Exhibit 10.1

 

Execution Version

 

INVESTOR RIGHTS AGREEMENT

 

This Investor Rights Agreement (this “Agreement”) is made and entered into as of
April 22, 2020 by and between Entasis Therapeutics Holdings Inc., a Delaware
corporation (the “Company”), and Innoviva, Inc., a Delaware corporation (the
“Purchaser”), in connection with that certain Securities Purchase Agreement,
dated as of April 12, 2020, by and between the Company and the Purchaser (the
“Purchase Agreement”). Capitalized terms used herein have the respective
meanings ascribed thereto in the Purchase Agreement unless otherwise defined
herein.

 

The parties hereby agree as follows:

 

1.Certain Definitions.

 

As used in this Agreement, the following terms shall have the following
meanings:

 

“Applicable Percentage” means, with respect to any person on any date of
determination, the quotient, expressed as a percentage, determined by dividing
(i) the number of Company Common Stock owned (directly or indirectly) by such
person determined on a Fully Diluted Basis by (ii) the total number of Company
Common Stock that are issued and outstanding determined on a Fully Diluted
Basis.

 

“Board” means the board of directors of the Company.

 

“Company Common Stock” means the shares of common stock, par value $0.001 per
share, of the Company.

 

“Exchange Shares” means Company Common Stock issued or issuable upon the
exchange of the Warrants pursuant to the terms thereof.

 

“Exempted Securities” means

 

(i)      Company Common Stock (or options or other rights to acquire Company
Common Stock or securities convertible or exchangeable into or exercisable for
Company Common Stock) issued as a dividend or distribution on the Warrants;

 

(ii)     Company Common Stock (or options or other rights to acquire Company
Common Stock or securities convertible or exchangeable into or exercisable for
Company Common Stock) issued by reason of a dividend, stock split, split-up or
other distribution of Company Common Stock;

 

(iii)    Company Common Stock (or options or other rights to acquire Company
Common Stock or securities convertible or exchangeable into or exercisable for
Company Common Stock) issued to employees or directors of, or consultants or
advisors to the Company or any of its Subsidiaries pursuant to a plan, agreement
or arrangement;

 

(iv)    Company Common Stock (or options or other rights to acquire Company
Common Stock or securities convertible or exchangeable into or exercisable for
Company Common Stock) issued to equipment lessors or to real property lessors,
pursuant to equipment leasing or real property leasing transaction; or

 

 

 

 

(v)     Company Common Stock (or options or other rights to acquire Company
Common Stock or securities convertible or exchangeable into or exercisable for
Company Common Stock) issued in connection with sponsored research,
collaboration, technology license, development, manufacturing, supply,
distribution, marketing or other similar commercial agreements or strategic
partnerships.

 

“Fully Diluted Basis” means the number of shares of Company Common Stock
outstanding or held (as the case may be) assuming, for the purposes of
calculating the number of shares of Company Common Stock held by the Investors,
the conversion, exchange or exercise of all securities or other instruments or
rights held by the Investors that are convertible into or exercisable or
exchangeable for Company Common Stock. For purposes of this definition, all
Warrants shall be deemed converted on the date of determination in exchange for
cash.

 

“Governmental Entity” means any federal, state, local, foreign, international or
multinational entity or authority exercising executive, legislative, judicial,
regulatory, administrative or taxing functions of or pertaining to government.

 

“New Securities” means, collectively, (i) equity securities of the Company
(including Company Common Stock), whether or not currently authorized, (ii) debt
securities, loans or other indebtedness of the company if any stockholder of the
Company who, together with its Affiliates, holds greater than five percent (5%)
of the outstanding Company Common Stock, acquires or is offered the opportunity
to acquire such debt securities, loans or other indebtedness and (iii) any
rights, options, or warrants to purchase any of the foregoing, or securities of
any type whatsoever that are, or may become, convertible or exchangeable into or
exercisable for any of the foregoing. For the avoidance of doubt, New Securities
shall not include any Exempted Securities.

 

“Purchased Shares” means the Company Common Stock acquired by the Purchaser
pursuant to the Purchase Agreement.

 

2.[Reserved].

 

3.Participation Rights.

 

(a)     Subject to the terms and conditions of this Section 3 and applicable
securities or blue sky laws, if the Company proposes to issue, offer or sell any
New Securities, the Company shall first offer such New Securities to the
Purchaser in accordance with the terms hereof.

