|
|
|
|
|
10.4 |
|
|
|
|
|
10.5 |
|
Lease agreement between URP X LLC and AVITA Medical, Inc. dated May 11, 2023* |
|
|
|
31.1 |
|
|
|
|
|
31.2 |
|
|
|
|
|
32** |
|
|
|
|
|
101.INS |
|
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because 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 Taxonomy Extension Definition Linkbase Document |
|
|
|
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)
|
† Management contract or compensation plan or arrangement
* Filed herewith
** Furnished herewith
38
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.
Date: |
May 11, 2023 |
|
AVITA MEDICAL, INC. |
|
|
|
|
|
|
|
|
|
By: |
/s/ James Corbett |
|
|
|
|
James Corbett |
|
|
|
|
President and Chief Executive Officer |
|
|
|
|
(Principal Executive Officer) |
|
|
|
|
|
|
|
|
By: |
/s/ Sean Ekins |
|
|
|
|
Sean Ekins |
|
|
|
|
Interim Chief Financial Officer |
|
|
|
|
(Principal Financial and Accounting Officer) |
39
Exhibit 10.4
ADOPTION AGREEMENT
DEFERRED COMPENSATION PLAN
The undersigned Company acting on behalf of itself and each Participating Employer, having been duly advised by its own counsel as to the legal and tax consequences of adopting this Deferred Compensation Plan, and having determined that adoption of this Plan as an unfunded, nonqualified deferred compensation plan (intending that the same comply with the applicable requirements of Section 409A of the Internal Revenue Code of 1986, as amended) would better enable the Company to attract and retain key personnel, HEREBY ADOPTS the attached Deferred Compensation Plan, subject to the following terms, conditions and elections, all of which are integral parts of the Plan adopted hereby:
Company Name: |
|
Avita Medical Americas, LLC |
|
|
|
Company Address: |
|
28159 Avenue Stanford, Suite 220, Valencia, CA 91355 |
|
|
|
Plan Name: |
|
Avita Medical Non-Qualified Deferred Compensation Plan |
|
|
|
Effective Date of the Plan: 7/1/2021 |
||
|
|
|
Amended and Restated: 1/1/2022 |
||
Additional Participating Employers: |
|
|
|
Capitalized terms used in this Adoption Agreement that are defined in the Plan document attached hereto and not separately defined herein shall have the respective defined meanings set forth in the attached Plan document.
The Company acting on behalf of itself and each Participating Employer hereby elects, for purposes of this Plan, as follows (insert check mark or "X" for each desired election and fill in appropriate blanks):
Pay Type |
Min/Max Percentage |
|
1%/85% |
|
1%/100% |
|
1%/100% |
|
1%/100% |
|
1%/100% |
|
|
|
|
Percent of Participant deferrals formula, subject to a specified limit, as follows:
Matching Contribution Rate: discretionary match based on plan year –to be communicated annually by Corporate leadership
Matching Contribution Limit:_____% of each applicable Pay Type per pay period
Other matching formula:
No Discretionary Contributions Permissible but amount discretionary Annual contribution amount or formula:______________________________________________
Immediate vesting (100%) as amounts are credited
Cliff vesting: 100% at the end of years (commencing as specified below)
Incremental annual vesting, as follows (complete chart below):
Years Completed |
% of Contribution Vested |
Year 0 |
0% |
Year 1 |
25% |
Year 2 |
100% |
EXAMPLE:
|
← Contribution Years → |
||||
EOY |
2021 |
2022 |
2023 |
2024 |
2025 |
12/31/2021 |
25% |
0% |
|
|
|
12/31/2022 |
100% |
25% |
0% |
|
|
12/31/2023 |
|
100% |
25% |
0% |
|
12/31/2024 |
|
|
100% |
25% |
0% |
12/31/2025 |
|
|
|
100% |
25% |
12/31/2026 |
|
|
|
|
100% |
Not Applicable
Years of participation – based on plan participation date
Years of service – based on date of hire
Age – based on date of birth
Class year - (all employer contributions for the same deferral year vest at the same time regardless of crediting date)
Not Applicable
On the last day of the vesting year
On the first day of the vesting year (the anniversary of the Commencement Date)
(select all that apply):
Not Applicable
Retirement eligibility
Disability
Death
Change in Control
Other - As provided in an agreement between the Participant and the Company
Not Applicable
Age 65 (for Plan Year 2021 only)
Age 55 (for all Plan Years beginning 2022)
Age____plus____years of plan participation
Age____plus____years of cumulative service and____years of plan participation
Yes No(trumped by all other distribution events)
Company Match: Yes No N/A
Company Discretionary: Yes No N/A
Class year - each year’s balance may have a different distribution election
User-created accounts (max number of accounts: ( 5 ) - each year’s balance is directed to one or more date-specific accounts.
Lump Sum
Annual installments for any whole number of years up to 4
Other:____________________________
(*Recommend no earlier than the time at which company contributions are 100% vested. Unvested portions at the time of the scheduled payments would be paid out upon separation from service.)
A one-time election
Class year – each year’s balance may have a different distribution election
(not recommended if user-created accounts is selected for In-service distributions)
Lump Sum
Annual installments for any whole number of years up to 10
Other:____________________________
Default only (recommended)
A one-time election
Class year – each year’s balance may have a different distribution election
(not recommended if user-created accounts is selected for In-service distributions)
Lump Sum (recommended)
Annual installments for any whole number of years up to
Other:____________________________
In accordance with the participant Retirement election (recommended),
Or if different from participant’s Retirement election:
Default only
A one-time election
Class year – each year’s balance may have a different distribution election
(not recommended if user-created accounts is selected for In-service distributions)
Alternative forms of distribution (select all that apply):
Lump Sum
Annual installments for any whole number of years up to _10
Other:____________________________
In accordance with Participant’s separation elections, or
Or if different from Participant’s separation elections (select all that apply):
Lump Sum (recommended)
Annual installments for any whole number of years up to
Other:
Continue in accordance with Participant’s elections (recommended)
Or if different from Participant’s separation elections (select all that apply):
Lump Sum
Annual installments for any whole number of years up to
An amount to be determined by the Committee
Other:
None
Discretionary amount to be determined by the Committee
Specified amount:
Yes No Mandatory
Optional (declinable): Class Year election
Lump Sum
Annual installments for any whole number of years up to 10
Other:
Lump Sum (recommended)
Annual installments for years
Other:
Separation from service (recommended)
Other:
(NOTE: this is in addition to the default deminimis provision in Section 6.10 that allows the Company to pay the Participant’s vested Account Balance at any time if it does not exceed the then applicable limit of §402(g)(1)(B) of the Code and results in the termination of the Participant’s entire interest in the Plan.)
None (recommended)
Notwithstanding any payment election made by the Participant, if at the time any distribution becomes due and the vested balance of all installments associated with that distribution does not exceed $ 50,000 then the balance will be paid in a single lump sum, subject to compliance with Section 409A.
|
|
(if none specified, the state under which laws the Company was formed).
IN WITNESS WHEREOF, the Company, on behalf of itself and each Participating Employer, has caused its duly authorized representative to execute this Adoption Agreement, under seal, as of the Effective Date set forth above, intending that the Company shall be bound hereby, and that each Participant, Committee Member and Record Keeper may rely hereon.
|
|
Avita Medical Americas, LLC |
|
COMPANY: |
|
|
|
(insert Company name above) |
|
By: |
|
|
Print Name: |
Michael Holder |
|
Title: |
Chief Financial Officer |
|
|
Duly authorized |
|
Date: |
02/08/2022 |
SPECIMEN FORM: There are many possible forms that could be used to implement a nonqualified deferred compensation plan that is subject to Section 409A. The advisability of using this form and the tax implications resulting from its adoption in its existing form should be determined by each company's attorney and other tax advisers in light of circumstances, laws and regulations then applicable to the adopting company. This specimen is NOT a qualified plan for ERISA nor income tax purposes.
DEFERRED COMPENSATION PLAN
Preamble
This Plan is adopted as of the date and by the Company, on behalf of itself and any Participating Employers, as set forth in the attached Adoption Agreement, which is an integral part of this Plan. The Company, having been duly advised by its own counsel as to the legal and tax consequences of adopting this Plan, intends that the Plan shall at all times be administered and interpreted in such a manner as to constitute an unfunded plan maintained primarily for a select group of management or highly compensated employees who contribute materially to the management of the Company or Participating Employer, so as to qualify for all available exemptions from the provisions of Title I of ERISA and to fulfill the applicable requirements of Section 409A.
ARTICLE 1
DEFINITIONS
"Account" means, with respect to any Participant, a bookkeeping entry used as a measurement and determination of the amounts to be paid to a Participant, or his or her designated Beneficiary, pursuant to this Plan and subject to such limits, rules and procedures as the Committee from time to time may adopt under this Plan. The Committee and the Record Keeper may establish and use sub-accounts and other record keeping entries with respect to any Participant's Account, including without limitation any Deferral Account, Company Contribution Account and Company Discretionary Account applicable to such Participant.
“Account Balance” means, with respect to any Participant at any particular time, the sum at such time of such Participant's (i) Deferral Account balance, (ii) Company Matching Account balance and (iii) Company Discretionary Account balance. The Account Balance shall be a bookkeeping entry only and shall be utilized solely as a measurement and determination of the amounts to be paid to a Participant, or his or her designated Beneficiary, pursuant to this Plan.
“Adoption Agreement” means the agreement pursuant to which the Company has adopted this Plan, which Adoption Agreement is incorporated herein by reference, including without limitation any terms defined therein. Adoption Agreements may be completed and/or signed using such online systems and other electronic means as the Committee or Record Keeper from time to time may designate for such purpose.
“Affiliate” means a corporation, partnership, limited liability company or other entity that is required to be considered, together with the Company, as a single employer under §414(b) of the Code (employees of controlled group of Companies) or §414(c) of the Code (employees of partnerships or limited liability companies under common control). For purposes of determining a controlled group of Companies under
§414(b) of the Code, the language “at least 50 percent” shall be used instead of “at least 80 percent” each place it appears in §1563(a)(1), (2), and (3) of the Code. For purposes of determining trades or businesses that are under common control for purposes of §414(c) of the Code, “at least 50 percent” shall be used instead of “at least 80 percent” each place it appears in Treasury Regulation §1.414(c)-2. An entity shall not be considered an “Affiliate” for any period of time prior to satisfying the controlled group or common control tests described above.
“Annual Company Discretionary Amount” means the benefit amount, if any, for any one Plan Year that is
determined for a Participant in accordance with Section 3.5.
"Annual Company Matching Amount” means the benefit amount, if any, for any one Plan Year that is determined for a Participant in accordance with Section 3.4.
“Annual Deferral Amount” means that portion of a Participant's Pay Type(s) that a Participant elects to have deferred, and is deferred, in accordance with Article 3, for any one Plan Year. In the event of a Participant's Retirement, Disability, death or a Termination of Employment prior to the end of a Plan Year, such year's Annual Deferral Amount shall be the actual amount deferred in such Plan Year prior to such event.
“Base Salary” means base salary earned with respect to services performed and payable in cash, exclusive of any of the following: Bonuses, Commissions, overtime, incentive payments and other performance-based forms of compensation, director and other special fees, expense allowances and reimbursements, severance, and any other forms of compensation, earnings or payments that are not regular in frequency and form (before reductions for, contributions to or deferrals under this Plan or any other profit sharing, 401(k), pension, deferred compensation or benefit plan sponsored by the Company or any Affiliate).
“Beneficiary” means one or more persons, trusts, estates, or other entities, designated in accordance with
Article 8 that are entitled to receive benefits under this Plan upon the death of a Participant.
