Document:

Exhibit 10.16

 

CHANGE IN CONTROL AND SEVERANCE AGREEMENT

 

This Change in Control and Severance Agreement (the “Agreement”) is entered into by and between Alexey A. Lugovskoy, Ph.D. (the “Executive”) and Morphic Holding, Inc., a Delaware corporation (the “Company”)1, and is effective as of the Effective Date.

 

1.                                      Term of Agreement.

 

(a)                                 The term of this Agreement shall terminate upon the earlier of the third (3rd) anniversary of the Effective Date (the “Expiration Date”) and the date the Executive’s employment with the Company terminates for any reason other than a Qualifying Termination or CIC Qualifying Termination; provided that the term of this Agreement shall renew automatically and continue in effect for successive one (1) year periods measured from the initial Expiration Date, unless the Company provides Executive notice of non-renewal at least three (3) months prior to the date on which this Agreement would otherwise renew.

 

(b)                                 Notwithstanding the foregoing, (i) if a Change in Control is consummated prior to the Expiration Date, in no event shall this Agreement terminate prior to the twelve (12)-month anniversary of such Change in Control, (iii) if the Executive’s employment with the Company is terminated due a Qualifying Termination following a Potential Change in Control, in no event shall this Agreement terminate prior to the three (3) month anniversary of the date of Separation, and (iv) if the Executive’s employment with the Company is terminated due to a Qualifying Termination or a CIC Qualifying Termination, in no event shall this Agreement terminate prior to the date the Company has satisfied all of its obligations under this Agreement following the applicable date of Separation.

 

(c)                                  For the avoidance of doubt, the Company’s non-renewal of this Agreement shall not constitute a Qualifying Termination or CIC Qualifying Termination.  The Executive hereby acknowledges and agrees that, except as otherwise set forth in this Section 1, there is no assurance that that this Agreement will be renewed or extended.

 

2.                                      Qualifying Termination. If the Executive is subject to a Qualifying Termination, then, subject to Sections 4, 8, and 9 below, Executive will be entitled to the following benefits:

 

(a)                                 Severance Benefits. The Company shall pay the Executive nine (9) months of base salary continuation (at the rate in effect immediately prior to the actions that resulted in the Qualifying Termination), payable on the Company’s normal payroll schedule.  The Executive will receive his or her first severance payment on the first payroll date occurring after the sixtieth (60th) day following the date of Separation, subject to the Executive’s satisfaction of the Release Conditions; provided that if such sixty (60) day period spans two calendar years, the foregoing payments shall not commence until the second calendar year, with the first payment including any payments that would have been made had the sixty (60) day delay provided for herein not applied.

 

(b)                                 Continued Employee Benefits.  If the Executive timely elects continued coverage under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”), the Company shall pay the full amount of Executive’s COBRA premiums on behalf of the Executive for the Executive’s continued coverage under the Company’s health, dental and vision plans, including coverage for the Executive’s eligible dependents, for the nine (9)-month period following the date of the Executive’s Separation or, if earlier, until the Executive is eligible to be covered under another substantially equivalent medical insurance plan by a subsequent employer; provided that if the Company determines that it cannot provide 

 

(1)  Any reference to the Company will be understood to include any direct or indirect subsidiary of the Company that employs the Executive, including Morphic Therapeutic, Inc.

 

 

the payment of COBRA coverage on behalf of the Executive without violating applicable law or incurring additional expense under applicable law (including, without limitation, Section 2716 of the Public Health Service Act), the Company will provide to the Executive in lieu thereof a taxable lump sum payment for the balance of the COBRA period.

 

(c)                                  Equity Awards.  Each of the Executive’s then-outstanding unvested Equity Awards shall be treated in accordance with their terms and the terms of the applicable equity incentive plan.  Notwithstanding the foregoing, in the event of a Qualifying Termination that follows a Potential Change in Control and precedes a Change in Control, any then-outstanding unvested Equity Awards shall cease vesting pursuant to their normal vesting schedule on the date of the Qualifying Termination but shall not lapse or be forfeited on such date.  Instead, such awards shall remain outstanding until the three-month anniversary of the date of such termination, and solely in the event a Change in Control subsequently occurs during such period, such awards shall become vested and/or exercisable in accordance with Section 3(b).

 

3.                                      CIC Qualifying Termination. If the Executive is subject to a CIC Qualifying Termination, then, subject to Sections 4, 8, and 9 below, Executive will be entitled to the following benefits:

 

(a)                                 Severance and Bonus Payments.  The Company or its successor shall pay the Executive (i) an amount equal to twelve (12)-months of base salary (at the rate in effect immediately prior to the actions that resulted in the Separation) and (ii) one hundred percent (100)% of the Executive’s annual target bonus for the year in which the CIC Qualifying Termination occurs, in each case payable in a cash lump sum on the first business day occurring after the sixtieth (60th) day following the date of Separation, subject to the Executive’s satisfaction of the Release Conditions.  Notwithstanding the foregoing, in the event such CIC Qualifying Termination is a Pre-CIC Qualifying Termination, then the amount paid to the Executive pursuant to clause (i) of this Section 3(a) shall be reduced by the amount of any severance already paid to the Executive pursuant to Section 2(a). In no event shall a Pre-CIC Qualifying Termination result in duplicate payments or benefits to the Executive under Sections 2 and 3 of this Agreement.

 

(b)                                 Equity Vesting Acceleration.  Each of the Executive’s then outstanding unvested Equity Awards, including awards that would otherwise vest upon satisfaction of performance metrics or other factors other than the continuation of the Executive’s employment with the Company  (“Performance-Based Equity Awards”), shall accelerate and become vested and exercisable with respect to 100% of the then-unvested shares subject to all Equity Awards; provided however, that the grant agreement for the Performance-Based Equity Awards may provide for alternative treatment upon a Qualifying CIC Termination and, absent any such treatment in such grant agreement, the vesting acceleration provided for herein shall be deemed to have been met based on the achievement of the performance award “at-target”. Subject to Section 4, the accelerated vesting described above shall be effective as of the date of Separation.