 

(b)     The Company shall give notice (the “Offer Notice”) to the Purchaser,
stating (i) its bona fide intention to offer or sell such New Securities, (ii)
the number of such New Securities to be offered, and (iii) the price and terms,
if any, upon which it proposes to offer such New Securities.

 

(c)      By written notification to the Company within twenty (20) days after
the Offer Notice is delivered to the Purchaser, the Purchaser may elect to
purchase or otherwise acquire, at the price and on the terms specified in the
Offer Notice, up to that portion of such New Securities which equals the
Purchaser’s Applicable Percentage. The failure of the Purchaser to deliver such
written notice within such time period shall be deemed an election by the
Purchaser not to exercise its purchase rights with respect to such Offer Notice.
To the extent that the Company offers two (2) or more New Securities or other
securities in units, the Purchaser must purchase such units as a whole and will
not be given the opportunity to purchase only one of the securities making up
such unit.

 

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(d)     The Company shall sell all applicable New Securities to the Purchaser if
it has elected to purchase such New Securities on a date to be mutually
determined by the Company and the Purchaser, which date shall be not later than
end of the twenty (20) day period commencing at the expiration of the initial
twenty (20) day election period; provided, however, that such twenty (20) day
period shall be extended automatically if any approvals or consents of any
Governmental Entities are required to consummate the transaction and such
approvals or consents are not received within such twenty (20) day period for up
to an additional one hundred twenty (120) days as long as such approvals or
consents remain outstanding and the parties are continuing to exercise
commercially reasonable efforts to obtain them.

 

(e)      Upon the expiration of the offering period described in Section 3(c),
the Company will be free to sell, during the one hundred twenty (120) day period
commencing at the expiration of, as applicable, the initial twenty (20) day
election period following delivery of an Offer Notice, any New Securities that
the Purchaser has not elected to purchase, at a sale price not less than, and on
other terms no less favorable to the Company than, those offered to the
Purchaser as set forth in the Offer Notice, provided, that such one hundred
twenty (120) day period shall be extended automatically if any approvals or
consents of any Governmental Entities are required to consummate the transaction
and such approvals or consents are not received within such one hundred twenty
(120) day period for up to an additional one hundred twenty (120) days as long
as such approvals or consents remain outstanding and the parties are continuing
to exercise commercially reasonable efforts to obtain them. Any New Securities
offered or sold by the Company after such one hundred twenty (120) day period
(as such period may be extended in accordance with the immediately preceding
sentence) must be reoffered to the Purchaser pursuant to this Section 3.

 

(f)      The election by the Purchaser not to exercise its subscription rights
under this Section 3 in any one instance shall not affect its right (other than
in respect of a reduction in its Applicable Percentage) as to any subsequent
proposed issuance of New Securities under this Section 3. The provisions of this
Section 3 shall apply equally to any issuance or sale by the Company or any of
its Subsidiaries of securities or other instruments that would be deemed New
Securities if issued by the Company which, for the avoidance of doubt, shall not
include any issuance of New Securities by a wholly owned Subsidiary to the
Company or to another wholly-owned Subsidiary of the Company. Subject to the
terms of this Section 3, any sale of New Securities by the Company or any other
entity covered by the preceding sentence without first giving the Purchaser the
rights described in this Section 3 shall be null and void and of no force and
effect.

 

(g)      Notwithstanding the terms set forth in this Section 3, if the Board
determines in good faith that the Company must issue New Securities on an
expedited basis without prior compliance with the terms of this Section 3 in
order to avoid harm to the Company (an “Expedited Issuance”), then, subject to
compliance with the terms of the immediately following sentence, the Company may
effect and consummate such Expedited Issuance without complying with the terms
set forth in this Section 3 and shall not be deemed to be in breach of this
Section 3 as a result thereof. As promptly as practicable following the
consummation of such Expedited Issuance, the Company and the Purchaser shall
comply with the terms of this Section 3 in respect of the New Securities issued
in such Expedited Issuance such that the Purchaser has the opportunity to
participate in such Expedited Issuance of New Securities and be put in the same
place (including in respect of the percentage ownership of the equity securities
of the Company) they would have been had such Expedited Issuance been effected
in accordance with the terms of this Section 3.

 

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(h)      The provisions of this Section 3 (i) shall not apply to the issuance of
Exempted Securities and (ii) shall terminate and be of no further force or
effect as of such time that the Purchaser, together with its Affiliates, have an
Applicable Percentage of less than 20%.