“Beneficiary Designation Form” means the form established from time to time by the Committee that a
Participant completes, signs and returns to the Company to designate one or more Beneficiaries. Beneficiary Designation Forms may be completed and/or signed using such online systems and other electronic means as the Committee or Record Keeper from time to time may designate for such purpose.
“Board of Directors” shall mean the Board of Directors, Managers, Trustees or other group having the legal authority to act as the governing body of the Company.
“Bonus” means any compensation relating to services performed that is granted or awarded apart from Base Salary and Commissions and that is identified by the applicable Company or Affiliate as a “bonus” (before reductions for, contributions to or deferrals under this Plan or any other profit sharing, 401(k), pension, deferred compensation or benefit plan sponsored by the Company or any Affiliate).
“Calendar Year” means the annual period measured from January 1 to December 31.
"Cause", unless otherwise defined in the Adoption Agreement, means: (a) with respect to each Participant who has an employment agreement containing a definition of "cause" or "for cause", said definition as set forth in his or her employment agreement; and (b) with respect to all other Participants, and as determined in good faith by the Committee, willfully engaging in misconduct which is demonstrably and materially injurious to the Company or any Affiliate, unless the act or omission giving rise to such misconduct is done, or omitted to be done, by a Participant in good faith and with a sound reason to believe that such action or omission was in the best interest of the Company and its Affiliates.
“Change in Control” means, with respect to the applicable Participating Employer, a change in the ownership or effective control of the Participating Employer, or in the ownership of a substantial portion of the assets of the Participating Employer. Unless otherwise specified in the Adoption Agreement, a Change in Control shall be defined as follows:
-2-
An event constitutes a Change in Control with respect to a Participant only if the Participant’s
relationship to the affected Participating Employer satisfies the requirements of Treasury Regulation
§1.409A-3(i)(5)(ii).
To qualify as a Change in Control event, the occurrence of the event must be objectively determinable and any requirement that any other person or group, such as a plan administrator or compensation committee, certify the occurrence of a Change in Control must be strictly ministerial and not involve any discretionary authority. If the Adoption Agreement provides for a payment on a Change in Control, such payment shall only be made if the event specified in the Adoption Agreement also qualifies as a change in control event within the meaning of Code Section 409A (Treasury Regulation §1.409A-3(i)(5)).
To the extent permitted by the Internal Revenue Service, a Change of Control may also occur in the event of changes in ownership of a partnership and change in the ownership of a substantial portion of the assets of a partnership and the provisions set forth above respecting such changes relative to a corporation shall be applied by analogy. It is the Company's responsibility to determine whether a Change in Control has occurred and to advise the Committee and the Record Keeper accordingly.
"Change in Control Distribution" shall have the meaning set forth in Section 6.4
“Claimant” shall have the same meaning set forth in Section 10.1.
“Code” means the Internal Revenue Code of 1986, as the same may be amended from time to time.
“Commissions”
It is the Company's responsibility to determine whether a Pay Type qualifies as Commissions in accordance with the foregoing requirements with respect to any Participant and to advise the Record Keeper accordingly.
"Committee" means the person(s) designated as Committee members or such other persons as the Company's Board of Directors from time to time may designate to serve as members of the Committee hereunder. In the absence of any Committee, or should the Committee be unable or unwilling to serve, the Company shall perform the duties of the Committee under this Plan.
“Company” means the entity identified as the “Company” in the Adoption Agreement pursuant to which this
Plan has been adopted and may include the applicable Participating Employer as the context requires.
“Company Discretionary Account” means, with respect to any Participant (but subject in the case of each Participant to Section 3.7), an Account consisting of the sum of (i) all of the Participant's Annual Company Discretionary Amounts, plus (ii) Notional Investment Adjustments in value credited or debited thereon in accordance with Article 4 of this Plan, less (iii) all distributions from such account.
“Company Matching Account” means, with respect to any Participant (but subject in the case of each Participant to Section 3.7), an Account consisting of the sum of (i) all of the Participant's Annual Company Matching Amounts, plus (ii) Notional Investment Adjustments in value credited or debited thereon in accordance with Article 4 of this Plan, less (iii) all distributions from such account.
“Day” means a calendar day or any part thereof.
“Deferral Account” means an Account consisting of the sum of (i) all of a Participant's Annual Deferral
-3-
Amounts, plus (ii) Notional Investment Adjustments in value credited or debited thereon in accordance with Article 4 of this Plan, less (iii) all distributions from such account.
“Deferral Election Form” means notice filed by a Participant with the Record Keeper specifying the amount of the Participant's Pay Type(s) to be deferred, and the time and form of distribution payments as defined in the Adoption Agreement. Deferral Election Forms may be completed and/or signed using such online systems and other electronic means as the Committee or Record Keeper from time to time may designate for such purpose.
“Disability” or “Disabled” shall mean the Participant is: (i) unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or (ii) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than 3 months under an accident and health plan covering employees of the Participant’s employer. The Adoption Agreement may also provide that a Participant will be deemed to be Disabled if determined to be totally disabled by the Social Security Administration or Railroad Retirement Board. The determination of Disability shall be made by the Committee in accordance with Section 409A Requirements. The Committee may require that the Participant submit to an examination by the Company or its agent to determine the existence of a Disability.
“Disability Benefit” means the benefit set forth in Section 6.3.
“Eligible Employee” means any employee of the Company or other Participating Employer who is selected to participate herein in accordance with the provisions of Article 2 hereof, and is one of a select group of management or highly compensated employees. Eligible Employee may also include selected Independent Contractors as determined in the complete and sole discretion of the Committee.
“Employee” means any individual who is employed by or providing services to the Employer. Employee
means “service provider” as used in Treasury Regulation §1.409A-1(f).
“Employer” or “Participating Employer” means the Company or Affiliate who is the legal employer of the Employee or service recipient in the case of an Independent Contractor.
“ERISA” means the Employee Retirement Income Security Act of 1974, as the same may be amended from
time to time.
“First Plan Year” means the period beginning on the Effective Date set forth in the Adoption Agreement and ending on December 31 immediately following the Effective Date.
"Hardship Distribution" means any distribution or waiver of deferral granted by the Committee pursuant to Article 7.
“Identification Date” for the purpose of identifying Specified Employees means each December 31 or such other date as defined in the Adoption Agreement.
“Independent Contractor” means a non-employee director or an independent contractor for whom deferred amounts will be subject to Section 409A as provided in Treasury Regulation §1.409A-1(f)(2).
"In-Service Distribution" means a distribution made pursuant to Section 6.5.
"Matching Contribution Limit" means, with respect to each Pay Type, the Maximum Contribution Limit set forth for such Pay Type in the Adoption Agreement, to be used and calculated as a limit on Annual Company Matching Amounts pursuant to Section 3.4.
"Matching Contribution Rate" means, with respect to each Pay Type, the respective percentage rate, if any, set forth in the Adoption Agreement for such Pay Type, which rate shall be used to calculate Annual Company Matching Amounts pursuant to Section 3.4, subject to the Matching Contribution Limit, if any, applicable to such Pay Type.
"Notional Investment" means any security, fund, account, sub-account, index, formula or other instrument, asset, measure or method from time to time designated by the Committee as a means to calculate the amount
-4-
of any Notional Investment Adjustment.
"Notional Investment Adjustment" means earnings, gains, losses and any other adjustments made with respect to any Annual Deferral Amount, Annual Company Matching Amount or Annual Company Discretionary Amount, which adjustments are made based on the performance of a Notional Investment pursuant to Article 4.
“Notional Investment Election Form” means notice filed with the Record Keeper by or on behalf of a Participant (or his or her Beneficiaries, as provided below) specifying the allocation of the Participant's Annual Deferral Amount and how the Participant's Annual Deferral Amount, Annual Company Matching Amount and Annual Company Discretionary Amount, if any, are to be allocated under the Plan among the Notional Investments provided under the Plan. Notional Investment Election Forms may be completed and/or signed using such online systems and other electronic means as the Committee or Record Keeper from time to time may designate for such purpose. Upon the death of a Participant, for so long as such Participant's Beneficiaries retain an interest in such Participant's Account hereunder, such Beneficiaries may file Notional Investment Election Forms with respect to such Account in accordance with such policies and procedures as the Committee from time to time may specify for such purpose.
“Participant” means any Eligible Employee (i) who is selected to participate in the Plan, (ii) who elects to participate in the Plan, (iii) who signs a Participation Agreement, a Deferral Election Form, a Notional Investment Election Form, (iv) whose signed Participation Agreement, Deferral Election Form, and Notional Investment Election Form are accepted by the Committee, and (v) who commences participation in the Plan. A spouse or former spouse (or beneficiary) of a Participant shall not be treated as a Participant in the Plan, even if he or she has an interest in the Participant's benefits under the Plan as a result of applicable law or property settlements resulting from legal separation or divorce.
"Participation Agreement" means the form established from time to time by the Committee that a Participant completes, signs and returns to the Company to become a Participant in this Plan. Participation Agreements may be completed and/or signed using such online systems and other electronic means as the Committee or Record Keeper from time to time may designate for such purpose.
“Pay Type” means the forms of compensation selected in the Adoption Agreement as eligible for deferral and for inclusion in the calculation of Annual Deferral Amounts under the Plan. References to one or more “Pay Types” with respect to any particular Calendar Year means said forms of compensation relating to services performed during such Calendar Year, whether or not paid in such Calendar Year or included on a Federal Income Tax Form W-2 for such Calendar Year (except and to the extent otherwise required under any applicable Section 409A Requirements). The Committee from time to time may adopt and amend such rules and procedures as it deems appropriate to more particularly define or classify any particular Pay Type for further clarification in the administration of this Plan.
“Permissible Change Election” means an election to change the time or form of payment of any benefit
under the Plan that:
For purposes of the foregoing, unless otherwise provided in the Adoption Agreement or otherwise required under applicable Section 409A Requirements, any distribution that a Participant elects to receive in a series of installments shall be treated as being a single payment on the date of the first installment of such series.
“Plan” means this Plan, as evidenced by the Adoption Agreement and this document, each as amended and
in effect from time to time.
-5-
“Plan Year” means each Calendar Year except that the first Plan Year shall commence on the Effective Date of the Plan specified in the Adoption Agreement and end on December 31 of the same Calendar Year.
"Pre-Commencement Death Benefit" means the death benefit payable under Section 6.6.1.
"Post-Commencement Death Benefit" means the death benefit payable under Section 6.6.2.
“Record Keeper” means the party designated as the Record Keeper, as such designation may be amended from time to time in the discretion of the Committee. In the absence of any such designation, or should the Record Keeper be unable or unwilling to serve, the Company shall perform the duties of the Record Keeper under this Plan.
“Retirement” means the Termination of Employment of a Participant on or after such Participant’s
Retirement Eligibility Date.
“Retirement Benefit” means the benefit set forth in Section 6.1.
“Retirement Eligibility Date” means the date when the Participant satisfies the requirements of Retirement
Eligibility Date as designated in the Adoption Agreement.
“RSUs” means any restricted stock units, including any spot restricted stock units, awarded to a Participant by the Company, which a Participant elects defer under the Plan, as a form of Pay Type, in accordance with Section I of the Adoption Agreement, and credited to a Participant’s Account.