 

(c)                                  Continued Employee Benefits.  If the Executive timely elects continued coverage under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”), the Company shall pay the full amount of the Executive’s COBRA premiums on behalf of the Executive for the Executive’s continued coverage under the Company’s health, dental and vision plans, including coverage for the Executive’s eligible dependents, for the twelve (12)-month period following the date of Executive’s Separation or, if earlier, until the Executive is eligible to be covered under another substantially equivalent medical insurance plan by a subsequent employer; provided that if the Company determines that it cannot provide the payment of COBRA coverage  on behalf of the Executive without violating applicable law or incurring additional expense under applicable law (including, without limitation, Section 2716 of the Public Health Service Act), the Company will provide to the Executive in lieu thereof a taxable lump sum payment for the balance of the COBRA period.

 

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4.                                      General Release.  Any other provision of this Agreement notwithstanding, the benefits under Section 2 and 3 shall not apply unless the Executive (i) has executed a general release (in a form prescribed by the Company) of all known and unknown claims that he or she may then have against the Company or persons affiliated with the Company and such release has become effective and (ii) has agreed not to prosecute any legal action or other proceeding based upon any of such claims.  The release must be in the form prescribed by the Company, without alterations (this document effecting the foregoing, the “Release”).  The Company will deliver the form of Release to the Executive as soon as practicable following the Executive’s Separation.  The Executive must execute and return the Release within the time period specified in the form, and in all events within sixty (60) days following the termination event described in Section 2 or 3 as applicable.

 

5.                                      Accrued Compensation and Benefits.  Notwithstanding anything to the contrary in Section 2 and 3 above, the Company shall pay the Executive’s earned but unpaid base salary and other earned and vested but unpaid cash entitlements for the period through and including the termination of employment, including unused earned vacation pay and unreimbursed documented business expenses incurred by the Executive prior to the date of Separation and, in the case of a termination of employment for any reason other than a termination of employment by the Company for Cause, any earned but unpaid bonuses for any fiscal year or performance period completed prior to the date of Separation (collectively “Accrued Compensation and Expenses”). In addition, the Executive shall be entitled to any other vested benefits earned by the Executive for the period through and including the termination date of the Executive’s employment under any other employee benefit plans and arrangements maintained by the Company, in accordance with the terms of such plans and arrangements, except as may be modified herein (collectively “Accrued Benefits”).  Any Accrued Compensation and Expenses to which the Executive is entitled shall be paid to the Executive in cash as soon as administratively practicable after the termination, and, in any event, no later than two and one-half (2-1/2) months after the end of the taxable year of the Executive in which the termination occurs or at such earlier time as may be required by applicable law.  Any Accrued Benefits to which the Executive is entitled shall be paid to the Executive as provided in the relevant plans and arrangements.

 

6.                                      Definitions.

 

(a)                                 “Cause” means (i) engaging in theft, fraud and/or dishonesty which, in the judgement of the Board of Directors of the Company (the “Board”), could be harmful to the Company, (ii) gross negligence or willful misconduct in the performance of the Executive’s assigned duties, (iii) gross neglect or willful refusal to attend to the material responsibilities assigned to the Executive, (iv) the Executive’s material breach of this Agreement or the Non-Disclosure, Non-Competition and Assignment of Intellectual Property Agreement between you and the Company, (v) conviction (or a plea of no contest or similar plea or the entry of an order or judgement that requires a determination of guilt or responsibility) of a felony or for any crime involving moral turpitude or dishonesty; (vi) knowingly providing or making untruthful or misleading statement to the Company, whether by commission or omission; (vii) any willful failure to carry out a specific written directive of the Board; or (viii) an intentional violation of any of the Company’s material policies or procedures, including without limitation, any equal employment opportunity or anti-harassment policies.  The determination as to whether a Participant is being terminated for Cause shall be made in good faith by the Company and shall be final and binding on the Participant.  The foregoing definition does not in any way limit the Company’s ability to terminate a Participant’s employment or consulting relationship at any time as provided in Section 2 above, and the term “Company” will be interpreted to include any Parent, Subsidiary or Affiliate, as appropriate.

 

(b)                                 “Code” means the Internal Revenue Code of 1986, as amended.

 

(c)                                  “Change in Control.”  means a “Corporate Transaction,” as such term is defined in the Company’s 2019 Equity Incentive Plan, as may be amended from time to time, provided that the 

 

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transaction (including any series of transactions) also qualifies as a change in control under U.S. Treasury Regulation 1.409A-3(i)(5)(v) or 1.409A-3(i)(5)(vii).

 

(d)                                 “CIC Qualifying Termination” means a Separation (i) within twelve (12) months following a Change in Control or (ii) within three (3) months preceding a Change in Control, but as to part (ii) only if the Separation occurs following a Potential Change in Control, in each case resulting from (A) the Company terminating the Executive’s employment for any reason other than Cause or (B) the Executive voluntarily resigning his or her employment for Good Reason. A termination or resignation due to the Executive’s death or disability shall not constitute a CIC Qualifying Termination.  A “Potential Change in Control” means the date of execution of a definitive agreement for a corporate transaction which, if consummated, would constitute the applicable Change in Control.  In the case of a termination described in this Section 6(d) that occurs following a Potential Change in Control and before the consummation of a Change in Control (a “Pre-CIC Qualifying Termination”), solely for purposes of benefits under this Agreement, the date of Separation will be deemed the date the Executive’s employment terminated.

 

(e)                                  “Effective Date” means the date immediately prior to the first date on which the Registration Statement on Form S-1 for the initial public offering of the Company’s common stock is declared effective by the United States Securities and Exchange Commission or, if later, the date that this Agreement is signed.