 

4.Board Matters.

 

(a)      For so long as the Purchaser, together with its Affiliates and
permitted assignees (collectively, the “Investors”), have an Applicable
Percentage of at least 8%, at the request of the Investors, the Company shall
cause the Board to consist of not more than ten (10) members without the prior
written consent of the Investors (which shall not be unreasonably withheld).

 

(b)     For so long as the Investors, collectively, and together with their
Affiliates, own at least eight percent (8%) of the then-outstanding Company
Common Stock, the Investors shall have the right to designate one (1) director
to the Board, and for so long as the Investors, collectively, and together with
their Affiliates, continue to own at least fifteen percent (15%) of the
then-outstanding Company Common Stock, the Investors shall have the right to
designate two (2) directors to the Board, in each case, in accordance with the
terms of this Section 4. Any directors designated by the Investors in accordance
with this Section 4 shall be referred to as “Investor Designees.” The right to
designate one or more Investor Designees shall terminate and be of no further
force or effect as of such time that the Investors ownership decreases below the
applicable threshold percentage referenced in the first sentence of this Section
4(b). At any point in which the Investors are entitled to designate an Investor
Designee, the Investors may provide written notice (a “Designation Notice”) to
the Company naming the applicable Investor Designee(s) and demanding that the
applicable Investor Designee(s) be appointed to the Board. Promptly, and in any
event within five (5) Business Days, following receipt of the Designation
Notice, the Company shall cause the Investor Designees to be appointed to the
Board and assigned to be members of the class of directors as is consistent with
the Company’s Amended and Restated Bylaws. Any person designated by the Investor
as an Investor Designee must possess the requisite financial and business
experience to serve as a director of the Company (it being understood that the
directors and each of the executives and investment professionals employed by
the Investor or its Affiliates shall be deemed to possess such experience). If
the Board and all applicable committees of the Board reasonably determine that
an Investor Designee satisfies the criteria in the foregoing sentence, the Board
shall nominate and appoint such Investor Designee to the Board. Following the
delivery of a Designation Notice and prior to the appointment of the Investor
Designees to the Board, the Company shall not (and shall cause its Subsidiaries
not to) take or approve any action outside of the ordinary course of business or
any other action that would represent a breach of Section 5.1 of the Purchase
Agreement.

 

(c)     With respect to any vote of the Board, each director shall have one (1)
vote and approval of all matters shall require the affirmative vote of a
majority of directors.

 

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(d)     Subject to the terms of this Section 4, from and after the date hereof,
the Company shall take all action within its power to cause the covenants set
forth in Section 4(a) and Section 4(b) to be fulfilled in all respects
including: (i) causing the Investor Designees to be named in any proxy statement
of the Company with respect to the election of members of the Board; (ii)
soliciting the votes of stockholders in respect of the Investor Designees in the
same manner and with the same level of effort as with the solicitation in
respect of other members of the Board; (iii) seeking to amend any organizational
documents of the Company necessary to give effect to the Investors’ rights
hereunder as may reasonably be requested by the Investors; and (iv) take all
actions permitted by applicable law to cause the Investor Designees to be
members of the Board (including the appointment of the Investor Designees to the
Board).

 

(e)      Subject to clause (f) immediately below, in the event that an Investor
Designee ceases to serve on the Board for any reason (including the death,
disability or resignation of such person), the Investors shall be entitled to
appoint a new Investor Designee in the place of such person, and the terms of
this Section 4 shall apply equally to such replacement.

 

(f)      In the event that the applicable threshold percentage of the Investors
(and their Affiliates) falls below a threshold set forth in Section 4(b) such
that the Investors shall lose the right to designate one or more Investor
Designees, if one or more Investor Designee has been designated, the Investors
shall identify which of the Investor Designees shall no longer be an Investor
Designee (such person, a “Departing Designee”), and which Investor Designee(s)
(if any) will remain as such; for the avoidance of doubt, the terms of this
Section 4 shall continue to apply to any Investor Designee who is not a
Departing Designee. In the event of a Departing Designee, the Investors shall
cause the removal or resignation of such Departing Designee prior to the next
annual meeting of the Company shareholders, and the provisions of Section 4(b)
and (c) shall not apply to such Departing Designee, and in connection therewith,
the Company shall not be required to name such Departing Designee on its proxy
statement or solicit votes in favor of such Departing Designee.