“Section 409A” means Section 409A of the Code, as the same may be amended from time to time, and any successor statute thereto. References to Section 409A or any requirement under Section 409A, as the same may be interpreted, construed or applied to this Plan at any particular time, shall be deemed to mean and include, to the extent then applicable and then in force and effect (but not to the extent overruled, limited or superseded), published guidance, regulations, notices, rulings and similar announcements issued by the Internal Revenue Service or by the Secretary of the Treasury under or interpreting Section 409A, decisions by any court of competent jurisdiction involving a Participant or a beneficiary and any closing agreement made under §7121 of the Code that is approved by the Internal Revenue Service and involves a Participant, all as determined by the Committee in good faith, which determination may (but shall not be required to) be made in reliance on the advice of such tax counsel or other tax professional(s) with whom the Committee from time to time may elect to consult with respect to any such matter.
“Section 409A Discretionary Payment Period” means with respect to any designated payment date, the period during which payments will be treated as having been made upon such designated payment date under Treasury Regulation §1.409A-3(d), providing for payments to be treated as timely if made no earlier than thirty (30) days prior to such designated payment date and no later than the end of the Calendar Year in which such designated payment date occurs, or if later, by the 15th day of the third calendar month following such designated payment date.
“Section 409A Requirement” means any requirement under Section 409A, the failure of which would result in the imposition or accrual of interest or additional taxes under Section 409A on or with respect to any income intended to be deferred under the Plan.
“Specified Employee” means, at any time when stock of the Company (or other Participating Employer as applicable) is publicly traded on an established securities market or otherwise (as determined in accordance with Section 409A Requirements), those service providers who are “specified employees” within the meaning of Section 409A. The determination shall be made consistent with all Section 409A Requirements as follows: (a) a key employee of the Company (within the meaning of Code Section 409A(a)(2)(B)) any stock of which is publicly traded on an established securities market or otherwise will be considered a key employee if the service provider meets the requirements of Code §416(i)(1)(A)(i),(ii) or (iii) (applied in accordance with the regulations thereunder and disregarding Code §416(i)(5)) at any time during the 12- month period ending on an Identification Date specified in the Adoption Agreement; (b) if a person is a key employee as of an Identification Date, the person is treated as a Specified Employee for the 12-month period beginning on the first day of the fourth month following the Identification Date; (c) if no alternative Identification Date is designated in the Adoption Agreement, the Identification Date shall be December 31. Whether any stock of the Company is publicly traded on an established securities market or otherwise must be determined as of the date of the Participant’s Separation from Service. The application of rules regarding “Specified Employees” to spinoffs and mergers and nonresident alien employees shall be determined
-6-
pursuant to applicable guidance. It is the Company’s responsibly to elect which rules under Section 409A shall apply when determining who is a Specified Employee, to annually determine who are the Specified Employees, and to timely provide a list of Specified Employees to the Record Keeper.
“Termination Benefit” means the benefit set forth in Section 6.2.
“Termination”, “Termination of Employment” or "Separation from Service" shall be interpreted consistently with all Section 409A Requirements according to the following specifications:
It is the Company's responsibility to determine whether there is a Termination of Employment/Separation from Service in accordance with Section 409A with respect to any Participant and to advise the Record Keeper accordingly.
“Unforeseeable Emergency” means, with respect to any particular Participant, (i) a severe financial hardship of such Participant resulting from an illness or accident suffered by such Participant, by such Participant’s spouse or by a dependent (within the meaning of §152 of the Code without regard to
§152(b)(1), (b)(2) and (d)(1)(B) of the Code) of such Participant; (ii) a Participant's loss of property due to casualty; or (iii) other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. It is the Company's responsibility to determine whether there is an Unforeseeable Emergency in accordance with Section 409A with respect to any Participant and to advise the Record Keeper accordingly.
* * * * * *
It is intended that the Plan shall conform with all applicable Section 409A Requirements. Accordingly, in interpreting, construing or applying any of the foregoing definitions or any of the terms, conditions or provisions of the Plan, the same shall be construed in such manner as shall meet and comply with Section 409A Requirements then applicable thereto, and in the event of any inconsistency with any Section 409A Requirements, the same shall be reformed so as to meet such Section 409A Requirements to the fullest extent then permitted without penalty (and without imposition or accrual of interest or additional taxes) under Section 409A.
-7-
ARTICLE 2
ELIGIBILITY AND PARTICIPATION
ARTICLE 3 CONTRIBUTIONS AND CREDITS
-2-
The term Performance-Based Compensation includes payments based upon subjective performance criteria, provided that the subjective performance criteria are bona fide and relate to the performance of the Eligible Employee, a group of employees that includes the Eligible Employee, or a business unit for which the Eligible Employee provides services (which may include the entire organization), and the determination that any subjective performance criteria have been met is not made by the Eligible Employee or a family member of the Eligible Employee (as defined in §267(c)(4) of the Code applied as if the family of an individual includes the spouse or any member of the family), or a person under the effective control of the Eligible Employee or such a family member, and no amount of the compensation of the person making such determination is effectively controlled in whole or in part by the Eligible Employee or such a family member.
It is the Company's responsibility to determine whether a Pay Type qualifies as Performance-Based Compensation in accordance with the foregoing requirements with respect to any Participant and to advise the Record Keeper accordingly.
-3-
ARTICLE 4
ALLOCATION OF FUNDS
-4-
ARTICLE 5
VESTING
-5-
ARTICLE 6
DISTRIBUTION OF BENEFITS
-6-
-7-
ARTICLE 7 UNFORESEEABLE EMERGENCIES
that any Participant incurs an Unforeseeable Emergency, if consistent with applicable Section 409A Requirements, such Participant may apply to the Committee for a Hardship Distribution in the form of (i) cancellation of existing Annual Deferral Amount elections for Pay Types not yet earned by such Participant, and (ii) to the extent cancellation of all such elections is insufficient to satisfy the needs resulting from such Unforeseeable Emergency, an accelerated payment (“Hardship Distribution”) of some or all of such Participant’s vested Account Balance. The Committee shall consider the circumstances of each such case, and the best interests of the Participant and his or her family, and shall have the right, in its sole discretion, to allow such application, in full or in part, or to refuse to make a Hardship Distribution. In the event that any Participant receives a distribution from a plan due to an unforeseeable emergency or a hardship pursuant to Treasury Regulation §1.401(k)-1(d)(3) (or successor regulation thereto, to the extent recognized for these purposes under Section 409A Requirements), such Participant’s existing Annual Deferral Amount elections for Pay Types not yet earned by such Participant shall be cancelled for the remainder of the Plan Year.
ARTICLE 8 BENEFICIARY DESIGNATION
-8-
ARTICLE 9
MANAGEMENT AND ADMINISTRATION OF THIS PLAN
-9-
ARTICLE 10
CLAIMS PROCEDURES
-10-
-11-
right to obtain the information about such procedures;
-12-
ARTICLE 11 MISCELLANEOUS
In the event that, in its discretion, the Company purchases an insurance policy or policies insuring the life of a Participant or any other property, to allow the Company to recover or meet the cost of providing benefits, in whole or in part, hereunder, no Participant or Beneficiary shall have any rights whatsoever therein or in the proceeds therefrom. The Company shall be the sole owner and beneficiary of any such insurance policy or property and shall possess and may exercise all incidents of ownership therein.
-13-
The interest in the benefits hereunder of a spouse of a Participant who predeceases the Participant shall automatically pass to the Participant and shall not be transferable by such spouse in any manner, including but not limited to such spouse's will, nor shall such interest pass under the laws of intestate succession.
Notwithstanding the foregoing, to the extent necessary to comply with the terms of a "domestic relations order" (as defined in §414(p)(1)(B) of the Code) the Committee may cause all or a portion of a Participant's Account balance to be segregated into a sub-Account for the benefit of the Participant's spouse, child or other dependent identified in such order as the alternative payee and give such alternative payee (or their legal representative if such alternative payee is incompetent or a minor), as applicable (i) the same Notional Investment alternatives as are available to the Participant under the Plan with respect to such sub-Account until distributed, and (ii) the same distribution form and timing options as are available to the Participant under the Plan or an immediate lump sum payment, all as directed by the domestic relations order and subject to compliance with Code Section 409A Requirements.
The Company and each participating Employer reserve the right to terminate its participation in this Plan. Except as otherwise provided below, the termination of the Plan shall not affect the distribution provisions in effect for the Accounts maintained under the Plan, and all amounts deferred prior to the date of any such Plan termination shall continue to become due and payable in accordance with the distribution provisions in effect immediately prior to such Plan termination. Payment of the Account Balances may be accelerated upon Plan termination and liquidation of the Plan only in compliance with all Section 409A Requirements as then in effect. Section 409A regulations currently permits acceleration of distributions under the following circumstances:
-14-
distribution shall fully discharge the Committee, the Record Keeper, the Company and the Plan from further liability on account thereof.
-15-
SPECIMEN RESOLUTIONS TO BE ADOPTED
AT THE MEETING OF THE BOARD OF DIRECTORS
OF
Date: |
|
WHEREAS, the Board of Directors of , a Company (the "Company”), believes that it is in the best interests of the Company to create a benefit plan for a select group of management or highly compensated employees of the Company, and the Board of Directors intends such plan to be considered an unfunded arrangement for purposes of the Employment Retirement Income Securities Act of 1974;
NOW, THEREFORE, it is hereby
RESOLVED: That the Board of Directors hereby approves and adopts the attached Plan (the "Plan") and the Adoption Agreement attached thereto, and in connection therewith, that the President, the Treasurer and the [insert titles of other officers, if any] of the Company hereby are, and each such officer acting singly hereby is, authorized and directed in the name and on behalf of this Company, to execute and deliver, under seal, if desired, and to acknowledge and make oath with respect to, if desired, said Adoption Agreement and Plan, together with any record keeping or other similar service agreement and such other instruments, documents, filings and agreements as any such officer, acting singly, from time to time may determine to be necessary, convenient or appropriate to carry out any of the purposes or intent of the Plan or any of the resolutions adopted hereby;
RESOLVED: That the Board of Directors hereby appoints the following individuals to serve as members of the Committee of the Plan, each such person to serve in such capacity in accordance with the Plan's terms and conditions until his or her successor shall have been duly elected by this Board and qualified, and such Committee shall have full power and authority to designate and appoint key employees and other qualified persons as participants under the Plan, and to designate and appoint such record keepers, agents and representatives, to retain such consultants and professional advisers, to incur such fees and to make and enter into (and authorize one or more of its representative to do the same) such instruments, documents, filings and agreements as a majority of such Committee from time to time may determine to be necessary, convenient or appropriate to carry out any of the purposes or intent of the Plan or any of the resolutions adopted hereby:
RESOLVED: That no executive or manager who is a Participant in the Plan and is delegated authority to act on behalf of the Company or as a member of the Committee shall vote or otherwise participate directly in any decision that may affect the amount or timing of payments of his or her own benefits made under the Plan.
RESOLVED: That any person may rely on the foregoing resolutions, appointments and authorizations until receipt of notice by the Company or Committee that any such resolution, appointment or authority has been terminated, revoked or amended, and no such termination, revocation or amendment shall serve to eliminate any benefit theretofore granted or any action theretofore taken in good faith in reliance on any such resolution, appointment or authority.
Exhibit 10.5
LEASE
BETWEEN
URP X LLC
AND
AVITA MEDICAL, INC.
LEASE
(Short Form)
LEASE
THIS LEASE is made as of __________________, by and between URP X LLC, a Delaware limited liability company, hereafter called “Landlord,” and AVITA MEDICAL, INC., a California corporation, hereafter called “Tenant.”
Each reference in this Lease to the “Basic Lease Provisions” shall mean and refer to the following collective terms, the application of which shall be governed by the provisions in the remaining Articles of this Lease.
1. Tenant’s Trade Name: N/A
2. Premises: |
Suite No. 230 (The Premises are more particularly described in Section 2.1.) |
Address of Building: |
5151 California Avenue, Irvine, CA 92617 |
Project Description: |
UCI Research Park (as shown on Exhibit Y to this Lease) |
3. Permitted Use: General office and for no other use.
4. Estimated Commencement Date: July 14, 2023
5. Lease Term: 60 months, plus such additional days as may be required to cause this Lease to expire on the final day of the calendar month.