 

(f)                                   “Equity Awards” means all awards of options to purchase shares of Company common stock, all awards of restricted stock in the Company, and all other stock-based awards of the Company granted to the Executive, including but not limited to stock bonus awards, restricted stock units or stock appreciation rights.

 

(g)                                  “Good Reason” means any of the following, without the Executive’s prior written consent (i) a reduction in the amount of the Executive’s then-current salary, (ii) a material diminution in the Executive’s position, authority, duties, or responsibilities, (iii) the relocation of the Company’s headquarters or the Executive’s assigned place of work more than 45 miles from Boston, MA, or (iv) any material failure by the Company to comply with any of the provisions of this Agreement or any offer letter or employment agreement between the Executive and the Company. For the Executive to receive the benefits under this Agreement as a result of a voluntary resignation under this subsection (f), all of the following requirements must be satisfied: (1) the Executive must provide notice to the Company of his or her intent to assert Good Reason within ninety (90) days of the initial existence of one or more of the conditions set forth in subclauses (i) through (iii); (2) the Company will have thirty (30) days (the “Company Cure Period”) from the date of such notice to remedy the condition and, if it does so, the Executive may withdraw his or her resignation or may resign with no severance payment or benefits under this Agreement; and (3) any termination of employment under this provision must occur within thirty (30) days of the earlier of expiration of the Company Cure Period or written notice from the Company that it will not undertake to cure the condition set forth in subclauses (i) through (iii) above.  Should the Company remedy the condition as set forth above and then one or more of the conditions arises again within twelve months following the occurrence of a Change in Control, the Executive may again assert Good Reason subject to the notice and cure periods set forth herein.

 

(h)                                 “Release Conditions” means (i) the Company has received the Executive’s executed Release and (ii) any rescission period applicable to the Executive’s executed Release has expired such that the Release is effective.

 

(i)                                     “Qualifying Termination” means a Separation that is not a CIC Qualifying Termination, but which results from (i) the Company terminating the Executive’s employment for any reason other than Cause or (ii) the Executive voluntarily resigning his employment for Good Reason. A 

 

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termination or resignation due to the Executive’s death or disability shall not constitute a Qualifying Termination.

 

(j)                                    “Separation” means a “separation from service,” as defined in the regulations under Section 409A of the Code.

 

7.                                      Successors.

 

(a)                                 Company’s Successors.  The Company shall require any successor (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company’s business and/or assets, to agree to assume this Agreement and to agree expressly to perform this Agreement in the same manner and to the same extent as the Company would be required to perform it in the absence of a succession.  For all purposes under this Agreement, the term “Company” shall include any successor to the Company’s business and/or assets or any successor which becomes bound by this Agreement by operation of law.

 

(b)                                 Executive’s Successors.  This Agreement and all rights of the Executive hereunder shall inure to the benefit of, and be enforceable by, the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.

 

8.                                      Golden Parachute Taxes.

 

(a)                                 Best After-Tax Result.  In the event that any payment or benefit received or to be received by the Executive pursuant to this Agreement or otherwise (“Payments”) would (i) constitute a “parachute payment” within the meaning of Section 280G of the Code and (ii) but for this subsection (a), be subject to the excise tax imposed by Section 4999 of the Code, any successor provisions, or any comparable federal, state, local or foreign excise tax (“Excise Tax”), then such Payments shall be either (A) provided in full pursuant to this Agreement or (B) provided as to such lesser extent which would result in no portion of such Payments being subject to the Excise Tax (“Reduced Amount”), whichever of the foregoing amounts, taking into account the applicable federal, state, local and foreign income, employment and other taxes and the Excise Tax (including, without limitation, any interest or penalties on such taxes), results in the receipt by the Executive, on an after-tax basis, of the greatest amount of payments and benefits provided for hereunder or otherwise, notwithstanding that all or some portion of such Payments may be subject to the Excise Tax.  Unless the Company and the Executive otherwise agree in writing, any determination required under this Section shall be made by independent tax counsel designated by the Company and reasonably acceptable to the Executive (“Independent Tax Counsel’), whose determination shall be conclusive and binding upon the Executive and the Company for all purposes.  For purposes of making the calculations required under this Section, Independent Tax Counsel may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code; provided that Independent Tax Counsel shall assume that the Executive pays all taxes at the highest marginal rate.  The Company and the Executive shall furnish to Independent Tax Counsel such information and documents as Independent Tax Counsel may reasonably request in order to make a determination under this Section.  The Company shall bear all costs that Independent Tax Counsel may reasonably incur in connection with any calculations contemplated by this Section.  In the event that the above clause (ii)(B) of this Section 8  applies, then Payments shall be reduced in the following order:  (i) cash severance payments hereunder to the extent not subject to Section 409A of the Code in the reverse order of payment; (ii) any other portion of the Payments that are not subject to Section 409A of the Code in the reverse order of payment (other than any acceleration of vesting of Equity Awards); (iii) Payments that are not subject to Section 409A of the Code that arise from the accelerated vesting of Equity Awards; and (iv) Payments that are subject to Section 409A of the Code in a manner consistent with Section 409A of the Code. ).  If the Internal Revenue Service (the “IRS”) determines that any Payment is subject to the 

 

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Excise Tax, then Section 8(b) hereof shall apply, and the enforcement of Section 8(b) shall be the exclusive remedy to the Company.

