Exhibit 10.3

 

INVESTOR RIGHTS AGREEMENT

 

This Investor Rights Agreement (this “Agreement”) is made and entered into as of
April [●], 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.

 

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5.                  Information and Confidentiality.

 

(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:     Name:
                 Title:         PURCHASER:       Innoviva, Inc.       By:    
Name:     Title:  

 

[Signature Page to Investor Rights Agreement]