6. Basic Rent:
Months of Term or Period |
Monthly Rate Per Rentable Square Foot |
Monthly Basic Rent |
1 to 12 |
$2.20 |
$23,555.40 |
13 to 24 |
$2.28 |
$24,411.96 |
25 to 36 |
$2.36 |
$25,268.52 |
37 to 48 |
$2.44 |
$26,125.08 |
49 to 60 |
$2.53 |
$27,088.71 |
Notwithstanding the above schedule of Basic Rent to the contrary, as long as Tenant is not in Default (as defined in Section 14.1) under this Lease, Tenant shall be entitled to an abatement of 2 full calendar months of Basic Rent in the aggregate amount of $47,110.80 (i.e. $23,555.40 per month) (the “Abated Basic Rent”) for the first 2 full calendar months of the Term (the “Abatement Period”). In the event of a Default that results in termination of this Lease, then as a part of Landlord’s recovery (but only to the extent Landlord is not otherwise “made whole” for the Abated Basic Rent hereunder through its recovery of leasehold damages), Landlord shall be entitled to the recovery of the then-unamortized remaining balance of the Abated Basic Rent (such amortization being calculated on a straight line basis over the initial Lease Term [excluding the Abatement Period] and such balance being determined as of the date of the Default). The payment by Tenant of the Abated Basic Rent in the event of a Default shall not limit or affect any of Landlord’s other rights, pursuant to this Lease or at law or in equity. Only Basic Rent shall be abated during the Abatement Period and all other additional rent and other costs and charges specified in this Lease shall remain due and payable pursuant to the provisions of this Lease.
7. Expense Recovery Period: Every twelve-month period during the Term (or portion thereof during the first and last Lease years) ending June 30.
8. Floor Area of Premises: approximately 10,707 rentable square feet
Floor Area of Building: approximately 63,440 rentable square feet
9. Security Deposit: $54,600.00
10. Broker(s): Irvine Management Company (“Landlord’s Broker”) is the agent of Landlord exclusively and CBRE (“Tenant’s Broker”) is the agent of Tenant exclusively.
11. Parking: 40 parking spaces in accordance with the provisions set forth in Exhibit F to this Lease.
12. Address for Payments and Notices:
LANDLORD
Payment Registration Address:
Email tenantportal@irvinecompany.com to request an account for the Tenant Payment Portal.
Notice Address:
THE IRVINE COMPANY LLC 550 Newport Center Drive Newport Beach, CA 92660 Attn: Executive Vice President, Operations Office Properties |
TENANT
AVITA MEDICAL, INC. 28159 Avenue Stanford, Suite 220 Valencia, CA 91355
Notwithstanding the foregoing, Tenant acknowledges and agrees that any notice given by Landlord under Part 3, Title 3, Chapter 4 of the California Code of Civil Procedure (entitled “Summary Proceedings for Obtaining Possession of Real Property in Certain Cases”) may be delivered to the Premises as provided and required therein, provided that copies of any such notice shall be provided to all other addresses set forth in this Item 12. |
LIST OF LEASE EXHIBITS (All exhibits, riders and addenda attached to this Lease are hereby incorporated into and made a part of this Lease):
Exhibit A Description of Premises
Exhibit B Operating Expenses
Exhibit C Utilities and Services
Exhibit D Tenant’s Insurance
Exhibit E Rules and Regulations
Exhibit F Parking
Exhibit G Additional Provisions
Exhibit X Work Letter
Exhibit Y Project Description
The Premises are a portion of certain real property which is leased by Landlord pursuant to that certain Ground Lease (the “Ground Lease”) dated as of June 24, 1998, by and between The Regents of the University of California, a California corporation (“Ground Lessor”) and The Irvine Company, a Delaware corporation, a Memorandum of which was recorded on May 5, 1999, as Instrument No. 19990328619 in the Official Records of Orange County, California. Tenant understands and acknowledges that a material consideration for Landlord entering into this Lease with Tenant is the nature of Tenant’s business and the mutual benefits to be derived by Tenant and by Ground Lessor. Accordingly, in the event of any proposed assignment of this Lease or sublease of the Premises or any portion thereof, in addition to all of the provisions of Section 9.2 of this Lease, Landlord may reasonably withhold its consent to any such proposed assignment or sublease if Landlord determines in its sole and absolute discretion that such mutual benefits will not be derived as a result of the proposed use of the Premises by such assignee, sublessee or transferee.
|
-2- |
|
|
-3- |
|
|
-4- |
|
|
-5- |
|
|
-6- |
|
Either party may terminate this Lease if any material part of the Premises is taken or condemned for any public or quasi-public use under Law, by eminent domain or private purchase in lieu thereof (a “Taking”). Landlord shall also have the right to terminate this Lease if there is a Taking of any portion of the Building or Project which would have a material adverse effect on Landlord’s ability to profitably operate the remainder of the Building or Project. The termination shall be effective as of the effective date of any order granting possession to, or vesting legal title in, the condemning authority. All compensation awarded for a Taking shall be the property of Landlord. Tenant agrees that the provisions of this Lease shall govern any Taking and shall accordingly supersede any contrary statute or rule of law.
|
-7- |
|
The notice periods provided herein are in lieu of, and not in addition to, any notice periods provided by law, and Landlord shall not be required to give any additional notice under California Code of Civil Procedure Section 1161, or any successor statute, in order to be entitled to commence an unlawful detainer proceeding.
|
-8- |
|
All sums payable by Tenant to Landlord shall be paid, without deduction or offset, in lawful money of the United States to Landlord at its address set forth in Item 12 of the Basic Lease Provisions, or at any other place as Landlord may designate in writing. Unless this Lease expressly provides otherwise, all payments shall be due and payable within 5 days after demand. All payments requiring proration shall be prorated on the basis of the number of days in the pertinent calendar month or year, as applicable. Any notice, election, demand, consent, approval or other communication to be given or other document to be delivered by either party to the other may be delivered to the other party, at the address set forth in Item 12 of the Basic Lease Provisions, by personal service or by any courier or “overnight” express mailing service. Either party may, by written notice to the other, served in the manner provided in this Article, designate a different address. The refusal to accept delivery of a notice, or the inability to deliver the notice (whether due to a change of address for which notice was not duly given or other good reason), shall be deemed delivery and receipt of the notice as of the date of attempted delivery. If more than one person or entity is named as Tenant under this Lease, service of any notice upon any one of them shall be deemed as service upon all of them.
Tenant agrees to comply with the Rules and Regulations attached as Exhibit E, and any reasonable and nondiscriminatory amendments, modifications and/or additions as may be adopted by Landlord from time to time.
The parties recognize as the broker(s) who negotiated this Lease the firm(s) whose name(s) is (are) stated in Item 10 of the Basic Lease Provisions, and agree that Landlord shall be responsible for the payment of brokerage commissions to those broker(s) unless otherwise provided in this Lease. Tenant agrees to indemnify and hold Landlord harmless from any cost, expense or liability (including reasonable attorneys’ fees) for any compensation, commissions or charges claimed by any other real estate broker or agent employed or claiming to represent or to have been employed by Tenant in connection with the negotiation of this Lease.
Landlord shall have the right to transfer and assign, in whole or in part, all of its ownership interest, rights and obligations in the Building, Project or Lease, including the Security Deposit, and upon transfer Landlord shall be released from any further obligations hereunder, and Tenant agrees to look solely to the successor in interest of Landlord for the performance of such obligations and the return of any Security Deposit.
|
-9- |
|
|
-10- |
|
IN WITNESS WHEREOF, the parties have executed this Lease as of the day and year first above written.
LANDLORD:
URP X LLC, a Delaware limited liability company |
TENANT:
AVITA MEDICAL, INC., a California corporation
|
By:
Steven M. Case Executive Vice President Office Properties |
By:
Printed Name: Jim Corbett Jim Title: CEO C |
By:
Stacy Nishioka Regional Vice President, Operations Office Properties |
By:
Printed Name: Sean Ekins Title: CFO C |
|
-11- |
|
EXHIBIT A
5151 California Avenue
2nd Floor
|
EXHIBIT A -1- |
|
EXHIBIT B
OPERATING EXPENSES
(Net)
(a) From and after the Commencement Date, Tenant shall pay to Landlord, as additional rent, Tenant’s Share of all Operating Expenses, as defined in Section (f) below, incurred by Landlord in the operation of the Building and the Project. The term “Tenant’s Share” means that portion of any Operating Expenses determined by multiplying the cost of such item by a fraction, the numerator of which is the Floor Area of Premises and the denominator of which is the total rentable square footage, as determined from time to time by Landlord, of (i) the Building, for expenses determined by Landlord to benefit or relate substantially to the Building rather than the entire Project, and (ii) all or some of the buildings in the Project, for expenses determined by Landlord to benefit or relate substantially to all or some of the buildings in the Project rather than any specific building. Landlord reserves the right to allocate to the entire Project any Operating Expenses which may benefit or substantially relate to a particular building within the Project in order to maintain greater consistency of Operating Expenses among buildings within the Project. In the event that Landlord determines that the Premises or the Building incur a non-proportional benefit from any expense, or is the non-proportional cause of any such expense, Landlord may allocate a greater percentage of such Operating Expense to the Premises or the Building. In the event that any management and/or overhead fee payable or imposed by Landlord for the management of Tenant’s Premises is calculated as a percentage of the rent payable by Tenant and other tenants of Landlord, then the full amount of such management and/or overhead fee which is attributable to the rent paid by Tenant shall be additional rent payable by Tenant, in full, provided, however, that Landlord may elect to include such full amount as part of Tenant’s Share of Operating Expenses.
(b) Commencing prior to the start of the first full “Expense Recovery Period” of the Lease (as defined in Item 7 of the Basic Lease Provisions), and prior to the start of each full or partial Expense Recovery Period thereafter, Landlord shall give Tenant a written estimate of the amount of Tenant’s Share of Operating Expenses for the applicable Expense Recovery Period. Tenant shall pay the estimated amounts to Landlord in equal monthly installments, in advance, concurrently with payments of Basic Rent. If Landlord has not furnished its written estimate for any Expense Recovery Period by the time set forth above, Tenant shall continue to pay monthly the estimated Tenant’s Share of Operating Expenses in effect during the prior Expense Recovery Period; provided that when the new estimate is delivered to Tenant, Tenant shall, at the next monthly payment date, pay any accrued estimated Tenant’s Share of Operating Expenses based upon the new estimate. Landlord may from time to time change the Expense Recovery Period to reflect a calendar year or a new fiscal year of Landlord, as applicable, in which event Tenant’s Share of Operating Expenses shall be equitably prorated for any partial year.
(c) Within 180 days after the end of each Expense Recovery Period, Landlord shall furnish to Tenant a statement (a “Reconciliation Statement”) showing in reasonable detail the actual or prorated Tenant’s Share of Operating Expenses incurred by Landlord during such Expense Recovery Period, and the parties shall within 30 days thereafter make any payment or allowance necessary to adjust Tenant’s estimated payments of Tenant’s Share of Operating Expenses, if any, to the actual Tenant’s Share of Operating Expenses as shown by the Reconciliation Statement. Any delay or failure by Landlord in delivering any Reconciliation Statement shall not constitute a waiver of Landlord’s right to require Tenant to pay Tenant’s Share of Operating Expenses pursuant hereto. Any amount due Tenant shall be credited against installments next coming due under this Exhibit B, and any deficiency shall be paid by Tenant together with the next installment. Should Tenant fail to object in writing to Landlord’s determination of Tenant’s Share of Operating Expenses within 90 days following delivery of Landlord’s Reconciliation Statement or fail to provide written notice to Landlord of its intent to audit Operating Expenses as provided in subsection (j) of this Exhibit B below within 90 days following delivery of Landlord’s Reconciliation Statement, Landlord’s determination of Tenant’s Share of Operating Expenses for the applicable Expense Recovery Period shall be conclusive and binding on Tenant for all purposes and any future claims by Tenant to the contrary shall be barred.