 

(b)                                 Adjustments.  If, notwithstanding any reduction described in Section 8(a) hereof (or in the absence of any such reduction), the IRS determines that the Executive is liable for the Excise Tax as a result of the receipt of one or more Payments, then the Executive shall be obligated to surrender or pay back to the Company, within one-hundred twenty (120) days after a final IRS determination, an amount of such payments or benefits equal to the “Repayment Amount.”  The Repayment Amount with respect to such Payments shall be the smallest such amount, if any, as shall be required to be surrendered or paid to the Company so that Executive’s net proceeds with respect to such Payments (after taking into account the payment of the Excise Tax imposed on such Payments) shall be maximized.  Notwithstanding the foregoing, the Repayment Amount with respect to such Payments shall be zero (0) if a Repayment Amount of more than zero (0) would not eliminate the Excise Tax imposed on such Payments or if a Repayment Amount of more than zero would not maximize the net amount received by Executive from the Payments.  If the Excise Tax is not eliminated pursuant to this Section 8(b), Executive shall pay the Excise Tax.

 

9.                                      Miscellaneous Provisions.

 

(a)                                 Section 409A.  To the extent (i) any payments to which the Executive becomes entitled under this Agreement, or any agreement or plan referenced herein, in connection with the Executive’s termination of employment with the Company constitute deferred compensation subject to Section 409A of the Code and (ii) the Executive is deemed at the time of such termination of employment to be a “specified” employee under Section 409A of the Code, then such payment or payments shall not be made or commence until the earlier of (i) the expiration of the six (6)-month period measured from the Executive’s date of Separation; or (ii) the date of the Executive’s death following such Separation; provided, however, that such deferral shall only be effected to the extent required to avoid adverse tax treatment to the Executive, including (without limitation) the additional twenty percent (20%) tax for which the Executive would otherwise be liable under Section 409A(a)(1)(B) of the Code in the absence of such deferral.  Upon the expiration of the applicable deferral period, any payments which would have otherwise been made during that period (whether in a single sum or in installments) in the absence of this paragraph shall be paid to the Executive or the Executive’s beneficiary in one lump sum (without interest). Except as otherwise expressly provided herein, to the extent any expense reimbursement or the provision of any in-kind benefit under this Agreement (or otherwise referenced herein) is determined to be subject to (and not exempt from) Section 409A of the Code, the amount of any such expenses eligible for reimbursement, or the provision of any in-kind benefit, in one calendar year shall not affect the expenses eligible for reimbursement or in kind benefits to be provided in any other calendar year, in no event shall any expenses be reimbursed after the last day of the calendar year following the calendar year in which the Executive incurred such expenses, and in no event shall any right to reimbursement or the provision of any in-kind benefit be subject to liquidation or exchange for another benefit. To the extent that any provision of this Agreement is ambiguous as to its exemption or compliance with Section 409A, the provision will be read in such a manner so that all payments hereunder are exempt from Section 409A to the maximum permissible extent, and for any payments where such construction is not tenable, that those payments comply with Section 409A to the maximum permissible extent.  To the extent any payment under this Agreement may be classified as a “short-term deferral” within the meaning of Section 409A, such payment shall be deemed a short-term deferral, even if it may also qualify for an exemption from Section 409A under another provision of Section 409A.  Payments pursuant to this Agreement (or referenced in this Agreement) are intended to constitute separate payments for purposes of Section 1.409A-2(b)(2) of the regulations under Section 409A.  Notwithstanding anything to the contrary in this Agreement, if the period of time comprising (x) the time to consider and make effective the Release and (y) the time after the expiration or cessation of any cure period or attempt to cure Good Reason spans two calendar years, then, any payments that constitute deferred compensation subject to Section 409A will be made in the second calendar year.

 

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(b)                                 Other Arrangements.  This Agreement supersedes any and all cash severance arrangements and vesting acceleration arrangements under any prior option agreement, profits interest agreement, restricted stock agreement, severance and salary continuation arrangements, programs and plans which were previously offered by the Company to the Executive, including change in control severance arrangements pursuant to an employment agreement or offer letter and acceleration provisions contained in any Stock Restriction Agreements or option agreements under the 2018 Stock Incentive Plan, and the Executive hereby waives the Executive’s rights to such other benefits.  In no event shall any individual receive cash severance benefits under both this Agreement and any other severance pay or salary continuation program, plan or other arrangement with the Company.  For the avoidance of doubt, in no event shall the Executive receive benefits under both Sections 2 and Section 3 with respect to the Executive’s Separation.

 

(c)                                  Dispute Resolution.  To ensure rapid and economical resolution of any and all disputes that might arise in connection with this Agreement, the Executive and the Company agree that any and all disputes, claims, and causes of action, in law or equity, arising from or relating to this Agreement or its enforcement, performance, breach, or interpretation, will be resolved solely and exclusively by final, binding, and confidential arbitration, by a single arbitrator, in Middlesex County, MA, and conducted by Judicial Arbitration & Mediation Services, Inc. (“JAMS”) under its then-existing employment rules and procedures. Nothing in this section, however, is intended to prevent either party from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration.  Each party to an arbitration or litigation hereunder shall be responsible for the payment of its own attorneys’ fees.

 

(d)                                 Notice.  Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by U.S. registered or certified mail, return receipt requested and postage prepaid or deposited with Federal Express Corporation, with shipping charges prepaid.  In the case of the Executive, mailed notices shall be addressed to him or her at the home address which he or she most recently communicated to the Company in writing.  In the case of the Company, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its Secretary.

 

(e)                                  Waiver.  No provision of this Agreement shall be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by the Executive and by an authorized officer of the Company (other than the Executive).  No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time.

 

(f)                                   Withholding Taxes.  All payments made under this Agreement shall be subject to applicable withholding and income taxes.

 

(g)                                  Severability.  The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision hereof, which shall remain in full force and effect.

 

(h)                                 At-Will Employment.  Nothing in this Agreement shall confer upon the Executive any right to continue in service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Company or any subsidiary of the Company or of the Executive, which rights are hereby expressly reserved by each, to terminate his or her service at any time and for any reason.

 

(i)                                     Choice of Law.  The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Massachusetts (other than its choice-of-law provisions).

 

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[Signature Page to Change In Control Severance Agreement Follows]

 

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IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by its duly authorized officer, as of the day and year first above written.  This Agreement may be signed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument.