 

(g)      For so long as the Investor holds the applicable threshold percentages
set forth in Section 4(b), in the event that any member of the Board other than
the Company’s Chief Executive Officer serves on the board of directors or
similar governing body of any Subsidiary of the Company (a “Subsidiary Board”)
or in the event that any stockholder of the Company has appointed or designated
a person to serve on a Subsidiary Board, the Investors shall be entitled to
designate a number of Investor Designees to the Subsidiary Board equal to the
greater of (x) one Investor Designee or (y) such other number of Investor
Designees such that the proportionate representation of Investor Designees on
such Subsidiary Board approximates, as closely as possible, the proportionate
representation of Investor Designees on the Board.

 

(h)     Subject to applicable law and listing requirements, the Investor
Designees shall be entitled to be a member of any committee of the Board
(including an executive or similar committee).

 

(i)       Notwithstanding any other provision of this Agreement, Section 4 shall
terminate upon an assignment or transfer pursuant to Section 6(c); provided,
however, that this Section 4(i) shall not apply if such transfer or assignment
is to an Affiliate of the Purchaser.

 

5.Information and Confidentiality.

 

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(a)     For so long as Purchaser has the right to designate a director to the
Board pursuant to this Agreement, the Company shall, and shall cause its
Subsidiaries to, afford to Purchaser and its Representatives reasonable access,
during normal business hours, in such manner as to not interfere with the normal
operation of the Company and its Subsidiaries, to their respective properties,
books, contracts, commitments, Tax Returns, records and appropriate officers and
employees, and shall furnish Purchaser and its Representatives with financial
and operating data and other information concerning the affairs of the Company
and its Subsidiaries, in each case, as Purchaser and its Representatives may
reasonably request; provided, that such access shall only be upon reasonable
advance notice. In furtherance, and not in limitation of the foregoing, for so
long as Purchaser owns any Company Common Stock or Warrants, the Company shall
provide to Purchaser all information and documentation reasonably requested by
Purchaser, within the periods reasonably requested by Purchaser, as is necessary
for the Purchaser to complete and file all public filings required to be made by
Purchaser under applicable Law and the rules and regulations of the Securities
Exchange Commission.

 

(b)     The Purchaser agrees that it will keep confidential and will not
disclose or divulge any confidential information obtained from the Company
pursuant to the terms of this Agreement, unless such confidential information
(a) is known or becomes known to the public in general (other than as a result
of a breach of this Section 5 by the Purchaser), (b) is or has been
independently developed or conceived by the Purchaser without use of the
Company’s confidential information, or (c) is or has been made known or
disclosed to the Purchaser by a third party without a breach of any obligation
of confidentiality such third party may have to the Company; provided, however,
that the Purchaser may disclose confidential information (i) to its attorneys,
accountants, consultants and other professionals to the extent necessary to
obtain their services in connection with matters related to the Company; (ii) to
any prospective purchaser of any Registrable Securities from the Purchaser, if
such prospective purchaser agrees to be bound by the provisions of this Section
5; (iii) to any Affiliate or its or their general or limited partners, members,
stockholders, employees, officers or directors, in the ordinary course of
business, provided that the Purchaser informs such person that such information
is confidential and directs such person to maintain the confidentiality of such
information; or (iv) as may otherwise be required by law, regulation, rule,
court order, arbitration order or subpoena, provided that the Purchaser promptly
notifies the Company of such disclosure and takes reasonable steps to minimize
the extent of any such required disclosure. The Purchaser acknowledges and
agrees that the securities laws of the United States and other jurisdictions
contain prohibitions on the trading in the securities of the Company while in
possession of material nonpublic information regarding the Company, and agrees
to comply with such restrictions.

 

6.Miscellaneous.

 

(a)     Amendments and Waivers. This Agreement may be amended only by a writing
signed by the Company and the Purchaser. The failure or delay in enforcing
compliance at any time with respect to any of the provisions, terms or
conditions of this Agreement shall not be considered a waiver of such provision,
term or condition itself or of any of the other provisions, terms or conditions
hereof.

 

(b)      Notices. All notices and other communications provided for or permitted
hereunder shall be made as set forth in Section 9.1 of the Purchase Agreement.