(d) Even though this Lease has terminated and the Tenant has vacated the Premises, when the final determination is made of Tenant’s Share of Operating Expenses for the Expense Recovery Period in which this Lease terminates, Tenant shall within 30 days of written notice pay the entire increase over the estimated Tenant’s Share of Operating Expenses already paid. Conversely, any overpayment by Tenant shall be rebated by Landlord to Tenant not later than 30 days after such final determination. However, in lieu thereof, Landlord may deliver a reasonable estimate of the anticipated reconciliation amount to Tenant prior to the Expiration Date of the Term, in which event the appropriate party shall fund the amount by the Expiration Date.
(e) If, at any time during any Expense Recovery Period, any one or more of the Operating Expenses are increased to a rate(s) or amount(s) in excess of the rate(s) or amount(s) used in calculating the estimated Tenant’s Share of Operating Expenses for the year, then the estimate of Tenant’s Share of Operating Expenses may be increased by written notice from Landlord for the month in which such rate(s) or amount(s) becomes effective and for all succeeding months by an amount equal to the estimated amount of Tenant’s Share of the increase. Landlord shall give Tenant written notice of the amount or estimated amount of the increase, the month in which the increase will become effective, Tenant’s Share thereof and the months for which the payments are due. Tenant shall pay the increase to Landlord as part of the Tenant’s monthly payments of estimated expenses as provided in paragraph (b) above, commencing with the month in which effective.
|
EXHIBIT B -1- |
|
(f) The term “Operating Expenses” shall mean and include all Project Costs, as defined in Section (g) below, and Property Taxes, as defined in Section (h) below.
(g) The term “Project Costs” shall mean all expenses of operation, management, repair, replacement and maintenance of the Building and the Project, including without limitation all Common Areas (as defined in Section 6.2 of the Lease), and shall include the following charges by way of illustration but not limitation: water and sewer charges; insurance premiums, deductibles, or reasonable premium equivalents or deductible equivalents should Landlord elect to self-insure any risk that Landlord is authorized to insure hereunder; license, permit, and inspection fees; light; power; window washing; trash pickup; janitorial services to any interior Common Areas; heating, ventilating and air conditioning; supplies; materials; equipment; tools; reasonable fees for consulting services; access control/security costs, inclusive of the reasonable cost of improvements made to enhance access control systems and procedures; establishment of reasonable reserves for replacement of the roof of the Building; costs incurred in connection with compliance with any laws or changes in laws applicable to the Building or the Project; the cost of any capital improvements or replacements (other than tenant improvements for specific tenants) to the extent of the amortized amount thereof over the useful life of such capital improvements or replacements (or, if such capital improvements or replacements are anticipated to achieve a cost savings as to the Operating Expenses, any shorter estimated period of time over which the cost of the capital improvements or replacements would be recovered from the estimated cost savings) calculated at a market cost of funds, all as determined by Landlord, for each year of useful life or shorter recovery period of such capital expenditure whether such capital expenditure occurs during or prior to the Term, provided that such capital expenditures shall be limited to (1) improvements which are reasonably intended to increase or enhance building security and/or safety (such as lighting, life/fire safety systems, etc.), (2) repairs or replacements of the Building structure, Building systems or Common Areas for functional (and not aesthetic) reasons, (3) improvements required to comply with any law or change in law becoming effective as to the Building after the Commencement Date; and/or (4) expenditures incurred as a cost or labor saving measure or to affect other economies in the operation or maintenance of the Building or the Common Areas ; costs associated with the maintenance of an air conditioning, heating and ventilation service agreement, and maintenance of any communications or networked data transmission equipment, conduit, cabling, wiring and related telecommunications facilitating automation and control systems, remote telecommunication or data transmission infrastructure within the Building and/or the Project, and any other maintenance, repair and replacement costs associated with such infrastructure; capital costs associated with a requirement related to demands on utilities by Project tenants, including without limitation the cost to obtain additional voice, data and modem connections; labor; reasonably allocated wages and salaries, fringe benefits, and payroll taxes for administrative and other personnel directly applicable to the Building and/or Project, including both Landlord’s personnel and outside personnel; any expense incurred pursuant to Sections 6.1, 6.2, and 7.2 and Exhibits C and F of the Lease; and reasonable overhead and/or management fees for the professional operation of the Project. It is understood and agreed that Project Costs may include competitive charges for direct services (including, without limitation, management and/or operations services) provided by any subsidiary, division or affiliate of Landlord.
(h) The term “Property Taxes” shall include any form of federal, state, county or local government or municipal taxes, fees, charges or other impositions of every kind (whether general, special, ordinary or extraordinary) related to the ownership, leasing or operation of the Premises, Building or Project, including without limitation, the following: (i) all real estate taxes or personal property taxes levied against the Premises, the Building or Project, as such property taxes may be reassessed from time to time; and (ii) other taxes, charges and assessments which are levied with respect to this Lease or to the Building and/or the Project, and any improvements, fixtures and equipment and other property of Landlord located in the Building and/or the Project, (iii) all assessments and fees for public improvements, services, and facilities and impacts thereon, including without limitation arising out of any Community Facilities Districts, “Mello Roos” districts, similar assessment districts, and any traffic impact mitigation assessments or fees; (iv) any tax, surcharge or assessment which shall be levied in addition to or in lieu of real estate or personal property taxes, and (v) taxes based on the receipt of rent (including gross receipts or sales taxes applicable to the receipt of rent), and (vi) costs and expenses incurred in contesting the amount or validity of any Property Tax by appropriate proceedings. Notwithstanding the foregoing, general net income or franchise taxes imposed against Landlord shall be excluded.
(i) Notwithstanding anything to the contrary in the definition of Operating Expenses, Operating Expenses shall not include the following:
(1) Any ground lease rental;
(2) Costs incurred by Landlord with respect to goods and services (including utilities sold and supplied to tenants and occupants of the Building) to the extent that Landlord is reimbursed for such costs other than through the Operating Expense pass-through provisions of such tenants’ lease;
(3) Costs incurred by Landlord for repairs, replacements and/or restoration to or of the Building to the extent that Landlord is reimbursed by insurance or condemnation proceeds or by tenants (other than through Operating Expense pass-throughs), warrantors or other third persons;
(4) Costs, including permit, license and inspection costs, incurred with respect to the installation of tenant improvements made for other tenants in the Building or incurred in renovating or
|
EXHIBIT B -2- |
|
otherwise improving, decorating, painting or redecorating vacant space for tenants or other occupants of the Building;
(5) Costs arising from Landlord’s charitable or political contributions;
(6) Attorneys’ fees and other costs and expenses incurred in connection with negotiations or disputes with present or prospective tenants or other occupants of the Building, except those attorneys’ fees and other costs and expenses incurred in connection with negotiations, disputes or claims relating to items of Operating Expenses, enforcement of rules and regulations of the Building and such other matters relating to the maintenance of standards required of Landlord under this Lease;
(7) Brokers commissions, finders’ fees, attorneys’ fees, entertainment and travel expenses and other costs incurred by Landlord in leasing or attempting to lease space in the Building;
(8) Expenses in connection with services or other benefits which are not offered to Tenant or for which Tenant is charged for directly but which are provided to another tenant or occupant of the Building;
(9) Costs incurred by Landlord due to the violation by Landlord of any law, code, regulation, or ordinance;
(10) Overhead and profit increments paid to subsidiaries or affiliates of Landlord for services provided to the Building to the extent the same exceeds the costs that would generally be charged for such services if rendered on a competitive basis (based upon a standard of similar office buildings in the general market area of the Premises) by unaffiliated third parties capable of providing such service;
(11) Interest on debt or amortization on any mortgage or mortgages encumbering the Building;
(12) Landlord’s general corporate overhead, except as it relates to the specific management, operation, repair, replacement and maintenance of the Building or Project;
(13) Costs of installing the initial landscaping and the initial sculpture, paintings and objects of art for the Building and Project;
(14) Advertising expenditures;
(15) Any bad debt loss, rent loss, or reserves for bad debts or rent loss;
(16) Costs associated with the operation of the business of the partnership or entity which constitutes the Landlord, as the same are distinguished from the costs of the operation, management, repair, replacement and maintenance of the Project, including partnership accounting and legal matters, costs of defending any lawsuits with any mortgagee (except as the actions of Tenant may be in issue), costs of selling, syndicating, financing, mortgaging or hypothecating any of Landlord’s interest in the Project, and costs incurred in connection with any disputes between Landlord and its employees, between Landlord and Project management, or between Landlord and other tenants or occupants;
(17) The wages and benefits of any employee who does not devote substantially all of his or her employed time to the Project unless such wages and benefits are prorated to reflect time spent on operating and managing the Project vis-à-vis time spent on matters unrelated to operating and managing the Project; provided that in no event shall Operating Costs include wages and/or benefits attributable to personnel above the level of portfolio property manager or chief engineer;
(18) Costs incurred by Landlord for improvements or replacements (including structural additions), repairs, equipment and tools which are of a “capital” nature and/or which are considered “capital” improvements or replacements under accounting principles as generally practiced in the real estate industry, except to the extent included in Project Costs pursuant to the definition in subsection (g) above or by other express terms of this Lease; and
(19) Legal fees and costs, settlements, judgments or awards paid or incurred because of disputes between Landlord and other tenants or prospective occupants or prospective tenants/occupants or providers of goods and services to the Project.
(j) Provided Tenant is not then in Default hereunder, Tenant shall have the right to cause a certified public accountant, engaged on a non-contingency fee basis, to audit Operating Expenses by inspecting Landlord’s general ledger of expenses not more than once during any Expense Recovery Period. However, to the extent that insurance premiums are determined by Landlord on the basis of an internal allocation of costs utilizing information Landlord in good faith deems proprietary, such expense component shall not be subject to audit so long as it does not exceed the amount per square foot typically imposed by landlords of other first class office projects in Orange County, California. Tenant shall give notice to Landlord of Tenant’s intent to audit within 90 days after Tenant’s receipt of Landlord’s expense statement which sets forth Landlord’s actual Operating Expenses. Such audit shall be conducted at a mutually agreeable time during normal business hours at the office of Landlord or its management agent where such accounts are
|
EXHIBIT B -3- |
|
maintained. If Tenant’s audit determines that actual Operating Expenses have been overstated by more than 5%, then subject to Landlord’s right to review and/or contest the audit results, Landlord shall reimburse Tenant for the reasonable out-of-pocket costs of such audit. In the event of a dispute between Landlord and Tenant regarding such audit, either party may elect to submit the matter for binding arbitration with the Orange County, California office of JAMS pursuant to its Comprehensive Arbitration Rules and Procedures, unless the parties otherwise agree, and judgment on the arbitration award may be entered in any court having jurisdiction thereof. Tenant’s rent shall be appropriately adjusted to reflect any overstatement in Operating Expenses. All of the information obtained by Tenant and/or its auditor in connection with such audit, as well as any compromise, settlement, or adjustment reached between Landlord and Tenant as a result thereof, shall be held in strict confidence and, except as may be required pursuant to litigation, shall not be disclosed to any third party, directly or indirectly, by Tenant or its auditor or any of their officers, agents or employees. Landlord may require Tenant’s auditor to execute a separate confidentiality agreement affirming the foregoing as a condition precedent to any audit.