 

 

	
EXECUTIVE
    	
MORPHIC   HOLDING, INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
/s/ Alexey A. Lugovskoy
    	
 
    	
/s/ Praveen Tipirneni
    
	
Name: Alexey A.   Lugovskoy, Ph.D.
    	
By:
    	
Praveen Tipirneni, MD
    
	
 
    	
Title:
    	
Chief Executive Officer
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Date:
    	
6/12/2019
    	
 
    	
Date:
    	
12 June 2019
    
						

 

[Signature Page to Change In Control and Severance Agreement]

 

9Exhibit 10.17

 

MORPHIC HOLDING, INC.

 

FORM STOCK RESTRICTION AGREEMENT

 

This Stock Restriction Agreement (this “Agreement”) is made by and between Morphic Holding, Inc., a Delaware corporation previously organized as Morphic Holding, LLC, a Delaware limited liability company (the “Company”), and the undersigned Stockholder (the “Stockholder”).

 

WHEREAS, the Company and the Stockholder entered into a certain Incentive Unit Grant Agreement on [  ] (the “Incentive Unit Grant Agreement”), pursuant to which the Stockholder was granted [  ] Incentive Units (the “Incentive Units”), as defined pursuant to the Company’s Third Amended and Restated Operating Agreement, as amended (as so amended, the “Operating Agreement”), subject to certain terms and conditions;

 

WHEREAS, the Company made an election on IRS Form 8832 to elect for the Company to be classified as an association taxable as a corporation with an effective date of October 10, 2018; and

 

WHEREAS, the Company is converting, for Delaware state law purposes and not tax law purposes and while retaining the same employer identification number, from a Delaware limited liability company (taxable as a corporation) to a Delaware corporation effective as of the Date of this Agreement and the Incentive Units are being exchanged for shares of Common Stock, par $0.0001 per share (the “Common Stock”), of the Company in the amount specified in the table below (the “Shares”) subject to vesting if and to the extent such Incentive Units were subject to vesting pursuant to the Incentive Unit Grant Agreement.

 

NOW, THEREFORE, in consideration of the mutual promises and covenants contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Stockholder and the Company hereby agree that from and after the Date of this Agreement, the Shares shall be subject to the terms and conditions of this Agreement, which shall include the terms and conditions stated below and those attached hereto, all of which terms and conditions are incorporated herein and made a part hereof.

 

	
Name   of Stockholder:
    	
[  ]
    
	
Address   of Stockholder:
    	
[  ]
    
	
Date   of this Agreement:
    	
December 5,   2018
    
	
Number   of Shares (Same as Number of Incentive Units):
    	
[  ]
    
	
Repurchase   Price per Share:
    	
$0.0001
    
	
Number   of Shares that are Vested Shares as of the Vesting Start Date:
    	
[  ]
    
	
Number   of Shares that are Unvested Shares as of the Vesting Start Date:
    	
[  ]
    
	
Vesting   Start Date:
    	
[  ]
    

 

 

Vesting Schedule:

 

The Shares shall vest as follows:

 

[Insert Applicable Vesting Schedule]

 

 

Acknowledgement

 

By signing below, the Stockholder agrees to and accepts the terms and conditions set forth above and attached hereto.

 

Signed as an agreement under seal as of the Date of this Agreement.

 

	
Stockholder:
    	
Morphic Holding, Inc.
    
	
 
    	
 
    
	
 
    	
 
    
	
By:
    	
 
    	
 
    	
By:
    	
 
    
	
Name:
    	
Name:
    	
Robert   E. Farrell, Jr.
    
	
 
    	
Title:
    	
Vice   President, Finance and Operations
    
						

 

 

MORPHIC HOLDING, INC.

 

Stock Restriction Agreement — Incorporated Terms and Conditions

 

I.                               1. Restrictions on Shares. The term “Shares” (as defined on the first page of this Agreement) shall also include any shares of capital stock of the Company issued to the Stockholder by virtue of Stockholder’s ownership of the Shares, by stock dividend, stock split, recapitalization, merger, combination, reorganization or otherwise. Shares that are subject to the Company’s repurchase right as described in Section 4 of this Agreement are referred to as “Unvested Shares,” and Shares that are not subject to such repurchase right, or as to which such repurchase right has lapsed, are referred to as “Vested Shares.”

 

II.                          2. Representations of Stockholder. The Stockholder represents and warrants to the Company as follows:

 

(a)                               The Stockholder understands that the Shares have not been registered under the Securities Act of 1933, as amended (the “Act”), or registered or qualified under the securities or “Blue Sky” laws of any jurisdiction, and are being sold pursuant to exemptions contained in the Act and exemptions contained in other applicable securities or “Blue Sky” laws. The Stockholder understands further that the Company’s reliance on these exemptions is based in part on the representations made by the Stockholder in this Agreement. The offer and issuance of the Shares has been made to the Stockholder solely in the state shown in the address set forth below the Stockholder’s name on the first page of this Agreement.

 

(b)                               The Stockholder has acquired the Shares for the Stockholder’s own account for investment, and not for, with a view to, or in connection with the resale or distribution thereof. The Stockholder has no present intention to sell, hypothecate, distribute or otherwise transfer (hereafter, “Transfer”) any of the Shares or any interest therein. The nature and amount of the Stockholder’s investment in the Shares are consistent with the Stockholder’s investment objectives, abilities and resources. The Stockholder understands that the Shares are an illiquid investment, which will not become freely transferable by reason of any change of circumstances whatsoever. The Stockholder has adequate means of providing for the Stockholder’s current needs and possible contingencies and has no need for liquidity in the Stockholder’s investment.