 

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(c)      Assignments and Transfers by the Purchaser. The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties and
their respective successors and permitted assigns. The Purchaser may transfer or
assign, in whole or from time to time in part, to one or more persons its rights
hereunder in connection with the transfer of Registrable Securities by the
Purchaser to such person, provided that the Purchaser complies with all laws
applicable thereto and the provisions of the Purchase Agreement and the Warrant
and provides written notice of assignment to the Company prior to such
assignment or transfer being effected, and such transferee agrees in writing and
as a condition to the receipt of Registrable Securities to be bound by all of
the provisions contained herein.

 

(d)     Assignments and Transfers by the Company. This Agreement may not be
assigned by the Company (whether by operation of law or otherwise) without the
prior written consent of the Purchaser; provided, however, that in the event
that the Company is a party to a merger, consolidation, share exchange or
similar business combination transaction in which the Company Common Stock are
converted into the equity securities of another person, from and after the
effective time of such transaction, such person shall, by virtue of such
transaction, be deemed to have assumed the obligations of the Company hereunder,
and the term “Company” shall be deemed to refer to such person and the term
“Registrable Securities” shall be deemed to include the securities received by
the Purchaser in connection with such transaction unless such securities are
otherwise freely tradable by the Purchaser after giving effect to such
transaction.

 

(e)      Benefits of the Agreement. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors and
permitted assigns of the parties. Nothing in this Agreement, express or implied,
is intended to confer upon any party other than the parties hereto or their
respective successors and permitted assigns any rights, remedies, obligations,
or liabilities under or by reason of this Agreement, except as expressly
provided in this Agreement.

 

(f)      Counterparts. This Agreement may be executed in several counterparts,
and by each party on separate counterparts, each of which and any photocopies or
other electronic transmission (including by PDF) thereof shall be deemed an
original, but all of which together shall constitute one and the same agreement.

 

(g)     Titles and Subtitles. The titles and subtitles used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.

 

(h)    Severability. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof but shall be interpreted as if it were written so as
to be enforceable to the maximum extent permitted by applicable law, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. To the extent
permitted by applicable law, the parties hereby waive any provision of law which
renders any provisions hereof prohibited or unenforceable in any respect.

 

(i)       Further Assurances. The parties shall execute and deliver all such
further instruments and documents and take all such other actions as may
reasonably be required to carry out the transactions contemplated hereby and to
evidence the fulfillment of the agreements herein contained.

 

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(j)      Entire Agreement. This Agreement is intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.

 

(k)     Specific Performance. Without limiting remedies that may be available at
law or in equity, the parties acknowledge that any failure by any party to
comply with their respective obligations under this Agreement would result in
material irreparable injury to the other party for which there is no adequate
remedy at law, that it will not be possible to measure damages for such injuries
precisely and that, in the event of any such failure, the non-breaching party
may specifically enforce the breaching party’s obligations under this Agreement
without the need to show actual damages and without the need to post a bond or
other security.

 

(l)       Governing Law; Consent to Jurisdiction; Waiver of Jury Trial. This
Agreement shall be governed by and construed in accordance with the internal
laws of the State of Delaware without regard to the choice of law principles
thereof. Each Party agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by
this Agreement (whether brought against a party hereto or its respective
Affiliates, directors, officers, shareholders, employees or agents) shall be
commenced exclusively in the state and federal courts sitting in the State of
Delaware. Each party hereby irrevocably submits to the exclusive jurisdiction of
such courts for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein, and
hereby irrevocably waives, and agrees not to assert in any suit, action or other
proceeding, any claim that it is not personally subject to the jurisdiction of
any such court, that such suit, action or proceeding is improper or is an
inconvenient venue for such proceeding. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or other proceeding by mailing a copy thereof via registered or
certified United States mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit in
any way any right to serve process in any other manner permitted by law. The
Parties hereby waive all rights to a trial by jury.

 

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IN WITNESS WHEREOF, the parties have executed this Agreement or caused their
duly authorized officers to execute this Agreement as of the date first above
written.

 

  COMPANY:   ENTASIS THERAPEUTICS HOLDINGS INC.       By: /s/ Manoussos Perros,
Ph.D.   Name: Manoussos Perros, Ph.D.   Title:   CEO

 

  PURCHASER:   Innoviva, Inc.       By: /s/ Geoffrey Hulme   Name: Geoffrey
Hulme   Title:   Interim Principal Executive Officer

 

[Signature Page to Investor Rights Agreement]