|
EXHIBIT B -4- |
|
EXHIBIT C
UTILITIES AND SERVICES
Tenant shall be responsible for and shall pay promptly, directly to the appropriate supplier, all charges for electricity metered to the Premises, telephone, telecommunications service, janitorial service, interior landscape maintenance and all other utilities, materials and services furnished directly to Tenant or the Premises or used by Tenant in, on or about the Premises during the Term, together with any taxes thereon. Landlord shall make a reasonable determination of Tenant’s proportionate share of the cost of water, gas, sewer, refuse pickup and any other utilities and services that are not separately metered to the Premises and services, and Tenant shall pay such amount to Landlord, as an item of additional rent, within 10 days after delivery of Landlord’s statement or invoice therefor. Alternatively, Landlord may elect to include such cost in the definition of Project Costs in which event Tenant shall pay Tenant’s proportionate share of such costs in the manner set forth in Section 4.2. Tenant shall also pay to Landlord as an item of additional rent, within 10 days after delivery of Landlord’s statement or invoice therefor, Landlord’s “standard charges” (as hereinafter defined) for “after hours” usage by Tenant of each HVAC unit servicing the Premises. If the HVAC unit(s) servicing the Premises also serve other leased premises in the Building, “after hours” shall mean usage of said unit(s) before 6:00 A.M. or after 6:00 P.M. on Mondays through Fridays, before 9:00 A.M. or after 1:00 P.M. on Saturdays, and all day on Sundays and nationally-recognized holidays, subject to reasonable adjustment of said hours by Landlord. If the HVAC unit(s) serve only the Premises, “after hours” shall mean more than 66 hours of usage during any week during the Term. “After hours” usage shall be determined based upon the operation of the applicable HVAC unit during each of the foregoing periods on a “non-cumulative” basis (that is, without regard to Tenant’s usage or nonusage of other unit(s) serving the Premises, or of the applicable unit during other periods of the Term). As used herein, “standard charges” shall mean $25.25 for each hour of “after hours” use (inclusive of the applicable electricity charges paid to the utility provider).
|
EXHIBIT C -1- |
|
EXHIBIT D
TENANT’S INSURANCE
The following requirements for Tenant’s insurance shall be in effect during the Term, and Tenant shall also cause any subtenant to comply with the requirements. Landlord reserves the right to adopt reasonable nondiscriminatory modifications and additions to these requirements.
1. Tenant shall maintain, at its sole cost and expense, during the entire Term: (i) commercial general liability insurance with respect to the Premises and the operations of Tenant in, on or about the Premises, on a policy form that is at least as broad as Insurance Service Office (ISO) CGL 00 01 (if alcoholic beverages are sold on the Premises, liquor liability shall be explicitly covered), which policy(ies) shall be written on an “occurrence” basis and for not less than $2,000,000 combined single limit per occurrence for bodily injury, personal injury, death, and property damage liability; such policy shall include, but not be limited to bodily injury, personal injury, blanket contractual liability, products/completed operations, broad form property damage liability and independent contractor’s liability coverage; (ii) workers’ compensation insurance coverage as required by law, together with employers’ liability insurance coverage of at least $1,000,000 each employee, each accident and each disease; (iii) with respect to Alterations constructed by Tenant under this Lease, builder’s risk insurance, in an amount equal to the replacement cost of the work; and (iv) insurance against fire, vandalism, malicious mischief and such other additional perils as may be included in a standard “special form” policy, insuring all Alterations, trade fixtures, furnishings, equipment and items of personal property in the Premises, in an amount equal to not less than 90% of their replacement cost (with replacement cost endorsement), which policy shall also include business interruption coverage in an amount sufficient to cover 1 year of loss. In no event shall the limits of any policy be considered as limiting the liability of Tenant under this Lease.
2. All policies of insurance required to be carried by Tenant pursuant to this Exhibit D shall be written by insurance companies authorized to do business in the State of California and with a general policyholder rating of not less than “A-” and financial rating of not less than “VIII” in the most current Best’s Insurance Report. The deductible, self-insured retention or other retained limit under any policy carried by Tenant shall not exceed $25,000 unless approved in writing by Landlord, and Tenant shall be responsible for payment of such deductible, self-insured retention or retained limit with waiver of subrogation in favor of Landlord. Landlord may, without any obligation to do so, advance or pay any deductible, self-insured retention or retained limit due on any claim that may involve it or its officers, directors or employees. Any insurance required of Tenant may be furnished by Tenant under any blanket policy carried by it or under a separate policy. A certificate of insurance, certifying that the policy has been issued, provides the coverage required by this Exhibit and contains the required provisions, together with endorsements acceptable to Landlord evidencing the waiver of subrogation and additional insured provisions required below, shall be delivered to Landlord prior to the date Tenant is given the right of possession of the Premises. Proper evidence of the renewal of any insurance coverage shall also be delivered to Landlord not less than 30 days prior to the expiration of the coverage. In the event of a loss covered by any policy under which Landlord is an additional insured, Landlord shall be entitled to review a copy of such policy.
3. Tenant’s commercial general liability insurance shall contain a provision that the policy(ies) shall be primary to and noncontributory with any insurance or self-insurance carried by Landlord, together with a provision including Landlord, The Irvine Company LLC, and all entities controlling, controlled by, or under common control with Landlord, together with their respective owners, shareholders, partners, members, divisions, officers, directors, employees, representatives and agents, and all of their respective successors and assigns as additional insureds. It shall not include any exclusions or limitations applicable to the Additional Insureds that are not applicable to Tenant nor an insured vs. insured exclusion.
4. Tenant’s policies described in Subsections 1 (i), (ii), (iii) and (iv) above shall each contain a waiver by the insurer of any right to subrogation against Landlord and all entities controlling, controlled by, or under common control with Landlord, together with their respective owners, shareholders, partners, members, divisions, officers, directors, employees, representatives and agents, and all of their respective successors and assigns. Tenant also waives its right of recovery for any deductible, self-insured retention or retained limit under same policies enumerated above.
5. All of Tenant’s policies shall contain a provision that the insurer will not cancel or change the coverage provided by the policy without first giving Landlord 30 days’ prior written notice. Tenant shall also name Landlord as an additional insured on any excess or umbrella liability insurance policy(ies) carried by Tenant.
6. VENDORS AND CONTRACTORS INSURANCE. It Tenant hires any vendor or contractor to complete work on the Premises; Tenant shall cause such vendor or contractor to comply with the following insurance requirements:
A. Commercial general liability insurance with coverage limits of not less than $1,000,000 combined single limit for bodily injury, personal injury, death and property damage liability per occurrence or the current limit carried by vendor or contractor, whichever is greater,
|
EXHIBIT D -1- |
|
B. Worker’s compensation coverage as required by Law, including employer’s liability coverage with a limit of not less than One Million Dollars ($1,000,000) each employee, each accident and each disease.
C. Vendor or Contractor and its insurer(s) providing the insurance coverages described in this Section 6 Parts A, and B above, shall waive any and all rights of recovery against Landlord and all entities controlling, controlled by, or under common control with Landlord, together with their respective owners, shareholders, partners, members, divisions, officers, directors, employees, representatives and agents, and all of their respective successors.
D. The commercial general liability insurance policy required in Section 6 Part A, shall name Landlord and all entities controlling, controlled by, or under common control with Landlord, together with their respective owners, shareholders, partners, members, divisions, officers, directors, employees, representatives and agents, and all of their respective successors as additional insured for both operations and product completed operations coverage. Such coverage shall be primary and non-contributory to any insurance or self-insurance carried by Landlord and all entities controlling, controlled by, or under common control with Landlord.
NOTICE TO TENANT: IN ACCORDANCE WITH THE TERMS OF THIS LEASE, TENANT MUST PROVIDE EVIDENCE OF THE REQUIRED INSURANCE TO LANDLORD’S MANAGEMENT AGENT PRIOR TO BEING AFFORDED ACCESS TO THE PREMISES.
|
EXHIBIT D -2- |
|
EXHIBIT E
RULES AND REGULATIONS
The following Rules and Regulations shall be in effect at the Building. Landlord reserves the right to adopt reasonable nondiscriminatory modifications and additions at any time. In the case of any conflict between these regulations and the Lease, the Lease shall be controlling.
1. The sidewalks, halls, passages, elevators, stairways, and other common areas shall not be obstructed by Tenant or used by it for storage, for depositing items, or for any purpose other than for ingress to and egress from the Premises. Should Tenant have access to any balcony or patio area, Tenant shall not place any furniture other personal property in such area without the prior written approval of Landlord.
2. Neither Tenant nor any employee or contractor of Tenant shall go upon the roof of the Building without the prior written consent of Landlord.
3. Tenant shall, at its expense, be required to utilize the third party contractor designated by Landlord for the Building to provide any telephone wiring services from the minimum point of entry of the telephone cable in the Building to the Premises.
4. No antenna or satellite dish shall be installed by Tenant without the prior written agreement of Landlord.
5. The sashes, sash doors, windows, glass lights, solar film and/or screen, and any lights or skylights that reflect or admit light into the halls or other places of the Building shall not be covered or obstructed. If Landlord, by a notice in writing to Tenant, shall object to any curtain, blind, tinting, shade or screen attached to, or hung in, or used in connection with, any window or door of the Premises, the use of that curtain, blind, tinting, shade or screen shall be immediately discontinued and removed by Tenant. Interior of the Premises visible from the exterior must be maintained in a visually professional manner and consistent with a first class office building. Tenant shall not place any unsightly items (as determined by Landlord in its reasonable discretion) along the exterior glass line of the Premises including, but not limited to, boxes, and electrical and data cords. No awnings shall be permitted on any part of the Premises.
6. The installation and location of any unusually heavy equipment in the Premises, including without limitation file storage units, safes and electronic data processing equipment, shall require the prior written approval of Landlord. The moving of large or heavy objects shall occur only between those hours as may be designated by, and only upon previous notice to, Landlord. No freight, furniture or bulky matter of any description shall be received into or moved out of the lobby of the Building or carried in any elevator other than the freight elevator (if available) designated by Landlord unless approved in writing by Landlord.
7. Any pipes or tubing used by Tenant to transmit water to an appliance or device in the Premises must be made of copper or stainless steel, and in no event shall plastic tubing be used for that purpose.
8. Tenant shall not place any lock(s) on any door in the Premises or Building without Landlord’s prior written consent, which consent shall not be unreasonably withheld. Upon the termination of its tenancy, Tenant shall deliver to Landlord all the keys to offices, rooms and toilet rooms and all access cards which shall have been furnished to Tenant or which Tenant shall have had made.
9. Tenant shall not install equipment requiring electrical or air conditioning service in excess of that to be provided by Landlord under the Lease without prior written approval from Landlord.
10. Tenant shall not use space heaters within the Premises.
11. Tenant shall not do or permit anything to be done in the Premises, or bring or keep anything in the Premises, which shall in any way increase the insurance on the Building, or on the property kept in the Building, or interfere with the rights of other tenants, or conflict with any government rule or regulation.
12. Tenant shall not use or keep any foul or noxious gas or substance in the Premises.
13. Tenant shall not permit the Premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the Building by reason of noise, odors and/or vibrations, or interfere in any way with other tenants or those having business with other tenants.
14. Tenant shall not permit any pets or animals in or about the Building. Bona fide service animals are permitted provided such service animals are pre-approved by Landlord, remain under the direct control of the individual they serve at all times, and do not disturb or threaten others.
