NOTE 4 —LICENSE AGREEMENTS

Xoma License Agreement

On December 6, 2017, the Company entered into a license agreement (“License Agreement”) with XOMA Corporation (“Xoma”), through its wholly-owned subsidiary, XOMA (US) LLC, pursuant to which Xoma granted an exclusive global license to the Company to develop and commercialize Xoma 358 (formerly X358, now RZ358) for all indications. Xoma and the Company concurrently entered into a Common Stock purchase agreement (together with the License Agreement, the “Transaction Documents”) pursuant to which the Company would issue equity securities to Xoma in connection with certain financing milestones.  On March 30, 2018, Xoma and the Company amended the Transaction Documents to add terms specifying the financial responsibility for certain tasks related to the technology transfer and to adjust the number of shares issuable to Xoma under the purchase agreement.

On March 30, 2018, the Company amended the Transaction Documents whereby the License Agreement was amended to add terms specifying the financial responsibility for certain tasks related to the technology transfer, and the purchase agreement was amended to (i) adjust the total shares of Common Stock issuable at the initial closing from $5.0 million in value to 7.0 million shares; (ii) increase the shares of Common Stock due upon a qualified financing from $7.0 million in value to $8.5 million in value; and (iii) increase the shares issuable in 2019 from $7.0 million in value to $8.5 million in value. In April 2018, the issuance of Fiscal 2018 Notes discussed in Note 5 triggered to obligation to issue 8.1 million shares of Common Stock to Xoma. This issuance satisfied the obligations discussed above to issue 7.0 million shares and a portion of the qualified financing shares up to $8.5 million in value.

On January 7, 2019, the parties further amended the Transaction Documents.  The License Agreement was amended to eliminate the requirement that equity securities be issued to Xoma upon the future closing of certain qualified and to replace it with a requirement for the Company to make five cash payments to Xoma totaling $8.5 million on or before specified staggered future dates (the “Future Cash Payments”).  The Future Cash Payments are due for $1.5 million by September 30, 2019, $1.0 million by December 31, 2019, $2.0 million by March 31, 2020, $2.0 million by June 30, 2020, and $2.0 million by September 30, 2020. As a result of this amendment to the License Agreement, the Company recognized a liability for the entire $8.5 million of Future Cash Payments that are required. Of this amount, $6.5 million is classified as a current liability and $2.0 million is classified as a long-term liability in the accompanying consolidated balance sheet as of June 30, 2019.

If a future qualified financing occurs before the Future Cash Payments are fully paid, the Company is required to pay Xoma 15% of the net proceeds of such future qualified financing (“Early Payments”) to be credited against the remaining unpaid Future Cash Payments in the reverse order of their future payment date.  Obligations to make the Future Cash Payments following a qualified financing and the obligations to make Early Payments shall end when the Future Cash Payments are fully paid for the total of $8.5 million.  As discussed in Note 13, the Company completed equity financings for net proceeds of approximately $22.6 million in July and August 2019, which resulted in the obligation to make Early Payments of approximately $3.4 million. The Early Payments were paid in August 2019 and eliminated the Future Cash Payments that would have otherwise been due on September 30, 2020 for $2.0 million and on June 30, 2020 for approximately $1.4 million.

In addition to the Future Cash Payments, Xoma was paid approximately $5.9 million in cash upon the closing of the Series AA Financing discussed in Note 6, which consisted of $5.5 million of consideration for the license, $50,000 for a delay fee, and payment of accrued liabilities of approximately $0.4 million. The Company recognized an expense of $5.5 million upon payment of the license fee and the delay fee for the fiscal year ended June 30, 2019. The Company satisfied the aggregate payment of $5.9 million in February 2019 from a portion of the net proceeds from the Series AA Financing.

The amendment to the License Agreement also revised the amount the Company is required to expend on development of RZ358 and related licensed products and revised provisions with respect to the Company’s diligence efforts in conducting clinical studies. Finally, the amendment to the License Agreement eliminated Xoma’s previous right to appoint a member to the Company’s board of directors.

As of June 30, 2019, Xoma owns approximately 8.1 million shares of the Company’s Common Stock. The License Agreement provides Xoma with the right and option to require the Company to use its best efforts to facilitate orderly sales of the shares to a third party or purchase the shares (the “Put Option”). Under the amended License Agreement, the Put Option becomes effective if the Company fails to list its shares of Common Stock on the Nasdaq Stock Market or a similar national exchange prior to December 31, 2019. Xoma may exercise the Put option for up to a total of 2.5 million shares of Common Stock for the fiscal year ending December 31, 2020, and up to an additional 2.5 million shares thereafter. If the Put Option becomes exercisable, the Company may be required to pay a price per share equal to the average of the closing bid and asked prices of the Common Stock on the date the Put Option is exercised.

ActiveSite License Agreement

On August 4, 2017, the Company entered into a Development and License Agreement with ActiveSite Pharmaceuticals, Inc.  (“ActiveSite”) pursuant to which the Company acquired the rights to ActiveSite’s Plasma Kallikrein Inhibitor program (“PKI Program”).  The Company desires to use the PKI Program to develop, file, manufacture, market and sell products for diabetic macular edema and other human therapeutic indications. The Company was required to make an upfront payment of $750,000, which was charged to research and development license costs for the fiscal year ended June 30, 2018. The ActiveSite License Agreement also requires various milestone payments ranging from $1.0 million to $10.0 million when milestone events occur up to an aggregate of $36.0 million of aggregate milestone payments. The first milestone payment for $1.0 million is due after completion of the preclinical work and submission of an IND application to the FDA. The Company is also required to pay royalties equal to 2.0% of any sales of products that use the PKI Program, up to a maximum of $10.0 million in total royalty payments. Through June 30, 2019, no milestone payments and royalties have been incurred.