 

(c)                                The Stockholder understands that the Shares will constitute “restricted securities” within the meaning of Rule 144 promulgated under the Act and that, as such, the Shares must be held indefinitely unless they are subsequently registered under the Act or unless an exemption from the registration requirements thereof is available. The Stockholder has been advised that Rule 144, which permits the resale, subject to various terms and conditions, of such “restricted securities” after they have been held for specified periods of time does not now apply to the Company, because the Company is not now required to file, and does not file, periodic reports under the Securities Exchange Act of 1934, as amended, and because information concerning the Company substantially equivalent to that which would be available if the Company were required to file such reports is not now publicly available. The Company may become a reporting entity at some future date, but no assurance can be given that it will do so.

 

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(d)                               The Stockholder accepts the condition that the Company will maintain stop transfer orders with respect to the Shares and that each certificate or other document evidencing the Shares will bear a conspicuous legend in substantially the form set forth in Section 6 of this Agreement.

 

(e)                                The Stockholder has consulted the Stockholder’s attorney or the Stockholder’s accountant with respect to the issuance of the Shares. The Stockholder and such attorney or accountant have fully investigated the Company and its business and financial condition and have knowledge of the Company’s current activities. The Company has granted the Stockholder and the Stockholder’s attorney or accountant access to all information about the Company which they have requested and has offered each of them access to all further information which they deemed relevant to an investment decision with respect to the Shares. The Stockholder and the Stockholder’s attorney or accountant have had the opportunity to ask questions of, and receive answers from, representatives of the Company concerning such information and the Company’s financial condition and prospects.

 

III.                              3.                                      Restrictions on Transfer. The following restrictions on Transfer of the Shares shall apply.

 

(a)                               No Shares, or any interest therein, may be Transferred at any time or under any circumstances unless (i) the Shares proposed to be Transferred have been registered under the Act and registered or qualified under applicable state securities laws, or (ii) the Company has received an opinion of counsel acceptable to the Company to the effect that such Transfer may be effected without registration under the Act and registration or qualification under the securities laws of relevant states and the proposed transferee has made such representations and agreements as the Company shall require to assure compliance with the Act and such laws.

 

(b)                               No Unvested Share, and no interest in an Unvested Share, may be Transferred except to the Company pursuant to Section 4 of this Agreement.

 

(c)                                Permitted Transfers. If the Stockholder is a natural person, all, or any portion of, the Shares may, without compliance with the provisions of this Section 3, be Transferred by the Stockholder for bona fide estate planning purposes to a member of the Stockholder’s immediate family, to a family partnership or to a family trust or, on the Stockholder’s death, may be Transferred to the Stockholder’s estate or to those entitled to a distribution of the Shares under the laws of descent and distribution; provided, that Shares that are so Transferred shall remain subject to this Agreement and, as a condition to any Transfer, the Stockholder or the Stockholder’s legal representative shall obtain a written agreement from the proposed transferee or transferees by which such transferee agrees or transferees agree to be bound by this Agreement.

 

(d)                               No Transfer of Shares shall be effective or given effect on the books of the Company unless all of the applicable provisions of this Section 3 have been duly complied with. The Company shall not be required to recognize as one of its stockholders any purported transferee of Shares which have been attempted to have been Transferred in violation of this Agreement, including, without limitation, for purposes of dividend and voting rights. The restrictions on transfer imposed by this Agreement shall apply not only to voluntary transfers but also to involuntary transfers, by operation of law or otherwise. The Stockholder shall pay all legal fees

 

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and expenses of the Company arising out of or relating to any purported sale, assignment or transfer of any Shares in violation of this Agreement.

 

(e)                                  Lock-Up. The Stockholder agrees that, for a period of up to 180 days from the effective date of any registration of securities of the Company plus up to an additional 35 days to comply with any applicable FINRA requirements (upon request of the Company or the underwriters managing any underwritten offering of the Company’s securities), the Stockholder will not Transfer any Shares held by the Stockholder without the prior written consent of the Company or such underwriters, as the case may be. The Stockholder further agrees to execute such agreements as may be reasonably requested by the underwriters that are consistent with this Section 3(f) or that are necessary to give further effect thereto.

 

(f)                                   The rights of the Company and the obligations of the Stockholder under this Section 3 are in addition to all rights and obligations which the Stockholder may have under other Sections of this Agreement or under other agreements between the Company and the Stockholder regarding the Shares (the “Other Agreements”), and this Section 3 shall not give the Stockholder any right to make any Transfer of any Shares which is otherwise prohibited by any other Section of this Agreement or the Other Agreements.

 

(g)                                  Notwithstanding anything contained herein to the contrary, at no time shall the Stockholder Transfer any Shares or any interest therein to a competitor of the Company.

 

IV.                               4.                                      Vesting of Shares; Repurchase of Unvested Shares.

 

(a)                                 If the Stockholder is providing services for the benefit of the Company as an active employee or consultant of the Company or any of its subsidiaries and is in good standing continuously from the date hereof through the vesting dates specified on the first page of this Agreement, Unvested Shares shall become Vested Shares (or shall “vest”) on such dates and in such amounts as are specified on the first page of this Agreement. For the avoidance of doubt, the Board of Directors of the Company, in its discretion, may accelerate any vesting dates or waive any of the requirements for vesting.

 

(b)                                 In the event that the Stockholder ceases for any reason to provide services for the benefit of the Company as an active employee or consultant of the Company or any of its subsidiaries before all of the Shares have become Vested Shares (a “Termination Event”), then the Company shall have the right to purchase (the “Repurchase Option”) for a period of ninety (90) days from the date of such Termination Event (the “Termination Date”) any or all of the Shares that are Unvested Shares at the Termination Date. The purchase of each Unvested Share pursuant to this Section 4(b) shall be effected at the Repurchase Price Per Share set forth on the first page of this Agreement, in each case, appropriately adjusted in the event of a stock dividend, stock split, recapitalization, merger, combination, reorganization or exchange of shares or other similar event occurring subsequent to the Date of this Agreement.