15. Neither Tenant nor its employees, agents, contractors, invitees or licensees shall bring any firearm, whether loaded or unloaded, into the Project at any time.
16. Smoking tobacco, including via personal vaporizers or other electronic cigarettes, anywhere within the Premises, Building or Project is strictly prohibited except that smoking tobacco may be permitted outside the Building and within the Project only in areas designated by Landlord. Smoking,
|
EXHIBIT E -1- |
|
vaping, distributing, growing or manufacturing marijuana or any marijuana derivative anywhere within the Premises, Building or Project is strictly prohibited.
17. Tenant shall not install an aquarium of any size in the Premises unless otherwise approved by Landlord.
18. Tenant shall not utilize any name selected by Landlord from time to time for the Building and/or the Project as any part of Tenant’s corporate or trade name. Landlord shall have the right to change the name, number or designation of the Building or Project without liability to Tenant. Tenant shall not use any picture of the Building in its advertising, stationery or in any other manner.
19. Tenant shall, upon request by Landlord, supply Landlord with the names and telephone numbers of personnel designated by Tenant to be contacted on an after-hours basis should circumstances warrant.
20. Landlord may from time to time grant tenants individual and temporary variances from these Rules, provided that any variance does not have a material adverse effect on the use and enjoyment of the Premises by Tenant.
21. Fitness Center Rules. Tenant shall cause its employees (whether members or prospective members of the Fitness Center) to comply with the following Fitness Center rules and regulations (subject to change from time to time as Landlord may solely determine):
(a) Membership in the Fitness Center is open to the tenants of Landlord or its affiliates only. No guests will be permitted to use the Fitness Center without the prior written approval of Landlord or Landlord’s representative.
(b) Fitness Center users are not allowed to be in the Fitness Center other than the hours designated by Landlord from time to time. Landlord shall have the right to alter the hours of use of the Fitness Center, at Landlord’s sole discretion.
(c) All Fitness Center users must execute Landlord’s Waiver of Liability prior to use of the Fitness Center and agree to all terms and conditions outlined therein.
(d) Individual membership and guest keycards to the Fitness Center shall not be shared and shall only be used by the individual to whom such keycard was issued. Failure to abide by this rule may result in immediate termination of such Fitness Center user’s right to use the Fitness Center.
(e) All Fitness Center users and approved guests must have a pre-authorized keycard to enter the Fitness Center. A pre-authorized keycard shall not be issued to a prospective Fitness Center user until receipt by Landlord of Landlord’s initial fee, if any, for use of the Fitness Center by such Fitness Center user(s).
(f) Use of the Fitness Center is a privilege and not a right. Failure to follow gym rules or to act inappropriately while using the facilities shall result in termination of Tenant’s Fitness Center privileges.
|
EXHIBIT E -2- |
|
EXHIBIT F
PARKING
Tenant shall be entitled to the number of vehicle parking spaces set forth in Item 11 of the Basic Lease Provisions, which spaces shall be unreserved and unassigned and no charge to Tenant during the initial 60-month Term, on those portions of the Common Areas designated by Landlord for parking. Tenant shall not use more parking spaces than such number. All parking spaces shall be used only for parking of vehicles no larger than full size passenger automobiles, sport utility vehicles or pickup trucks. Tenant shall not permit or allow any vehicles that belong to or are controlled by Tenant or Tenant’s employees, suppliers, shippers, customers or invitees to be loaded, unloaded or parked in areas other than those designated by Landlord for such activities. If Tenant permits or allows any of the prohibited activities described above, then Landlord shall have the right, without notice, in addition to such other rights and remedies that Landlord may have, to remove or tow away the vehicle involved and charge the costs to Tenant. Parking within the Common Areas shall be limited to striped parking stalls, and no parking shall be permitted in any driveways, access ways or in any area which would prohibit or impede the free flow of traffic within the Common Areas. There shall be no parking of any vehicles for longer than a 48 hour period unless otherwise authorized by Landlord, and vehicles which have been abandoned or parked in violation of the terms hereof may be towed away at the owner’s expense. Nothing contained in this Lease shall be deemed to create liability upon Landlord for any damage to motor vehicles of visitors or employees, for any loss of property from within those motor vehicles, or for any injury to Tenant, its visitors or employees, unless ultimately determined to be caused by the sole negligence or willful misconduct of Landlord. Landlord shall have the right to establish, and from time to time amend, and to enforce against all users all reasonable rules and regulations (including the designation of areas for employee parking) that Landlord may deem necessary and advisable for the proper and efficient operation and maintenance of parking within the Common Areas. Landlord shall have the right to construct, maintain and operate lighting facilities within the parking areas; to change the area, level, location and arrangement of the parking areas and improvements therein; to restrict parking by tenants, their officers, agents and employees to employee parking areas; to enforce parking charges (by operation of meters or otherwise); and to do and perform such other acts in and to the parking areas and improvements therein as, in the use of good business judgment, Landlord shall determine to be advisable. Any person using the parking area shall observe all directional signs and arrows and any posted speed limits. In no event shall Tenant interfere with the use and enjoyment of the parking area by other tenants of the Project or their employees or invitees. Parking areas shall be used only for parking vehicles. Washing, waxing, cleaning or servicing of vehicles, or the storage of vehicles for longer than 48-hours, is prohibited unless otherwise authorized by Landlord. Tenant shall be liable for any damage to the parking areas caused by Tenant or Tenant’s employees, suppliers, shippers, customers or invitees, including without limitation damage from excess oil leakage. Tenant shall have no right to install any fixtures, equipment or personal property in the parking areas. Tenant shall not assign or sublet any of the vehicle parking spaces, either voluntarily or by operation of law, without the prior written consent of Landlord, except in connection with an authorized assignment of this Lease or subletting of the Premises.
|
EXHIBIT F -1- |
|
EXHIBIT G
ADDITIONAL PROVISIONS
1. RIGHT TO EXTEND. Provided that Tenant is not in Default under any provision of this Lease at the time of exercise of the extension right granted herein, and provided further that Tenant is occupying the entire Premises and has not assigned or sublet any of its interest in this Lease (except in connection with a Permitted Transfer of this Lease to an Affiliate as described in Section 9.2 hereof), Tenant may extend the Term of this Lease for one period of 36 months. Tenant shall exercise its right to extend the Term by and only by delivering to Landlord, not less than 9 months nor more than 12 months prior to the expiration date of the Term, Tenant’s written notice of its irrevocable commitment to extend (the “Commitment Notice”). Should Tenant fail timely to deliver the Commitment Notice, then this extension right shall thereupon lapse and be of no further force or effect.
The Basic Rent payable under the Lease during the extension of the Term shall be at the prevailing market rental rate (including periodic adjustments) for comparable and similarly improved office space being leased by Landlord in the Building or Project as of the commencement of the extension period (the “Prevailing Rate”). In the event that the parties are not able to agree on the Prevailing Rate within 120 days prior to the expiration date of the Term, then either party may elect, by written notice to the other party, to cause said rental, including subsequent adjustments, to be determined by appraisal as follows.
Within 10 days following receipt of such appraisal election, the parties shall attempt to agree on an appraiser to determine the Prevailing Rate. If the parties are unable to agree in that time, then each party shall designate an appraiser within 10 days thereafter. Should either party fail to so designate an appraiser within that time, then the appraiser designated by the other party shall determine the Prevailing Rate. Should each of the parties timely designate an appraiser, then the two appraisers so designated shall appoint a third appraiser who shall, acting alone, determine the fair market rental value of the Premises. Any appraiser designated hereunder shall have an M.A.I. certification or equivalent with not less than 5 years’ experience in the valuation of commercial office buildings in Orange County, California.
Within 10 days following the selection of the appraiser, Landlord and Tenant shall each submit in writing to the appraiser its determination of the rental rate for the extension period (respectively, the “Landlord’s Determination” and the “Tenant’s Determination”). Should either party fail timely to submit its rental determination, then the determination of the other party shall be conclusive and binding on the parties. The appraiser shall not disclose to either party the rental determination of the other party until the expiration of that 10-day period or, if sooner, the appraiser’s receipt of both the Landlord’s Determination and the Tenant’s Determination.
Within 30 days following the selection of the appraiser and such appraiser’s receipt of the Landlord’s Determination and the Tenant’s Determination, the appraiser shall determine whether the rental rate determined by Landlord or by Tenant more accurately reflects Prevailing Rate for the Premises, as reasonably extrapolated to the commencement of the extension term. Accordingly, either the Landlord’s Determination or the Tenant’s Determination shall be selected by the appraiser as the fair market rental rate for the extension period. In determining such value, the appraiser shall first consider rental comparables for the Building and the Project, provided that if adequate comparables do not exist then the appraiser may consider transactions involving similarly improved space owned by Landlord or its affiliates in the vicinity with appropriate adjustments for differences in location and quality of project. In no event shall the appraiser attribute factors for brokerage commissions to reduce said fair market rental. At any time before the decision of the appraiser is rendered, either party may, by written notice to the other party, accept the rental terms submitted by the other party, in which event such terms shall be deemed adopted as the agreed fair market rental. The fees of the appraiser(s) shall be shared equally by both parties.
Within 20 days after the determination of the Prevailing Rate, Landlord shall prepare a reasonably appropriate amendment to this Lease for the extension period and Tenant shall execute (or make reasonable comments thereto) and return same to Landlord within 10 days. Should the Prevailing Rate not be established by the commencement of the extension period, then Tenant shall continue paying rent at the rate in effect during the last month of the initial Term, and a lump sum adjustment shall be made promptly upon the determination of such new rental.
If Tenant fails to timely comply with any of the provisions of this paragraph, Tenant’s right to extend the Term may, at Landlord’s election and in addition to any other remedies that may be available to Landlord, be extinguished, in which event the Lease shall automatically terminate as of the initial expiration date of the Term. Any attempt to assign or transfer any right or interest created by this Section to other than an Affiliate shall be void from its inception. Tenant shall have no other right to extend the Term beyond the single 36-month extension created by this Section. Unless agreed to in a writing signed by Landlord and Tenant, any extension of the Term, whether created by an amendment to this Lease or by a holdover of the Premises by Tenant, or otherwise, shall be deemed a part of, and not in addition to, any duly exercised extension period permitted by this paragraph. Time is specifically made of the essence in this Section.
2. RIGHT OF FIRST OFFER. Provided Tenant is not then in Default hereunder, and provided further that Tenant is occupying the entire Premises and has not assigned or sublet any of its interest in the Lease (except in connection with a Permitted Transfer of this Lease to an Affiliate as described in Section
|
EXHIBIT G -1- |
|
9.2 hereof), Landlord hereby grants Tenant a one-time right (“First Right”) to lease, during the initial 60-month Term, either (i) approximately 4,286 rentable square feet of office space known as Suite No. 200 in the Building or (ii) approximately 2,598 rentable square feet of office space known as Suite No. 270 (each, the “First Right Space”) and shown on Exhibit G-1 hereto in accordance with and subject to the provisions of this Section; provided that this First Right shall cease to be effective during the final 12 months of the Term unless and until Tenant exercises its extension option set forth in Section 1 of this Exhibit G. If, at any time after the Commencement Date and while this First Right is in effect, Landlord desires to lease the First Right Space, or any portion thereof, to any third party, Landlord shall give Tenant written notice of the basic economic terms including but not limited to the Basic Rent, term, operating expense base, security deposit, and tenant improvement allowance (collectively, the “Economic Terms”), upon which Landlord is willing to lease such particular First Right Space to Tenant or to a third party; provided that the Economic Terms shall exclude brokerage commissions and other Landlord payments that do not directly inure to the tenant’s benefit. It is understood that should Landlord intend to lease other office space in addition to the First Right Space as part of a single transaction, then Landlord’s notice shall so provide and all such space shall collectively be subject to the following provisions. Within 3 business days after receipt of Landlord’s notice, Tenant must give Landlord written notice pursuant to which Tenant shall elect to (i) lease all, but not less than all, of the space specified in Landlord’s notice (the “Designated Space”) upon such Economic Terms and the same non-Economic Terms as set forth in this Lease; (ii) refuse to lease the Designated Space, specifying that such refusal is not based upon the Economic Terms, but upon Tenant’s lack of need for the Designated Space, in which event Landlord may lease the Designated Space upon any terms it deems appropriate; or (iii) refuse to lease the Designated Space, specifying that such refusal is based upon said Economic Terms, in which event Tenant shall also specify revised Economic Terms upon which Tenant shall be willing to lease the Designated Space. In the event that Tenant does not so respond in writing to Landlord’s notice within said period, Tenant shall be deemed to have elected clause (ii) above. In the event Tenant gives Landlord notice pursuant to clause (iii) above, Landlord may elect to either (x) lease the Designated Space to Tenant upon such revised Economic Terms and the same other non-Economic Terms as set forth in this Lease, or (y) lease the Designated Space to any third party upon Economic Terms which are not materially more favorable to such party than those Economic Terms proposed by Tenant. Should Landlord so elect to lease the Designated Space to Tenant, then Landlord shall promptly prepare and deliver to Tenant an amendment to this Lease consistent with the foregoing, and Tenant shall execute (or make reasonable comments thereto) and return same to Landlord within 10 days. Tenant’s failure to timely return the amendment shall entitle Landlord to specifically enforce Tenant’s commitment to lease the Designated Space, to lease such space to a third party, and/or to pursue any other available legal remedy. Notwithstanding the foregoing, it is understood that Tenant’s First Right shall be subject to any extension or currently existing expansion rights previously granted by Landlord to any third party tenant in the Building, as well as to any such rights which may hereafter be granted by Landlord to any third party tenant occupying the First Right Space or any portion thereof, and Landlord shall in no event be obligated to initiate this First Right prior to leasing any portion of the First Right Space to the then-current occupant thereof. Tenant’s rights under this Section shall be personal to the original Tenant named in this Lease and may not be assigned or transferred (except in connection with a Permitted Transfer of this Lease to an Affiliate as described in Section 9.2 hereof). Any other attempted assignment or transfer shall be void and of no force or effect. Time is specifically made of the essence of this Section.
3. FITNESS CENTER. Subject to the provisions of this Section, so long as Tenant retains the right of possession of the Premises, and provided Tenant’s employees execute Landlord’s standard waiver of liability form and pay the applicable one time or monthly fee, if any, then Tenant’s employees (the “Fitness Center Users”) shall be entitled to use the fitness center and the shower facility located at the Project (collectively, the “Fitness Center”). No separate charges shall be assessed to Fitness Center Users for the use of the Fitness Center (with the exception of towel/laundry fees, if any) during the initial Term of this Lease, provided, however, that the costs of operating, maintaining and repairing the Fitness Center shall be included as part of Operating Expenses. The use of the Fitness Center shall be subject to the reasonable rules and regulations (including rules regarding hours of use) established from time to time by Landlord. Landlord and Tenant acknowledge that the use of the Fitness Center by the Fitness Center Users shall be at their own risk and that the terms and provisions of Section 10.2 of this Lease shall apply to Tenant and the Fitness Center User’s use of the Fitness Center. Tenant acknowledges that the provisions of this Section shall not be deemed to be a representation by Landlord that Landlord shall continuously maintain the Fitness Center (or any other fitness facility) throughout the Term of this Lease, and Landlord shall have the right, at Landlord’s sole discretion, to expand, contract, eliminate or otherwise modify the Fitness Center. No expansion, contraction, elimination or modification of the Fitness Center, and no termination of Tenant’s or the Fitness Center Users’ rights to the Fitness Center shall entitle Tenant to an abatement or reduction in Basic Rent constitute a constructive eviction, or result in an event of default by Landlord under this Lease. Landlord reserves the right to reasonably limit, restrain, or condition the use of the Fitness Center by tenants of the Building (including Tenant’s Fitness Center Users) if Landlord reasonably determines that their use of the Fitness Center has a disproportionate and/or inequitable impact on the ability of other tenants to use the Fitness Center. Tenant hereby voluntarily releases, discharges, waives and relinquishes any and all actions or causes of action for personal injury or property damage occurring to Tenant or its employees or agents arising as a result of the use of the Fitness Center, or any activities incidental thereto, wherever or however the same may occur, and further agrees that Tenant will not prosecute any claim for personal injury or property damage against Landlord or any of its officers, agents, servants or employees for any said causes of action. It is the intention of Tenant with respect to the Fitness Center to exempt and relieve Landlord from liability for personal injury or property damage caused by negligence. Tenant’s right to use the Fitness Center shall belong solely to Tenant and may not be transferred or assigned without Landlord’s prior written consent, which may be withheld by Landlord in Landlord’s sole discretion.
|
EXHIBIT G -2- |
|
4. CONFERENCE CENTER. Landlord currently provides a conference center (the “Conference Center”) in the Project capable of accommodating groups of people for use by Project tenants (including Tenant) on a reserved basis. Tenant shall, subject to availability, have the use of the Conference Center subject to Landlord’s procedures and charges, if any. The use of the Conference Center shall be subject to the reasonable rules and regulations (including rules regarding hours of use and priorities for the tenants of the particular building in which a Conference Center is located, set up and clean up charges, etc.) established from time to time by Landlord for the Conference Center. Landlord and Tenant acknowledge that the terms and provisions of Section 10.2 of this Lease shall apply to Tenant’s use of the Conference Center. Further, Landlord shall have no liability whatsoever with respect to the existence, condition or availability of any Conference Center nor shall Landlord have any obligation whatsoever to enforce or make reservations thereof, and Tenant hereby expressly waives all claims against Landlord with respect to the same. No expansion, contraction, elimination, unavailability or modification of the Conference Center, and no termination of or interference with Tenant’s rights to the Conference Center, shall entitle Tenant to an abatement or reduction in rent or constitute a constructive eviction or an event of default by Landlord under this Lease.
|
EXHIBIT G -3- |
|
EXHIBIT X
WORK LETTER
BUILD TO SUIT
Landlord, at Landlord’s expense, shall cause its contractor to construct the tenant improvements (the “Tenant Improvements”) for the Premises as shown in the space plan (the “Plan”) prepared by LPA and dated April 13, 2023, excluding all alternates. Any additional cost resulting from changes requested by Tenant shall be borne solely by Tenant and paid to Landlord prior to the commencement of construction. Unless otherwise specified in the Plan or hereafter agreed in writing by Landlord and Tenant, all materials and finishes utilized in constructing the Tenant Improvements shall be Landlord’s building standard. Should Landlord submit any additional plans, equipment specification sheets, or other matters to Tenant for approval or completion, Tenant shall respond in writing, as appropriate, within 5 business days unless a shorter period is provided herein. Tenant shall not unreasonably withhold its approval of any matter, and any disapproval shall be limited to items not previously approved by Tenant in the Plan or otherwise. Landlord shall not be responsible for the installation or removal costs associated with the accordion wall or server door to common area.
In the event that Tenant requests in writing a revision in the Plan or in any other plans hereafter approved by Tenant, then provided such change request is acceptable to Landlord, Landlord shall advise Tenant by written change order of any additional cost such change would cause. Tenant shall approve or disapprove such change order in writing within 5 business days following its receipt. Tenant’s approval of a change order shall not be effective unless accompanied by payment in full of the additional cost of the tenant improvement work resulting from the change order. It is understood that Landlord shall have no obligation to interrupt or modify the tenant improvement work pending Tenant’s approval of a change order.
Notwithstanding any provision in the Lease to the contrary, if Tenant fails to comply with any of the time periods specified in this Work Letter, requests any changes to the work, fails to make timely payment of any sum due hereunder, furnishes inaccurate or erroneous specifications or other information, or otherwise delays in any manner the completion of the Tenant Improvements or the issuance of an occupancy certificate (any of the foregoing being referred to in this Lease as a “Tenant Delay”), then Tenant shall bear any resulting additional construction cost or other expenses and the Commencement Date shall be deemed to have occurred for all purposes, including Tenant’s obligation to pay Rent, as of the date Landlord reasonably determines that it would have been able to deliver the Premises to Tenant but for the collective Tenant Delays.
Landlord shall permit Tenant and its agents to enter the Premises not less than 15 and not more than 30 days prior to the Commencement Date of the Lease in order that Tenant may perform any work to be performed by Tenant hereunder through its own contractors, subject to Landlord’s prior written approval, and in a manner and upon terms and conditions and at times satisfactory to Landlord’s representative. The foregoing license to enter the Premises prior to the Commencement Date is, however, conditioned upon Tenant’s contractors and their subcontractors and employees working in harmony and not interfering with the work being performed by Landlord. If at any time that entry shall cause disharmony or interfere with the work being performed by Landlord, this license may be withdrawn by Landlord upon 24 hours written notice to Tenant. That license is further conditioned upon the compliance by Tenant’s contractors with all requirements imposed by Landlord on third party contractors, including without limitation the maintenance by Tenant and its contractors and subcontractors of workers’ compensation and public liability and property damage insurance in amounts and with companies and on forms satisfactory to Landlord, with certificates of such insurance being furnished to Landlord prior to proceeding with any such entry. The entry shall be deemed to be under all of the provisions of the Lease except as to the covenants to pay Rent unless Tenant commences business activities within the Premises. Landlord shall not be liable in any way for any injury, loss or damage which may occur to any such work being performed by Tenant, the same being solely at Tenant’s risk. In no event shall the failure of Tenant’s contractors to complete any work in the Premises extend the Commencement Date of this Lease.
Tenant hereby designates David Fencil, Email: dfencil@avitamedical.com, as its representative, agent and attorney-in-fact for the purpose of receiving notices, approving submittals and issuing requests for changes, and Landlord shall be entitled to rely upon authorizations and directives of such person(s) as if given by Tenant. Tenant may amend the designation of its construction representative(s) at any time upon delivery of written notice to Landlord.
|
EXHIBIT X -1- |
|
EXHIBIT Y
UCI Research Park
|
STYLEREF zExhibitLabel \* MERGEFORMAT EXHIBIT Y -1- |
|
Exhibit 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, James Corbett, certify that:
Date: May 11, 2023 |
|
/s/ James Corbett |
|
|
|
Name: |
James Corbett |
|
|
Title: |
President and Chief Executive Officer |
|
|
|
(Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Sean Ekins, certify that:
Date: May 11, 2023 |
|
/s/ Sean Ekins |
|
|
|
Name: |
Sean Ekins |
|
|
Title: |
Interim Chief Financial Offer (Principal Financial and Accounting Officer) |
Exhibit 32
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), each of the undersigned officers of AVITA Medical, Inc. (the “Company”), does hereby certify, to such officer’s knowledge, that:
The Quarterly Report on Form 10-Q for the period ended March 31, 2023 of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
|
|
|
Dated: May 11, 2023 |
|
/s/ James Corbett
|
|
|
|
Name: |
James Corbett |
|
|
Title: |
President and Chief Executive Officer |
|
|
|
(Principal Executive Officer) |
|
|
|
|
Dated: May 11, 2023 |
|
/s/ Sean Ekins
|
|
|
|
Name: |
Sean Ekins |
|
|
Title: |
Interim Chief Financial Officer |
|
|
|
(Principal Financial and Accounting Officer) |
These certifications are furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certifications will not be deemed to be incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates them by reference.