 

(c)                                Unless the Company notifies the Stockholder within ninety (90) days from the Termination Date that it does not intend to exercise its Repurchase Option with respect to some or all of the Unvested Shares, the Repurchase Option shall be deemed automatically exercised by the Company as of the ninetieth (90th) day following the Termination Date, provided, that the

 

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Company may notify the Stockholder that it is exercising its Repurchase Option as of a date prior to such 90th day. Unless the Stockholder is otherwise notified by the Company pursuant to the preceding sentence that the Company does not intend to exercise its Repurchase Option as to some or all of the Unvested Shares to which it applies as of the Termination Date, execution of this Agreement by the Stockholder constitutes written notice to the Stockholder of the Company’s intention to exercise its Repurchase Option with respect to all Unvested Shares to which such Repurchase Option applies. As a result of any repurchase of Unvested Shares pursuant to this Section 4, the Company shall become the legal and beneficial owner of the Unvested Shares being repurchased and shall have all rights and interest therein or related thereto, and the Company shall have the right to Transfer to its own name the number of Unvested Shares being repurchased by the Company, without further action by the Stockholder. Any failure by the Company to exercise its Repurchase Option shall in no way affect any rights, including repurchase rights, the Company may have under any of the Other Agreements.

 

A.                (d) Fractional Shares. No fractional shares shall vest under this Agreement. Any calculation of Shares scheduled to vest on any date except for the last date on which vesting is contemplated under this Agreement (the “Final Vesting Date”) that results in a fractional share shall be rounded down to the nearest whole Share. On the Final Vesting Date, all remaining Unvested Shares shall vest and become Vested Shares.

 

V.                                    5.                                      Custody of Certificates.

 

(a)                               In order to facilitate the exercise of the Company’s repurchase rights under Section 4 of this Agreement, simultaneously with the execution of this Agreement, the Stockholder shall deposit with the Company or its attorneys the certificate or certificates representing in whole or in part Unvested Shares and shall promptly upon acquisition of any additional Unvested Shares, deposit with the Company the certificate or certificates for such additional shares. To all certificates deposited by the Stockholder with the Company, there shall be attached a stock power or stock powers, duly executed by the Stockholder in blank, constituting and appointing the Company or its designee the Stockholder’s attorney to transfer such stock on the books of the Company. The Stockholder shall continue to be the owner of the Shares, despite such deposit and stock powers, and shall be entitled to exercise all rights of ownership in such Shares, subject, however, to the provisions of this Agreement.

 

(b)                               In the event that a dispute should arise with respect to the delivery, right to possession, and/or ownership of the certificates held by the Company representing the Shares, the Company is authorized to retain such certificates and evidences in its possession, or any portion thereof, without liability to anyone, until such dispute shall have been settled either by mutual written agreement of the parties concerned or by final order, decree or judgment of a court of competent jurisdiction after the time for appeal has expired and no appeal has been perfected, but the Company shall be under no duty whatsoever hereunder to institute or defend any such proceedings.

 

VI.                               (c)                                  The Company shall have the right to cause Transfers of Unvested Shares to be effected pursuant to Section 4 notwithstanding any failure of the Stockholder to take the action required of the Stockholder pursuant to this Agreement; provided, however, that no

 

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Transfer of Unvested Shares shall be effected hereunder unless payment therefor has been made or tendered to the Stockholder or the Stockholder’s executor or other legal representative. The Stockholder hereby appoints each of the President, Treasurer and Secretary of the Company as the Stockholder’s attorney-in-fact for purposes of effecting any such Transfer.

 

VII.                          6.                                      Legends. Each certificate representing Shares shall prominently bear legends to the following effect:

 

“The shares represented by this certificate have been acquired for investment and have not been registered under the Securities Act of 1933, as amended. Such shares may not be sold, transferred, pledged or hypothecated unless the registration provisions of said Act have been complied with or unless the Company has received an opinion of its counsel that such registration is not required.

 

The shares represented by this certificate are subject to restrictions on transfer and repurchase rights pursuant to the terms of a Stock Restriction Agreement, a copy of which will be furnished to the holder hereof without charge upon written request.”

 

VIII.                     7.                                      Miscellaneous.

 

(a)                               Entire Agreement. This Agreement, including the signature page hereto and these Incorporated Terms and Conditions, constitutes the entire agreement between the parties with respect to the subject matter hereof, and supersedes all prior agreements, negotiations, representations and proposals, written or oral, relating to such subject matter.

 

(b)                               Amendments. Neither this Agreement nor any provision hereof may be changed or modified except by an agreement in writing executed by the Stockholder and on behalf of the Company.

 

(c)                                Binding Effect of the Agreement. This Agreement shall inure to the benefit of, and be binding upon, the Company, the Stockholder and their respective estates, heirs, executors, transferees, successors, assigns and legal representatives.

 

(d)          Notices. All notices to any party under this Agreement shall be contained in a written instrument addressed to such party at the address set forth below or such other address as may hereafter be designated in writing by the addressee to the addressor and shall be deemed given (i) when delivered in person or duly sent by e-mail or fax, with confirmation of receipt, (ii) three days after being duly sent by first class mail postage prepaid (other than in the case of notices to or from any non-U.S. resident, which notices must be sent in the manner specified in clause (i) or (iii)), or (iii) two days after being duly sent by UPS, Federal Express or other recognized express international courier service:

 

(i)                                      if to the Stockholder, to the Address or E-Mail Address of Stockholder set forth on the first page of this Agreement; and

 

(ii)                                   if to the Company, to:

 

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Morphic Holding, Inc.
 35 Gatehouse Drive A2
 Waltham, MA 02451

 

With a copy to:

 

Foley Hoag LLP

155 Seaport Boulevard

Boston, MA 02210

Attention: Mark A. Haddad, Esq.

Fax: (617) 832-7000

 

(e)                                Consent to Electronic Notices. The Stockholder hereby agrees and consents that the Company may provide the Stockholder, at the Company’s option, all notices which are required to be delivered, whether under this Agreement, pursuant to the General Corporation Law of the State of Delaware or other applicable law or regulation, or otherwise, in electronic form to the E- Mail Address set forth on the signature page of this Agreement.

 

(f)                                 Relationship with Company. The Company is not by reason of this Agreement or the issuance of any Shares obligated to continue the Stockholder’s relationship with the Company as an employee, consultant, advisor, officer, director, or in any other capacity (other than as a stockholder).

 

(i)                                   Remedies. The Stockholder acknowledges that money damages alone will not adequately compensate the Company for breach of any of the Stockholder’s covenants and agreements herein and, therefore, agrees that in the event of the breach or threatened breach of any such covenant or agreement, in addition to all other remedies available to the Company, at law, in equity or otherwise, the Company shall be entitled to injunctive relief compelling specific performance of, or other compliance with, the terms hereof. The rights and remedies of the Company hereunder shall be cumulative and in addition to all other rights and remedies the Company may have, at law, in equity, by contract or otherwise.

 

(j)                                  Reliance; Liability. In performing its duties under this Agreement, the Company shall be entitled to rely upon any statement, notice, or other writing which it shall in good faith believe to be genuine and to be signed or presented by a proper party or parties or on other evidence or information deemed by the Stockholder to be reliable. In no event shall the Company be liable for any action taken or omitted in good faith. The Company may consult with its counsel or counsel of any of the other parties hereto and, without limiting the generality of the preceding sentence, shall not be held liable for any action taken or omitted in good faith on advice of such counsel.

 

(k)                               Awaiting Final Settlement. If any controversy arises between the parties hereto or with any third person with respect to the Shares, this Agreement or its subject matter, the Company shall not be required to take any actions in the premises, but may await the settlement of any such controversy by final appropriate legal proceedings or otherwise as it may require, notwithstanding anything in this Agreement to the contrary, and, in such event, the Company shall not be liable for interest or damages.

 

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(l)                                   Construction. The headings and subheadings of this Agreement have been inserted for convenience only, and shall not affect the construction of the provisions hereof. All references to sections of this Agreement shall be deemed to refer as well to all subsections which form a part of such section. The words “include,” “includes” and “including” when used herein shall be deemed in each case to be followed by the words “without limitation.”

 

(m)                           Severability. In the event that any one or more of the provisions contained herein shall, for any reason, be held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provisions of this Agreement and all other provisions shall remain in full force and effect. If any provision of this Agreement is held to be excessively broad, it shall be reformed and construed by limiting and reducing it so as to be enforceable to the maximum extent permitted by law.

 

(n)                               No Waiver. No modification, renewal, extension, waiver or termination of this Agreement or any of the provisions herein contained shall be binding upon the Company unless made in writing and signed by a duly authorized officer of the Company.

 

(o)                               Further Assurances. The parties agree to execute such further instruments and to take such further actions as may reasonably be necessary to carry out the intent of this Agreement.

 

(p)                               Counterparts. This Agreement may be executed in counterparts, each such counterpart shall be deemed to be an original instrument, and all of which together shall for all purposes constitute one Agreement, binding on each of the parties hereto notwithstanding that each such party shall not have signed the same counterpart. A signature of any party to this Agreement transmitted by facsimile, electronic mail (including pdf) or other electronic means shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.

 

(q)                               Applicable Law. This Agreement shall be construed and enforced in accordance with the laws of The State of Delaware, without regard to its principles of conflicts of laws. All litigation arising from or relating to this Agreement shall be filed and prosecuted before any court of competent subject matter jurisdiction located in The State of Delaware. The Stockholder consents to service of process in any such action by certified or registered mail, return receipt requested. The Stockholder consents to the jurisdiction of such courts over the Stockholder, stipulates to the convenience, efficiency and fairness of proceeding in such courts, and covenants not to allege or assert the inconvenience, inefficiency or unfairness of proceeding in such courts.

 

(r)                                  Disposition of Shares; Purchase by Nominee or Designee. Any Shares that the Company elects to purchase hereunder may be disposed of by it in such manner as it deems appropriate with or without restrictions on the transfer thereof, and the Company may require their transfer to a nominee or designee as part of any purchase of Shares from the Stockholder.

 

(s)                                 Withholding Taxes. The Stockholder agrees that the Stockholder shall be fully liable for any taxes owed by the Stockholder with regard to the issuance of the Shares, whether owed at the time of issuance or at the time that the Shares vest pursuant to the vesting schedule set forth above. The Stockholder acknowledges and agrees that the Company has the right to deduct from payments of any kind otherwise due to the Stockholder any federal, state or local taxes of any kind required by law to be withheld with respect to the issuance, vesting or otherwise as a

 

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result of the ownership of the Shares by the Stockholder. The Stockholder further agrees that, if the Company does not withhold an amount sufficient to satisfy the withholding obligation of the Company with respect to the issuance of the Shares, the Stockholder will make reimbursement on demand, in cash, for the amount underwithheld, provided that the Company has provided the Stockholder with written detail concerning the basis for and amount of the withholding obligation of the Company.

 

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STOCK POWER

 

FOR VALUE RECEIVED, [   ], hereby assigns and transfers to Morphic Holding, Inc., a Delaware corporation (the “Company”), a total of [   ] shares of the Common Stock of the Company standing in the name of the stockholder named above on the books of the Company represented by stock certificate number to be delivered herewith, and does hereby irrevocably constitute and appoint Foley Hoag LLP as attorney to transfer said shares on the books of the Company with full power of substitution in the premises.

 

	
Dated:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Name
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
In the Presence of:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
/s/ Robert E. Farrell, Jr.
    	
 
    	
 
    
	
Name: Robert E.   Farrell, Jr.
    	
 
    	
 
    

 

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